Egyptian International Foreign Trade Company v Soplex Wholesale Supplies Ltd (Raffaella)

JurisdictionEngland & Wales
JudgeLORD JUSTICE BROWNE-WILKINSON,LORD JUSTICE KERR,LORD JUSTICE LAWTON
Judgment Date05 December 1984
Judgment citation (vLex)[1984] EWCA Civ J1205-2
Docket Number84/0458
CourtCourt of Appeal (Civil Division)
Date05 December 1984
Ezzat Sharobeem Ebeed (Male)
Souad Ahmed Khalifa (Married Woman) (Trading as Egyptian International Foreign Trading Co.)
Respondents
and
Soplex Wholesale Supplies Ltd.

and

P. S. Refson & Company Ltd.
Appellants

[1984] EWCA Civ J1205-2

Before:

Lord Justice Lawton

Lord Justice Kerr

Lord Justice Browne-Wilkinson

84/0458

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION COMMERCIAL COURT

(MR. JUSTICE LEGGATT)

Royal Courts of Justice

MR. S. A. STAMLER Q.C. and MR. N. A. STRAUSS Q.C. (instructed by Messrs. Beachcrofts) appeared for the Appellants.

MR. D. B. JOHNSON Q.C. and MR. M. A. PICKERING (instructed by Messrs. Richards Butler & Co.) appeared for the Respondents.

LORD JUSTICE BROWNE-WILKINSON
1

This is an appeal from a decision of Leggatt J. sitting in the Commercial Court, who held that the second defendant, P. S. Refson & Co. Ltd. ("Refson"), was liable on an undertaking given by it as bankers to pay to the plaintiffs, Egyptian International Foreign Trade Company, the sum of $575,000 plus interest. The facts are very fully stated in the judgment which is reported at (1984) 1 Lloyds 102, and I will only summarise the background facts relevant to the points we have to decide.

2

The dispute arises out of a contract made in March 1979 for the sale by the first defendant, Soplex Wholesale Supplies Ltd. ("Soplex"), to the plaintiffs of 10,000 tonnes of Rumanian cement at a price of $57.25 per tonne c & f Port Said or Alexandria at buyers' option. Payment for this purchase was to be made by a letter of credit opened by an Egyptian Bank, the Suez Canal Bank. One of the terms was that shipment was to be at latest by 15th May 1979; it was further provided that charter party bills of lading would be acceptable. Mr. Druker (Managing Director and moving spirit in Soplex) represented to the plaintiffs that the cement was being loaded at Constanza at the beginning of May 1979.

3

Refson acted as bankers for Soplex in the transaction. On 31st May 1979 Refson tendered documents to Lloyds Bank Ltd. (acting for the Suez Canal Bank) which apparently complied with the terms of the letter of credit. They included a Bill of Lading dated 14th May 1979 purporting to record the shipping of 10,000 tonnes of cement on M.V. Raffaella for delivery at Port Said and a shipment manifest showing shipment of the cargo from Constanza. Lloyds Bank Ltd. paid to Refson $571,475.81 under the letter of credit against the documents tendered.

4

It has subsequently emerged that the true facts were entirely different from those represented by the shipping documents. Soplex, through Mr. Druker, had acquired 10,000 tonnes of cement which was on hoard a vessel (then named "Sea Tiger") lying in Limassol roads. That cargo had been loaded nearly a year before and had been lying in the Sea Tiger at Cyprus since July 1978. Soplex also acquired the Sea Tiger itself and renamed her Raffaella. Soplex's intention was to perform its contract with the plaintiffs by delivering the year old cement in the newly renamed Raffaella. The representations made by Mr. Druker that the ship was loading in Constanza in May or June 1979 and the bill of lading and shipment manifests were untrue and fraudulent. Refson acted as bankers to Soplex in the acquisition of the Sea Tiger and its cargo by a letter of credit opened by Refson.

5

The true facts were, of course, unknown to the plaintiffs. So far as they were concerned, they were expecting the imminent arrival of cement shipped from Constanza on or about the 14th May 1979. It did not arrive. During June and early July Mr. Druker made a number of representations as to the imminent arrival of the ship and its cargo. On 4-th June 1979 he telexed the plaintiffs saying: "If you are unhappy about any part of this shipment or if quality is not per contract or any problems with the shipment your monies will always be refunded by our bank". The plaintiffs were becoming increasingly suspicious. After yet a further failure of the ship to arrive, and in the absence of any satisfactory explanation, on 9th July 1979 the plaintiffs asked for a definite date of arrival and in default for the repayment of the monies they had paid together with all charges. The plaintiffs started their own investigations as to the whereabouts of the ship, the result of which was to deepen their suspicions about the transaction. On 23rd July 1979, Soplex gave the plaintiffs a written guarantee in the following terms:

"Guarantee herewith in the event of non arrival of Raffaella or the cement in Port Said, Egypt by the 28th July 1979 to refund immediately all monies paid…The refund will be made by our bank Barclays Bank Ltd.…or Refson Bank Ltd."

6

One of the joint managers of the plaintiffs, Mr. Sharobeem, was so worried about the transaction that he had come to London. On being shown Soplex's guarantee of the 23rd July, he decided that it was not sufficient and asked for a bank guarantee. He was taken by Mr. Druker to see Refson. I will have to come back to the detailed circumstances of the giving by Refson of the undertaking on which they have been held liable. For present purposes, it is sufficient to record that on 26th July 1979, a document was executed in the following terms on the headed paper of Refson:

"Dear Sirs,

Suez Canal Bank L/C No. 1159 covering 10,000 M/T Rumanian Portland Cement per M/V Raffaella to Port Said

"We are pleased to Guarantee irrevocable payment of 575,000 U.S. Dollars plus expenses and interest due to Suez Canal Bank to you on first demand and without any condition in the event

1. The vessel not arriving by 8th August 1979 at Port Said or

2. The cement not being in accordance with quality BSS 12/58/71 and being unacceptable to the Egyptian authorities.

"However, in the event of a quality claim an independent survey by Lloyds or S.G.S. or equivalent body must be effected before payment.

Yours very truly

P.S. Refson & Co. Ltd."

7

That document (which I will call "the undertaking") carried only one signature, that of a Mr. Booth who was an officer but not a director of Refson. Beneath Mr. Booth's signature, there is Refson's stamp. It is common ground that, under the internal arrangements of Refson, Mr. Booth did not have actual authority to bind Refson to that undertaking on his sole signature: indeed, Mr. Booth concealed the giving of the undertaking from his superiors at Refson and, when it came to light, he was summarily dismissed. The main question in this appeal is whether or not Mr. Booth's actions were within his apparent authority and therefore binding on Refson.

8

To complete the summary of the disastrous history of this transaction, the Raffaella did not in fact leave Limassol until the end of July 1979. On 1st August, the plaintiffs (as was their right under the contracts) directed the vessel to unload at Alexandria instead of Port Said. After leaving Limassol, the Raffaella broke down and had to be towed to Alexandria. She arrived in Alexandria roads on 6th August, but did not arrive inside the port until 1st September 1979. The cargo of cement was then found to be caked and petrified and not conforming to the contract quality required. The Egyptian Cement Office rejected the cement. The plaintiffs thereupon called on Refson to honour paragraph 2 of the undertaking, i.e., on the grounds that the cargo failed to comply with the contractual requirements as to quality. Refson refused to pay. This action was then started by the plaintiffs against Soplex and Refson: Refson brought in Soplex and Mr. Druker as third parties. Soplex has gone into liquidation and neither Soplex nor Mr. Druker took any part in the proceedings either at the trial or on the appeal.

9

The trial was long and complicated. On many issues there is no appeal against the judge's findings. Three separate points were raised on the appeal, viz.

  • (1) Was the undertaking within the apparent authority of Mr. Booth and therefore binding on Refson? The judge held that it was.

  • (2) On the construction of the undertaking, was Refson liable under paragraph 2, notwithstanding that the cement was tendered at Alexandria (not Port Said)? The judge held that Refson were liable.

  • (3) If Refson's were not liable under (1) and (2) above, were they liable to repay any part of the monies received by them under the letter of credit from the on the grounds that the money was paid under a mistake of fact? The judge indicated that, if he had been against the plaintiff on points (1) and (2), he would under this head have held Refson liable to repay $124,000 odd.

10

On the hearing of the appeal, we heard argument only on points (1) and (2) since, if the appeal fails on those points, difficult questions raised by point (3) do not arise for decision.

11

Apparent Authority

12

Refson is a small trading bank formed some ten years ago. Its business included helping to finance the international trade of Soplex and other customers. At the material time it had four directors and a number of "officers" allocated to separate departments. Mr. Booth was described as the Manager of the Documentary Credits department. There was no-one between him and the Board to whom he was answerable. There was a Deputy Manager of Documentary Credits and seven or eight other employees in the department.

13

The plaintiffs carry on business as Import/Export Traders in Egypt. Mr. Sharobeem was the person in charge of this particular transaction: he speaks little English. In 1979 a friend of Mr. Sharobeem, Dr. Mansoury (whose English is much better and who gave evidence without an interpreter) acted at times as the plaintiffs' representative in London at the same time as pursuing post graduate studies here. Before the events of...

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