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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Kuliarchar Sweater Industries Ltd v Frans Maas (UK) Ltd [2000] EWHC 194 (Comm) (04 April 2000) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2000/194.html Cite as: [2000] EWHC 194 (Comm) |
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Case No: 1999 Folio 323
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 4th April 2000
| (1) KULIARCHAR SWEATER INDUSTRIES LIMITED (2) AMENA FASHIONS (PVT) LIMITED |
Claimants |
|
| - v - | ||
| FRANS MAAS (UK) LIMITED | Defendant |
The Hon. Mr Justice Langley
COPIES OF THIS JUDGMENT ARE AVAILABLE IN WORD 6 for WINDOWS 3.1 ON PROVISION OF A CLEAN DISC. APPLY TO THE CLERK TO THE HONOURABLE MR JUSTICE LANGLEY Telephone 0171-936-6395
Mr Justice Langley:
At the commencement of the trial of these proceedings both liability and quantum were very much in issue. After completion of the evidence on behalf of the Claimants the Defendants conceded liability. That was no surprise at the time, if there was reason for surprise it was that the concession had not come earlier. Quantum issues remain. To put them in context I need first to explain how the claim comes about.
There were originally seven Claimant companies. Each was in business in Bangladesh as manufacturers of ladies knitwear. Each acted in the matters in issue through an agent, a Bangladeshi company called Sung Kwang International Company Ltd (SK), and in particular the founder of SK, Min-Yong Yang, who gave evidence at the trial. Mr Yang was also a director of and beneficially interested in one of the two remaining Claimant companies to which I shall refer as Kuliarchar. The second remaining Claimant I will refer to as Amena. The claims of the other five Claimant companies were settled before this trial began.
Palmier PLC was an English company in business as wholesalers of clothing in the United Kingdom. In 1998 (and before then) Palmier purchased substantial quantities of clothing from all the Claimant companies on F.O.B. Bangladesh terms for shipment from Bangladesh to England payment to be made to the Claimants' bank against letters of credit.
The sales were effected through Kay Ess Dee Industries Limited (KSD) a Hong Kong company which acted as Palmier's buying agent, and which opened the letters of credit in favour of the Claimants. The carriers of the consignments of clothing (in containers) were Atlantic Ocean Line (Atlantic). The Claimants received bills of lading from Atlantic. The bills named the particular Claimant as shipper, the notify party as Palmier and the consignees as to the order of Sonali bank, the Claimants' Bangladeshi bank and the national bank of Bangladesh. The Defendant (FM) was named as the "destination agent". FM is an international freight forwarder.
The sea transit took about 4-6 weeks. On arrival at Southampton Atlantic transferred possession of the consignments to FM. FM arranged for the onward transportation of the containers to a bonded warehouse at Shipdham in Norfolk. The containers were unloaded there. On release of the goods from bond FM would levy charges on Palmier for the transportation and storage, and import duty (if the goods were for sale in the United Kingdom) also became payable. FM itself paid the duty (and VAT) in the first instance. The rate of duty was approximately 13%. VAT was chargeable at 17.5%.
The shipments the subject of Kuliarchar's and Amena's claims were mainly made in August 1998 with a few in late July and some in September. For particular reasons which are not material, but were the consequence of Palmier's failure to make payments for the relevant consignments, the documents for these shipments were rejected by the bank which had issued the letters of credit and the relevant bills of lading were therefore held to the Claimants' order and never reached Palmier or FM. Nonetheless and pursuant to express agreements made between Atlantic, KSD, Palmier and FM and later, when the value limit of that agreement proved inadequate, between KSD, Palmier and FM alone, the goods (or the great majority of them) were released from the warehouse to Palmier by FM without production of the bills.
FM's motives for this conduct are apparent and were established by the evidence of Mr Ranjit Singh, the former company secretary of Palmier. I should record that I accept entirely and without hesitation, fully supported as it was by the documents, the evidence of both Mr Yang and Mr Singh. Both were intelligent, straightforward and plainly truthful witnesses. Both were extensively cross-examined.
In about February 1998 FM had discovered that they had failed to bill Palmier in a timely manner for customs clearance and other costs arising from earlier consignments to an amount which FM claimed to be of about £2.5m. FM sought immediate payment of this sum from Palmier. Mr Singh understandably said this had a catastrophic effect on Palmier. By May 1998 FM were claiming that the debt had increased to £3.5m. FM purported to exercise a lien over the goods it then held and in June 1998 Palmier agreed an exacting schedule of repayments, including interest, which could not possibly be met unless current goods were released and sold without Palmier paying the Claimants for them and so without presenting the bills of lading. Hence the agreements to release them nonetheless. Moreover FM also exacted a fee of £50,000 from Palmier for running the risks of releasing the goods. The consequence was that whilst by early December 1998 FM had been substantially repaid (including the fee) in accordance with the schedule the Claimant companies (or the bank) were not paid for most of the consignments which Palmier had on-sold to pay FM. The total sum claimed by the seven companies in these proceedings exceeded US$ 2m and the total sum claimed by various parties (including the seven companies) exceeded US $8.5m. The original FOB value of the consignments which are the subject of Kuliarchar's and Amena's claims is some $468,000 (Kuliarchar $387,954.52 and Amena $80,271.36). Of the goods which make up these claims all were released by FM to Palmier without the production of bills of lading save, in the case of Kuliarchar, goods to the value of £17,338.61, and in the case of Amena goods to the value of £201.80, which were retained at the warehouse. Even the retained goods, however, formed only a part of the goods the subject of particular bills of lading in respect of which the majority of the goods were released.
Mr Singh's unchallenged evidence was that the Claimants' goods which were released were released almost immediately (within 48 hours) after arrival at the bonded warehouse, and that Palmier had sold and was able to sell all the goods (not just those released but those retained and discounted as well) at very profitable prices ( a gross profit margin of 20 to 30%). Indeed the season was the best ever for Palmier in terms of sales. The proceeds of the sales were used to pay FM and to service supplier accounts as and when and as best for Palmier as they could be. Mr Yang said payments continued to be made to suppliers until early October but the debts were mounting.
In the course of the Autumn, Mr Yang had been prevailed upon by Palmier to agree some discounts in the FOB order prices for the goods. The claims (or more demands) for discounts were based on assertions (probably justified) of late shipments. Mr Yang said this was unprecedented (such delays had been accepted in previous years) and unfair but acknowledged he had agreed to them. Mr Singh expressed the Palmier perspective on the discounts to be that as Palmier was being squeezed by FM so Palmier squeezed its suppliers. Both Mr Yang and Mr Singh agreed and I accept that whatever discounts were agreed were not to affect the obligation of Palmier to pay the FOB price originally agreed (changing the documentation, including export, foreign exchange and bank documents at such a late stage was not possible or at least practicable) but simply represented an amount which would be taken into consideration and adjusted against the following season's purchases.
The level of the agreed discounts, in percentage terms of the value of the particular style of garment involved, was between 18 and 34%. In total, however, they amount in the case of Kuliarchar to only $21,545.28 and in the case of Amena to $17, 487.36.
The freight charges for the carriage of the relevant consignments from Bangladesh to England were paid by KSD. In total they amounted to $24, 750.58 (Kuliarchar) and $5, 188.77 (Amena).
On December 3, 1998 Receivers were appointed to Palmier. Mr Singh said there had been a realisation that Palmier could not trade out of its difficulties. He said, and I accept, the major cause was that, in ignorance of the level of exposure to FM, Palmier had placed extensive orders for goods which it believed it could afford, but when the FM claim emerged (and the terms of repayment were or had to be agreed) it eventually became impossible to keep the company afloat despite the record sales it was achieving. The eventual deficit was some £7m.
Both Mr Yang and Mr Singh said that the autumn/winter range of clothing, as this was, albeit fashions are seasonal and change from year to year, is still sold until February. Mr Yang also said that he knew a number of other buyers in the United Kingdom which would have been interested in the goods.
The claims against FM were put in conversion, breach of bailment and negligence. FM converted the goods at the latest when they permitted them to be delivered to Palmier without production of the original bills of lading. That, it is agreed, took place in the months of September, October and November 1998. FM were aware of the existence and the terms of the bills of lading and so aware, or at the very least ought to have been aware, not only of the existence of the Claimants but also of the interest of the bank.
Following the receivership of Palmier, FM claimed a general lien over all the remaining goods which had not been released. That included a considerable quantity of the previous year's spring/summer stock (with an FOB price of some £3-4m) which had remained unsold, but for which FM had the original bills of lading as the suppliers had been paid, and also the retained goods belonging to these and other Claimants. These goods were eventually sold by FM. In general terms the prices achieved were of the order of 40% to 50% of the FOB invoice value. The sales were in May 1999 (largely the old stock) and November/ December 1999 (the retained stock).
FM called evidence from a Mr Thomas, an Associate at Weatherall Green & Smith, with 8 years experience in the valuation of plant, including some experience of valuing clothing, in the context of receiverships and liquidations. I mean no disrespect to Mr Thomas (who gave his evidence in a proper and professional manner) if I say that his evidence in the event was of limited relevance and substantially a matter of commonsense rather than expertise. That was because he was instructed to value the clothing on the basis that FM was not arguing that the goods were not worth the amounts shown on the FOB invoices at the time of the sales to Palmier but that the issue was "what they were worth following the receivership on the 3rd December 1998 and in particular what Kuliarchar and Amena could have obtained for them if they had been able to recover possession" of them on December 22, the date when a request for their release had been made. Mr Thomas' opinion in his report was that the open market value of the goods on December 22 after allowing 6 weeks for sales was 70% of the FOB invoice value if the sales infrastructure was still in place but for a removal or fire sale it would be no more than 20%. It should be noted that these opinions were not put to either Mr Yang or Mr Singh in cross-examination.
As will be seen from my consideration of the law below, the instructions to Mr Thomas sought a valuation on a wrong basis. The time for valuation is the time of conversion. That was September to November 1998. For seasonal stock it is agreed that timing is important. It is also not in dispute that the existence and knowledge of established on-sales by and access to the sales infrastructure of Palmier would increase the value of the goods.
In cross-examination, Mr Thomas suggested that the fact that FM had itself achieved sales at a much later date at 40% to 50% of the FOB invoice value may have been because FM had access to Palmier's customer lists (although there is no evidence that sales were made to such customers). In any event the value of the goods has to be considered, as Mr Bear acknowledged, on the basis that Palmier's customers would not have received (but wanted) the goods which of course was not the case at the time of FM's sales. Mr Thomas also agreed that granted access to Palmier's customer list, that those customers wanted the goods, and that the goods sold well then his figure of 70% would be 70% of the price those customers would otherwise have paid to Palmier. As a matter of arithmetic, if Palmier's profit margin was 30%, 70% of the price to customers would be 91% of the FOB price (without allowing for costs other than costs of sales).
Mr Priday submits that the Claimants are entitled to damages in the amount of the value of the goods at the time and place when and where they were converted by FM, namely in and between September and November 1998, or (as consequential loss) to the original FOB price payable by Palmier if that is greater than the value so derived. He also submits that the Claimants are entitled to interest on the damages either as damages or under Section 35A of the Supreme Court Act, 1981, in either case at the rate of 16% which is said to be the rate in fact charged by Sonali Bank to Kuliarchar and Amena for the dollar amounts the subject of the letters of credit and FOB invoices which were not paid. As to value, Mr Priday submits that the appropriate value is the FOB value ignoring the discounts but adding the cost of freight and duty because at the time of conversion freight had been paid by KSD and duty was payable immediately on release of the goods from bond.
Mr Bear submits that the starting point for damages is that the Claimants are entitled to be put into the position in which they would have been had the tort not been committed. That, he submits, is the price they would have been able to obtain for the goods had they had to sell them to someone other than Palmier because Palmier would not have been able to buy them. That price would be considerably less than the FOB price because the sales would be on a distress basis, made late in the season, and discounts had already been agreed for late shipments. The retained goods would realise even less. In his closing submissions Mr Bear suggested that about 60% of the FOB price was a realistic figure. The claim for interest as damages Mr Bear submits has not been properly established in evidence and is too remote and the claim under Section 35A should be limited to a rate of interest such as is normally awarded in this court.
Counsel are agreed that the appropriate starting date for any award of interest is December 1, 1998 and that the appropriate currency for any judgment is US dollars.
Whilst there can be no doubt that the general rule in tort is that damages are awarded on the basis that the Claimant is entitled to be put into the position in which he would have been had the tort not been committed, equally it is well established that the measure of damages in conversion is prima facie the value of the goods at the time and place of the wrongful dealing with them: McGregor on Damages (16th Ed) paras 1379-1384. If there is a market value then that value will be taken. If there is not (at least in the case of a Claimant buyer) replacement value may be appropriate. The courts have also been astute to ensure that defendants do not obtain what might be thought of as windfalls where the value of the goods has fallen after the time of conversion (See:Solloway v McLaughlin [1938] AC 247) or where the claimant has only a limited interest in them (The Jag Shakti [1986] AC 337). It is also well established that, provided they are not too remote, consequential damages are recoverable for conversion : Hillsden Securities Ltd v Ryjack Ltd [1983] 1 WLR 959. Indeed it may be that some of the authorities do not seek to distinguish between the measure of damage and consequential loss.
At the time the goods were converted in September/November 1998 the best evidence of value in my judgment remains the evidence of the prices at which the goods were in fact and could be sold. They were saleable at a considerable profit by a wholesaler such as Palmier and were therefore worth at least the FOB price agreed by Palmier (discounted or not) to such a wholesaler.
As with any goods for which (even assuming that would have been the case) a "new" wholesale buyer would have had to be found such a buyer might have a strong bargaining position on price. Equally it would be in the interest of any seller and those interested in the goods or their proceeds to achieve the best price possible,and I see no reason not to assume that access to Palmier's customer base and advance sales would not have been available to the Claimants or another wholesaler to which they might have sold the goods. Indeed I see every reason why they should have been in the interests of Palmier and its creditors as much as in the interests of the Claimants. The documentary evidence is that some 70% of the goods were sold by Palmier to only 4 customers and almost 90% to 17 customers, and on the hypothesis that Palmier could not complete the orders those customers would probably both have wanted and needed the goods.
I do not think it of more than minor significance that sales in fact made a long time later achieved levels of only 40-50% of the FOB price. Indeed that fact is some small indication of the underlying value of the (or most of the) goods even after the season for which they were intended and when they had not been sold in advance.
On this basis I have no doubt that the goods, including the retained goods, were worth at least their original FOB invoice value before discounts. The discounts would in fact never have been credited as Palmier would have had no orders for the next season. In any event the "credit" was a matter for negotiation, was in total not a very significant sum, and it was agreed without reference to the value of the goods or their on-sale prices.
The goods would, I think, as a matter of fact have been freight paid but duty and VAT unpaid at the time of conversion and so should be valued on that basis. Palmier's profit margin of 20-30% assumed duty had been paid and if there had been no conversion the goods would have remained in the bonded warehouse. The cost of freight in a sense would inure as a bonus to the Claimants as KSD had paid it at the time of conversion but again the sums involved are not very significant and the fact of their payment would not be likely to have much impact on the value of the goods.
Balancing all these factors in my judgment results in a fair and reasonable valuation at the level of the original invoice valuation. It also has the merit of representing the price which the Claimants would have been paid for the goods had their contracts with Palmier been honoured, and of recognising that in fact FM obtained the benefit from Palmier's on-sales at the much higher prices in fact achieved.
Indeed, in my judgment, even if the issue is approached simply by way of putting the Claimants into the position in which they would have been but for the unlawful release of their goods or by way of a claim for consequential loss the answer is the same.
Mr Singh was quite clear that Palmier would have paid for the goods to realise the on-sales had it had no option but to do so. Mr Bear questioned where the resources to make such a payment would have been found. But if FM had not released the goods or, as it should, only have released them against production of the bills of lading, I think it must be probable that the Claimants would have been paid and the goods properly released to achieve the profits which it would have been in everyone's interests should be realised. Mr Bear submitted that FM had a lien on the goods. I think that is, at the least, very doubtful in law (FM had no contractual relationship with the Claimants and insofar as it was owed money on the goods it was due only from Palmier) and it is also improbable that FM would in any event have sought to exercise it and face claims from the Claimants and the collapse of Palmier. FM did have a lien against Palmier for the £3-4m worth of earlier season's goods still unsold but did not choose to exercise it until after December 3.
For much the same reasons, FM must, or at least should, have appreciated that if they did permit the unlawful release of the goods the consequence would be that the Claimants would not be paid for them. Indeed in a real sense that was the purpose of the release of the goods. As I have already said, FM knew or at the very least should have known that there were suppliers and of the interest of the bank. The loss by the Claimants of the price payable was therefore the probable and foreseeable consequence of FM's conduct.
I would add that I see no reason to differentiate in these conclusions between the goods released in September/November 1998 and those retained and still in the warehouse on December 3. In fact, as they formed part of consignments which were unlawfully released, I think the relevant act of conversion also occurred in September/November 1998 and in any event all would have had to be paid for to obtain the relevant bills of lading and so the lawful release of those which were released. Mr Bear submitted that at least in instances (of which there were two) where the retained goods formed a substantial part of the total goods the subject of a given bill, FM and Palmier, had they been acting properly, would not have released any of the goods as it would not have been a financially sound prospect to pay for all of them without the prospect of immediate on-sales. There is no evidence to support such a submission and in reality I think the position was that the goods were released simply as and when Palmier required them to meet deliveries for on-sales, and it does not follow from the fact the goods were retained at December 3 either that they had not been on-sold or that they could not be. Indeed, on the evidence, they were saleable at the same prices as the released goods.
In my judgment therefore the Claimants are each entitled to judgment in the amount of their respective FOB invoices to Palmier for all the goods which FM converted and which are the subject of the claims.
The Facts.
The evidence about the Claimants' exposure to interest is, as Mr Bear submitted, somewhat sketchy.
In his witness statement (paragraph 77) Mr Yang said that the Claimants incurred overdraft interest at a rate of 16%. He attached to his statement as "evidence" two documents. The first was a letter dated January 25, 2000 from Sonali bank to Kuliarchar referring to "outstanding interest for US $ 85,389.71 up to end of Jan 2000" which set out invoice and bill of exchange numbers, starting dates for interest (in August and September 1998) and a principal and interest amount. Although no rate is stated no one has suggested it was other than 16%. There is no direct evidence that the amount of the Bills of Exchange was in fact advanced to Kuliarchar or if it was in what currency, but the probability from the fact of interest charges, and the bills of lading being held to the bank's order as well as Mr Yang's evidence is that advances were made. A substantially similar "certificate" from Sonali Bank dated January 26, 2000 was attached in relation to Amena giving a principal amount of two Bills of Exchange of $80,271.36 and an interest amount of $19,799.82. it is not entirely clear from what starting date interest has been calculated but it seems to be the end of July and beginning of August 1998. Mr Yang's evidence was not challenged.
Despite objection from Mr Bear, in the course of closing submissions, I allowed Mr Priday to produce a further letter from Sonali Bank dated March 15, 2000. I also gave FM the opportunity to respond to the letter before I prepared my reserved judgment if FM had evidence to suggest that rates of interest for borrowing US dollars in Bangladesh were other than suggested by Sonali Bank. In the event no response was received within the time FM had asked to be allowed for that purpose.
The letter states that Sonali Bank had calculated interest from 21 days from "the date of documents negotiation," that 16% was a flat rate used in cases of export negotiation documents since 1997 and imposed on all their customers although other Bangladeshi banks could apply their own rates, and that all import and export business is calculated in US dollars.
INTEREST AS DAMAGES
The claims are claims for damages for tortious conduct. Whilst the loss suffered is in my judgment the FOB price agreed between the Claimants and Palmier that is not recoverable either as damages for breach of contract or against a contracting party. The history of Section 35A and its statutory predecessors suggest that interest could not otherwise be awarded at common law for the misappropriation of chattels: McGregor, para 637. Whilst it would be right to acknowledge that claims for interest as damages, even in tort, may now be looked upon with more favour, even if it were permissible to apply the general tests of foreseability and proof (which I do not think it is) I do not think the Claimants have established that any specific loss of interest was reasonably foreseeable by FM to be the probable or likely consequence of their conduct. That money might be borrowed by the Claimants as with any other commercial operation, and that the contracts might be financed by the bank might be expected but, on the evidence, no more than that. I am not therefore persuaded that the Claimants are entitled to an award of interest as damages.
SECTION 35A
There can be no doubt, nor is it disputed, that on the general basis that the Claimants are entitled to be compensated for being kept out of the money it has now been determined they were entitled to be paid they are entitled to interest on the damages awarded to them from the agreed date of December 1, 1998 under Section 35A.
Mr Priday submits that where the damages represent and, in the case of consequential loss, are sums which should and would, but for the conduct of FM, have been paid in US dollars in Bangladesh to the Claimants' bank then the appropriate rate of interest is the rate for borrowing US dollars in Bangladesh, which, he submits, is the 16% in fact charged by Sonali Bank. Mr Bear submits that there is no reason to depart from the usual award in this court where damages are recovered in dollars namely an award at US Prime rate perhaps with a percentage addition. He points out that the damages are recoverable for the commission of a tort in England and represent the value of the goods when they were converted in England on release to Palmier.
The principle of the Act is that awards of interest are to be made on the basis of a rate applicable to claimants in general without regard to particular characteristics of the particular claimant, save perhaps to the limited extent of considering the general attributes of the claimant as a prime or perhaps less than prime risk when deciding within narrow limits between the possible rates which could be awarded: McGregor, para 675. However, that awards of interest may reflect the rates of interest at which such a claimant could reasonably have borrowed the currency of judgment at the place of contractual payment is established by a number of first instance authorities:
Nischina Trading Co. v Chiyoda Fire [1968] 1 WLR 1325 (Donaldson J : claim by Japanese insured for a declaration that insurers liable to reimburse them for certain expenses: "in relation to a Japanese policy, providing for the payment of claims in Tokyo, I should have regard to the equivalent (of base rate plus 1%) interest rates in Japan").
Miliangos v George Frank (Textiles) (No 2) :[1977] 1 QB 489 (Bristow J: claim by Swiss seller against English buyer for contractual sums due in Swiss Francs; interest awarded at the rate Swiss Francs could reasonably have been borrowed in Switzerland with indication that the parties should be ready with evidence to establish the appropriate rate); and
Helmsing Schiffahrts v Malta Drydocks Corporation [1977] 2 LL R 444 (Kerr J: claim by German shipowners in contract for repayment of a sum paid to Maltese shipbuilders in Maltese pounds; judgment in Maltese pounds but interest rate based on German commercial borrowing rates).
In each of these cases the claim was in contract for payment of a sum payable under the contract expressed in a foreign currency. That is not this case. Nonetheless in my judgment, and in what is ultimately a matter of discretion, in a case such as this in which the damages are or represent a price for goods which was payable in dollars to the buyer's bank in Bangladesh and that was or at least ought to have been known to the defendant which has been held to have converted the goods and so deprived the buyers of that price, it is both fair and reasonable to award interest on the damages at the rate at which dollars could be borrowed in Bangladesh. I think such an award accords with the principle that the rate is intended to reflect the cost to the claimant of being kept out of the money to which it has been held he was entitled and does not take into account any special circumstances applicable to the particular claimant but rather the general cost of borrowing dollars in Bangladesh, the place where the Claimants had their business and were to be paid in dollars.
I am also satisfied on the evidence now before the court and the lack of response to it, that the relevant rate is 16%. That is, of course, a high rate but that itself is the consequence of the significance of a hard currency such as the dollar in Bangladesh.
I should perhaps add that had I not thought the 16% rate to be appropriate I would have ordered interest at American Prime rate plus 1%. American Prime rate as such is available only to the most creditworthy of borrowers which, on the evidence, is a description which neither of the Claimants would fit.
As it is interest will be awarded at 16% from December 1, 1998.
There will therefore be judgment :
(1) for Kuliarchar in the sum of US $387,954.52 with interest at 16% from December 1, 1998.
(2) for Amena in the sum of US $80,271.36 with interest at 16% from December 1, 1998.
