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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Bv Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises, Inc.  EWHC 1857 (Comm) (24 July 2018)
Cite as:  EWHC 1857 (Comm),  1 All ER (Comm) 543
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
B e f o r e :
| BV NEDERLANDSE INDUSTRIE VAN EIPRODUKTEN
|- and -
|REMBRANDT ENTERPRISES, INC.
Nigel Tozzi QC and Simon Goldstone (instructed by Squire Patton Boggs LLP) for the Defendant
Hearing dates: 18-20, 22, 25 and 27 June 2018
Crown Copyright ©
Mr. Justice Teare :
|Approval of inspection procedures||3-36|
|The contract and the renegotiated price||37-64|
|Breach of warranty||115-134|
|NIVE's invoice claims||167|
Approval of inspection procedures in the Netherlands by the US
"The Netherlands Food and Consumer Product Safety Authority (NVWA) will be present at all facilities while they produce for the USA. This includes egg………establishments during the period of production for the USA.
The producing facilities are responsible to ensure the presence of the NVWA. For its part, the NVWA will make available the appropriate staff at the time of production for the USA."
"When producing a batch egg product destined for the US, the NCAE inspector is present during the breaking of the eggs and the checking of the batch when it is ready, sampling and testing has taken place and the results are available. This means 2 inspection visits per batch. During the 2nd inspection visit, the precertification checks can be performed. The contents of the precertification checks depends on what NVWA will require in this regard for the US export certification.
The NCAE inspection consists of a hygiene inspection, verification of the heating step (hotroom) and the outcomes of the tests. These points will be inspected during the 2 inspection visits. In any event, the breaking process is inspected during the 1st visit and the checking of the batch, registrations of the hotroom and outcomes of the tests during the 2nd visit. The other points are distributed across the 2 inspection visits."
"1. During processing of egg products intended for export to the US, COKZ/NCAE will perform oversight at the establishment concerned. The content of this oversight has been described in the procedure/assessment list which has been submitted to FSIS earlier (NCAE Inspection list for egg products to USA vs dd June 2014-v1).
2. The eggs intended to be processed for the US batches of egg products will be candled. The process will take place at the packing stations. COKZ/NCAE will inspect the candling process at the packing stations in accordance with the appropriate assessment points of COKZ/NCAE inspection list "Beoordelingslijst eiren pakstations handelsVo – 20131204-DEF, inspection points are 1100-1123. In addition, at the egg processing establishment, the eggs will be inspected at time of breaking the eggs (see NCAE Inspection list for egg products to USA vs dd June 2014-v1)."
"In case of production of a batch of egg product intended for USA the Netherlands competent authority, NCAE …..inspector is present:
– When breaking the eggs:
–At time the batch is ready to be exported. Thus when laboratory results are available. In practice this means that per batch 2 separate verification visits are being carried out. The second inspection takes place during the check for the export certification. The content of export control for certification depends on the requirements of NVWA ……….since NVWA is responsible for issuing export certificates. These requirements/inspection points are additional to this inspection list.
The NCAE-audit consists of sanitation control, verification of heating step (hotroom or pasteurization) and verifying the results of laboratory analysis.
The inspection points (see below) are to be inspected during the 2 verification audits. The process of breaking eggs will be inspected during the first visit. The control of the batch, hotroom or pasteurization registrations and results of the lab tests will take place during the second visit. The remaining points are distributed over the 2 control visits.
"…specifically for export to the US, a separate (draft) inspection list for oversight on establishments (intending) to export of egg products to USA has been complied:
[CAT 2] NCAE inspection for list for egg products to USA vs dd June 2014-vl. See annex C1a.
And a statement has been written to declare that, at time of exporting egg products to US, candling will be part of the processing procedure:
[Cat 7] Statement COKZ.NCAE; additional requirements egg processing plants. See annex C1b.
This (draft) inspection list is based upon the EU regulations (see above) and specific requirements of USA:
[Cat 1] Para 590.504 General Operating Procedures."
"The CCA has made a commitment, through a letter from the CVO, to provide for direct and continuous official inspection of the processing of egg products intended for export to the United States. This measure will be fully implemented once reinstatement of equivalence is granted, and the establishment are certified. Continuous inspection of products produced for export to the US will be conducted throughout all hours of operation and phases of processing covering breaking eggs as well as filtering, mixing, blending, pasteurizing, stabilizing, cooling, freezing or drying, or packaging egg products. "
"The Netherlands' inspection system for egg products provides for periodic supervisory visits and audits of the food safety system. A representative of the inspection system visits each establishment proposed for certification for US export. ………."
"The inspection and verification activities conducted at establishments seeking certification for egg products export to the US follow a distinct inspection list (COKZ/NCAE Inspection List for Egg Products to USA). The list is used to verify that egg products processing plants regulatory requirements are consistent with those in the US and that documented results indicate whether or not all the specific requirements are met. "
"The audit results establish that the Netherlands' egg products inspection system meets the equivalence requirements."
The contract and the renegotiated price
"We also still need to agree on the cost for grading and inspection, which we have estimated as EUR 2.50/kg after thorough calculation. This request has been forced by the USDA, not by our authorities. Also we would like to have some kind of comfort by trading for example 50% fixed and 50% Urner Barry to manage our cash position. At the same time when the market calms down later during the contract, you will have the revenues of this mechanism."
"It is up to you to accept it or not, but I think you understand we cannot do a business which gives us a loss. Please let me know how you wish to proceed….. "
"215. A representation is a statement of fact made by the representor to the representee on which the representee is intended and entitled to rely as a positive assertion that the fact is true. In order to determine whether any and if so what representation was made by a statement requires (1) construing the statement in the context in which it was made, and (2) interpreting the statement objectively according to the impact it might be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee: see Raiffeisen, supra, at ; Kyle Bay Ltd v Underwriters Subscribing under Policy No. 01957/08/01  Lloyd's Rep IR 460, 466, at –, per Neuberger LJ.
216. In order to be actionable a representation must be as to a matter of fact. A statement of opinion is therefore not in itself actionable. However, as stated in Clerk & Lindsell para 18-13:
"A statement of opinion is invariably regarded as incorporating an assertion that the maker does actually hold that opinion; hence the expression of an opinion not honestly entertained and intended to be acted upon amounts to fraud."
217. In addition, at least where the facts are not equally well known to both sides, a statement of opinion by one who knows the facts best may carry with it a further implication of fact, namely that the representor by expressing that opinion impliedly states that he believes that facts exist which reasonably justify it – see Clerk and Lindsell para 18-14, citing among other cases Smith v Land and House Property Corp (1884) 28 Ch D 7, 15, per Bowen LJ, and Brown v Raphael  Ch 636.
218. A statement as to the future may well imply a statement as to present intention: "that which is in form a promise may be in another aspect a representation" - Clerk & Lindsell, para 18-12, quoting Lord Herschell in Clydesdale Bank Ltd v Paton  AC 381, 394.
221. In a deceit case it is also necessary that the representor should understand that he is making the implied representation and that it had the misleading sense alleged. A person cannot make a fraudulent statement unless he is aware that he is making that statement. To establish liability in deceit it is necessary "to show that the representor intended his statement to be understood by the representee in the sense in which it was false" – per Morritt LJ in Goose v Wilson Sandford & Co.  Lloyd's Rep PN 189 at para. 41. In other cases of misrepresentation this is not a requirement, but one would generally expect it to be reasonably apparent to both representor and representee that the implied representation alleged was being made.
222. It is necessary for the statement relied on to have the character of a statement upon which the representee was intended, and entitled, to rely. In some cases, for example, the statement in question may have been accompanied by other statements by way of qualification or explanation which would indicate to a reasonable person that the putative representor was not assuming a responsibility for the accuracy or completeness of the statement or was saying that no reliance can be placed upon it. Thus the representor may qualify what might otherwise have been an outright statement of fact by saying that it is only a statement of belief, that it may not be accurate, that he has not verified its accuracy or completeness, or that it is not to be relied on: Raiffeisen, supra, at .
"Yes, that depends on what you see as "genuine". I accept that it's overstated, so it's a question whether it's then still genuine or not. As I said, it was an overstated figure."
"Our negotiations for the extra EUR 2.50/kg were standard commercial negotiations between two equally experienced companies."
"You take a position and you try to end up at a certain point."……………
"So the 2.50 is merely the price increase which is being asked."
"In the context of these kind of discussions, it had been clear to Rembrandt that there was an element of renegotiating the price in the light of increasing market prices and raw material costs was involved in the discussions."
"232. As analysed by Christopher Clarke J in Raiffeisen, supra, at -, to establish inducement for the purpose of a claim under s.2(1) of the Misrepresentation Act, it is necessary to show that, but for the representation, the claimant would not have entered into the contract that he did."
"233. In that case, Christopher Clarke J concluded that where a fraudulent misrepresentation has been made, the requirement is weaker: it is sufficient to show that the representation was a factor in the claimant's decision and that but for it he might have acted differently - Ibid at -, referring to Barton v Armstrong  AC 104 and Barton v County NatWest  Lloyd's Rep 408; and see also Dadourian Group International v Simms  1 Lloyd's Rep 601, 618 at  + . This conclusion was challenged by Barclays. It submitted that a fraudulent representation must cause a loss to create a cause of action and to do so it must cause the entry into the contract from which the loss is said to arise. It follows that it must induce the representee to enter into the contract and be a cause of him doing so. It is not necessary to resolve this issue but I propose to proceed on the basis that the approach of Christopher Clarke J is correct. "
The defence of breach of warranty
"This product shall be of food grade and in all respects including labelling in compliance with Federal Food, Drug and Cosmetic Act if 1938 as amended and all applicable regulations thereunder."
"….just as a plant which is granted approval in the US must produce product under continuous inspection and in compliance with the regulatory requirements, the mere listing of a plant as eligible to import product to the US does not operate as a waiver of the requirements that the plant comply with the underlying regulatory requirements. The failure to do so results in the product being ineligible for distribution in commerce in the US. The requirements in 9 CFR Section 590.910 make clear that egg products from a foreign country must still meet the same standards and requirements applicable to comparable domestic product. To suggest that the approval of a foreign country operates as waiver of these requirements would render the regulatory requirements meaningless and is not correct…"
"(a) Whenever it is determined by the Administrator that the system of egg products inspection maintained by any foreign country is such that the egg products produced in such country are processed, labelled, and packaged in accordance with, and otherwise comply with, the standards of the Act and these regulations including, but not limited to the same sanitary, processing, facility requirements, and continuous Government inspection as required in section 590.500 through 590.580 applicable to inspected articles produced within the United States, notice of that fact will be given by listing the name of such foreign country in paragraph (b) of this section. Thereafter, egg products from the countries so listed shall be eligible subject to the provisions of this part and other applicable laws and regulations, for importation into the United States. Such products to be imported into the United States from these foreign countries must meet, to the extent applicable, the same standard and requirements that apply to comparable domestic products as set forth in these regulations. "
"This product is to be produced in an establishment in the Netherlands under an inspection system certified by USDA/FSIS as equivalent to USDA/FSIS inspection and produced, packed and supplied in accordance with and otherwise meeting all European Regulations and requirements."
Rescission for misrepresentation
Surplus egg yolk
"…..Rembrandt shall purchase and NIVE will supply 175 metric tons per month of Products, for a total of 2100 metric tons of the Products for each Contract Year during the Term; provided, that for July and August 2015, it is recognised that a ramp up in volume will occur, and that during such period, NIVE shall be obligated to supply any volumes of Products eligible to be exported to the US. Such purchases shall otherwise take place at the approximate volumes set forth in Exhibit B, attached hereto, as adjusted by mutual written agreement between the parties. Each load shall consist of approximately 22 metric tons of Products."
The Henningsen %
"If NIVE is entitled to recover lost profits from Rembrandt, NIVE shall, within fourteen Business Days of the date of a payment from Rembrandt to NIVE in respect of such profits, pay to Henningsen the total sum of EUR6,189,667……If NIVE recovers only a proportion of the total costs claimed against Rembrandt, it will pay to Henningsen the same proportion of EUR6,189,67. 514"
14. The principle of transferred loss is a limited exception to the general rule that a claimant can recover only loss which he has himself suffered. It applies where the known object of a transaction is to benefit a third party or a class of persons to which a third party belongs, and the anticipated effect of a breach of duty will be to cause loss to that third party. It has hitherto been recognised only in cases where the third party suffers loss as the intended transferee of the property affected by the breach. The paradigm case is the rule which has applied in the law of carriage of goods by sea ever since the decision of the House of Lords in Dunlop v Lambert (1839) 2 Cl & F 626, that the shipper may sue the shipowner for loss of or damage to the cargo notwithstanding that the loss has been suffered by the consignee to whom property and risk (but not the rights under the contract of carriage) have passed. In Albacruz (Cargo Owners) v Albazero (Owners)  AC 774, 847 Lord Diplock, with whom the rest of the Appellate Committee agreed, expressed the rationale of the carriage of goods rule as being that:
"in a commercial contract concerning goods where it is in the contemplation of the parties that the proprietary interests in the goods may be transferred from one owner to another after the contract has been entered into and before the breach which causes loss or damage to the goods, an original party to the contract, if such be the intention of them both, is to be treated in law as having entered into the contract for the benefit of all persons who have or may acquire an interest in the goods before they are lost or damaged, and is entitled to recover by way of damages for breach of contract the actual loss sustained by those for whose benefit the contract is entered into."
The party recovering is accountable to the third party for any damages recovered: ibid, p 844.
15. In Linden Gardens Trust v Lenesta Sludge Disposals Ltd  1 AC 85, this rationale was extended to contracts generally. A contractor had done defective work in breach of a building contract with the developer but the loss was suffered by a third party who had by then purchased the development. The developer recovered the loss suffered by the purchaser. Lord Griffiths, however, suggested (at p 97) that the result could be justified on what has become known as the "broader ground". This is that the developer had himself suffered the loss because he had his own interest in being able to give the third party the benefit that the third party was intended to have. He could recover the cost of rectifying the defects because it represented what the developer would have to spend to give the third party that benefit, even though he had no legal liability to spend it. On the broader ground, the principle would not be limited to cases where the loss related to transferred property.
16. It is, however, important to remember that the principle of transferred loss, whether in its broader or narrower form, is an exception to a fundamental principle of the law of obligations and not an alternative to that principle. All of the modern case law on the subject emphasises that it is driven by legal necessity. It is therefore an essential feature of the principle that the recognition of a right in the contracting party to recover the third party's loss should be necessary to give effect to the object of the transaction and to avoid a "legal black hole", in which in the anticipated course of events the only party entitled to recover would be different from the only party which could be treated as suffering loss: see Alfred McAlpine Construction Ltd v Panatown Ltd  1 AC 518, 547-548 (Lord Goff), 568 (Lord Jauncey), 577-578 (Lord Browne-Wilkinson), 582-583 (Lord Millett). That is why, as the House of Lords held in this last case, it is not available if the third party has a direct right of action for the same loss, on whatever basis.
17. In the present case the relevant duty was owed to Swynson but the loss has in the event been suffered by Mr Hunt. Since Mr Hunt did not suffer his loss in his capacity as the owner of property, only the broader principle of transferred loss could be relevant to his case. Like others before me, I consider that there is much to be said for the broader principle. But it is not necessary to decide the point on this appeal because it is plain that the principle cannot apply in either form to the present facts. The reason is that it was no part of the object of the engagement of HMT or indeed of any other aspect of the 2006 transaction to benefit Mr Hunt. That is the main reason why no duty of care was owed to him. It is also one reason why the engagement letter was unassignable without consent. Mr Hunt's loss arises out of the refinancing of December 2008, which had nothing to do with HMT and did not arise out of their breach of duty.
"The essential feature of the broader ground is that the contracting party A, although not himself suffering the physical or pecuniary damage sustained by the third party C, has suffered his own damage being the loss of his performance interest, ie the failure to provide C with the benefit that B had contracted for C to receive. "
NIVE's invoice claims
Rembrandt's damages caused by the misrepresentation