Whose Loss is it Anyway? Transferred Loss in the Court of Appeal

Published date01 September 2019
Date01 September 2019
Author
DOI10.3366/elr.2019.0576
Pages401-406
INTRODUCTION

A damages “black hole” arises where there is a contract between A and B, B breaches the contract, and the resultant loss wholly or partly transfers to C. The transferred loss doctrine resolves these black holes by allowing A to claim against B in respect of C's loss.1 There are two competing views regarding the justification for recovery of C's loss: the broad and narrow grounds. According to the former, the loss ultimately falls on the contracting party, which recovers for its own loss. The narrow ground provides that the loss falls on the third party, and the contracting party recovers on its behalf.

BV Nederlandse Industrie van Eiprodukten v Rembrandt Enterprises Inc. 2 is a recent Court of Appeal case that provides comment on three aspects of the doctrine: which ground is accurate, whether intention to benefit the third party at the point the contract was concluded is a prerequisite for a claim on the basis of the broad ground, and whether there is a damages black hole where the third party can recover its loss against the contracting party which was not in breach. This note summarises the facts of the case, and then considers these issues in turn.

THE FACTS<xref ref-type="fn" rid="fn3"><sup>3</sup></xref>

In 2015, the USA suffered an avian flu epidemic. Rembrandt Enterprises Inc. (“Rembrandt”) was forced to destroy over half of its birds. In order to honour its contractual commitments, it engaged BV Nederlandse Industrie van Eiprodukten (“NIVE”) to supply various dry egg products over a two-year period. Following re-negotiation of the price of the products, NIVE commenced shipments from the Netherlands on 6 September 2015. Later that month, NIVE advised that a portion of egg white powder would be supplied by Henningsen van den Burg (“Henningsen”), a fellow member of the Interovo company group.

Shortly thereafter, Rembrandt suspended performance of the contract due to NIVE's alleged non-compliance with US regulatory standards. NIVE sued to recover the resulting loss of profit suffered by it and Henningsen. The transferred loss claim in respect of Henningsen's loss was rejected because NIVE and Rembrandt had not intended to benefit Henningsen when the contract was concluded.4

In the course of renegotiating the price of the products, NIVE indicated that a price increase was required due to unanticipated regulatory costs. Rembrandt sued NIVE for breach of warranty, alleging that these statements amounted to fraudulent misrepresentation. Lord Justice Longmore provided detailed comment on whether inducement is a requirement of fraudulent misrepresentation.5 However, this note focuses on the dicta on transferred loss.

THE BROAD AND NARROW GROUNDS

Lord Justice Coulson ascertained, based on the “clear guidance” in Lowick Rose LLP v Swynson Ltd and another,6...

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