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Niru Battery Manufacturing Co. V. Milestone Trading Co. Notes

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NIRU BATTERY MANUFACTURING CO. V. MILESTONE TRADING CO. FACTS These proceedings arise out of a contract for the sale by Milestone Trading Ltd. ("Milestone") to Niru of 10,000 metric tonnes of lead ingots made in February, 1998 which provided for payment by letter of credit against presentation of (among other documents) FIATA multimodal transport bills of lading and an inspection certificate issued by SGS. In due course a letter of credit was opened by Bank Sepah in favour of Milestone. Milestone was one of a group of companies known as the "Woralco" group controlled by Mr. Mahdavi. In order to obtain the lead needed to perform its contract with Niru, Milestone, acting through Mr. Mahdavi, obtained financing from CAI against the deposit of the warehouse warrants relating to the goods. The warrants, possession of which gave CAI complete control over the goods, were to be released to Milestone only on repayment of the advance. However, the letter of credit represented Milestone's only source of funds and it therefore became necessary for Mr. Mahdavi to find a way in which documents could be presented for payment before the warrants had been released by the bank. That was achieved by enlisting the help of the second defendant, Maritime Freight Services Ltd. ("Maritime"), which was prepared to issue a FIATA bill of lading stating that it had taken the goods in charge for carriage to Iran at a time when CAI still held the warrants and the goods themselves were still in the warehouse. Inaccurate certification by SGS: On being informed that Maritime had issued a bill of lading recording that it had taken the goods in charge for carriage to Iran, SGS issued an inspection certificate in which it certified, among other things, that the goods were marked with the name of Niru and that the quality, quantity and packing of the goods loaded complied with the contract. The certificate was inaccurate in two respects: the goods were not marked with Niru's name and had not been put under the control of Maritime, let alone loaded on to any form of transport. The Judge held that SGS was negligent in issuing the certificate and therefore liable to Niru in tort. CAI Sold the Goods, and appropriated the mistaken payment: The documents, including the bill of lading and the inspection certificate, were presented to Bank Sepah under the letter of credit by CAI, which presented them as a principal. After some minor discrepancies had been corrected, the documents were accepted by Bank Sepah, but it was unable to make payment because the authorities in Iran failed to make the necessary foreign currency available. The price of lead began to fall causing CAI to become concerned about the adequacy of its security and eventually, after

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