Bulkhaul Ltd v Rhodia Organique Fine Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Smith,Lord Justice Keene,Lord Justice Sedley |
| Judgment Date | 18 December 2008 |
| Neutral Citation | [2008] EWCA Civ 1452 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 December 2008 |
| Docket Number | Case No: A3/2008/0790 |
[2008] EWCA Civ 1452
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LEEDS MERCANTILE COURT
HH JUDGE BEHRENS
5M006000
Lord Justice Sedley
Lord Justice Keene and
Lady Justice Smith
Case No: A3/2008/0790
Mr Richard Millett QC (instructed by Messrs Addlestone Keane) for the Appellant
Mr Paul McGrath (instructed by Messrs Burges Salmon) for the Respondent
Hearing date : 11 December 2008
Judgement
This is an appeal against the order of HH Judge Behrens made in March 2008 in the Leeds Mercantile Court. For the breach of a contract of lease and hire, the judge awarded the claimant, Bulkhaul Ltd damages of £161,158. Bulkhaul is dissatisfied with that award and appeals, with permission of Rix LJ.
The appellant, Bulkhaul, is a large multinational tank transport company. It owns a fleet of about 12,000 tanks used for transporting chemicals. The respondent Rhodia Organique Fine Limited (Rhodia) is part of a large multinational organisation carrying on business as manufacturers of specialty chemicals. In March 1999, the parties agreed that Bulkhaul would lease to Rhodia 18 bespoke tanks for the transport of two highly corrosive chemicals, both forms of hydrofluoric acid (HF). The agreement was to run for ten years at a rent of £18.50 per tank per day. In October 2004, when the contract had run about half its course, Rhodia purported to terminate it. In December 2004, Bulkhaul accepted the repudiation.
Bulkhaul began proceedings in June 2005. The main part of its claim was for damages for the whole of the unpaid rentals up to March 2009. A defence was filed but summary judgment was entered on liability in March 2006.
On the assessment of damages, two main issues arose. First, Rhodia contended that certain sums fell to be deducted from the rental as expenses which Bulkhaul would have incurred had the agreement run its course but which would now not be incurred. The judge resolved those issues and his decision is not the subject of appeal. The other main issue was whether Bulkhaul had taken reasonable steps to mitigate its loss. It is that issue which gives rise to this appeal. Rhodia contended that Bulkhaul had not taken reasonable steps to mitigate its loss. The judge held that Bulkhaul, who had no remaining use for these tanks once this contract had ended, should have mitigated its loss by selling them. He considered that, if it had made reasonable efforts, it could have sold the tanks for £20,000 each within 3 years of the termination of the agreement. As it was, Bulkhaul had retained the tanks but they had a realisable residual value for which Bulkhaul would have to give credit. He held that the residual value was £20,000; he estimated that if the tanks were to be sold the costs of sale would be £2000 per tank so he deducted £324,000 (18 X £18,000) from Bulkhaul's claim.
Bulkhaul appeals contending that there was no satisfactory evidential basis to support the judge's conclusions as to an available market for the tanks or as to the price the tanks would fetch on that market. Rhodia contends that the judge's findings were open to him on the evidence.
In order to consider those contentions, it is necessary to set out the history of events particularly those after Rhodia's decision to repudiate the hire agreement. This is taken from the judgment which is accepted as accurate. Before dealing with the history, it is necessary to note that the judge accepted Bulkhaul's contention that it was not in the business of selling tanks. Its business was that of leasing tanks. Although it was a large business, none of its regular customers produced HF. The bespoke tanks could not readily be hired out as part of its fleet. Moreover they could not be sold for any purpose other than the transport of HF.
The tanks when new in 1999 cost Bulkhaul £25,000 each. They were manufactured from mild steel. They had an expected working life of 10 years, subject to proper maintenance. Because of the corrosive nature of the HF, the tanks would have no residual value (except as scrap) if used for 10 years.
At some time in 2004, Rhodia decided to wind down its production of HF and, as a result, would have limited need for the tanks. They wished to withdraw from the contract with Bulkhaul. They discovered that one of their customers, Lanxess, might be interested in buying the tanks. It appears that Bulkhaul was made aware of the fact that Rhodia was seeking a way out and knew of a potential buyer because, in July 2004, there was an exchange of emails between two Bulkhaul employees in which the company's attitude to selling the tanks was discussed. These show that Mr Gibson, Bulkhaul's chairman, did not wish to sell them. The price of steel had risen and the tanks were not considered to be a depreciating asset. However, Bulkhaul would be prepared to sell the tanks at £27,000 each in their current condition.
In September 2004, a representative of Lanxess inspected the tanks and made an offer to buy the tanks for 30,000 euros each. On 21 st September, Mr Merfield of Rhodia indicated to Bulkhaul that it knew of a potential buyer (which he did not identify) who would be prepared to buy the tanks for £20,000 but that that was the maximum that would be paid. Bulkhaul refused that offer and proposed two options. Either the contract continued for the full term of 10 years or it could be terminated if Rhodia or a third party purchased the tanks for £27,000 each. It is important to realise that, at that time, the parties were not in agreement as to the terms of the hire agreement. Bulkhaul was contending that the agreement ran for a fixed term of 10 years; Rhodia was contending that it was terminable on reasonable notice. The proposed sale to Lanxess was to be on the basis that payment for the tanks would be in full and final settlement of any claim Bulkhaul would have against Rhodia for breach of contract.
On 14 October 2004, there were further discussions when the third party offer to buy at £20,000 per tank was repeated and refused. Bulkhaul offered to sell at £26,000. That was not accepted and it appears that at this time Rhodia and/or Lanxess thought that the price was too high.
On 19 October 2004, Rhodia terminated the hire contract with effect from 1 November. Two days later, Lanxess increased its offer to purchase the tanks to £21,000 but this was still refused. Bulkhaul accepted the termination as a repudiatory breach on 21 December 2004.
It appears that, at some time in the first quarter of 2005, Lanxess bought some tanks from elsewhere and were no longer interested in buying from Bulkhaul.
In evidence, Mr Gibson explained his reasons for refusing Lanxess's offer. He said first that Bulkhaul did not know the company who was making the offer and, as HF is a very dangerous substance, it was reluctant to sell to an unknown purchaser 'in case there were repercussions'. Also, as the offer to purchase was in full and final satisfaction of any claim arising out of the hire agreement, he considered that Bulkhaul would be losing about £240,000 if it accepted. Finally, he said that Bulkhaul suspected that Rhodia would make a secret profit out of the deal.
By July 2005, proceedings had begun. Rhodia discovered another potential buyer in Thailand and communicated the interest to Bulkhaul. This came to nothing and no offer to purchase was ever made.
In August 2005, Rhodia put Bulkhaul in touch with a Spanish company who might be interested in hiring the tanks for 6 months. Mr Gibson told the judge that this was hopelessly uneconomic as the cost of transporting the tanks to Spain was prohibitive for so short a hire contract. The judge accepted that.
On 15 September 2005, Bulkhaul offered to sell the tanks to Rhodia for £20,000 each. The offer was couched in terms which made it clear that it was an attempt to reduce Bulkhaul's claim against Rhodia. There was no reply until 29 September. When it came it was only a holding reply. By letter dated the same day, Bulkhaul wrote withdrawing its offer to sell. Bulkhaul's explanation for the withdrawal was that it was considering leasing the tanks. It is not clear from the judgment whether Bulkhaul had some third party lessee in mind or whether it had in mind leasing to Rhodia. In October 2005, Bulkhaul proposed terms of settlement whereby Rhodia would pay the full rental value but would receive a five year lease of the tanks under which it could use or sublet the tanks on the best terms it could achieve. That offer was refused.
It appears that no further attempt was made to sell the tanks until, in August 2007, Rhodia passed information to Bulkhaul about a potential purchaser in the Argentine. At this time, the trial of the action was approaching. When he gave evidence on the first day of the hearing, 17 September 2007, Mr Gibson claimed that he had been in touch with the Argentine company inviting it to view the tanks. At the end of that day, the hearing was adjourned for several weeks. The next day, Rhodia contacted the Argentine company to make enquiries as to whether Bulkhaul had issued such an invitation. It later received an email from the Argentine company to the effect that Bulkhaul had not been in touch. Rhodia's solicitors then asked Bulkhaul for details of how the Argentine company had been contacted. Bulkhaul did not reply to that letter; nor did it adduce any evidence at the adjourned hearing to confirm Mr Gibson's claim or to show that it had since been...
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