Euro-Diam Ltd v Bathurst

JurisdictionEngland & Wales
JudgeLORD JUSTICE KERR,LORD JUSTICE RUSSELL,SIR DENYS BUCKLEY
Judgment Date08 December 1987
Judgment citation (vLex)[1987] EWCA Civ J1208-4
Docket Number87/1236
CourtCourt of Appeal (Civil Division)
Date08 December 1987
Between:
Euro-Diam Limited
Plaintiffs (Respondents)
and
Andrew Eric Bathurst
Defendant (Appellant)

[1987] EWCA Civ J1208-4

Before:

Lord Justice Kerr

Lord Justice Russell

and

Sir Denys Buckley

87/1236

1984 E No. 1273

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

(MR. JUSTICE STAUGHTON)

Royal Courts of Justice

MR. JULIAN MALINS and MR. ANDREW POPPLEWELL (instructed by Messrs. Clyde & Co., Solicitors, London, EC3R 7BR) appeared on behalf of the Defendant (Appellant).

MR. J. GRUDER (instructed by Messrs. Ince & Co., Solicitors, London, EC3R 5EN) appeared on behalf of the Plaintiffs (Respondents).

LORD JUSTICE KERR
1

This is an appeal by the defendant, sued as a representative underwriter, against a judgment delivered by Staughton J. on 1st October 1986. He held that the plaintiffs were entitled to recover the value of certain diamonds insured under an all risks cover which were stolen in Germany while held by consignees under a "sale or return" contract. The main ground of defence, and the only one which has survived on this appeal, was the fact that, at the request of their customer, the plaintiffs had issued an invoice which showed a lower price for the diamonds than the true one. The decision below is reported in (1987) 2 Weekly Law Reports 1368. I will summarise the facts fairly shortly, since many of the issues debated below are no longer raised on this appeal.

2

The facts

3

The plaintiffs, Euro-Diam, are diamond merchants carrying on business in London, and their managing director is a Mr. Laub. Their insurance cover was in the form of a Lloyds slip, but it is convenient to state its effect as a non-marine policy on goods (Form J(A)) which covered diamonds and other precious stones.

4

The

"'Basis of Valuation' was 'Sendings: as per Register. In event of loss prior to registration: Invoice + 10% tax if applicable. Other: Standard value + 10% + tax if applicable'".

5

The cover was All Risks excluding War Risks, but there was an extension headed "Confiscation and Expropriation Wording 2". This covered (inter alia) confiscation and seizure other than by the government or any public or local authority of the sender. Clause 3 was in the following terms so far as material:

"(a) Warranted that the Assured comply in all respects with the laws (local or otherwise) of any country within whose jurisdiction the property may be.

(b)…..

Should failure to comply with the above warranties prejudice this insurance to the extent of a loss, no lability shall attach hereunder".

6

The warranty of legality in 3(a), and the proviso to it in (b), are relevant to a secondary aspect of this appeal with which I will deal at the end.

7

I then turn to the facts. In November 1981 a Mr. Bonim, an Israeli dealer in diamonds, was introduced to Mr. Laub in London because he wanted some diamonds for sale in West Germany. He did not have the necessary German residence and work permits for this purpose, but the judge found that Mr. Laub was unaware that Mr. Bonim was in breach of German law in any respect. He had a working relationship with a firm of German diamond dealers in Pforzheim known as Verena, and he dealt with Mr. Laub on the basis that any diamonds selected by him would be treated as consigned to Verena on sale or return.

8

As the result of this visit Euro-Diam sent a consignment of diamonds by registered post to Verena on sale or return in November 1981. This was correctly invoiced. Part of it was sold, part was returned, a small quantity remained with Verena, and a small portion of this later formed part of the diamonds which were stolen. On this appeal it was accepted that there was no defence to Euro-Diam's claim for this small loss of about 1.58 carats in respect of the November 1981 consignment, but nothing turns on this.

9

There was a second meeting between Mr. Bonim and Mr. Laub in late January 1982. This resulted in a further consignment of about 188 carats being sent to Verena on sale or return on 2nd February 1982. The sending was again correctly recorded by Mr. Laub in Euro-Diam's register, and it was common ground that Euro-Diam had also declared this sending correctly under their policy and had paid or been debited with the correct premium for it. The consignment consisted of 39 diamonds totalling about 181 carats at a total price of $223.416. However, at the request of Mr. Bonim, when Mr. Laub sent this consignment to Verena by registered post he enclosed an invoice showing the correct number of carats, but an understated price of only $131.411.

10

On behalf of Euro-Diam it was pointed out that this invoice was in effect only provisional since the contract was on sale or return. But in my view this makes no difference, and I deal with the issues on the basis that the invoice is to be treated as though it had been final.

11

The resulting benefit to Verena was a reduction in Turnover Equalisation Tax (similar to VAT) which was levied at the rate of 13 per cent on imports of goods into Germany. The reduction was accordingly of the order of $11,960. The judge inferred that, by means of the presentation of the understated invoice, Verena avoided payment of this sum over a period of six weeks, the accounting period permitted to registered traders before the tax due on purchases is set off against the tax collected upon resales. We did not go into the details because they do not matter. The judge held that Verena saved the interest on this sum over a period of six weeks, about $150. On behalf of the defendant it was suggested that there were other hidden benefits to Verena because of their difficult financial position in general at that time. But this was not established, and in any event I cannot see how the size of the financial benefit to Verena can be of any relevance to the issues in the present action.

12

Before turning to the judge's findings concerning Mr. Laub's culpability for the understated invoice it is convenient to go to the end of the history. On 10th May 1982 Verena sent seven post-dated cheques totalling $70,000 to Euro-Diam in purported part-payment of this consignment, but all were subsequently dishonoured. A few days later, on 14th May 1982, a package containing about 95 carats from the February consignment, and the small residue of the November consignment, disappeared from Verena's premises. This gave rise to various issues below, but on this appeal it was accepted that these diamonds were stolen and were then still Euro-Diam's property, with the result that it is now accepted that Euro-Diam have established a loss by theft of $142,173.90 under the policy. The only remaining issue, leaving aside the small stolen quantity which had formed part of the November consignment, is whether Euro-Diam's claim under the policy is barred because of the false invoice which Mr. Laub issued at Mr. Bonim's request. Shortly after the disappearance of the diamonds Verena went into liquidation and their participants left Germany.

13

The judge appears to have accepted that Mr. Laub's agreement to Mr. Bonim's request had been based on little more than foolishness. We were told that it was in fact Mr. Laub himself who informed the insurers' assessor about the understated invoice when they travelled to Pforzheim after the discovery of the theft. But while the judge said that Mr. Laub had been a frank and impressive witness, he also found that it must have been obvious to him that the purpose of the invoice had been to deceive somebody. The obvious candidates were the German customs authorities; not—as Mr. Laub had suggested—Verena's auditors. He accordingly concluded that Mr. Laub must have realised that in all probability the object was to deceive the German customs. But he did not accept that Euro-Diam conspired to commit any offence, and it was accepted on behalf of the defendant that Euro-Diam had committed no offence under English law. Quite apart from the fact that the invoice was only relevant for use outside the jurisdiction, the judge found that there was no agreement between Mr. Laub and Mr. Bonim that the invoice would in fact be used to deceive the German customs, nor that Euro-Diam intended that it should be so used.

14

It is against this background that the judge had to consider whether Euro-Diam had committed any offence under German law. There were two candidates under the German General Tax Code. First, section 370, as follows:

" Tax evasion (1) Imprisonment up to 5 years or a fine is the penalty for anyone who (i) gives incorrect or incomplete information to the revenue authorities or other authorities on matters of taxation significance….. and thus minimises taxes or gains for himself or another unjustified tax advantages".

15

After hearing expert evidence from two German lawyers the judge concluded that on the basis of his findings about Mr. Laub's state of mind, Euro-Diam would not be regarded by German law as having committed any offence under this section. This conclusion was criticised on this appeal and I will return to it in a moment. But he held that Euro-Diam had committed an offence under section 379 of the Tax Code punishable by a fine of up to DM10,000. This is in the following terms:

" Tax Endangerment (1) It is a contravention of the regulations deliberately or with gross negligence to make out records which are factually incorrect…and thereby to enable the minimisation of taxes or to obtain unjustified tax advantages".

16

This offence does not carry power to confiscate the diamonds. However, such a power arose in this case under section 375 of the Tax Code coupled with section 74(a) of the Penal Code. Although only Verena...

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