#6634 - Adras Building Material Ltd V. Harlow And Jones - Commercial Remedies BCL

Adras Building Material Ltd v. Harlow & Jones (Israel SC)

Facts

Adras agreed to purchase 7000 tons of steel from Harlow at DM620 per ton. The seller imported from Poland sufficient steel to fulfill the contract and all but 1,762 tons was duly dispatched. Following the outbreak of the Yom Kippur war and prior to the time for performance, the seller received from a third party an offer to purchase the remainder of the steel for DM804.70 per ton. The seller accepted this offer despite the buyer’s protests. The buyer did not purchase an alternative supply on the market but in 1976 it claimed (i) damages for breach of the contract (ii) restitution of the seller’s profits.

The appellant could not prove any loss because it was not proved that at the relevant time the market price was greater than the agreed contract price.

Holding

S Levin

I have already said in my judgment that we should not confuse the right to restitution under the Contract (Remedies) Law, s. 9 and the general claim to the unjust enrichment of a breaching party who has been enriched by the breach at the innocent party’s expense. In the first case, restitution is meant to put the parties back in the position they were in before the contract. In the second case the aim is to prevent unjust enrichment outside the frame of the contract.

I conclude that there is nothing in the existing legislation which prevents the application of the general principle which we have already adopted, according to which a party to the contract who is in breach and received a benefit as a result of the breach at the innocent party’s expense must pay this benefit back to the performing party. This result in achieved both by the Unjust enrichment law and also according to the common law prior to the statute.

I can see no reason why we should limit the law of restitution to a proprietary right. On the contrary, there are very important reasons against such a limitation. There is no justification for the view that he who is enriched at the other party’s expense can retain profits which he made in this way. The argument that there is no harm to any property in such a case as the present is in my opinion, meaningless. Is it not true that the right of a person to sell his merchandise to his customers should be protected in the same way as his right to hold his personal property or his land? Limiting the right to restitution to proprietary rights reminds me of a situation which existed in Israel when a person whose trousers were damaged in an accident was entitled to damages, but was not entitled to damages for personal injury itself.

Ben Porath J. (Dissenting)

Even if we accept Prof. Friedman’s view, the claim for the proceeds from the sale must be rejected in our case. I must elaborate. The assumption that the appellant had a proprietary interest in the steel which was stored in Hamburg is in my opinion wrong. A tracing order can only be given as to specific property to which “protected interest” is attached, as opposed to contractual obligations which are not tied to any specific property and do not have any link between the plaintiff and specific property. The contract between the parties was for the sale of 7000 tons of steel but no specific property was allocated to the appellant as part of the agreement between the parties. The seller was allowed therefore to continue its business and sell any steel it wished out of its stock, including the types of steel the appellant required. The appellant could not point to any steel as the specific steel the seller had to supply.

The fact that, for the purpose of the shipment, the respondent stored in Hamburg, steel which fits the appellant’s requirements is not in itself sufficient to transport a simple contract for the sale of steel into a contract for the sale of the steel stored by the respondent. Since the respondent is a steel dealer based in Germany, there is a good reason to assume that it sold simultaneously to various customers different types of steel. And it is hardly surprising if one type of steel is sold to more than one buyer.

However, at no stage was specific steel allocated to the appellant. Since “such allocation is an act in itself” the respondent was allowed at any stage to revoke the allocation of steel to the contract if there was one.

Barak J.

Whether, as a matter of principle, the law confers on the innocent party a right to claim from the party in breach the benefit that the latter has obtained, where the innocent party suffered no loss whatsoever, and the contract has not been terminated. This question is not simple. My colleague S Levin J has analysed this question at length and he came to the conclusion that, as a matter of judicial policy, the law of unjust enrichment does give the innocent party a right to claim that benefit , and this conclusion applies regardless of whether or not the contract has been terminated. In his opinion, this conclusion emerges from the general principle, which prohibits unjust enrichment, and it is not related to the distinction between legal and equitable proprietary rights and personal rights. His opinion is based on considerations of justice to the innocent party, and the need to deter the party in breach so as to ensure performance of the contract in good faith.

In the face of this dispute between my colleagues, my opinion I similar to that of S Levin J. like him, I am of the opinion that, in order to prevent unjust enrichment, Israeli law recognises a general principle of unjust enrichment and that, by virtue of this general principle, the innocent party is entitled to claim the benefit which the breaching party obtained from of the breach, and this principle applies regardless of whether the contract is for the sale of specific or non-specific goods, and regardless of whether the buyer has, or does not have a proprietary right of some kind.

… the principle question arises, which is whether in the context of the appeal before...