Gebruder Metelmann G.m.b.H. & Company K.G. v N.B.R (London) Ltd
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE DUNN,LORD JUSTICE BROWNE-WILKINSON |
| Judgment Date | 20 January 1984 |
| Judgment citation (vLex) | [1984] EWCA Civ J0120-1 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 84/0010 |
| Date | 20 January 1984 |
[1984] EWCA Civ J0120-1
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 MUSTILL)
Royal Courts of Justice.
The Master of The Rolls
(Sir John Donaldson)
Lord Justice Dunn
and
Lord Justice Browne-Wilkinson
84/0010
1981 G. No. 2242
MR. JONATHAN SUMPTION (instructed by Messrs. Coward Chance) appeared on behalf of the (Plaintiffs) Respondents.
MR. JONATHAN MANCE, Q.C. (instructed by Messrs. Gentle Mathias & Co.) appeared on behalf of the (Defendants) Appellants.
Both the parties to this appeal are sugar traders. In the Commercial Court, before Mr. Justice Mustill, Metelmann alleged that, by a contract dated the 1st December, 1980 N.B.R. agreed to buy 2,000 metric tons of sugar at U.S. $803 per metric ton for shipment in January 1981 at Hamburg or Antwerp (in sellers' option) f.o.b. a vessel to be nominated by the buyers. They further alleged that N.B.R. repudiated this contract and that this repudiation was accepted on the 21st January, 1981. The repudation took the form of a denial that any sale contract existed and an implicit anticipatory refusal to accept any sugar tendered under the contract. This was the liability issue. It was decided against N.B.R. and that decision is now accepted. There was also an issue as to the quantum of the damages to which Metelmann were entitled and Mr. Justice Mustill held that it was the difference between the contract price of U.S. $803 and U.S. $680—U.S. $123 per ton on 2,000 tons or U.S. $246,000. N.B.R. have appealed contending that this figure is too high and Metelmann, by a respondent's notice, have contended that it is too low.
Metelmann were, and no doubt are, large traders in sugar to whom this contract was merely one of many. The effect of the repudiation was seen by them as creating or increasing a "long" position when account was taken of their commitments not only for shipments in January but also in subsequent months. The immediate action taken by them following the acceptance of the repudiation was to sell 2,500 tons of sugar on the Paris terminal market for the May position at a price of U.S. $673 per metric ton. The sale was originally intended to be of 2,000 tons, but the larger quantity was on offer and Metelmann accepted it. It has proved impossible to say what became of the 2,000 tons which would have been tendered to N.B.R. because, although Metelmann had ample sugar to meet the commitment, no specific sugar was ever appropriated to the contract. The true view is probably that there was a domino effect and that at some stage Metelmann must have bought in 2,000 tons less sugar than would otherwise have been the case. The purchase on the terminal market was in due course closed by a corresponding purchase at a lower price, but again it is impossible to identify the purchase or the price, because there are a number of terminal markets sales for the May position followed in due course by a number of purchases which were unrelated to the sales save to the extent that, as Metelmann intended and as is part of the essential mechanism of the terminal market, the total quantity of purchases eventually equalled the total quantity of sales. As the market price slumped over the period, the total amount due in respect of the sales exceeded that due in respect of the purchases by a very considerable sum.
Various measures of damage were explored before Mr. Justice Mustill. He held that (a) after the acceptance of the repudiation on the 21st January, 1981 there was no available market for sugar for January shipment and that accordingly section 50(3) of the Sale of Goods Act 1893 had no application, and (b) section 50(2) applied and he had to estimate the loss directly and naturally resulting, in the ordinary course of events, from the buyer's breach of contract. The learned judge rejected an assessment based upon the difference between the contract price and the cost of the sugar to Metelmann, i.e. a loss of profit basis, as it was impossible to find out what was the cost of the relevant sugar, no sugar having been appropriated to the contract. He also rejected a submission by N.B.R. that Metelmann should have found a buyer who was willing to take physical delivery of the sugar and could have concluded a contract for such a sale before the end of January at a price which might have been as high as U.S. $736. Equally he rejected the submission of Metelmann that the true measure of damage was the difference between the contract price and U.S. $673, the price at which on the 21st January, 1981 they sold 2,500 tons of sugar on the terminal market for the May position. The measure of damage which he adopted involved estimating the market price of 2,000 tons of sugar on the last trading day of the contract period, viz. 30th January, 1981, for delivery at a later date but on a prompt basis, i.e. as soon as possible thereafter. His figure of U.S. $680 is accepted by both parties as being correct if this is the true measure of damage and I need not therefore explain how he arrived at it.
The N.B.R. contention on the appeal
It is common ground, as Mr. Justice Mustill found, that "the sugar market had been in the course of a rapid decline for several weeks before the 21st January, 1981, the day when Metelmann accepted the repudiation of the contract by N.B.R. It had reached a high point of about U.S. $1,000 during the previous November, but had then turned downhill. From time to time there were brief recoveries, but the overall trend was consistently downwards. A reasonable person in the position of Mr. Robertson [of Metelmann] would have concluded that the adverse trend would continue, although such a person could also anticipate that there might be occasional brief rallies."
Mr. Jonathan Mance, Q.C., for N.B.R., submitted that in these circumstances there was an obligation upon Metelmann to seek to mitigate their damage by re-selling the 2,000 tons of sugar on the physical market and that this could have been done within a few days of the 21st January, 1981. As there was, in the event, a brief rally in the price at this time, in his submission Metelmann could and should have realised a figure in excess of U.S. $680 per ton and that the damages should have been based upon such a higher figure.
In the sugar trade there is a distinction between what is known as the "physical" market and what are known as the "terminal" markets. The physical market is not a geographical concept, but a description of the totality of sales and purchases of sugar otherwise than on the terminal markets. Terminal markets exist in Paris and London and provide traders with a mechanism which enables them more or less to insulate themselves from changes in market values. Terminal market transactions involve dealing in 50 ton lots of a standard grade of sugar on standard terms as to delivery at various standardised future periods. Terminal market prices move broadly in line with physical market prices, although not necessarily at quite the same level. A trader wishing to hedge against changes in market prices which could adversely affect his future dealings on the physical market makes a matching sale or purchase on the terminal market and closes the transaction with a subsequent purchase or sale when he concludes his contract on the physical market. In theory, and to a large extent in practice, the trader's loss or gain on his terminal market transactions will cancel out any effects which he may suffer by having to postpone dealings on the physical market.
N.B.R. submit that terminal market dealings are irrelevant to the assessment of damages. Their contention is that there should have been a re-sale on the physical market. In fact Metelmann never considered immediately re-selling the 2,000 tons of sugar on the physical market, but this does not matter if they could and should have done so. The general rule is that where a contract for the sale of goods is repudiated and the repudiation is accepted before the date for delivery, damages fall to be assessed on the basis of the difference between the contract price and the market price on the date for delivery. However, this is subject to the exception that as from the date of breach, i.e. the acceptance of the repudation, the claimant must do what, if anything, is reasonable to decrease the damages ( Roth v. Tayson (1896) 12 Times Law Reports 211 per Lord Esher, M.R., affirming a decision of Mr. Justice Mathew).
The foundation for Mr. Mance's argument is a finding by the learned judge that "Metelmann could probably 'within a week' have found a buyer for 2,000 tons of sugar for delivery at some more distant date, say February or the first half of March" and that what Mr. Robertson meant when he used the expression "within a week" was that a sale of physical sugar might have taken a week or it might have taken less to arrange. A week from the 21st January takes one to the 28th January, when the daily price on the Paris market was U.S. $$700.10 and on all previous days on and after the 21st January it was above U.S. $$680, the figure found by the learned judge for the market price on the 30th January and used as the basis for his award of damages.
Mr. Jonathan Sumption, for Metelmann, attacks this argument on the footing that it is for the defendant to allege and prove a failure to mitigate loss and that in circumstances in which the price obtainable from day to day is fluctuating between wide limits he has to prove precisely when...
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