Jackson and another v Royal Bank of Scotland Plc
| Jurisdiction | England & Wales |
| Judge | LORD NICHOLLS OF BIRKENHEAD,LORD HOFFMANN,LORD HOPE OF CRAIGHEAD,LORD WALKER OF GESTINGTHORPE,LORD BROWN OF EATON-UNDER-HEYWOOD |
| Judgment Date | 27 January 2005 |
| Neutral Citation | [2005] UKHL 3 |
| Date | 27 January 2005 |
| Court | House of Lords |
and another
[2005] UKHL 3
The Appellate Committee comprised:
Lord Nicholls of Birkenhead
Lord Hoffmann
Lord Hope of Craighead
Lord Walker of Gestingthorpe
Lord Brown of Eaton-under-Heywood
HOUSE OF LORDS
My Lords,
I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hope of Craighead and Lord Walker of Gestingthorpe. For the reasons they give, with which I agree, I would allow the plaintiffs' appeal and dismiss the bank's cross-appeal.
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hope of Craighead. For the reasons he gives, with which I agree, I would allow the appeal and dismiss the cross-appeal.
My Lords,
This is an appeal about the damages to be awarded to the former partners of a business partnership for a breach of contract as a result of which the relationship of that business with its principal customer was terminated. The claim is for the loss of the opportunity to earn further profits from that relationship. It raises issues about the proper approach to remoteness where damages are claimed for breach of contract and about the quantum of the damages.
The claimants are James Jackson and the late Barrie Stewart Davies, who carried on business in partnership. They traded under the name of Samson Lancastrian ("Samson"). Samson imported goods from the Far East, including Thailand, and sold them to customers in the United Kingdom. Its principal customer in this country was another business partnership which traded under the name Economy Bag. The partners in this business were Mr Taylor and Mr Holt. The products which Economy Bag sold to its wholesale and retail customers included dog chews. By coincidence the bankers to both Samson and Economy Bag were the Royal Bank of Scotland Plc ("the Bank"). The Bank is the respondent in this appeal.
The facts
Economy Bag had previously purchased various varieties of dog chews in bulk and packed them itself for supply to its customers. By 1990 it had decided to eliminate the packing operation and obtain pre-packed dog chews in packaging bearing its trade name. It was introduced to Samson, who found a potential supplier of dog chews in Thailand. Mr Jackson showed samples of these dog chews to Mr Taylor and quoted prices for their supply cif Manchester which were acceptable to Economy Bag. Mr Jackson and Mr Taylor agreed to do business with each other by means of transferable letters of credit. The letters of credit were to be issued by the Bank to Economy Bag, and Samson was to be named as the beneficiary. The intention was to provide Samson with security in the event of a default by Economy Bag. The bags of dog chews were to be labelled specifically for Economy Bag. They would have been difficult to dispose of in the open market to other customers.
Economy Bag placed an order for dog chews with Samson in September 1900. At its request the Bank issued a transferable letter of credit in favour of Samson which provided for payment of the agreed sum on production of a commercial invoice, evidence of insurance and a packing list. Economy Bag was relatively inexperienced in these matters. So it agreed with Samson that Samson would deal with the import formalities and arrange carriage from Manchester to Economy Bag's premises in Preston. For this service Samson was to make an inclusive handling charge of 5% of the cif price, exclusive of customs clearance and carriage. Samson placed an order for the dog chews ordered by Economy Bag with the supplier in Thailand who had provided the samples. The supplier failed to fulfil the contract, so Samson placed an order with an alternative Thai supplier named Pet Products Ltd. Its transaction with Economy Bag was completed successfully on this basis. Samson retained part of the price paid by Economy Bag for itself as a mark-up. It transferred the remainder of the credit which had been provided to it by the Bank under the letter of credit to Pet Products as the second beneficiary.
A substantial number of transactions according to the same pattern for the supply by Samson of pre-packed dog chews to Economy Bag followed thereafter on an increasing scale until March 1993. During this period there were 33 such contracts. Payment was almost invariably made by transferable letters of credit issued by the Bank. Samson charged a different percentage mark-up on each transaction depending on the variety of the items sold. It did not disclose the amount of the mark up to Economy Bag. Samson kept this information to itself. The insurance policy identified Pet Products as the insured, but the amount insured was the amount shown on Samson's invoice to Economy Bag plus 10%. The packing list was typed on Pet Products' stationery. This showed its address and its telephone and fax numbers in Thailand. It did not show the price on Pet Products' invoice to Samson or the unit price charged by Pet Products for each item.
The effect of these arrangements was that Economy Bag knew the identity of the supplier in Thailand and its contact details. These facts were known by its partners from the outset. But it did not know the extent of Samson's mark-up on the first or any of the subsequent transactions. Economy Bag left the administration of all the documentation for these transactions to Samson. It instructed the Bank in March 1991 to ask its International Division to send all documents submitted under the letters of credit to Samson as soon as they were received from Thailand. In May 1991 Economy Bag gave authority to Samson to deal with the Bank as its de facto agent on all matters concerning these imports. The Bank followed these instructions. In October 1991 Economy Bag authorised Samson to waive discrepancies in the documents on its behalf when seeking payment for the imports. Economy Bag did not ask Samson for copies of any of the documents that were sent to it by the Bank. Samson was content with these arrangements. One of the advantages of the transferable credit arrangements from its point of view was that they concealed the amount of its mark-up on its transactions with Pet Products.
The relationship came to an end unexpectedly as a result of a breakdown in these arrangements for which the Bank were responsible. In January 1993 Economy Bag asked the Bank to open a transferable letter of credit in favour of Samson in the sum of US$50,976 for a consignment of dog chews that it had ordered on 7 January 1993. The Bank complied with this request. They issued the letter of credit to Samson on 22 January 1993. On 1 February 1993 Samson instructed the Bank to transfer the credit to Pet Products in the sum of US$43,932.50 and to debit its account with the Bank with the transfer charges. The transaction proceeded normally until 15 March 1993, when the Bank in error sent a completion statement and other documents including Pet Products' invoice to Economy Bag instead of to Samson. The effect of the Bank's error was to reveal to Economy Bag the substantial profit that Samson was making on these transactions. On this occasion it amounted to a mark-up of 19% on the amount payable to Pet Products by Samson, excluding the 5% handling charge. This was as much, if not more than, the amount of the profit that Economy Bag was making on its transactions with its own distributors.
Mr Taylor was angry when he discovered the size of the mark-up. He decided to cut Samson out of Economy Bag's system for importing the dog chews from Thailand. He terminated their relationship. Four contracts that were already on foot were performed. But thereafter Economy Bag bought its dog chews from Pet Products direct. In the year ending March 1994 it purchased 15 shipments from Pet Products worth US$257,944. Between March 1994 and March 1995 it purchased 28 shipments worth US$468,296. Between March 1995 and March 1996 it purchased 23 shipments worth US$462,467. Between March 1996 and March 1997 it purchased 25 shipments worth US$645,429. Mr Taylor's evidence at the trial in 1998 was that its business was still continuing on that scale, and that it also did business with other suppliers in the Far East which would have been done through Samson if their relationship had continued.
As for Samson, the loss of its business with Economy Bag had disastrous consequences. It deprived it of its principal source of income. It had to cease trading. The partnership was dissolved.
The issues
The judge, HH Judge Kershaw QC, held that the Bank was in breach of an obligation of confidence under its contract with Samson not to disclose to Economy Bag any of the documents relating to its purchase of goods from Pet Products. These documents included the invoice by Pet Products to Samson. It was the disclosure of this document to Economy Bag that revealed the amount of the profit that Samson was making on the transaction. There was no appeal against that part of his judgment. It was common ground in the Court of Appeal that the Bank was in breach of its contract with Samson when it disclosed the invoice to Economy Bag.
The judge then found that Samson was entitled to damages for loss of the opportunity to earn profits from its trading relationship. He held that there was a significant chance that Samson's trading relationship with Economy Bag would have continued for a further four years. But in view of the uncertainties he reduced the profit which had been projected by Samson for each of these years for the purposes of his award, and he increased the amount of the reduction year by year. The...
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