Lupofresh Ltd v Sapporo Breweries Ltd, Court of Appeal - Civil Division, July 25, 2013, [2013] EWCA Civ 948

Issuing Organization:Civil Division
Actores:Lupofresh Ltd v Sapporo Breweries Ltd
Resolution Date:July 25, 2013
 
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Neutral Citation Number: [2013] EWCA Civ 948

Case No: A2/2012/2048

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Mr Justice Bean

[2012] EWHC 2013 (QB)

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 25/07/2013

Before :

LORD JUSTICE MOSES

LORD JUSTICE TOMLINSON

and

LORD JUSTICE FLOYD

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Between :

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Peter Knox QC and Marcus Dignum (instructed by Roythornes) for the Appellant

Andrew Green QC and James Segan (instructed by Baker & McKenzie LLP) for the Respondent

Hearing dates : 24, 25 April and 12 July 2013

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Judgment

Lord Justice Tomlinson :

Introduction

1. This case, surprisingly as some may think, is about the sale by a Japanese brewer of hops grown in China to a company based in Kent. The Appellant (``Lupofresh''), Defendant at trial, is an English company which trades in hops for use in the production of beer. The Respondent (``Sapporo''), Claimant at trial, is a Japanese company whose primary business is brewing and selling beer on the domestic and international markets. At all material times Sapporo had an Agribusiness Division, which until it was closed down in 2009 as loss-making likewise traded in hops.

2. In March 2005 Sapporo and Lupofresh concluded four contracts for the sale by Sapporo to Lupofresh of quantities of hop extract from the production in each of the crop years 2004-2007 of Marco Polo hops. Marco Polo hops are grown only in China and particularly in Xinjiang Province, and are known for their high alpha acid content. Alpha acid is the bittering agent used in beer production. In each case the contractual quantity was expressed in terms of a weight of alpha acid.

3. In September 2005 Sapporo told Lupofresh that it might be unable to fulfil the order in respect of the 2005 crop. In consequence (a) a new contract was entered into providing for supply from the 2003 and 2004 crop years and (b) the contract for 2005, designated 05-068, was in due course cancelled and replaced by contract 08-019, which provided for the sale of a similar quantity of alpha on the same terms from the 2008 crop.

4. The contracts for supply from the 2007 and 2008 crops gave rise to difficulties.

5. The contract for supply from the 2007 crop, originally designated contract 07-018, was renegotiated and performed on terms substantially less favourable to Lupofresh than those of the original contract. In April 2008 Lupofresh paid for the goods supplied pursuant thereto.

6. Contract 08-019 for supply from the 2008 crop was also renegotiated and performed on terms substantially less favourable to Lupofresh than those of the original contract. The goods were duly delivered pursuant to the revised terms by May 2009. The contractual price, €1,016,248.20, fell due sixty days after delivery, i.e. by 10 July 2009, but Lupofresh did not make payment.

7. Sapporo pressed for payment. In email correspondence between August and December 2009 Lupofresh complained that Sapporo had ``insisted'' on the variations to the contracts in the light of its ``inability or reluctance to supply the full quantity on the agreed terms'' and that Lupofresh had in consequence incurred additional costs of US$7,605,459.05 in meeting its own commitments to those to whom it had on-sold. Lupofresh suggested a compromise whereby it paid Sapporo for the products supplied from the 2008 crop at the originally agreed price, US$24 per kg alpha, which would have resulted in a payment by Lupofresh to Sapporo of US$506,708.16.

8. No compromise was reached and on 20 January 2011 Sapporo commenced the present proceedings, claiming payment of the outstanding price. At paragraph 17 of the Particulars of Claim it was averred that the law applicable to the dispute is the law of Japan, albeit the Claimant did not ``at this stage rely on any material difference between the law of Japan and the law of England and Wales''. Lupofresh counterclaimed, alleging inter alia that the variations to the two contracts had been induced by duress and/or did not preclude Lupofresh's claims for damages arising out of Sapporo's failure to perform the originally agreed terms. The counterclaim had by now increased in amount. Lupofresh did not at this stage engage with the contention that Japanese law was applicable.

9. By the time the trial came before Bean J in May 2012 the Defence and Counterclaim had, I think, been amended on at least two occasions and the judge also had before him a proposed further very late re-amendment which amplified the allegation of Lupofresh that the variations had been procured by misrepresentation. Thus at trial Lupofresh admitted that the varied price for the 2008 crop was payable but asserted that it was entitled to set off in extinction thereof its far greater counterclaim. This by now was pursued upon the basis of, inter alia, duress, intimidation, repudiatory breach of contract and misrepresentation. Lupofresh's approach to the contention that Japanese law governed the dispute was that this ``must be proved'' and Lupofresh made little effort to plead the provisions of Japanese law upon which, in the event that the contention was proved, it would need to rely in order to make good its counterclaim. On the central issues of duress and intimidation the plea was simply that ``If and insofar as the law of Japan applies, the Defendant will contend that the position is substantially the same as under English law'', albeit the relevant provisions of the Japanese Civil Code were identified. The Claimant's particularised case as to the applicable provisions of Japanese law was contained in its Re-Amended Reply and Defence to Counterclaim, admittedly served only twelve days before trial, albeit in part foreshadowed in an earlier version. Fortunately the parties' respective expert witnesses on Japanese law (Professor Masuda for the Claimant and Attorney Kikuchi for the Defendant) had exchanged reports in March and in the course of a subsequent meeting in April had reached a very large measure of agreement as to the relevant content of the applicable Japanese substantive law.

10. Bean J decided that the contracts were indeed governed by Japanese law. He considered separately the question by what law are the claims in tort or its Japanese equivalent governed. I should mention that Chapter 5 of the Japanese Civil Code in the translation which we have is entitled ``Torts''. The judge concluded that Japanese law governs these claims too. It is not now contended that the claims in tort are governed by a system of law other than that which applies to the contracts. The judge went on to hold that the facts which he found did not give rise in Japanese law to a right to rescind the variations to the contracts on the ground of duress. Similarly the requirements for a cause of action founded on the intentional or negligent infringement of rights were not made out. The claim in misrepresentation failed on the basis that Lupofresh had not shown that the misrepresentations alleged had induced it to agree to the variations to the contracts. The lack of a causal nexus was as fatal in Japanese law as it would have been in English law.

11. The upshot was that the claim succeeded and the counterclaim failed. The judge himself gave permission to appeal. I suspect that he was influenced in so doing by his observation at paragraph 55 of his judgment that ``If English law had applied the emerging doctrine of economic duress would . . . assist Lupofresh'', a proposition for which he cited as support the decision of Christopher Clarke J in Kolmar Group AG v Traxpo Enterprises Pvt Limited [2010] 2 Lloyd's Rep 653. This was in my view an incautious and unfortunate observation for the judge had heard no argument on the point, deciding at an early stage that Japanese law governed, and moreover Kolmar was itself a case in which Christopher Clarke J heard no adversarial argument, the Defendants Traxpo having been neither present nor represented at trial. In so saying I do not intend to cast any doubt upon the decision in Kolmar, which the judge thought indistinguishable. Like Bean J we too have heard no argument on the question whether English law would afford relief to Lupofresh. My caution derives from the very fact that economic duress is an emerging doctrine, the bounds of which can by no means be regarded as yet settled. Mr Andrew Green QC for Sapporo made clear that it would have been his submission had it been required that English law would not have assisted Lupofresh which had simply as a result of amicable discussions renegotiated two contracts long before the date for performance had arrived. I express no view on the point.

12. Although relegated to point 6 of the Grounds of Appeal, logically the first issue is whether the judge was correct to conclude that the proper law of the contracts was Japanese law.

Proper law

13. There were in all nine contracts concluded between Sapporo and Lupofresh between 2005 and 2008, although contracts (or Purchase Orders) Nos. 5, 6, 7, 8 and 9 all arise out of and are variations of the original four contracts identified in paragraph 2 above. Indeed contract No. 2 was replaced sequentially by contracts Nos. 5, 7 and 9. Although Lupofresh has an argument that the relevant contracts, Nos. 8 and 9, should if necessary be regarded as governed by a law other than that which governs the contract which they replaced, the starting point, as the judge implicitly recognised, must be an examination of the four original contracts.

14. The four contracts are in identical form save for contractual quantity and crop year to which they relate. All take the form of a Purchase Order on Lupofresh headed letter paper, with its address in Kent, addressed in turn to Sapporo in Tokyo. Each is written in English. Since the terms are very brief I reproduce below those of the third purchase order,...

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