Niru Battery Manufacturing Company v Milestone Trading Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Moore-Bick |
| Judgment Date | 11 July 2002 |
| Neutral Citation | [2002] EWHC 1425 (Comm) |
| Docket Number | Case No: 1999 Folio 910 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 11 July 2002 |
[2002] EWHC 1425 (Comm)
The Honourable Mr Justice Moore-Bick
Case No: 1999 Folio 910
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr. Ali Malek Q.C. and Mr. David Quest (instructed by Richards Butler) for the claimants
The first and second defendants did not appear and were not represented
Mr. Ali Mahdavi in person
Mr. Michael Bloch Q.C. and Miss Karen Maxwell (instructed by Clyde & Co) for the fourth defendants
Miss Geraldine Andrews Q.C. and Miss Zoe O'Sullivan (instructed by Ashurst Morris Crisp) for the fifth defendants
Mr Justice Moore-Bick
Introduction
The first claimant, Niru Battery Manufacturing Company ("Niru"), is an Iranian company which, as its name suggests, carries on business as a manufacturer of batteries. For this purpose it requires substantial quantities of lead for use as a raw material. In the early part of 1998 Niru entered into a contract with the first defendant, Milestone Trading Limited ("Milestone"), for the purchase of 10,000 metric tons of lead ingots for shipment to Iran. Milestone was a subsidiary of Woralco Holdings Ltd, an English company owned by a discretionary trust established for the benefit of the Mahdavi family of which the third defendant, Mr. Ali Mahdavi, is a member. Mr. Mahdavi is an Iranian who left Iran at the time of the Islamic Revolution and subsequently established a successful metal trading business in this country. Woralco Holdings is the holding company of a group whose business is the production and trading of non-ferrous metals. Milestone itself was incorporated in the Republic of Ireland and was used by the Woralco group as a single purpose vehicle for entering into the contract with Niru. It had no significant assets of any kind.
The first contact between Niru and the Woralco group occurred in January 1997 when Woralco Ltd, the principal trading company in the group, wrote to Niru expressing interest in tendering for the supply of lead ingots. Its letter, which was addressed to Niru's commercial manager, was seen by the managing director, Mr. Rahnama, who gave instructions to find out who had brought Niru to Woralco's attention. It was then passed to Mr. Ahadifar, the deputy head of the Commercial Department, who passed it to Mr. Khodayari, a member of the Foreign Purchase department, for action. Mr. Khodayari quickly made contact with Mr. Mohammed Sadri, a long standing friend of Mr. Mahdavi who acted as a commercial agent for the Woralco group in Iran. In response to the letter of enquiry Niru sent a fax to Woralco inviting it to submit an offer for the sale of 10,000 metric tons of lead ingots in the form of a pro forma invoice. The fax, which was written in English, was signed by Mr. Ahadifar and a copy was sent to Mr. Sadri. Woralco did submit an offer and although these initial contacts did not ultimately bear fruit, contact between Niru and Woralco and between Niru and Mr. Sadri as Woralco's agent had been firmly established.
The sale contract
In September 1997 Niru invited tenders for the supply of a further 20,000 metric tons of lead from a number of companies including Woralco. It appears that as a result of its earlier offer Woralco had by then been added to Niru's list of acceptable suppliers. On 23 rd October Woralco responded by making an offer to supply 10,000 metric tons of lead on terms broadly similar to those previously quoted. These included, in particular, a provision for payment to be made by letter of credit against FIATA multimodal bills of lading and a certificate of weight and quality issued by SGS.
Over the course of the following three months negotiations continued between the parties. At the end of November 1997 Milestone was substituted as seller for Woralco in response to Niru's refusal for political reasons to enter into a contract with a British company. During this period the negotiations were mainly directed to the quantity of goods to be supplied and the price at which they should be sold. Many months earlier Niru had secured from the Central Bank of Iran US$5.84 million in foreign exchange in order to enable it to buy lead from a Swiss supplier. Its negotiations with the Swiss seller had eventually fallen through, but Niru had retained the benefit of the foreign currency allocation which thereafter played a large part in its negotiations with Woralco. Fluctuations in the market price of lead also played an important part since Niru wanted to make full use of the currency available to it and also to obtain as keen a price for the goods as possible.
In the event the negotiations between Niru and Milestone culminated in an agreement on the terms of a pro forma invoice sent by Milestone to Niru on 2 nd February 1998. This provided for the sale by Milestone to Niru of 9,000 metric tons +/-15% of lead ingots of Canadian origin c.&f. Bandar Abbas at a premium of US$16 per metric ton over the LME market price on a range of dates to be determined by Niru, basis f.o.b. stowed. Payment was to be made by letter of credit opened by Bank Sepah Iran against presentation of FIATA multimodal transport bills of lading and (among other documents) an inspection certificate issued by SGS.
The letter of credit
On 14 th March 1998 Niru made an application to the Chamran branch of Bank Sepah for the opening of a letter of credit in favour of Milestone in the sum of US$5,838,000. The credit was opened the next day and was advised to Milestone through Bank Sepah's branch in London. The letter of credit called for the presentation of ocean bills of lading rather than FIATA bills, but Milestone immediately requested an amendment which was duly made.
By the time the pricing period under the contract arrived the market price of lead had fallen and Niru was therefore in a position to buy a greater quantity than originally agreed with the amount of foreign currency already allocated to it. Milestone therefore agreed to sell Niru a further 1,400 metric tons, thereby increasing the total contract quantity to 10,400 metric tons. The price of the goods was US$5,837,480.
In 1998 the import of goods into Iran was closely controlled by the Central Bank of Iran. In January 1996 the Central Bank had issued a circular to all Iranian banks making the submission of an inspection certificate issued by an approved inspection company a mandatory requirement in respect of all goods to a value of more than US$20,000 imported into Iran under letters of credit. A list of the inspection companies approved by the Central Bank was set out in Appendix No. 1 to the circular, one of which was SGS.
Paragraph 3 of the circular provided that the inspection company should be free to determine the method of inspection and the place at which it should begin, but required that the inspection be completed by supervision of the loading of the goods or the delivery of the goods to the freight forwarder in the case of carriage by air or rail. It also provided that the certificate should clearly state that the goods loaded were the same goods as had been inspected and that the date of issuing the certificate should be the same as, or later than, that of the bill of lading. In order to implement these requirements banks were obliged to include in all letters of credit a clause containing the specific form of words set out in Appendix No. 2. This required the presentation of an original inspection certificate issued not prior to the bill of lading date certifying that "the quality, quantity and packing of the goods loaded" strictly complied with the contract.
SGS had an office in Iran and maintained a Tehran Co-ordinating Office in Geneva to advise local SGS offices around the world responsible for carrying out inspections in countries of export on the requirements of the Iranian authorities. It is clear that the Tehran Co-ordinating Office and local SGS offices in general were well aware of the requirements set out in the Central Bank of Iran's circular and of the need to observe them scrupulously.
The Woralco group's relationship with Crédit Agricole Indosuez
The Woralco group had banked with Crédit Agricole Indosuez ("CAI") from 1992. Since 1995 its primary point of contact at the bank had been Mr. Paul Francis, a member of the Commodity and Trade Finance Department. Milestone itself was not a customer of CAI, nor did it have financing arrangements with any other bank. It was a shell company used by Woralco simply for the purposes of the sale to Niru and relied entirely on Woralco to obtain the finance required to enable it to perform the contract.
Although Mr. Mahdavi had been successful in building up the business of the Woralco group, in 1998 its finances were in a parlous condition. Woralco Ltd had entered into a substantial project for the management of an aluminium smelter in Tajikistan, but had become embroiled in a dispute with the government which had led to its insolvency. By the autumn of 1998 the group had exhausted its credit lines with CAI and could not finance the purchase of the lead needed to fulfil the contract with Niru without additional facilities. During the latter part of 1998 Mr. Mahdavi tried to persuade the bank's senior managers to provide the group with further long term facilities, but his efforts proved unsuccessful. CAI itself was the result of a merger between Crédit Agricole and Banque Indosuez which had taken place not long before and the bank's policy in relation to trade financing was subject to review in London and Paris. In order to enable Mr. Mahdavi to...
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