Garnac Grain Company Inc. v H. M. F. Faure & Fairclough Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SELLERS,LORD JUSTICE DANCKWERTS,LORD JUSTICE DIPLOCK |
| Judgment Date | 30 June 1965 |
| Judgment citation (vLex) | [1965] EWCA Civ J0630-1 |
| Date | 30 June 1965 |
| Court | Court of Appeal |
[1965] EWCA Civ J0630-1
Lord Justice Sellers
Lord Justice Danckwerts and
Lord Justice Diplock
In The Supreme Court of Judicature
Court of Appeal
(From Mr. Justice Megav — Middlesex)
Mr. MICHAEL KERR, Q. C., Mr. A. J. L. LLOYD and Mr. A. B. R. HALLGARTEN (instructed by Messrs. Richards Butler & Co.) appeared on behalf of the Appellants H. M. F. Faure & Fairclough Limited).
Mr. MARK LITTMAN, Q. C. and Mr. J. R. BICKFORD SMITH (instructed by Messrs. William A. Crump & Son) appeared on behalf of the Appellants Bunge Corporation).
Mr. J. F. DONALDSON, Q. C., Mr. C. S. STAUGHTON and Mr. A. D. COLMAN (instructed by Messrs. Thomas Cooper & Co.) appeared on behalf of the Respondents Garnac Grain Company Incorporated.
Allied Crude Vegetable Oil Refining Corporation (referred to as "Allied") until it went into liquidation on the 18th November, 1963, had been carrying on in the United States of America a very extensive exporting trade in vegetable oils and its crash brought very heavy and widespread losses. That event brought about the present litigation.
On Monday the 15th July, 1963, four contracts, one of which has been the subject of this action, were entered into. They in fact established a circle of contracts which was brought about by the activities of Allied. The reason for this and the effect of what was done form the basis of this controversy. I refer to them as contracts, as ostensibly they are, but it is in issue whether the last is an effective contract binding in its terms.
At the outset of that day the plaintiffs, Garnac Grain Company Incorporated (referred to as "Garnac") agreed to buy from Allied 15, 000 tons of United States Lard for December/January shipment c.i.f. Bromborough/Purfleet on the usual Unilever terms at a price of £193 per ton.
It was later arranged, at the instigation of Allied, that Garnac, instead of buying this consignment from Allied, should buy it from an American company, Gersony Strauss Incorporated (referred to as "Gersony"), who would be interposed. There is a written contract of the 15th July, 1963, whereby Allied sold to Gersony 15, 000 tons of Prime Steam Lard Unilever Specifications at £191 per ton c.i.f. Bromborough/Purfleet December/January at buyer's call (Contract "A").
This purchase by Gersony was passed to Garnac at £193 (Contract "B"). Garnac sold to the first defendants, H. M. Faure & Fairclough Ltd., in London (referred to as "Faure") the same quantity to the specification North American Prime Steam Lard December 1963/January 1964 shipment at £195 (Contract "C"), and the series of contracts closed on the same day by Allied buying back from Faure at a price of £197 the consignment which they hadsold a few hours earlier at £191 for purported shipment in December/January (Contract "D"). These were all contracts for unascertained goods and there were slight variations in description or specification but these do not affect this appeal.
In order that these transactions of one day should be seen in their setting a number of other transactions prior and subsequent thereto were investigated at the trial and the evidence both oral and of documents became extensive and complicated.
In many trades it may be that in the ordinary working of the market where goods are sold along a line or string, goods after changing hands will be bought back by the original seller and so a circle may be created. That is not this case. Here this circle was not fortuitous but was designed by Allied when it made the first sale and the reason was to raise finance.
Allied's method of trading was summarized in the judgment of Mr. Justice Megaw as follows: "Allied, whose business dealings have led to these, and I understand other, great financial losses, were a corporation carrying on business at Bayonne, New Jersey, as suppliers in a very large way of vegetable oils and animal fats. It would appear that they had built up a very large business, amounting in some of the commodities at least to almost a monopoly in the Eastern seaboard of the United States, of buing oils and fats, often in comparatively small quantities, from the producers in the interior of the United States, accumulating these stocks in store in tanks owned by two warehousing companies in Bayonne, and then selling these accumulated stocks in large consignments, primarily at least for export. The export sales might be either to commercial users, such as Unilever in the United Kingdom, or to governmental organizations in what are called 'developing countries' under the provisions of certain United States legislation known as Public Law No. 480. The provsions of that law are not in evidence and are not material for this case. Suffice it to say that Allied, somehow or other, apparently had access to advance information as to the probability of such sales. They used such advance knowledge as a means ofinteresting merchants dealing in vegetable oils and fats; for Allied did not, apparently, normally themselves sell direct for export. They sold to merchants who in turn re-sold, or hoped to re-sell, on the export market".
The volume and extent of Allied's business attracted merchants eager to trade and willing to do so very much as Allied directed. Indeed this appears to have been necessary as Allied would not normally trade with those who would not finance them. One method of finance was to lend Allied money on the security of warehouse warrants or receipts. An advance would be 80 per cent. of the market price at the date of the loan, so that there was some margin for a fall in value. Garnac had advanced very large sums in this way and established a position which led and would be expected to lead to business coming to them when sales arose. When the crash came the goods were not in warehouse to meet the warrants but for the purposes of this case nothing turns on loans secured by warrant except the inducement of trade.
The ultimate finance came from the consumers of the goods, and Unilevers were very large and regular buyers. When they were bidding Allied would be informed of the market price and would generally sell through Faure, whom they had appointed as general agents to transact this business. The goods would be sold to Faure at a price of £2 less than Faure's selling price to Unilever and if Allied so wished, as they generally did for financial purposes, they would put Garnac alone or one or two others behind them each with a £2 margin. I have described the sales the reverse way because I understand the price would depend on what the consumer contracted to pay. Garnac would advance on such a sale and would have the security of their sale to Faure and would have the benefit of the £2 uplift on price, or commission as it was sometimes called, and a good interest on the money lent. As the quantities were large this was substantial business. The 15, 000 tons under the present contract would give a total payment to Garnac of nearly £3, 000, 000.
It was not suggested that the string contracts, so contrivedby Allied where there was the final sale to Unilever or a similar "buyer, were not binding contracts enforceable according to their tenor. They would involve shipment by Allied of the goods specified on the relevant date, followed by payment by Unilever and the adjustment of the price down the string.
The plaintiffs' complaint is with regard to the transactions of the 15th July, 1963. By Contract "C" Garnac were required to ship or to have arranged for the shipment of the goods specified by the end of January, 1964, at the latest. By reason of their collapse in November, 1963, Allied were unable to fulfilheir Contract "A" with Gersony, who in turn have been unable to fulfil Contract "B" with Garnac and are not in a financial position to pay damages. Garnac were therefore confronted with their liability to Faure. Faure have in fact assigned the "benefit of this contract to the second defendants (referred to as "Bunge") but it has been conceded that Bunge are in no better position than Faure in their legal rights and further consideration of the assignment does not arise.
By this action Garnac claim that they are not liable to Faure and Mr. Justice Megaw has upheld their claim. Garnac through their solicitors purported to rescind Contract "C" on the 17th January, 1964, and they claim that they were entitled to rescind and have rescinded. The other relief asked depends on the success of this contention.
The Statement of Claim alleged fraudulent misrepresentation inducing Garnac to enter into Contract "C" by both Faure and Allied. The misrepresentation alleged was that both the defendants dishonestly led Garnac to believe that Faure had resold or were to resell to Unilever and it was alleged that Garnac were induced to enter into the bargain in the belief that it was an ordinary commercial transaction and that they were not informed that Unilever had postponed a purchase for the time being, as both defendants knew when the four contracts of the 15th July, 1963, were entered into. Garnac had no knowledge that Allied were to buy back from Faure and so to create a circle. Theplaintiffs made an alternative claim, in the event of the claim in fraud against Faure failing (as it did), that, on the transactions and circumstances viewed as a whole, Faure in entering into Contract "C" with Garnac were acting as agents for Allied as undisclosed principals and if so, the contract could be rescinded because it had been brought about by the fraud of...
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