BV Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises, Inc.
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 24 July 2018 |
| Neutral Citation | [2018] EWHC 1857 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2016-000186 |
| Date | 24 July 2018 |
[2018] EWHC 1857 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Mr. Justice Teare
Case No: CL-2016-000186
Guy Morpuss QC and Theo Barclay (instructed by MacFarlanes (UK) LLP) for the Claimant
Nigel Tozzi QC and Simon Goldstone (instructed by Squire Patton Boggs LLP) for the Defendant
Hearing dates: 18–20, 22, 25 and 27 June 2018
Judgment Approved
In April 2015 the United States was struck by an epidemic of avian flu which led to the slaughter of millions of birds. The Defendant, Rembrandt Enterprises, Inc. a US supplier of egg based products, (“Rembrandt”), needed new supplies of dried egg product and looked to the Claimant, BV Nederlandse Industrie van Eiprodukten, a supplier of egg products in the Netherlands, (“NIVE”), to supply them. A contract was agreed in May 2015. It was conditional upon the approval by US regulatory authorities of the procedures in the Netherlands for regulatory supervision of the egg business. That approval was given on 1 June 2015. The price was renegotiated in June 2015. However, the market price of eggs, which had risen dramatically in the US, fell equally dramatically. In addition, NIVE had difficulty in supplying the required egg product. There were those within Rembrandt who formed the view that the price it had agreed to pay was not as attractive as it had been thought to be. Following an audit of NIVE's production processes in January 2016 Rembrandt formed the view that they did not comply with US regulations and in January 2016 Rembrandt rejected NIVE's egg products. NIVE claims damages in the sum of some €19 million for breach of the contract, being the profit it expected to make on the egg product supplied under the contract. Rembrandt denies liability and has two defences to the claim brought by NIVE. The first is an allegation that when the price was renegotiated in June 2015 NIVE fraudulently misrepresented the costs of complying with the inspection procedures required by the US regulatory authorities. The second is an allegation that NIVE's inspection procedures were such that NIVE was in breach of one or more warranties it had given to Rembrandt. In addition Rembrandt counterclaims some €4.7 million in respect of the price paid for such deliveries as were made less the sums obtained on resale of such deliveries plus certain expenses incurred in connection with them.
Chronologically the first events to recount are the steps taken by the US regulatory authorities to inspect and approve the regulatory procedures in the Netherlands. They commenced in about 2013, long before the outbreak of avian flu in April 2015. I shall recount the facts and deal with the issues which arise in the following paragraphs of this judgment.
Approval of inspection procedures in the Netherlands by the US
| Approval of inspection procedures | 3–36 |
| The contract and the renegotiated price | 37–64 |
| Subsequent events | 65–73 |
| Fraudulent misrepresentation | 74–114 |
| Breach of warranty | 115–134 |
| Rescission | 135–145 |
| NIVE's damages | 146–166 |
| NIVE's invoice claims | 167 |
| Rembrandt's damages | 168 |
| Conclusion | 169–172 |
US law, in particular the Egg Products Inspection Act 1970 (“EPIA”), requires the processes by which egg product is produced to be subject to “continuous inspection”; see section 1034. At the material time “continuous inspection” was understood to require that a government inspector inspected the entire process by which egg product was produced. The sale of egg products which had not been so inspected was a criminal offence. EPIA further provided, by section 1046, that egg products could not be imported into the US “unless they were processed under an approved continuous inspection system of the government of a foreign country of origin or subdivision thereof ………and otherwise comply with the standards of this chapter and regulations issued thereunder applicable to such articles within the United States.” That was the context in which discussions took place between the US and the Netherlands authorities.
There is no dispute that on 1 June 2015 the US authorities formally approved the inspection procedures in the Netherlands. There is however a dispute as to precisely what procedures were approved and whether that approval was conditional upon the inspection procedures in the Netherlands providing for “continuous inspection” in the same way as that was required in the US. In order to resolve that dispute it is necessary to give an account of the discussions between the US and Netherlands authorities. The court must do that without the benefit of any evidence from the US or Netherlands authorities. Neither party to these proceedings has been able to adduce any. The parties do however have certain documents which passed between the authorities but they may not have all such documents. The court will have to consider not only the documents to which the parties have access but also the probabilities. This is a matter upon which factual and expert witnesses have expressed an opinion but it is a question of fact for the court to determine.
The Netherlands authorities submitted information about their inspection procedures by means of a Self Reporting Tool (an “SRT”) in August 2013. They were asked whether there were daily inspections and replied that such was not the common practice but could be implemented.
On 12 March 2014 the Chief Veterinary Officer of the Netherlands wrote to the US Department of Agriculture and Food Safety and Inspection Service (“USDA/FSIS”) giving certain “requested information on presence of the competent authority at establishments producing for the United States of America” The information given was as follows:
“The Netherlands Food and Consumer Product Safety Authority (NVWA) will be present at all facilities while they produce for the USA. This includes egg………establishments during the period of production for the USA.
The producing facilities are responsible to ensure the presence of the NVWA. For its part, the NVWA will make available the appropriate staff at the time of production for the USA.”
It was submitted on behalf of Rembrandt that this was an undertaking by the Netherlands authorities that their inspectors would be present throughout the production process. The letter is open to that interpretation but without knowing what information was requested by the US authorities it is difficult to be sure that that is what was meant.
Some time after this letter the Netherlands authorities submitted a further SRT which contained, so far as material, the same information as the first SRT but also made reference to the “letter CVO March 2014 (Daily Inspection).” The addition of the words “Daily Inspection” suggest that the letter was understood to have given confirmation that there would be daily inspection of the production process.
On 22 April 2014 a draft document entitled “Inspection List Egg Product Preparation US” was produced by the Netherlands authorities. It stated as follows:
“When producing a batch egg product destined for the US, the NCAE inspector is present during the breaking of the eggs and the checking of the batch when it is ready, sampling and testing has taken place and the results are available. This means 2 inspection visits per batch. During the 2 nd inspection visit, the precertification checks can be performed. The contents of the precertification checks depends on what NVWA will require in this regard for the US export certification.
The NCAE inspection consists of a hygiene inspection, verification of the heating step (hotroom) and the outcomes of the tests. These points will be inspected during the 2 inspection visits. In any event, the breaking process is inspected during the 1 st visit and the checking of the batch, registrations of the hotroom and outcomes of the tests during the 2 nd visit. The other points are distributed across the 2 inspection visits.”
The document also contained a lengthy table of questions to be answered in respect of the eggs, working areas, installations, pest prevention/control, personal hygiene and so forth.
This draft inspection list suggests that daily inspections of the production process were not envisaged by the Netherlands authorities. Only two inspections were now envisaged. Whether they had changed their mind or whether that had never been their intention is not clear.
Between 13 and 20 June 2014 the FSIS carried out an inspection of premises in the Netherlands to determine the equivalence of the egg products inspection systems of the US and the Netherlands. The premises inspected included those of NIVE. A statement issued by NCAE dated 23 June 2014 reported that during the inspection it was “recognized” that “on two points no equivalence exists between the two inspection systems”. The first was that no supervisor was “present every day throughout the entire production procedure”. The second was that “before processing the eggs, no candling takes place to guarantee eggs without loss, dirt or broken eggs”. The statement goes on to state that “NCAE will implement requirements following from the above mentioned differences in inspection systems”. The statement then sets out what was to be implemented as follows:
“1. During processing of egg products intended for export to the US, COKZ/NCAE will perform oversight at the establishment concerned. The content of this oversight has been described in the procedure/assessment list which has been submitted to FSIS earlier (NCAE Inspection list for egg products to USA vs dd June 2014-v1).
2. The eggs intended...
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