#6608 - Uzimterimpex V. Standard Bank - Commercial Remedies BCL

Uzimterimpex v. Standard Bank

Facts

The claimant, Uzinterimpex JSC (then known zas FBC Innovatsia), against the defendant, Standard Bank plc, for US$916,267.36. The claim arose out of a contract for the sale by Uzinterimpex, an Uzbek state company, to an English cotton trader, A Meredith Jones & Co Ltd, of 50,000 metric tonnes (“mt”) of cotton and the arrangements made with Standard Bank to obtain the finance needed to pay for the goods.

The contract provided that the goods were to be shipped at the rate of 8,000 mt a month between October and December 1997 and at the rate of 8,666 mt a month between January and March 1998.

Between October 1997 and September 1998 a number of parcels of cotton were delivered by Uzinterimpex at the various ports or places provided for in the sale contract. In some cases documents were tendered to the bank which conformed to the terms of the letter of credit or which the bank was willing to accept (no doubt on the instructions of AMJ) despite the fact that they did not. In such cases the bank took the steps necessary to reduce the amount of the guarantee in accordance with its terms. However, from the outset both sides experienced difficulties in performing the contract. AMJ failed to give instructions for the shipping of cotton in the amounts and at the times required and Uzinterimpex was unable or unwilling to make prompt presentation under the letter of credit of documents complying with its terms.

Bank’s refusal to discharge the goods despite release of the injunction

When the bank made its call on the guarantee it was still holding documents of title to 8,170 mt of cotton which had been presented by Uzinterimpex for payment but which did not conform to the letter of credit. The bank asked AMJ whether it was willing to accept the documents, but it declined to do so. On the same day AMJ commenced arbitration against Uzinterimpex under the auspices of the Liverpool Cotton Association seeking damages for non-delivery of part of the cotton sold under the contract. At the same time it obtained without notice an injunction restraining Uzinterimpex from dealing with any of the cotton covered by the documents of title held at the bank's counters. In fact less than a half of the cotton covered by the documents still remained in warehouse; AMJ had already managed to obtain delivery of the rest. The injunction remained in place until 17 April 2000 when it was discharged by consent following an admission by AMJ that it had sold about 5,455 mt of the cotton before the application had been made, a matter which it had entirely failed to draw to the attention of the court. However, notwithstanding the discharge of the injunction, the bank refused to release the documents on the grounds that, although the loan had by then been repaid, it was entitled to retain them as security for any further liability AMJ might have under the facility agreement, including any liability that might arise as a consequence of the claim then being made by Uzinterimpex.

Uzinterimpex’s claim in conversion

The claimant here claims damages for conversion of the cotton covered by the documents which the bank had refused to release following the discharge of the injunction.

Bank’s argument that Uzinterimpex failed to mitigate loss

In order to minimise the effect of all these the bank suggested on 9 August 2000 that the goods should be sold and the proceeds held in a blocked account to await the outcome of the dispute. However, Uzinterimpex refused to agree to that course of action, so the goods remained in warehouse for many months until it managed to procure their release by other means. By that time they had deteriorated in value and the storage costs had risen very substantially. The judge found that Uzinterimpex's refusal to agree to a sale of the cotton was unreasonable and accordingly he held that it had failed to mitigate its loss and could not recover the storage charges incurred after that date or the subsequent fall in the value of the cotton itself.

Holding

Finding by the Lower Court

The judge held that, although by refusing to release the documents of title to cotton still held in warehouses in various ports in Europe and the Middle East the bank had converted the goods, Uzinterimpex had acted unreasonably and in breach of its duty to mitigate by refusing to agree to the sale of the goods and the payment of the proceeds of sale into a joint account to abide the resolution of the dispute. He therefore held that that it was not entitled to recover damages in respect of any loss incurred after mid-September 2000 when it should have agreed to the bank's proposal.

On the facts, Uzinterimpex failed to mitigate loss – commercial context

Having rejected the documents, the bank could only hold them for Uzinterimpex's account, as the arbitrators subsequently held, and therefore Uzinterimpex had some justification for thinking that the bank had embarked on a cynical attempt to improve its own position. It had, after all, adopted contradictory positions, first insisting that it had no interest in the cotton, then at the last minute asserting that it had. However, I do not think that significantly affects the matter. Self-interested conduct of that kind, though unattractive, is not unknown in the world of commerce and rarely justifies a complete breakdown in relations. Commercial institutions, including banks and those who trade in commodities, are in business to make money and in the absence of fraud generally find it more rewarding to maximise their profits and minimise their losses in whatever way is open to them rather than to stand on principle.

Equally, I do not think that there is much force in the argument that it was unreasonable to expect Uzinterimpex to enter into negotiations with a thief (to use Mr Gruder's own expression).

The cotton itself had no intrinsic quality other than that of a commodity whose value could be realised by sale in the open market and it is unlikely that the court would have granted an order for specific delivery in any event. The fact that the bank had made a claim under the guarantee to recover the price paid in advance seems to me to be neither here nor there when it came to deciding how best to preserve the value of the cotton as a commercial asset.

In the end the judge had to decide whether objections based on practical considerations of that kind were strong enough, taken in conjunction with Uzinterimpex's other objections, to justify its refusal to accede to the disposal of the goods. He came to the clear conclusion that they were not, and I am not persuaded that on the evidence before him his decision was wrong.

Is there a duty to mitigate in claims for conversion?

Duty to Negotiate with a thief argument

Mr Gruder's primary argument was that Uzinterimpex was under no duty to mitigate its loss in this case because of the nature of the wrongful act on which the claim is based. If that is right, it can only be because there is a special rule applicable to the tort of conversion or because the nature of the loss is not capable of being reduced by any subsequent actions of the victim. To say that a person whose goods have been wrongfully seized by another is not obliged to negotiate with the person who...