Shearson Lehman Brothers Inc. v Maclaine Watson & Company Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LLOYD,LORD JUSTICE NICHOLLS,SIR JOHN MEGAW |
| Judgment Date | 19 December 1986 |
| Judgment citation (vLex) | [1986] EWCA Civ J1219-9 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 86/1164 1986 S. No. 3358 |
| Date | 19 December 1986 |
[1986] EWCA Civ J1219-9
Lord Justice Lloyd
Lord Justice Nicholls
and
Sir John Megaw
86/1164
1986 S. No. 1535
1986 S. No. 3358
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 BINGHAM)
Royal Courts of Justice.
MR. S. STAMLER, Q.C., MR. I. GLICK and MISS M. MORGAN (instructed by Messrs. Simmons & Simmons) appeared on behalf of the (First Plaintiff) Appellant.
MR. S. KENTRIDGE, Q.C. and MR. J. HIRST (instructed by Messrs. Clyde & Co.) appeared on behalf of the (Second Defendant) Respondent.
The facts of this case are fully set out in the judgment of Mr. Justice Bingham. It is unnecessary to repeat them here in any detail, since the principal question for our decision concerns the correct interpretation of the rules relating to interim payments. The question can be stated in this way. Section 32 of the Supreme Court Act 1981, re-enacting previous legislation, enables rules of court to be made whereby a party to any proceedings in the High Court may be ordered to make an interim payment to any other party. "Interim payment" is defined as a payment on account of any damages, debt or other sum excluding costs. The current rules are contained in Order 29 rules 9–17. The application for an interim payment is made under rule 10. Rule 11 enables the court to make an order when satisfied that, if the action proceeded to trial, the plaintiff would have obtained judgment for substantial damages. Rule 12 enables the court to make an order when satisfied that, if the action proceeded to trial, the plaintiff would obtain judgment for a substantial sum of money apart from any damages or costs. So if the action is an ordinary action for the price of goods, where the property has passed to the buyer, and the court is satisfied that the plaintiff will obtain judgment for the price, or part thereof, the order will be made under rule 12. If, on the other hand, the property has not passed, and the action is for damages for non-acceptance of the goods, the order will be made under rule 11.
But what happens where there is a dispute whether the property has passed or not? What happens if the court is satisfied that the plaintiff seller will recover either the price or damages for non-acceptance, but is uncertain which? That is essentially the question here. Common sense seems to cry out that the plaintiff should obtain an interim payment of whichever of the two is the lesser sum, leaving him to establish the greater, if he can, at the trial. If he is bound to recover one or the other at the trial, why should he have to wait until it is decided which? So to hold would seem to defeat the legislative purpose behind section 32 of the Supreme Court Act 1981. It is certainly not a result which the section requires. Yet two judges have felt compelled to reach that conclusion by the way the rules are drafted: Mr. Justice Hobhouse in Sankyo Kaiun Kabushiki Kaisha v. Opia [ unreported, 16th November, 1983], and Mr. Justice Bingham in the instant case. Both, it is needless to add, felt considerable reluctance.
During the summer of 1985 Shearson Lehman Brothers Inc., the first plaintiffs in the case, sold large quantities of tin to the second defendants, J.H. Rayner (Mincing Lane) Limited, under standard forms of contract incorporating the rules and regulations of the London Metal Exchange. Rayners are ring-dealing members of the Exchange. Shearsons are not. The contract called for delivery at three months on various dates during the autumn. The total price amounted to £23.9 million.
On the 24th October, 1985 the manager of the buffer stock held by or on behalf of the International Tin Council announced that he could not meet his commitments. He had bought enormous quantities of tin for which he could not pay. As a result the market closed the same day, and, subject to an argument to which I shall return later, has remained closed ever since.
On the 30th December, 1985 Shearsons wrote to Rayners saying that they were ready, willing and able to deliver the tin. On the 3rd January, 1986 Rayners replied that they were not obliged to take delivery "since tin quotations and clearing have been in suspension since 24th October." On the 16th January, 1986 Shearsons' solicitors, Messrs. Simmons and Simmons, wrote demanding that Rayners take immediate delivery of the tin. On the 17th January, 1986 Rayners' solicitors, Messrs. Clyde and Co., replied that Rayners would take delivery when the market re-opened. On the 6th March, 1986 the inter-governmental negotiations which had been continuing since the 24th October, 1985 finally broke down. At 0947 hours on the 7th March, 1986 Messrs. Simmons and Simmons telexed Messrs. Clyde and Co. that, whatever might be decided as a result of the breakdown of negotiations, Shearsons would hold Rayners to their contract. Later the same day the committee of L.M.E. promulgated what became known as rule M.
The effect of rule M, in broad terms, was that all open contracts with delivery date falling on or after the 25th October, 1985 were to be closed, and balanced by re-purchase contracts at a settlement price to be announced later in the day. The settlement price so fixed, which became known as the "ring out price", was £6,250 per metric ton. Payment of any difference between the ring-out price and contract prices was to be made not later than the 12th March, 1986. It is agreed that the differences in the present case amount to £7.2 million. Rayners admit that they would have been liable to pay that sum on the 12th March, 1986 if Shearsons had been willing to accept the validity of rule M. But Shearsons do not admit the validity of rule M. They say that their contracts are unaffected. Their primary claim in the action is for the full contract price, namely £23.9 million. But they concede that, for the purposes of their application for an interim payment, the court cannot be satisfied that the property in the tin has passed. Accordingly they rely on their alternative claim for damages for non-acceptance. They calculate their damages for non-acceptance at a minimum figure of £7.2 million.
Rayners deny liability for breach of contract. But assuming they are liable for damages at all, they say that £7.2 million is an exaggeration. According to Rayners' calculations, as set out in their affidavit evidence, damages for non-acceptance "would not exceed 5.2 million pounds." Mr. Kentridge, for Rayners, argued that this does not amount to an admission as to quantum. He may be right. But it is certainly evidence on which, together with other evidence, Mr. Justice Bingham could be satisfied, as he was, that Shearsons would at the trial recover either£5.2 million as damages for non-acceptance or£7.2 million as the rule M difference. Why then did he decline to order an interim payment in the lesser sum of £5.2 million?
The answer lies in the way Order 29 rules 11 and 12 are drafted. The judge asked himself two questions. First, was he satisfied that the plaintiffs would recover damages for non-acceptance? He answered that question No; for so to decide would prejudice the central question at the trial, whether rule M is valid or not. Secondly, he asked himself whether he was satisfied that the plaintiffs would recover the rule M difference. Again he answered No; for that again would prejudice the central question. If, instead of asking himself two question, he had asked himself the single question, was he satisfied that the plaintiff would recover either damages for non-acceptance or the rule M difference, there is no doubt he would—and did—answer Yes. By separating the question into two, he felt compelled to answer both questions No. Was he obliged to separate the question into two?
Before attempting to answer that question, I should quote the passage from Sankyo Kaiun Kabushiki Kaisha v. Opia, where Mr. Justice Hobhouse grappled with the same problem, apparently for the first time. In that case the plaintiff had three causes of action in the alternative, two in debt and one in damages. Mr. Justice Hobhouse said at page 2:
"On the first point it is argued by the Defendant that one must distinguish between Rules 11 and 12 and between the first and third causes of action which come within Rule 12 only, and the second cause of action which comes within Rule 11 only. The causes of action and the rules cannot be combined so as to produce an order for an interim payment which would not be justified by either rule separately applied to the relevant cause or causes of action. In effect this argument is that there is a simple lacuna in the rules so that a Plaintiff is not entitled to any Order where he can only say, 'I have a case which will result in judgment in my favour worth at least £lm. but I cannot at the moment satisfy the Court that it will be a judgment for damages nor can I satisfy it that it will be a judgment for a debt'. With much regret I can see no satisfactory answer to this argument. The Act does not require that there should be this lacuna. It serves no useful purpose. The separate causes of action in damages can be combined to justify an interim payment; why should not a cause of action in damages and a cause of action in debt? The application for...
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