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||Neutral Citation Number:  EWHC 661 (Comm)
||Case No: 2011 FOLIO 1214
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
MR JUSTICE LEGGATT
|| Newland Shipping and Forwarding Limited
||- and -
||Toba Trading FZC
Alan Maclean QC & Edward Harrison (instructed by Holman Fenwick Willan LLP) for the Claimant
Stephen Cogley QC & Peter Ferrer (instructed by Stephenson Harwood LLP) for the Defendant
Hearing dates: 25 – 27 February 2014
HTML VERSION OF JUDGMENT
Crown Copyright ©
|A. Newland's Claim
|History of the Contract
| The lots argument
| The variation argument
|The parties' arguments
| The notice argument
|The relevant principles
|Was there a repudiatory breach?
|Effect of the notice
|Quantum of loss
|B. TOBA's Counterclaim
|The outstanding amount
Mr Justice Leggatt:
- The trading relationship between the parties to this action got off to a bad start from which it never really recovered. In August and September 2010 the claimant, Newland Shipping and Forwarding Ltd ("Newland"), entered into two contracts for the sale of, respectively, gasoil and gasoline to the defendant, Toba Trading FZC ("Toba"). Under these contracts, which I will call the "Previous Contracts", Toba made advance payments totalling approximately US$3.2 million for goods which were never shipped. Newland said that there were no available stocks of gasoline or gasoil at the Turkmenbashi Oil Refinery from where the products were to be sourced. However, when Toba then asked for the money back, Newland said that they were experiencing "problems with immediate cash" and were not able to return the pre-payments because almost all their money was "stuck with different suppliers".
- As a solution, Newland proposed a scheme in January 2011 whereby Newland would enter into new contracts to sell petroleum products to Toba and would make a 20% deduction from all invoices raised under such contracts which would go towards refunding the earlier pre-payments. Toba agreed to this proposal.
- Two contracts were concluded as part of this arrangement. The first was a contract dated 5 February 2011 for the sale by Newland and purchase by Toba of gasoil and gasoline "CFR Iranian Caspian Port". This contract has been referred to as the "Caspian Contract". The second contract dated 17 March 2011 was for the sale by Newland and purchase by Toba of 5,000MT +/-10% in seller's option of hydropurified gasoil to be delivered CPT Serkhetabad Station, Turkmenistan. It is under this contract – which I shall refer to simply as "the Contract" – that Newland's claim in this action arises.
- Both the Caspian Contract and the Contract were terminated by Newland in early April 2011. In the case of the Caspian Contract, this happened after a ship carrying cargo due to be delivered to Toba was arrested on arriving in the port of Neka in Iran and the cargo was seized before payment had been made by Toba. The arrest and seizure of the cargo took place in proceedings brought in the Iranian Courts ostensibly by a third party but which Newland alleges were part of a plot contrived by Toba to get hold of the cargo without paying for it. In the case of the Contract, termination took place before any goods were delivered to Toba.
- Newland's claim in this action is for sums said to be payable by Toba upon the termination of the Contract after Toba failed to pay for goods which had been shipped. Toba denies that there was a valid termination of the Contract by Newland and denies that any of the sums claimed is in any event recoverable.
- This action was originally due to be tried at the same time as another action in which Newland claimed damages under the Caspian Contract. However, Toba failed to comply with case management directions in that action, with the result that on 15 November 2013 judgment was entered against Toba in both actions. Toba subsequently applied for relief from sanctions, which on 6 February 2014 was granted by Hamblen J in the present action but refused in the action concerning the Caspian Contract. This action has therefore been tried on its own.
- Toba has advanced a counterclaim (which was also advanced in the other action) for restitution of the advance payments made under the Previous Contracts. Newland's answer to this counterclaim, in brief, is that any right to repayment of this money which previously existed was replaced by contractual rights under the Contract and the Caspian Contract. It is said that under those contracts the parties agreed a mechanism for the return of the pre-payments which excludes any remedy in unjust enrichment.
- The body of this judgment is in two parts. Part A addresses Newland's claim under the Contract and Part B addresses Toba's counterclaim.
A. NEWLAND'S CLAIM
- As mentioned, the Contract was for the sale and purchase of 5,000MT +/-10% in seller's option of hydropurified gasoil to be delivered CPT Serkhetabad Station, Turkmenistan. The principle of a CPT Contract is that the price charged by the seller for the goods includes the cost of carriage to the destination. Unless otherwise agreed, it is the seller's responsibility to arrange carriage but risk passes to the buyer when the goods are delivered to the carrier.
- The source of the hydropurified gasoil (also known as Ultra Low Sulphur Diesel or "ULSD") was specified in the Contract as the Turkmenbashi Oil Refinery, which is in the west of Turkmenistan. The product was to be transported by rail from Turkmenbashi Railway Station to Serkhetabad, which is in the east of Turkmenistan, near the border with Afghanistan. The price was fixed according to a formula based on a published Platt's price. By clause 11, title to the product was to be "transferred from seller to buyer after the 100% payment is effected as per seller's instructions".
- The key clause for present purposes is clause 7 dealing with payment. This stated:
"payment for each shipped lot not less than 20 rtcs or 1000mt on seller's option to be done within 2 (two) banking days after the final price will be known, against the seller's invoice and copy of rwb [i.e. Railway Bill] and Customs Declaration.
seller shall deduct from his invoices 20% of its value as a refund of outstanding balance formed by earlier pre-payments from buyer which sellers got [sic] by contract dtd 18.09.2010 and contracts dtd 20.08.2010.
payment will be considered as done and executed only after crediting of the relevant amount to the seller's bank account.
in case if buyer fails to pay for cargo in period more than 5 days then the seller has the right to cancel the contract and to sell the cargo to other customers, and buyer will be obliged to compensate to seller all the losses and demurrage connected with such failure.
the exchange rate applicable for all calculations is: 1 us dollars = 3.68 ae dirhams. … "
- Also relevant is clause 12, which stated:
"Limitation of liability
except as expressly provided for in this contract, neither seller nor buyer shall be liable for any direct or indirect, consequential or special losses, damages or expenses of any kind, directly or indirectly arising out of or in any way connected with the conclusion, performance, failure to perform or the termination of this contract."
- The Contract provided in clause 15 for English law and jurisdiction, and clause 17 included the following relevant other terms:
"where not in conflict with the foregoing, incoterms 2000 as latest amended for 'cpt' deliveries to apply.
no amendment to this contract shall be binding unless agreed in writing and signed by both parties hereto."
History of the Contract
- Most of the communications regarding the operation and performance of the Contract took place between Mr Bayram Seitnepesov, the Operations Manager at Newland, and Mr Sayed Majed Taheri, the Commercial Manager of Toba. Mr Seitnepesov and Mr Taheri were both called as witnesses and gave oral evidence at the trial (in Mr Taheri's case by video link). However, their evidence was almost entirely redundant as, with the exception of one telephone conversation the content of which was not in dispute, all the relevant communications were by email.
- In brief outline, after the Contract was signed, Newland arranged for 18 rail tank cars (RTCs) to be loaded with ULSD at Turkmenbashi Railway Station. 13 RTCs were loaded on 21 March 2011 with ULSD weighing 759.096MT in total. An invoice for the price of this product was issued on 22 March 2011. Also on 22 March 2011 a further 5 RTCs were loaded with ULSD weighing 289.168MT. A preliminary invoice for the price of this product was issued on 22 March 2011, which was superseded by a final invoice dated 23 March 2011.
- As soon as these invoices were issued, Newland started pressing for payment.
- On the basis that under clause 7 of the Contract payment for the goods was due within two banking days after the final price was known on 22 March 2011, the last date of payment was Friday, 25 March 2011. In an email sent on 24 March 2011, Mr Seitnepesov told Mr Taheri that Newland had decided to wait for payment until Saturday (26 March). However, no payment was made on the Saturday; and on Monday, 28 March 2011 Mr Seitnepesov started pressing for payment again.
- No payment was made that week. The only explanation given by Toba was that it was having problems with "the Afghan party". This was a reference to Mahmood & Jalil Co ("M&J"), a company carrying on business in Afghanistan which had been named as the consignee of the goods in the railway bills and to which Toba was selling on the cargo.
- On 3 and 4 April 2011 some communications took place which, on Toba's case, amounted to a variation of the Contract. I will refer to the details of these communications later when I consider the issue whether the contract was varied.
- On 7 April 2011 Mr Taheri informed Mr Seitnepesov by telephone and email that Toba had received payment from M&J. However, in his email Mr Taheri said that:
"in order for us to be able to effect the payment to your account, we need to have the confirmation from M&J that they have received the cargo, or at least are in total control of the cargo. In that way their account with us will be debited for this cargo, and accordingly we can consider you credible as per our agreements."
- Mr Seitnepesov replied almost immediately to say that the issues mentioned by Mr Taheri were "your internal issues with M&J". He continued:
"As per contract, you should pay in 2 banking days after loading from Turkmenbashi.
Please arrange payment ASAP.
Waiting for your SWIFT confirmation."
A little later that day Mr Seitnepesov sent another email saying:
"Please act accordingly to the signed contract and do not put any additional requirements.
Awaiting for the SWIFT confirmation."
- No payment was received that day and on the following day (8 April 2011) Newland sent a notice by email to Toba terminating the Contract. The exact meaning and effect of this notice is in dispute and I will return to it later.
- Newland's claim, as presented with admirable economy by Mr Maclean QC, is simple. Toba did not pay the price of the goods within two banking days after the final price was known on 23 March 2011, as required by clause 7 of the Contract. Nor did Toba pay within five days, thus giving Newland the right under clause 7 to cancel the Contract. Newland exercised that right by a notice sent on 8 April 2011. The Contract was thereby terminated and Toba is liable pursuant to clause 7 to compensate Newland for all losses connected with Toba's failure to pay for the goods.
- Toba denies that there was a contractual termination of the Contract on three alternative grounds. I will refer to these three grounds, respectively, as the "lots argument", the "variation argument" and the "notice argument", and will consider them in turn.
(1) The lots argument
- The first line of defence raised on Toba's behalf by Mr Cogley QC is to deny that the price of the goods became payable under clause 7 of the Contract on 25 March 2011, or indeed at all. The basis of the argument is that clause 7 provided for payment within two banking days "for each shipped lot not less than 20 RTCs or 1000MT on seller's option". It is Toba's case that there was no shipped lot of not less than 20 RTCs or 1000MT. Rather there were two lots which were loaded on different days and were the subject of separate invoices, namely:
i) A lot of 759.096MT loaded on 13 RTCs on 21 March 2011, for which an invoice was issued on that day; and
ii) A lot of 289.168MT loaded on 5 RTCs on 22 March 2011, for which a preliminary invoice was issued that day and a final invoice on 23 March 2011.
- Toba contends that, as neither lot reached the threshold of 20 RTCs or 1000MT, clause 7 was inapplicable. In these circumstances the default rule provided by section 28 of the Sale of Goods Act 1979 operates that payment became due on delivery. Toba argues that delivery for this purpose would occur when Toba became entitled to possession of the goods on their arrival at the destination railway station. The first RTCs did not in fact reach Serkhetabad until 15 April 2011 – by which time the Contract had on any view been terminated. Accordingly, Toba contends that the price of the goods never became payable and Newland had no right to terminate the Contract under clause 7.
- This argument, first raised in a re-amendment to the defence put forward shortly before the start of the trial, appears to have been a late thought by Toba's lawyers and is none the better for that. Certainly it bears no relation to how matters were perceived by the parties at the time. When Newland issued the invoices for the goods dated 22 and 23 March 2011 and claimed payment under clause 7 of the Contract, Toba did not demur that payment was not due. Instead, Toba gave various reasons for the delay in payment including issues raised by its buyer. This remained the position when Newland purported to terminate the Contract. Indeed, paragraph 8 of Toba's defence, before it was re-amended, admitted that payment became due on 25 March 2011.
- On behalf of Toba, Mr Cogley submitted that none of this matters and that, if the "lots argument" is correct in law, it is irrelevant that Toba was not aware of its legal rights at the time. In many circumstances that would be a valid stance to take. But in this case I think the perception of the parties at the time does matter. A "lot" is not a kind of thing that occurs naturally and which you can recognise when you see one. It is a grouping made by a particular person for a particular purpose. The evident purpose of the lot requirement in clause 7 was to ensure that a minimum quantity of goods would have to be shipped before Newland could claim payment for them.
- No reasonable commercial party could have intended that what constitutes a "lot" should depend on the number of invoices (or other documents) issued or on whether loading takes place without interruption. Nor could they conceivably have intended that if, on a retrospective analysis of the 'true' number of lots, it should turn out that there was a shipped lot of less than 20 RTCs and 1000MT, payment for this lot would not be governed by the payment obligations specified in the contract but by a different set of default rules. Such a scheme would be a commercial nonsense.
- The meaning of the first paragraph of clause 7, as I interpret it, is that the seller is entitled to designate a quantity of cargo as a "lot" and claim payment for it, provided that the quantity so designated fills not less than 20 RTCs or weighs at least 1000MT.
- That is what happened here. On 19 March 2011 Newland informed Toba by email that it had given an instruction to position 18 RTCs for the loading of the cargo, which was going to be approximately 1050–1100MT. Newland thereby designated as a lot the cargo loaded on these RTCs, which in fact as loaded weighed about 1049MT and was therefore above the contractual threshold.
- I would add that, had the cargo when loaded weighed less than 1000MT, the result in my view would not have been to render clause 7 inapplicable. It would have been that Newland needed to make up the lot, by loading either at least three more RTCs or sufficient cargo to bring the total loaded quantity above 1000MT. At that point Newland could have issued a further invoice and claimed payment for the first "shipped lot".
- Accordingly, I see no merit in Toba's "lots arguments". In my opinion, once cargo in excess of 1000MT had been loaded and invoiced (with copies of the railway bills and customs declarations provided), as had occurred by 23 March 2011, Newland was entitled to claim payment under clause 7 of the Contract within two banking days – exactly as the parties understood at the time.
(2) The variation argument
- The second argument advanced by Toba is that, even if payment for the cargo became due on 25 March 2011 – as I have held that it did, the parties subsequently agreed a variation of the Contract which had the effect of postponing the time for payment until the cargo was delivered, not to Serkhetabad station as originally agreed, but to the railway station at Turgundi in Afghanistan.
- The communications which, on Toba's case, varied the terms of the Contract occurred on 3 and 4 April 2011. On 3 April 2011 Toba sent an email requesting Newland to arrange for the RTCs to be carried to Turgundi station. Newland replied saying that this would require additional expenses and in consequence the product price "will increase preliminarily by USD15.35 per MT". Newland asked Toba to confirm this increase in price. Shortly afterwards Newland sent another email saying that, in addition, they would need to charge US$50 per RTC per day for any days spent waiting to cross the border. Newland said that they would also need from Toba a confirmation from Turgundi station and the terminal located there that they were ready to accept and discharge cargo delivered to the address of M&J.
- According to the evidence of Mr Taheri, which Mr Seitnepesov did not dispute, they discussed the increased costs specified in these emails in a telephone conversation on 4 April 2011 and Toba accepted these costs orally. Mr Taheri then sent an email timed at 15.46 on that day asking Newland to send the railway invoice for the delivery to Turgundi station and saying that Toba would "arrange the station confirmation accordingly".
- Newland replied at 16.22 on 4 April 2011 attaching an invoice for "preliminary extra expenses for delivery of RTCs to Turgundi Station" in the sum of US$16,090.85. The email also said: "Awaiting your payment and confirmation from Turgundi".
- On 6 April 2011 Toba sent an email saying that M&J insisted on having, along with the invoice, a "permit for Serkhetabad–Turgundi from the Railway Company". It is common ground that the permit referred to is a permit which is needed in Turkmenistan to allow transport between two stations. Newland did not immediately respond to this request but on 7 April 2011 requested Toba to "immediately effect a payment for the cargo and provide us with confirmation that cargo delivered by us will be safely accepted and discharged at Turgundi station."
- Toba's response was to say (in the email quoted at paragraph 20 above) that they would not effect payment until they had confirmation from M&J that they had received the cargo or at least were in total control of the cargo. That led to Newland sending a notice on 8 April 2011 to terminate the Contract.
The parties' arguments
- On behalf of Toba, Mr Cogley QC submitted that the communications on 3 and 4 April 2011 resulted in an agreement to change the destination of the cargo from Serkhetabad to Turgundi and change the price of the product, as the additional carriage and expenses were now to be included in the price. This meant that under clause 7 payment would not be due until two days after the final price was known. Only a preliminary invoice was issued on 4 April 2011 and, even if this triggered the payment obligation, the five day period specified in clause 7 had in any event not expired when Newland purported to terminate the Contract on 8 April 2011.
- Newland's response is that the Contract was never varied at all. There was merely an agreement in principle that Newland would perform an additional service of shipping the cargo from Serkhetabad to Turgundi for an additional charge. However, that agreement was subject to (a) payment of the outstanding invoices and (b) Toba providing a confirmation from Turgundi station that they were willing to accept and discharge the cargo. Neither condition was ever fulfilled. Alternatively, if there was a variation or other concluded agreement, it was for an additional journey and did not displace Toba's accrued obligation to pay the price which had already been incurred.
- It does not seem to me that there was ever a concluded agreement for Newland to arrange carriage to Turgundi. There was merely a negotiation which began on 3 April and was still continuing on 7 April 2011, when Toba asked Newland to provide a permit for the rail carriage from Serkhetabad to Turgundi. It is unclear whether Newland was insisting on the provision of a confirmation from Turgundi station as a pre-condition of concluding a further agreement or whether, as Mr Cogley submitted, the provision of such a confirmation was simply a term of the proposed further agreement. However, as Mr Cogley pointed out, the documents which Newland had provided to Toba under the Contract did not cover carriage to Turgundi. In particular, the railway bills specified the destination station as Serkhetabad and referred to further onward transport by automobile.
- Mr Cogley sought to argue that, by agreeing to deliver the cargo to Turgundi, Newland impliedly agreed to provide whatever further documents were necessary for this purpose, which included the permit requested by Toba. I cannot accept that argument. It might be implicit that Newland would obtain any necessary permits, but I can see no basis by which Newland could assume an obligation to provide documents other than by express agreement. No such agreement was ever reached.
- Furthermore, an agreement that Toba could postpone payment of the sums which were already overdue until two days after the final price of the additional carriage from Serkhetabad to Turgundi was known would need to have been made expressly. It is one thing for Newland to agree to arrange a further stage of carriage in order to assist its customer but inherently unlikely that Newland would agree to relinquish an accrued right of payment. Such an intention cannot possibly be inferred simply from the fact that Newland agreed to provide a preliminary invoice for the extra expenses of delivery to Turgundi station. Rather, the implication is the other way round. The fact that Newland kept pressing for payment without respite shows that it did not agree to any postponement of the payment obligation which had already arisen. It follows that there was no variation of the Contract to replace the price payable for delivery CPT Serkhetabad with a new global price payable for delivery CPT Turgundi. I note also that, had there been any such agreed variation, it would amongst other things have required a 20% deduction to be made in the invoice raised by Newland in accordance with the refund provision in clause 7. There was, however, no such deduction.
- In any event, as mentioned earlier, clause 17 of the Contract provided that:
"no amendment to this contract shall be binding unless agreed in writing and signed by both parties hereto."
There was never any signed written agreement to vary the Contract. The suggestion made that the emails exchanged between the parties somehow constituted such a signed written agreement is quite hopeless.
- For these reasons, I find that there was no variation of the Contract and that nothing occurred on 3 or 4 April 2011 which displaced or altered Toba's obligation to pay the sums which had already fallen due for payment a week previously under clause 7. Toba had by this time already been in default for more than five days and remained so at the time of Newland's purported termination of the contract on 8 April 2011.
(3) The notice argument
- The third argument made by Toba is that, even if Newland had a right to terminate the Contract pursuant to clause 7 on 8 April 2011 – as I have held that it did, Newland did not exercise that right. Instead, Newland purported to accept a repudiatory breach of the Contract. Either that purported acceptance was ineffective because there was no repudiatory breach or, if it was effective, it in any event does not give rise to any liability of Toba to pay damages because any such liability is excluded by clause 12 of the Contract.
- The inter-play between contractual rights of termination and rights of termination arising under the general law is an area which is not free from difficulty. However, valuable clarification has been provided by the analysis of Christopher Clarke J in Dalkia Utilities Services Plc v Seltech International Ltd  1 Lloyd's Rep 599 at – and Moore-Bick LJ in Stocznia Gdynia SA v Gearbulk Holdings Ltd  QB 27 (the "Gearbulk case"). I have also found instructive an article by Professor Edwin Peel, 'The termination paradox' (2013) LMCLQ 519. I will first state what I understand the relevant principles of law to be and then how they apply, in my opinion, to the present case.
The relevant principles
- In principle, a contractual right to cancel or terminate a contract (these terms generally being interchangeable) arises when the contract says it arises. No particular formality is necessary (unless the contract so provides) to exercise the right. Any communication which clearly conveys that the right is being exercised will suffice. The consequences which follow from the valid exercise of a cancellation right are again in principle whatever the contract says they are (subject to any restrictions imposed by law on the parties' freedom of contract, such as the rule against penalties). The general meaning of cancellation or termination of a contract, however, is termination of all the primary legal obligations imposed by the contract of which performance is not yet due.
- Under the general law, a party has the right to terminate a contract if the other party commits a 'repudiatory breach'. I use this term to refer compendiously to the three situations where a party (a) commits a breach which 'goes to the root of the contract' or deprives the other party of substantially the whole benefit of its performance, (b) commits a breach of a term which the parties have agreed will be a 'condition', i.e. a term any breach of which is treated as repudiatory, or (c) renounces the contract by making it clear that it is going to commit a breach of one of these two kinds. When a repudiatory breach occurs, the other party has a choice whether to terminate the contract or to affirm it (and thereby lose the right to terminate the contract for the relevant breach). Any communication which clearly conveys an election to terminate (or affirm) the contract will have that effect. Upon a valid termination, both parties are released from their primary obligations which are not yet due for performance and, in addition, "there is substituted by implication of law for the primary obligations of the party in default which remain unperformed a secondary obligation to pay monetary compensation to the other party for the loss sustained by him in consequence of their non-performance in the future": Photo Production Ltd v Securicor Transport Ltd  AC 827, 849, per Lord Diplock. The imposition of this secondary obligation reflects the repudiatory nature of the breach and the fact that the other party has refused to perform, or is treated as having refused to perform, its future primary obligations.
- All these principles are well established. It is also clear that the inclusion in a contract of an express cancellation clause will not be treated as excluding the right to terminate the contract under the general law upon a repudiatory breach unless the contract clearly says so: see e.g. the Gearbulk case at –.
- The decision of the Court of Appeal in the Gearbulk case further confirms that there is in general no inconsistency between terminating a contract pursuant to a contractual right and doing so under the general law where there has been a repudiatory breach. There was at one time a view that the exercise of a cancellation right involves treating the contract as still in force and therefore amounts to an affirmation of the contract. Since the object of exercising such a right is to terminate the contract, that would be a paradoxical result. The case of United Dominions Trust (Commercial) Ltd v Ennis  1 QB 54 nevertheless provided some support for this view. In discussing the UDT case, Moore-Bick LJ in the Gearbulk case at  noted that "these were extempore judgments delivered at a time when the principles of discharge by breach had not received the detailed analysis and exposition provided in the more recent authorities". Amongst other developments, it is now clear law that acceptance of a repudiatory breach does not extinguish all the obligations created by a contract but only those primary obligations which define the performance characteristic of the contract (e.g. the sale and purchase of goods). Other secondary and ancillary rights and obligations which regulate the termination of the contract and its consequences or are otherwise as a matter of construction intended to survive termination are not affected. There is therefore generally no inconsistency between exercising a contractual right of cancellation and enforcing its contractual consequences on the one hand and, on the other hand, terminating the contract for a repudiatory breach. It follows that, where both rights are available, a party can generally elect to exercise both rights at the same time.
- There can, however, be cases, of which the Dalkia case is an example, where exercising one of these rights is inconsistent with exercising the other because the consequences of their exercise conflict. In such a case a party who has a contractual right to cancel the contract and a right to terminate the contract under the general law cannot exercise both rights and will necessarily have to elect between them. In accordance with general principle, to make a valid election, a party in this position must clearly communicate its choice to exercise one of the rights rather that the other.
- Cases where both rights can be exercised simultaneously themselves seem to me to be of two kinds. In cases where the consequences of contractual termination and termination under the general law are identical, it is not necessary to specify which right is being exercised in order to bring about an effective termination. In such cases there is no difference in substance between the two rights which are, as Moore-Bick LJ put it in the Gearbulk case at , "in effect one and the same". However, in cases where the consequences of exercising the two rights are different, but not inconsistent, it is necessary to make it clear which right is being exercised or that both rights are being exercised; otherwise there will not be the certainty required for an effective termination.
Was there a repudiatory breach?
- I have already held that at the time when the notice of termination was sent Newland was entitled to cancel the Contract under clause 7. On behalf of Newland, Mr Maclean submitted that Toba had also committed a repudiatory breach of the Contract which Newland was entitled to accept.
- It was part of Newland's pleaded case that Toba's continuing failure to pay for the goods was a repudiatory breach of contract. Toba responded by pointing out that pursuant to section 10(1) of the Sale of Goods Act 1979, unless a different intention appears from the terms of the contract, stipulations as to time of payment are not of the essence of a contract of sale. In particular, Mr Cogley submitted that clause 7 did not evince an intention to make the time of payment of the essence of the contract; it gave Newland a contractual option to cancel and no more. I agree with that analysis. There is no reason to infer from the inclusion in the contract of a provision giving a right to cancel if the buyer fails to pay for the goods within a specified period that a failure to pay within that period is to be treated as a repudiatory breach of the contract. Rather, the natural inference is that a contractual right of cancellation is being provided because failure to pay within that period would not (or would not clearly or necessarily) give rise to a right to terminate the contract under the general law. There is no other provision of the Contract which could be said to make time of the essence. In these circumstances I do not consider that Toba's failure to pay for the first shipped lot by 8 April 2011 was a repudiatory breach of the Contract.
- However, I accept Mr Maclean's submission that the email sent by Toba on 7 April 2011 stating that Toba would not effect payment unless and until they had confirmation from their own buyer, M&J, that M&J had received the cargo or obtained total control over the cargo constituted a repudiation. By that email, Toba made it clear that it would not comply with the contractual payment obligation and was not going to pay for the goods until its buyer received or was in total control of the cargo. There was nothing in the Contract which justified that position. It was an anticipatory breach which was in my view sufficiently substantial to amount to a repudiation and give rise to a right of termination under the general law.
- In these circumstances I consider that, as at 8 April 2011, Newland had a contractual right to terminate the contract under clause 7 and also a right under the general law to terminate the contract on account of Toba's repudiatory breach. Despite my initial scepticism, on reflection I consider that Mr Maclean QC was right in submitting that there was no inconsistency between the exercise of these rights. Certainly, the consequences to which they gave rise were different. The compensation which the buyer is obliged to pay to the seller under clause 7 for "all the losses and demurrage connected with such failure" (i.e. the failure to pay for the cargo) is not necessarily co-extensive with the damages recoverable on termination for a repudiatory breach. Furthermore, it is common ground that clause 12 of the Contract (quoted at paragraph 12 above) prevents Newland from recovering any damages upon termination under the general law but does not prevent Newland from recovering the compensation provided for in clause 7 upon a valid cancellation under clause 7.
- None of this, however, gives rise to any inconsistency if both rights are exercised. The effect of terminating the contract at one and the same time under clause 7 and by acceptance of a repudiatory breach would be that Newland would have a right to be paid compensation under clause 7 and would also in principle be entitled to claim damages under the general law, albeit that Toba's liability to pay such damages is excluded by clause 12. Termination for repudiatory breach would therefore add nothing of value. But that is no reason why it could not be done.
Effect of the notice
- On this footing I turn to consider the effect of the notice sent by Newland on 8 April 2011. Since I have found that Newland was entitled to terminate the Contract under clause 7 or under the general law, or both, but that the consequences of termination under clause 7 and under the general law were different (but not inconsistent), there are logically four possibilities depending on how the notice is to be interpreted. They are that the notice had the effect of: (i) terminating the contract under clause 7 only; (ii) terminating the contract under the general law only; (iii) terminating the contract under clause 7 and under the general law; or (iv) not terminating the contract at all. The fourth of these possibilities would only arise if the notice failed to convey a clear intention to terminate the contract under clause 7 and also failed to convey a clear intention to terminate the contract under the general law.
- The precise terms of the notice sent by Newland are important to the arguments, and I will quote them in full:
"Due to the not fulfilment of obligations by your company in terms of payments for ULSD cargo (18 RTCs ex Turkmenbashi to CPT Serkhetabad) loaded as per your instructions we hereby hold you liable and responsible for all the possible costs and consequences, including but not limited to demurrage (75USD per day per RTC), we reserve our right to revert with a claim at later stage.
As per our sale contract: 'in case if buyer fails to pay for cargo in period more than 5 days then the seller has the right to cancel the contract and to sell the cargo to other customers, and buyer will be obliged to compensate to seller all the losses and demurrage connected with such failure'.
(1) Non-payment for the already loaded cargo (1048.264MT) within aforesaid contractual time period;
(2) Endless additional requirements (which are not mentioned in the contract at all) from your side in order for you to make a payment;
we found ourselves in difficult situations. So, all possible costs (direct, indirect, profit shortfall etc) will be addressed to your company.
In connection with your breach of contract, we recognise it as a repudiatory breach, therefore we consider the contract as null and void.
It discharges our company from further performance of the contract, whilst allowing us to sue for damages for loss of the benefit of the contract, including all losses of future profit.
Any other agreements which were concluded with your company before this event are cancelled as well."
- The statement in the notice that Newland was recognising Toba's breach of contract "as a repudiatory breach, therefore we consider the contract as null and void" was in my view a clear exercise of Newland's right under the general law to accept Toba's repudiatory breach of the contract as bringing performance to an end. If there were otherwise any doubt that this was intended, it is removed by the following paragraph of the notice which described its effect as discharging Newland from further performance of the contract, "whilst allowing us to sue for damages for loss of the benefit of the contract, including all losses of future profit". That is of course precisely the effect (subject to any contractual exclusion of liability) of terminating the contract for a repudiatory breach.
- I do not, however, accept Mr Cogley's argument that this was the only effect of the notice. It seems to me that the express reference to clause 7, the terms of which were quoted in the notice, was clearly intended to convey that Newland was exercising its right under that clause to cancel the contract and claim compensation for all losses and demurrage.
- Mr Cogley submitted that the purpose of referring to clause 7 was solely to support a (bad) argument that failure to pay for the cargo within the period specified in that clause was a repudiatory breach. I regard that as an unrealistic interpretation of the notice. I think it clear that clause 7 was being cited to justify the assertion in the first paragraph of the notice (repeated at the end of the third paragraph) that Toba was being held liable for all the possible costs and consequences (including demurrage) resulting from its failure to pay for "the already loaded cargo". That liability arose on the exercise of the right to cancel under clause 7. By claiming the right to recover such costs under clause 7, Newland was therefore clearly signalling that it was exercising its contractual right of cancellation.
- Furthermore, as Mr Maclean pointed out, the notice of 8 April 2011 has to be read against the background of earlier correspondence in which Newland had been threatening to terminate the Contract under clause 7. As early as 24 March 2011, Newland had reminded Toba that they could cancel the contract if they did not get payment "within five days after issuing you invoices which is not too far from today". Against that background, a reasonable recipient of the notice would have clearly understood that Newland was now doing exactly what it had previously said it would do if payment was not made soon.
- I therefore conclude that the effect of the notice was to constitute a valid exercise of both Newland's right to cancel the Contract under clause 7 and its right under the general law to terminate the Contract on account of Toba's repudiatory breach.
- If (contrary to my view) it was not possible for Newland to exercise both rights concurrently but was necessary to elect between them, the conclusion would have to be that by purporting to exercise both rights Newland did not succeed in validly exercising either. On this analysis, the notice sent on 8 April 2011 had no legal effect. Toba's response to the notice was not, however, to treat the contract as at an end but was to state in an email dated 9 April 2011 (in relation to the Contract and the Caspian Contract):
"We consider all the mutual agreements remain valid, and hope and expect you to be more patient as none of the contracts is in a breach of any kind."
- In a further email sent on 11 April 2011, Newland said that, unless they received a reply to an offer made without prejudice by 18.00 hours that day, "please consider this email as a formal notice to terminate the contract as per contractual terms". No such reply was received. If I am wrong in concluding that the Contract had already been terminated on 8 April 2011 both under clause 7 and the general law, then this email was an unequivocal election to terminate the contract under clause 7 which took effect at 18.00 hours on 11 April 2011.
- One way or the other, therefore, I conclude that Newland successfully exercised its right to terminate the contract under clause 7 and is entitled to recover compensation from Toba under that provision for all losses connected with Toba's failure to pay for the cargo. In circumstances where the contract was cancelled by reason of Toba's failure to pay, that must include all losses resulting from the cancellation of the contract.
Quantum of loss
- Newland did not purchase the cargo directly from the Turkmenbashi Oil Refinery but entered into a sale and purchase contract with an entity called East-West Logistics LLP ("East-West") on back to back terms with the Contract. East-West already had a contract dated 24 January 2011 to purchase hydropurified gasoil from the refinery. No evidence was given about how the contract between Newland and East-West came to an end after Newland cancelled the Contract nor about any claim made by East-West under its contract with Newland.
- Although such claims were pleaded, Newland did not pursue at the trial a claim for the price of the goods nor any claim for loss of profits. In his first witness statement Mr Seitnepesov said that Newland performed a distressed sale of the cargo at a loss (compared with the contract price). He accepted, however, in his oral evidence that the cargo was in fact re-sold by East-West and not by Newland. It has not been alleged that Newland was obliged to compensate East-West for any loss on the resale.
- The damages claimed are confined to three items of consequential loss consisting of charges said to have been incurred by East-West, for which Newland was allegedly obliged to reimburse East-West, as a result of the failure of Toba to pay for the cargo and the consequent non-performance of the sale contracts. The three items are:
i) Demurrage charges allegedly incurred because the RTCs were not unloaded on their arrival at Serkhetabad in the sum of US$112,875;
ii) Charges imposed by the Turkmenistan railway authorities for parking the RTCs in sidings next to the railway station in Serkhetabad in the sum of US$44,023; and
iii) Penalties totalling US$178,069.44 charged by the refinery under its contract with East-West for failure to lift the remaining cargo which would have been sold to Newland and on to Toba, if the Contract had been fully performed.
- On behalf of Toba, Mr Cogley argued that Newland has failed to prove these losses. Although the evidence produced was not entirely satisfactory, I consider it sufficient to show that on the balance of probability all the costs claimed were incurred by East-West and reimbursed by Newland. Mr Cogley also argued that the losses claimed are too remote to be recoverable. However, the phrase "connected with" is of wide scope and sufficient in my opinion to encompass indirect losses of the kinds claimed.
- I conclude that Newland is entitled to a judgment for damages for the three amounts claimed.
B. TOBA'S COUNTERCLAIM
- I have indicated at the start of this judgment the background to Toba's counterclaim for restitution of advance payments made by Toba to Newland under the Previous Contracts. It is not seriously disputed by Newland that the sums pre-paid under the Previous Contracts (amounting to AED 11,593,109.90 or US$3,150,301.60) subsequently became repayable because the basis for the payments failed. In its defence to the counterclaim Newland alleged a repudiatory breach by Toba of the second of those contracts dated 18 September 2010. This repudiatory breach was said to consist in failing to make advance payment of 100% of the price of the goods, as the contract required. However, there is no evidence that Newland complained at the time of this or any alleged repudiatory breach; nor is it alleged that Newland purported to terminate the contract on account of any such breach. It is in any event clear law that a party who commits a repudiatory breach which leads to a contract being terminated is not thereby deprived of the right to claim in unjust enrichment: see Dies v British and International Mining and Finance Corp Ltd  1 KB 724; Goff & Jones, 'The Law of Unjust Enrichment' (8th Edn) paras 3-35 – 3-39.
- It is common ground that the parties agreed a contractual mechanism for repayment of the sums repayable by Newland to Toba. There was email correspondence between the parties during the negotiation of the Caspian Contract in January 2011 and the negotiation of the Contract in March 2011 in which this arrangement was discussed. Neither party has, however, alleged that these communications had contractual force. The only relevant contractual terms are therefore those which were included in the Caspian Contract and in the Contract.
- The payment provisions in the Caspian Contract included the following term:
"seller shall deduct from his invoices for each of five delivered lots the amount of aed 2,318,321.98 as a refund of outstanding balance formed by earlier pre-payments from buyer, which the sellers got by contract dtd 18.09.2010 and contract dtd 20.08.2010. So, totally from all 5 delivered lots, the seller will refund to the buyer the full amount aed 11,593,109.90 of pending outstanding balance."
- It is apparent from this provision that, if the Caspian Contract had been fully performed, the full outstanding balance due to Toba would have been repaid. In fact, however, the Caspian Contract was terminated after only one lot had been shipped. A deduction of AED 2,318,321.98 or US$654,709 was made from the price payable for this lot in accordance with the contract, which reduced the outstanding balance to US$2,495,592.60. This deduction has been taken into account in the sum for which Newland has obtained judgment in the other action relating to the Caspian Contract.
- The present Contract also included a provision for repayment in clause 7, quoted earlier but which I repeat for convenience:
"seller shall deduct from his invoices 20% of its value as a refund of outstanding balance formed by earlier pre-payments from buyer which sellers got by contract dtd 18.09.2010 and contracts dtd 20.08.2010."
- The total price of the product shipped under the Contract was expected to be about US$6 million. If the Contract had been fully performed, a deduction of 20% from the sums invoiced would therefore have resulted in repayment to Toba of about US$1.2 million.
- It clearly could not have been intended that Toba should receive a full refund of the outstanding balance of around US$3.2 million under the Caspian Contract and further payment of around US$1.2 million under the Contract. Emails exchanged between the parties on 18 March 2011 when the Contract was being negotiated show that the intention of including a further refund provision in the Contract was to speed up the process of repayment and that, once the full amount had been refunded, no further sums were to be deducted from any invoices raised by Newland. If the emails are regarded as inadmissible, as they probably are, that is in any event the obvious intention to attribute to the parties.
- The issue is whether Toba can claim repayment of such part of the outstanding balance as had not been refunded before the Caspian Contract and the Contract were terminated on account of Toba's repudiatory breaches of those contracts.
- Toba argues that the fact that contractual mechanisms for repayment were agreed does not mean that, when those mechanisms failed, the obligation to repay the outstanding balance disappeared and no longer exists.
- Newland's case is that this is indeed the position. Mr Maclean submitted that the effect of the agreed repayment provisions in the Caspian Contract and the Contract was to replace Toba's right to claim in unjust enrichment with a set of contractual rights to have sums deducted from invoices. Toba has only itself to blame that it has now lost the benefit of those rights, except insofar as they had already accrued, when the contracts were terminated as a result of its own repudiatory breaches.
- Mr Maclean relied in support of this case on the general principle that, if the parties to a contract have made express or implied provision for the return of payment where the basis for those payments has failed, the contractual remedy excludes a remedy in unjust enrichment: see Goff & Jones, 'The Law of Unjust Enrichment' (8th Edn) para 3-28. Thus, in Pan Ocean Shipping Co Ltd v Credit Corp Ltd (The Trident Beauty)  1 WLR 161, the time charterer of a ship paid an instalment of hire in advance (as required by the charterparty) to an assignee of the owners. The ship was off-hire for the entire period of the charter, and the charterers sought to recover their pre-payment of hire by way of a claim in restitution on the ground that the basis of the payment had failed. That claim was rejected by the House of Lords. Lord Goff based his reasoning on the fact that the charterparty provided for any overpaid hire to be returned to the charterers. He said (at p.164):
"All this is important for present purposes, because it means that, as between shipowner and charterer, there is a contractual regime which legislates for the recovery of overpaid hire. It follows that, as a general rule, the law of restitution has no part to play in the matter; existence of the agreed regime renders the imposition by the law of a remedy in restitution both unnecessary and inappropriate."
- Although the majority of the appellate committee decided the case on other grounds, Lord Goff's statement of principle has not been doubted and has been applied in other cases: see e.g. MacDonald, Dickens & Macklin v Costello  QB 244. Newland contends that the imposition of a remedy in restitution is similarly inappropriate in the present case, as it would undermine the contractually agreed allocation of risk.
- The Trident Beauty illustrates that, where the right to repayment of money is regulated by contract, the law will not superimpose a remedy in restitution based on unjust enrichment. In so far as such a restitutionary remedy would coincide with the contractual right, it is unnecessary; and in so far as it would differ, such a remedy is inappropriate because enrichment sanctioned by the contract is not unjust.
- In this case, however, unlike The Trident Beauty, a right to recover money on the basis of unjust enrichment existed before the relevant contracts were made. The question is therefore not whether it was necessary or appropriate for the law to impose a remedy in restitution, but whether a remedy which the law undoubtedly did impose was extinguished by agreement. There is nothing in the terms of either the Caspian Contract or the Contract which so provides either expressly or as a matter of necessary implication.
- The burden of Newland's case is that Toba agreed to give up an unconditional right to be repaid approximately US$3.2 million and to receive instead rights to repayment which were conditional on the Caspian Contract and the Contract being performed. It is not suggested that Toba received any inducement to agree to such an arrangement. This is, as I see it, an inherently improbable and unreasonable intention to attribute to the parties. The more reasonable interpretation, in the absence of clear words to the contrary, is that the contractual provisions were intended to be a way of effecting repayment as quickly as possible, against a background where Newland had said that its money was tied up with suppliers and it did not have the cash immediately available (see paragraph 1 above); but was not intended to be the only way in which Toba could ever recover the outstanding sum, such that the sum due to Toba would cease to be payable if the contractual mechanism failed.
- I am reinforced in this conclusion by the fact that the provisions for repayment included in the Caspian Contract and the Contract would, if fully operated, have resulted in a 'refund' of more than the full amount. This demonstrates that neither provision was intended to be the only way in which Toba could obtain repayment. If that is so for each of the contractual provisions considered individually, I do not see why the provisions when considered collectively should be understood as intended to be exclusive.
- Mr Maclean submitted that, if the question had arisen during the performance of the Caspian Contract or the Contract whether it would be consistent with the parties' bargain for Toba to recover the prepayments in a claim for unjust enrichment, the answer would clearly have been 'no'. Similarly, if the question had arisen whether it would be consistent with the parties' agreement for Toba not to pay for the cargo and then, once the contract was discharged, recover the advance payments directly via an unjust enrichment claim, the answer would be the same. It would, Mr Maclean submitted, be very surprising if the parties' intention had been that Toba could improve its position by breaching its contracts.
- It must be right that Toba could not have maintained a claim in unjust enrichment during the currency of the Caspian Contract or the Contract for the sums to be repaid under those contracts. That, however, is because it was implicit in the parties' bargain that Toba would forbear to exercise its right to make such a claim in unjust enrichment for as long as the Caspian Contract and the Contract remained in force. But I see no reason to infer any intention that Toba should lose that right altogether if the contracts were terminated before the full outstanding balance had been repaid. It would be unjust for Newland to retain the benefit of the prepayments in those circumstances. The fact that Toba committed repudiatory breaches of contracts should not deprive it of a restitutionary remedy any more than it would do if the prepayments had been made under the Caspian Contract and the Contract themselves.
The outstanding amount
- The only remaining question is what part of the balance originally outstanding has been repaid by Newland. As mentioned, it is common ground that the balance was reduced by the amount of AED 2,318,621.98 (US$654,709) deducted from the invoiced amount of the first (and in the event only) shipment under the Caspian Contract. In the course of argument, I suggested that the same logic should apply to the deduction made in the sums invoiced for the lot shipped under the present Contract – a suggestion which Mr Maclean adopted.
- Mr Cogley argued that the 20% deduction in the invoiced amount should be treated in the same way as payment of the invoice. In circumstances where the price was never paid and Newland now accepts that it cannot maintain a claim for the price, Toba should not be treated as having received a deduction from the price. Mr Maclean responded that the 20% deduction has nothing to do with a claim for the price. It was simply a mechanism for effecting repayment and repayment occurred when credit was given by reducing the amount which would otherwise have been invoiced.
- I have concluded on reflection that, as experience teaches is not infrequently the case with points suggested during argument from the bench, the point is a bad one. The matter can, I think, be tested by asking what the position would be if Toba had paid the price (less the 20% discount credited on Newland's invoices) and the Contract had then been terminated because of a repudiatory breach by Toba before the goods had been delivered. As already discussed, Toba would in those circumstances be entitled to repayment of the price. It must, I think, follow that the 20% credit would also fall to be reversed in those circumstances. The position where the price was never actually paid must be a fortiori.
- Put more simply, Toba has not received the benefit of the 20% deduction because it is not liable to pay the sums from which the 20% deduction was made.
- I conclude that Toba is entitled to judgment on its counterclaim in the sum of US$2,495,592.60.
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