W Nagel (A Firm) v Pluczenik Diamond Company NV, Court of Appeal - Civil Division, November 28, 2018, [2018] EWCA Civ 2640

Resolution Date:November 28, 2018
Issuing Organization:Civil Division
Actores:W Nagel (A Firm) v Pluczenik Diamond Company NV

Case No: A3/2017/2145; A3/2017/2444

Neutral Citation Number: [2018] EWCA Civ 2640





Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 28/11/2018






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Mr Clive Freedman QC and Mr Peter Head (instructed by Mishcon De Reya LLP) for the Appellant

Mr Oliver Segal QC (instructed by DWF LLP) for the Respondent

Hearing dates: 15-16 October 2018

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JudgmentLord Justice Leggatt:


  1. For many years the claimant (``Nagel'') acted as a broker for the defendant and appellant (``Pluczenik'') in negotiating the purchase of rough diamonds from De Beers. In 2013 Pluczenik terminated this relationship. In this action Nagel has claimed compensation for the termination of its agency on two legal bases: (1) under the Commercial Agents (Council Directive) Regulations 1993 (``the Regulations'') and (2) at common law for breach of contract. The trial judge, Popplewell J, rejected the claim under the Regulations but upheld the claim for breach of contract, for which he awarded damages of US$3,326,555 (as well as certain outstanding commissions and sums owed pursuant to a loan account). On this appeal Pluczenik challenges the decision that it is liable to pay damages for breach of contract and in the alternative argues that only nominal damages should have been awarded, as Nagel failed to prove loss. Nagel has cross-appealed, contending that the judge was wrong to hold that the Regulations do not apply to its agency and that the Regulations provide an alternative legal justification for the award of compensation which the judge made.

    Factual background

  2. The following summary of the background facts is abbreviated from the findings made at paras 1 to 27 of the judgment of Popplewell J: [2017] EWHC 1750 (Comm).

  3. The claimant is a partnership formed in 1991 between Mr William Nagel and his family company, W Nagel Ltd, to carry on a business previously conducted by Mr Nagel personally as a broker in the diamond industry, assisting clients with the purchase of rough diamonds from De Beers. One such client for whom Mr Nagel, and subsequently the claimant firm, acted for nearly 50 years was Pluczenik. Pluczenik is a Belgian company founded in 1963 by Mr Isaac Pluczenik. It is one of the world's leading diamantaires, purchasing rough diamonds and processing them into polished diamonds and jewellery for retail sales. It also resells rough diamonds as a smaller part of its business. Mr Isaac Pluczenik died in 1997 and the business is now run by his son, Mr Chaim Pluczenik.

  4. For much of the twentieth century the global market in rough diamonds was dominated by De Beers. It was not until the 1990s that other major producers started selling rough diamonds independently of De Beers, who still controlled over 80% of global production at the start of that decade. By 2010 De Beers' market share had fallen significantly to approximately 35% of the market by value. De Beers nevertheless remains the world's largest diamond producer by value and continues to mine, sort and market a significant proportion of the world's rough diamonds.

  5. For many years one of the methods by which De Beers exercised control over the supply of rough diamonds was by selling to wholesalers at ``sights'' held ten times a year in London. The sights were organised and sales made by De Beers' Central Selling Organisation which was later known as the Diamond Trading Company (``the DTC'') - both trading names of De Beers UK Ltd. No one could purchase diamonds at the sights unless they were accredited by De Beers as a ``sightholder''. Until 2003, each sightholder was required by De Beers to have an accredited broker, referred to as a ``DTC broker''.

  6. The rough diamonds sold at the sights were sorted by De Beers into defined categories by colour, crystal shape, size and quality, and were for the most part sold in boxes of stones by category. In addition, there were ``special'' stones of a larger weight, and ``exceptionals'' which were very high value stones sold individually.

  7. Before 2003, the system was that the DTC broker would apply about a month before each sight for the allocation of diamonds which its client sought. Shortly before the sight, De Beers would notify the allocation to each sightholder through its broker. The basis of allocation was entirely discretionary and opaque. At the sight, the sightholders could inspect the allocated boxes or specials and were not obliged to accept the diamonds at the price offered by De Beers or at all. There might sometimes be negotiation over the price. Sometimes additional stones over and above the allocation might be made available at the sight. The sightholder might complain that the sorting had gone awry and that the box contained non-conforming stones. There also in later years grew up a practice of permitting a sightholder to reject up to 10% or 15% of the stones in a box but this did not happen very often. Although there was no obligation on the sightholder to buy, there was an incentive to take up the full allocation, not only because of the shortage of supply but also to achieve goodwill for future allocations.

  8. In 2003 the sightholder system underwent a change. The system of accreditation was replaced by a policy known as Supplier of Choice under which De Beers entered into fixed term contracts with sightholders who satisfied objective selection criteria. The number of sightholders was substantially reduced (from about 350 to something of the order of 80 to 100). Under the new system the process of allocation of rough diamonds at sights was also made more formal and transparent. De Beers ceased to insist that sightholders had an accredited broker, although it encouraged them to do so. The majority retained a DTC broker, although a significant minority ceased to use one. As one of the smaller brokers, Nagel had nine sightholder clients when the Supplier of Choice system was introduced, of whom only four still retained their sight when its broking relationship with Pluczenik was terminated.

  9. With effect from November 2013, the international sights were moved from London to Gaborone in Botswana. On 7 July 2013 Pluczenik wrote to Nagel saying that, in the light of this prospective move, it had decided to enter into a direct relationship with the DTC without the intervention of a broker and to terminate its relationship with Nagel. The relationship was terminated on 27 August 2013.

    The proceedings below

  10. The primary claim made by Nagel in these proceedings, and the main focus of the trial, was its claim for compensation under the Regulations. The Regulations give a commercial agent to whom they apply a statutory right to receive compensation on the termination of the agency contract. There were issues at the trial as to: (1) whether Nagel came within the definition of a ``commercial agent'' in Regulation 2(1) as ``a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person''; and (2) whether, if so, Nagel's claim was nevertheless excluded by Regulation 2(2)(b), which provides that the Regulations do not apply to ``commercial agents when they operate on commodity exchanges or in the commodity market.'' The judge found that the claimant was a ``commercial agent'' as defined, rejecting an argument that it did not have continuing authority to negotiate purchases on behalf of Pluczenik. However, the judge also held that the sales made at sights were made ``on commodity exchanges or in the commodity market'' within the meaning of Regulation 2(2)(b), with the result that the Regulations do not apply. Accordingly, the claim under the Regulations failed.

  11. In the alternative and very much as a secondary claim, Nagel claimed damages at common law for breach of an oral contract made in about 1994 whereby Nagel had agreed to reduce its rate of commission on purchases made by Pluczenik from De Beers from 1% to 0.5%, allegedly in return for a promise by Pluczenik to retain Nagel as its broker for as long as Pluczenik held a sight with De Beers. Nagel's case was that this agreement was reached between Mr William Nagel and Mr Isaac Pluczenik at the Intercontinental Hotel in London. Pluczenik denied that any agreement was made to retain Nagel as its broker. Its case was that the reduction in commission was negotiated by Mr Chaim Pluczenik with Mr Nagel without Pluczenik making any commitment in return, in circumstances where other brokers were offering their services to Pluczenik at the lower rate of 0.5%.

  12. The judge rejected the evidence of Mr Chaim Pluczenik which, on this issue as more generally, he found unreliable, and accepted the evidence of Mr Nagel that a commitment was given by Pluczenik in return for the reduction in the commission rate. The judge went on to consider of his own accord whether the commitment given was, as Nagel maintained, a promise to retain Nagel as its broker for so long as Pluczenik had a sight or whether it was only that Pluczenik would not appoint another broker for as long as it had a sight. The latter possibility was not one which Pluczenik had suggested either in its defence or in its evidence at the trial. However, a witness called Mr Marcus Schwalb who worked for Nagel gave evidence that he recalled a conversation with Mr Chaim Pluczenik in 2013, shortly after Pluczenik announced its intention to terminate the agency, in which Mr Chaim Pluczenik had said that he had done nothing wrong because Pluczenik would no longer be using a broker. Mr Schwalb's evidence was that, although in this conversation he had himself referred to not appointing another...

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