#15452 - Opinion On Liability Contract 2 - BPC Opinion

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RE: NATIONAL SUPERMARKETS PLC

OPINION ON LIABILITY

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1. I am instructed to advise National Supermarkets PLC, the Defendant to a breach of contract claim made by Thai Import Ltd, Claim No. 2017 Folio 5846 in the Commercial Court. I am specifically asked to advise on the availability of a valid defence to the allegation of unlawfully withholding payment. Those instructing me ask whether there is a legal basis for National Supermarkets' rejection of the goods delivered and whether that rejection could amount, in law, to a counterclaim against Thai Import. This advice is prepared on the basis of my instructions and the evidence contained therein, and is given subject to such further evidence as has been recommended or which will become available in due course.

SUMMARY OF FACTS

2. By a written contract entered into on 15 June 2016, incorporating terms from an exchange of emails beginning 10 June 2016, National Supermarkets ordered a consignment of 420 metric tonnes +/-1% of Thai 5% long grain rice from Thai Import at a price of US$720 per metric tonne, to be delivered in November 2016. Roy Gardener acted on behalf of National Supermarket and James Lloyd acted on behalf of Thai Import. The consignment was delivered and unloaded from SS Sumatra Bay on 8 November 2016 and received by Graham Alexander on 9 November 2016. The consignment weighed 421.37 metric tonnes totalling US$303,386.40 payable. On the basis of Mr. Alexander's finding that the sacks were marked 'Produce of Vietnam' and labelled in what he identified as Vietnamese, Christine Lambert rejected the goods on behalf of National Supermarkets by email on 9 November 2016. Thai Import take the view that there was no legal justification for the rejection, and allege that it was in fact a veiled attempt to evade a 'bad bargain' entered into in an unfavourable seller's market. National Supermarkets assert that they entitled to reject the goods as they did not meet the description. The consignment was resold for $198,043.90 to Rice & Grain Importers PLC.

SUMMARY OF ADVICE

3. It is advised that National Supermarket should plead that the provision of 'Thai rice' was an express term of the contract: those instructing me should seek to establish a compelling scientific basis for the distinction between Thai rice and other varieties. Breach of this express term hinges on scientific evidence (through laboratory analysis for example) that Thai rice was not in fact provided. My advice is constrained in the absence of this evidence, and so my opinion is no more than a 50% likelihood of success on the matter. National Supermarkets are also encouraged to plead breach of Sale of Goods Act 1979 s.13, which I have advised is 95% likely to have been operating on the contract despite the exclusion clause. The chance of successfully proving breach has been suggested at 75%, contingent upon verification of the difference in financial value between Thai and Vietnamese rice, and any proven qualitative difference in the products. However I have warned that there is a 40% risk of the Court finding the breach of s.13 to be 'slight' within the meaning of s.15A. Those instructing me have also been advised to dispel any perceived or actual risk that the claim is brought tactically or as a result of market speculation. My overall opinion is that, on the present evidence, there is a 60% likelihood of establishing a defence to the claim.

LIABILITY

Formation of the Contract

4. It does not appear to be in dispute that a valid contract came into existence on 15 June 2016 evidenced by written Contract Note and Purchase Order. The agreement incorporated terms agreed by email over 10 to 15 June 2016. It appears that the 'offer' was made by the sellers' email of 15 June 2016 at 9.43am and that this was accepted by the buyers on the same day at 11.27am.

Express Terms

5. The express terms as pleaded by Thai Import in paragraph 3 of the Particulars of Claim, namely that the contract price was to be US$720 per metric tonne and that delivery was to be in Felixstowe, England, in November 2016, are uncontentious.

6. However, it is also clearly an express term of the contract that the goods ordered were 'Thai 5% white long grain rice' as stated in the Contract Note under 'Goods'. Whilst Mr. Gardener does not appear to use the term 'Thai rice' in the email of 15 June 2016 at 11.27 (which I have described as the 'acceptance' email), the term was clearly stated in the 'offer' email at 9.43am sent by Thai Import and is therefore incorporated. It will be necessary to establish what 'Thai rice' signifies in the commercial food produce industry so as to define the scope of obligations under the term. Indeed this will also be necessary below, to establish a failure to correspond with description, as much of the case hinges on whether there is in fact a material difference between Thai rice and other varieties. Mr. Alexander, who appears to have the necessary credentials and experience, certainly indicated a compositional difference to those instructing me on 20 December 2016. My instructions advise that Thai rice is synonymous with 'glutinous' rice and is called 'Khao Niao' in its country of origin, and this is not inconsistent with Thai Import's email of 10 November 2016 where Mr. Lloyd seems to accept that Thai rice is of a different kind to Vietnamese. A cursory inspection reveals that such a distinction is generally recognised in the food industry (for example in "NC State Geneticists Study Origin, Evolution of "Sticky" Rice" (Press release). 21 October 2002), but further proof should be gathered as it would be potentially dispose of multiple issues in this case. In particular those instructing me should ascertain whether Thai rice is a style of rice which can be grown anywhere or a crop which is exclusively grown in Thailand.

Implied Terms

7. As those instructing me note, the contract would have operated under the Sale of Goods Act 1979 as a B2B transaction. There seems little doubt that National Supermarkets were obliged under s.27 to accept and pay for the goods delivered to them, subject to any valid basis for rejection, discussed below.

8. The implication of s.13 of the Sale of Goods Act 1979 into the contract will be more hotly disputed. If it operates on the contract, it will imply a condition that Thai Import's goods will correspond with their description. However Thai Import aver that Clause 18 of their standard terms and conditions successfully excludes the implication of terms outside of 'the description of the goods set forth in [the] agreement'. Firstly, the relevant description ('Thai') is contained within the express written terms of the contract. Secondly, and in any event, this line of argument is weak in caselaw, as the Court of Appeal upheld the 'long-standing judicial consensus' that implied conditions can only be excluded by express wording in KG Bominflot Bunkergesellschaft Fur Mineraloele Mbh & Co v Petroplus Marketing AG (The ‘Mercini Lady’) [2010] EWCA Civ 1145. The clause in issue in that case was identical to Clause 18, and so it is highly likely that the Court would find s.13 unaffected by the exclusion clause as it similarly does not state the word 'condition'. Yet it should be noted that Rix LJ expressed hesitation over the future of the consensus in that case (at 61-62), and so if it is possible that Thai Import would be prepared to take the case far on appeal, National Supermarkets might rightly be more cautious. Those instructing me could look into Thai Import's litigation history or more generally at their size and margins. On the present basis however, this is a marginal concern and it is my opinion that the Commercial Court would be at least 95% likely to find that s.13 is an implied term of the contract. Alternatively, if it is not implied, it is an express term of the contract that Thai rice would be supplied. It this way it is beyond the exclusion clause which admits guarantees or representations contained in the 'description' cannot be excluded.

Alleged Breach

9. By reference to paragraph 7 above, National Supermarket's rejection of the consignment will amount to a breach of contract in the absence of any valid legal basis for rejecting the goods.

Defences

(1) Thai Import's breach of express term

10. It will first be necessary to prove that the rice delivered by Thai Import was in fact Vietnamese rice and not Thai rice as contracted for under the express terms of the contract. As stated in paragraph 7, if there is a bona fide scientific basis for the distinction between Thai rice and other categories, this can be done by a laboratory analysis and report. Such evidence is required because, I advise, the case should not rest on the present evidence of country of origin. The statements observed by Mr. Alexander on the sacks of rice are hearsay by law, being a statement made out of Court tendered for the truth of its contents. Although hearsay evidence shall not be excluded on grounds that it is hearsay under the Civil Evidence Act 1995 s.1, this is not the case under criminal procedure (see Patel v Comptroller of Customs [1966] AC 356 for a very similar fact pattern in the criminal context), which is indicative of the lesser weight hearsay evidence will attract in a civil trial. Thai Import seeks to profit from this evidential weakness as they allege the sacks were simply mislabelled. Tim Saunders of Iraklion Sea Carriage SA's information is helpful in this regard, as his direct...