Sale of goods - Payment - Letter of credit - Damages for breach letters of credit
Barclay Pharmaceuticals Ltd and others v Waypharm LP and others: QBD (Comm) (Mrs Justice Gloster): 28 February 2012
The claimant companies operated as importers and wholesalers of pharmaceutical and household products.
The first defendant limited partnership conducted business in the wholesale sourcing and supply of pharmaceutical and household products, and foodstuffs. It had a trading relationship with the claimants until early 2006. The second defendant (M) qualified pharmacist effectively owned and controlled the first defendant. M owned and controlled the fourth defendant company, which performed a treasury function for the defendants’ group.
In December 2005 and February 2006, the first defendant, on M’s instructions, presented invoices and forwarders’ certificates of receipt (FCRs) under letters of credit. The first defendant discounted the letters of credit and received the discounted sums, which it transferred to the fourth defendant’s bank account. The goods, the purported subject matter of the invoices, were not delivered to the first claimant. The claimants commenced proceedings against the first and fourth defendants and M for fraud or deceit, conspiracy and causing loss by unlawful means, breach of contract and restitution.
The claims were based on the fraudulent presentation of the invoices and the FCRs. The claimants alleged that the invoices and the FCRs purported to relate to goods which were falsely represented to be present in warehouses or held by a consignee. The claimants further alleged that the goods invoiced were never ordered by the first claimant, that only a very small quantity of the goods were subsequently delivered, and that only a small fraction of the sums drawn down by the first defendant and debited to the first claimant under the letters of credit were repaid pursuant to an agreement (the October 2006 agreement).
It was common ground between the claimants and the first defendant and M that there was an agreement containing the implied terms that the first defendant would only present genuine documentation under the letters of credit and only draw down payments following such good faith presentation. The claimants sought sums by way of damages or as money had and received.
The first claimant contended that M was personally liable for the first defendant’s tortious acts given the direction and control he had exercised. The first defendant served a defence, together with M, that all claims against them had been settled by an agreement in May 2006 or the October 2006 agreement and the subsequent substitution of invoices. The first defendant ceased further involvement in the proceedings. The third to sixth defendants played no part in the proceedings.
It fell to be determined: (i) whether the presentations under the letters of credit had been fraudulent and had breached the implied terms; (ii) whether the first claimant had compromised all claims arising out of the invoices; (iii) whether the first and fourth defendants and M would be liable for conspiracy and causing loss by unlawful means; (iv) whether M would be personally liable; and (v) whether the claimants would be entitled to damages. The application would be allowed.
(1) The goods that had purportedly been the subject matter of the invoices had never been ordered by the first claimant. M had not honestly believed that the goods had been the subject matter of a contract between the first claimant and first defendant. The first defendant had been in breach of the implied terms because the invoices, which had falsely represented that a contract had existed between the parties in respect of the listed goods, had not been genuine or truthful documents and the presentation of such invoices had not been a good faith presentation of documents.
The invoices and the FCRs had contained fraudulent misrepresentations. Further, the claimants had established on the balance of probabilities that the goods the subjects of the invoices had not been present at the warehouse at the time of the presentations and available to the first defendant to fulfil the invoices (see , , , , ,  of the judgment).
(2) In the instant case, there had been nothing in the terms of the relevant documents or the circumstances, which could have been regarded as a release, discharge, settlement, waiver or compromise of the first claimant’s proceedings in tort against the first or fourth defendants or M, or of the first claimant’s contractual claims for the breach of an implied term against the first defendant in relation to the December 2005 and February 2006 presentations (see  of the judgment).
(3) In the circumstances, and in the absence of any defence by the fourth defendant to the allegation that had been made against it, the court had been prepared to conclude that the fourth defendant had been a party to an agreement with the first defendant and M to defraud the first claimant by the unlawful means of the first defendant having made the presentations under the letters of credit on the basis of the false documents, that had been known by all of them to have been false, and thereby had wrongly obtained money under the letters of credit.
Despite the absence of full argument, the fourth defendant had been a party to a conspiracy and would be liable in damages accordingly. It had followed logically that the first defendant and M had also been party to such a conspiracy. The fraud that had been engaged in by the first defendant and M had constituted unlawful means for the purposes of the tort of causing loss by unlawful means because it would have been actionable at the suit of the bank had it suffered any loss, even though it had been the first claimant which had suffered. Due to the representations that had been made, the bank had clearly relied upon the documents as purportedly complying with the conditions of the letters of credit and had paid under it.
The first defendant and M had clearly intended to cause loss to the first claimant. They had intended that the first claimant should indirectly provide funds to the first defendant under the letters of credit mechanism in circumstances where the letters of credit documentation had not been conformant, the conditions for payment under the letters of credit had not been satisfied and the first claimant had had no contractual liability to the first defendant in respect of the goods listed in the relevant invoices (see , , ,  of the judgment).
(4) On the evidence, M would be personally liable for the tort of causing loss by unlawful means for the deceitful acts which he himself had performed. There had been no need for the court to consider whether M would have been responsible for the first defendant’s tort given his position as controller or owner of the first defendant (see  of the judgment).
(5) In the circumstances, the first defendant would be liable in restitution in respect of the difference between the sums that had been paid by the first claimant under the letters of credit pursuant to the December 2005 and February 2006 presentations and the value of cash and goods the first claimant had received following the October 2006 agreement. The first defendant would also be liable in damages for the breach of the implied terms of the admitted contract.
The first and fourth defendants and M would be jointly and severally liable to pay the first claimant damages. The first defendant would additionally be liable to pay the first claimant the same sum as money had and received, although subject to a maximum recovery of that amount (see , , ,  of the judgment).
Barbara Dohmann QC, Ian Smith and Tom Mountford (instructed by Charles Russell) for the claimants; M appeared in person.