Bv Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises, Inc. [2018] EWHC 1857 (Comm)

[2018] EWHC 1857 (Comm)Case No CL-2016-000186
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Rolls Building, 7 Rolls Buildings, Fetter Lane, London EC4A 1NLDate 24/07/2018
Before
MR. JUSTICE TEARE
Between
BV NEDERLANDSE INDUSTRIE VAN EIPRODUKTENClaimantREMBRANDT ENTERPRISES, INC.Defendant
Guy Morpuss QC and Theo Barclay (instructed by MacFarlanes (UK) LLP) for ClaimantNigel Tozzi QC and Simon Goldstone (instructed by Squire Patton Boggs LLP) for DefendantHearing Hearing dates: 18-20, 22, 25 and 27 June 2018
Judgment ApprovedMr. Justice Teare :
[1]In April 2015 the United States was struck by an epidemic of avian flu which led to the slaughter of millions of birds. The Defendant, Rembrandt Enterprises, Inc. a US supplier of egg based products, (“Rembrandt”), needed new supplies of dried egg product and looked to the Claimant, BV Nederlandse Industrie van Eiprodukten, a supplier of egg products in the Netherlands, (“NIVE”), to supply them. A contract was agreed in May 2015. It was conditional upon the approval by US regulatory authorities of the procedures in the Netherlands for regulatory supervision of the egg business. That approval was given on 1 June 2015. The price was renegotiated in June 2015. However, the market price of eggs, which had risen dramatically in the US, fell equally dramatically. In addition, NIVE had difficulty in supplying the required egg product. There were those within Rembrandt who formed the view that the price it had agreed to pay was not as attractive as it had been thought to be. Following an audit of NIVE’s production processes in January 2016 Rembrandt formed the view that they did not comply with US regulations and in January 2016 Rembrandt rejected NIVE’s egg products. NIVE claims damages in the sum of some €19 million for breach of the contract, being the profit it expected to make on the egg product supplied under the contract. Rembrandt denies liability and has two defences to the claim brought by NIVE. The first is an allegation that when the price was renegotiated in June 2015 NIVE fraudulently misrepresented the costs of complying with the inspection procedures required by the US regulatory authorities. The second is an allegation that NIVE’s inspection procedures were such that NIVE was in breach of one or more warranties it had given to Rembrandt. In addition Rembrandt counterclaims some €4.7 million in respect of the price paid for such deliveries as were made less the sums obtained on resale of such deliveries plus certain expenses incurred in connection with them.[2]Chronologically the first events to recount are the steps taken by the US regulatory authorities to inspect and approve the regulatory procedures in the Netherlands. They commenced in about 2013, long before the outbreak of avian flu in April 2015. I shall recount the facts and deal with the issues which arise in the following paragraphs of this judgment. Approval of inspection procedures 3-36 The contract and the renegotiated price 37-64 Subsequent events 65-73 Fraudulent misrepresentation 74-114 Breach of warranty 115-134 Rescission 135-145 NIVE’s damages 146-166 NIVE’s invoice claims 167 Rembrandt’s damages 168 Conclusion 169-172

Approval of inspection procedures in the Netherlands by the US

[3]US law, in particular the Egg Products Inspection Act 1970 (“EPIA”), requires the processes by which egg product is produced to be subject to “continuous inspection”; see section 1034. At the material time “continuous inspection” was understood to require that a government inspector inspected the entire process by which egg product was produced. The sale of egg products which had not been so inspected was a criminal offence. EPIA further provided, by section 1046, that egg products could not be imported into the US “unless they were processed under an approved continuous inspection system of the government of a foreign country of origin or subdivision thereof ………and otherwise comply with the standards of this chapter and regulations issued thereunder applicable to such articles within the United States.” That was the context in which discussions took place between the US and the Netherlands authorities.[4]There is no dispute that on 1 June 2015 the US authorities formally approved the inspection procedures in the Netherlands. There is however a dispute as to precisely what procedures were approved and whether that approval was conditional upon the inspection procedures in the Netherlands providing for “continuous inspection” in the same way as that was required in the US. In order to resolve that dispute it is necessary to give an account of the discussions between the US and Netherlands authorities. The court must do that without the benefit of any evidence from the US or Netherlands authorities. Neither party to these proceedings has been able to adduce any. The parties do however have certain documents which passed between the authorities but they may not have all such documents. The court will have to consider not only the documents to which the parties have access but also the probabilities. This is a matter upon which factual and expert witnesses have expressed an opinion but it is a question of fact for the court to determine.[5]The Netherlands authorities submitted information about their inspection procedures by means of a Self Reporting Tool (an “SRT”) in August 2013. They were asked whether there were daily inspections and replied that such was not the common practice but could be implemented.[6]On 12 March 2014 the Chief Veterinary Officer of the Netherlands wrote to the US Department of Agriculture and Food Safety and Inspection Service (“USDA/FSIS”) giving certain “requested information on presence of the competent authority at establishments producing for the United States of America” The information given was as follows:
“The Netherlands Food and Consumer Product Safety Authority (NVWA) will be present at all facilities while they produce for the USA. This includes egg………establishments during the period of production for the USA. The producing facilities are responsible to ensure the presence of the NVWA. For its part, the NVWA will make available the appropriate staff at the time of production for the USA.”
[7]It was submitted on behalf of Rembrandt that this was an undertaking by the Netherlands authorities that their inspectors would be present throughout the production process. The letter is open to that interpretation but without knowing what information was requested by the US authorities it is difficult to be sure that that is what was meant.[8]Some time after this letter the Netherlands authorities submitted a further SRT which contained, so far as material, the same information as the first SRT but also made reference to the “letter CVO March 2014 (Daily Inspection).” The addition of the words “Daily Inspection” suggest that the letter was understood to have given confirmation that there would be daily inspection of the production process.[9]On 22 April 2014 a draft document entitled “Inspection List Egg Product Preparation US” was produced by the Netherlands authorities. It stated as follows:
“When producing a batch egg product destined for the US, the NCAE inspector is present during the breaking of the eggs and the checking of the batch when it is ready, sampling and testing has taken place and the results are available. This means 2 inspection visits per batch. During the 2nd inspection visit, the precertification checks can be performed. The contents of the precertification checks depends on what NVWA will require in this regard for the US export certification. The NCAE inspection consists of a hygiene inspection, verification of the heating step (hotroom) and the outcomes of the tests. These points will be inspected during the 2 inspection visits. In any event, the breaking process is inspected during the 1st visit and the checking of the batch, registrations of the hotroom and outcomes of the tests during the 2nd visit. The other points are distributed across the 2 inspection visits.”
[10]The document also contained a lengthy table of questions to be answered in respect of the eggs, working areas, installations, pest prevention/control, personal hygiene and so forth.[11]This draft inspection list suggests that daily inspections of the production process were not envisaged by the Netherlands authorities. Only two inspections were now envisaged. Whether they had changed their mind or whether that had never been their intention is not clear.[12]Between 13 and 20 June 2014 the FSIS carried out an inspection of premises in the Netherlands to determine the equivalence of the egg products inspection systems of the US and the Netherlands. The premises inspected included those of NIVE. A statement issued by NCAE dated 23 June 2014 reported that during the inspection it was “recognized” that “on two points no equivalence exists between the two inspection systems”. The first was that no supervisor was “present every day throughout the entire production procedure”. The second was that “before processing the eggs, no candling takes place to guarantee eggs without loss, dirt or broken eggs”. The statement goes on to state that “NCAE will implement requirements following from the above mentioned differences in inspection systems”. The statement then sets out what was to be implemented as follows:
“1. During processing of egg products intended for export to the US, COKZ/NCAE will perform oversight at the establishment concerned. The content of this oversight has been described in the procedure/assessment list which has been submitted to FSIS earlier (NCAE Inspection list for egg products to USA vs dd June 2014-v1). 2. The eggs intended to be processed for the US batches of egg products will be candled. The process will take place at the packing stations. COKZ/NCAE will inspect the candling process at the packing stations in accordance with the appropriate assessment points of COKZ/NCAE inspection list “Beoordelingslijst eiren pakstations handelsVo – 20131204-DEF, inspection points are 1100-1123. In addition, at the egg processing establishment, the eggs will be inspected at time of breaking the eggs (see NCAE Inspection list for egg products to USA vs dd June 2014-v1).”
[13]The “NCAE Inspection list for egg products to USA vs dd June 2014-v1” was similar, but not identical, to the draft Inspection list dated 22 April 2014. It provided as follows: “In case of production of a batch of egg product intended for USA the Netherlands competent authority, NCAE …..inspector is present: – When breaking the eggs: –At time the batch is ready to be exported. Thus when laboratory results are available. In practice this means that per batch 2 separate verification visits are being carried out. The second inspection takes place during the check for the export certification. The content of export control for certification depends on the requirements of NVWA ……….since NVWA is responsible for issuing export certificates. These requirements/inspection points are additional to this inspection list. The NCAE-audit consists of sanitation control, verification of heating step (hotroom or pasteurization) and verifying the results of laboratory analysis. The inspection points (see below) are to be inspected during the 2 verification audits. The process of breaking eggs will be inspected during the first visit. The control of the batch, hotroom or pasteurization registrations and results of the lab tests will take place during the second visit. The remaining points are distributed over the 2 control visits.[14]There then follows the same table which had been set out in the draft inspection list. The items described in the table corresponded, so I was told by counsel for Rembrandt, to the requirements in the US regulations as to what must be inspected.[15]The statement dated 23 June 2014 and the Inspection list dated June 2014 were the subject of conflicting submissions by counsel. Counsel for NIVE submitted that the Netherlands authorities plainly told the US authorities that there would be only two inspections. Counsel for Rembrandt submitted that the Netherlands authorities plainly told the US authorities that there would be inspection throughout the processing of egg products.[16]My understanding of the letter and the inspection list, having regard to the context in which they were produced, is as follows. The June inspection had shown that an inspector would not be present every day. This was a difference between the US and the Netherlands inspection systems. Whatever undertaking had been given by the March 2014 letter it was now clear there was no continuous or daily inspection. The NCAE resolved to deal with that matter in the manner set out in paragraph 1 of the requirements which it said it would implement in its statement dated 23 June 2014. That stated that there would be “oversight” during the processing of egg products. The “content” of that oversight was said to be described in the inspection list. It is therefore necessary to go to the inspection list to see what the content of the oversight was.[17]The inspection list begins by stating when the inspector will be present, namely, when the eggs are broken and when a batch of egg product is ready to be exported. Thus there will be “two verification visits”. The document goes on to say of what the NCAE audit consists. It consists of “sanitation control, verification of heating step (hotroom or pasteurisation) and verifying the results of laboratory analysis.” Further, the reference to “the inspection points (see below)” is a reference to the matters to be checked as set out in the long table. Those inspection points “are to be inspected during the 2 verification audits.” That therefore appears to be a clear statement that there will be two audits on the two occasions earlier described and that what will be inspected will be the matters set out in the long table, which corresponded, I was told, to the matters which the US regulations required to be inspected.[18]Counsel for Rembrandt submitted that the effect of the statement dated 23 June 2014 was that the long table in the inspection list was the content of the oversight to be performed “during processing of egg products” and that the oversight was to be performed daily. He submitted that this must be the effect of the letter because the inspection list had “earlier” been provided to the FSIS and therefore the oversight now to be conducted must have been additional to that. Otherwise, he asks rhetorically, what is the point of this part of the statement dated 23 June 2014?[19]I consider that the NCAE, faced with the fact that the NCAE inspector was not to be present on a daily basis, explained that the two audits they intended to carry out would cover the matters set out in the long table by a process of “sanitation control, verification of heating step (hotroom or pasteurization) and verifying the results of laboratory analysis”. Thus although there would only be two audits all aspects of the processing of egg product set out in the table would be covered, notwithstanding that the inspector would not be present every day. The “point” of the statement, to pick up counsel’s rhetorical question, was to explain why the processing of egg product would be adequately overseen, notwithstanding that an inspector was not there every day.[20]Much emphasis was placed by counsel on the fact that the statement was entitled “additional requirements” and therefore, it was said, what was proposed must have been additional to that which was set out in the inspection list which had “earlier” been provided to FSIS. I have borne that point in mind but it must be weighed against the following points. First, the inspection list states in clear terms that there would be two audits. Counsel’s interpretation requires those clear terms to be ignored. Second, if NCAE had intended that there would be daily oversight by its inspectors it would have been easy to say so. Third, the paragraph dealing with the manner in which the NCAE proposed to deal with candling expressly said that there would be an inspection of the eggs at the time of breaking and referred again to the inspection list. That was one of the two audits mentioned in the inspection list and suggests that they were indeed intended to take place.[21]I have therefore concluded that by the statement dated 23 June 2014 NCAE told FSIS that there would be two audits, not daily (or continuous) inspection.[22]Some time later, it is not known precisely when, a further SRT was submitted by the Netherlands authorities. In response to the question, “Does the CCA maintain single standard of laws and regulations applicable to all establishments certified for export to the US?”, the Netherlands authorities answered as follows:
“…specifically for export to the US, a separate (draft) inspection list for oversight on establishments (intending) to export of egg products to USA has been complied: [CAT 2] NCAE inspection for list for egg products to USA vs dd June 2014-vl. See annex C1a. And a statement has been written to declare that, at time of exporting egg products to US, candling will be part of the processing procedure: [Cat 7] Statement COKZ.NCAE; additional requirements egg processing plants. See annex C1b. This (draft) inspection list is based upon the EU regulations (see above) and specific requirements of USA: [Cat 1] Para 590.504 General Operating Procedures.” [Cat 1] Para 590.504 General Operating Procedures.”
[23]The reference to CAT 1 is a reference to a commitment and the reference to para. 590.504 is a reference to the US regulation which requires “constant and continuous inspection.”[24]These answers given by the Netherlands authorities show that they considered that the oversight they intended to conduct, as set out in the inspection list, effectively complied with the US requirements, in particular that which required constant and continuous inspection. They must have envisaged that such oversight was the equivalent of constant and continuous inspection.[25]Thereafter nothing happened until late April 2015. Mr. Jasper van Loon, the Chief Operating Officer of NIVE, gave evidence that he had been told that it would take six months before any report was issued. In the event, on 30 April 2015 the USDA wrote to the Chief Veterinary Officer in the Netherlands enclosing a draft of the final audit report. (By coincidence this was just after the outbreak of avian flu in the US but there was, I think, no evidence that the two events were causally connected.) The USDA stated that the “Netherlands’ processed egg products inspection system has been determined to be equivalent to that of FSIS and meets the US level of protection.” Comments on the report were requested. By letter dated 19 May 2015 the Chief Veterinary Officer replied that he had no major comments on the content of the report.[26]The report runs to some 19 pages. The Executive Summary recorded that the “FSIS will reinstate the Netherlands’ equivalence and allow resumption of egg products export to the United States.” In the body of the report at p.8 it is stated:
“The CCA has made a commitment, through a letter from the CVO, to provide for direct and continuous official inspection of the processing of egg products intended for export to the United States. This measure will be fully implemented once reinstatement of equivalence is granted, and the establishment are certified. Continuous inspection of products produced for export to the US will be conducted throughout all hours of operation and phases of processing covering breaking eggs as well as filtering, mixing, blending, pasteurizing, stabilizing, cooling, freezing or drying, or packaging egg products. ”
[27]It was common ground that the letter from the CVO was the March 2014 letter which I have quoted above. It is immediately apparent that effect of the commitment is expressed in much wider language than the limited language of the letter itself.[28]The next paragraph, on page 9 of the report, records the following:
“The Netherlands’ inspection system for egg products provides for periodic supervisory visits and audits of the food safety system. A representative of the inspection system visits each establishment proposed for certification for US export. ……….”
[29]Two paragraphs later, on the same page, it is stated:
“The inspection and verification activities conducted at establishments seeking certification for egg products export to the US follow a distinct inspection list (COKZ/NCAE Inspection List for Egg Products to USA). The list is used to verify that egg products processing plants regulatory requirements are consistent with those in the US and that documented results indicate whether or not all the specific requirements are met. ”
[30]The Conclusions on p.18 record:
“The audit results establish that the Netherlands’ egg products inspection system meets the equivalence requirements.”
[31]There can be no doubt that this report could and should have been more clearly expressed. On the one hand the passage on p.8 which I have quoted states that the CVO has committed to provide for continuous inspection throughout all hours of operation and phases of processing. On the other hand the passage on p.9 which I have quoted records that inspection and verification procedures will follow the inspection list, which list expressly provides for 2 inspections only. The statement that “documented results indicate whether or not all the specific requirements are met” appears to be a reference to the second audit in the inspection list.[32]One matter is clear: FSIS approved the Netherlands’ system for inspection of egg products. A second matter is tolerably clear, for the reasons I have already given: The Netherlands’ system provided for 2 audits or inspections, which system enabled the matters which the US regulations required to be checked to be verified by reference to documents at the second audit when the eggs were ready for export. A third matter is clear: FSIS was informed of that system, for it is set out in the inspection list to which express reference is made in the audit report.[33]I consider that the FSIS must be taken, on an objective assessment of the audit report, to have accepted that the inspection procedure set out in the inspection list “met the equivalence requirements”. Objectively assessed, I do not consider that FSIS can be regarded as approving the Netherlands procedure on the basis of the CVO’s commitment to a continuous inspection throughout all hours of operation and phases of processing (assuming that such an undertaking had been given by the March 2014 letter) because after that letter there was(i) the audit between 13 and 20 June 2014 which demonstrated that an inspector was not present every day and(ii) NCAE’s explanation on 23 June 2014 that oversight during processing of egg products would take place in accordance with the inspection list which provided for the points in the long table (which corresponded with the matters required to be inspected by the US regulations) to “be inspected during the 2 verification audits.” That explanation was given after the March 2014 letter and indicated the manner in which the NCAE said that its procedures were the equivalent of continuous inspection. Had FSIS not been satisfied with the procedure set out in the inspection list one would have expected it to have said so in its audit report.[34]Counsel for Rembrandt suggested that it cannot be seriously suggested that FSIS “casually abandoned” one of the fundamental requirements of the EPIA for the benefit of a foreign importer and to the detriment of US producers. I agree that that is a matter to consider when viewing the probabilities and I have borne it in mind. However, I am not sure that it is apt to refer to a “casual” abandonment in circumstances where the process of considering equivalence took place over a long period of time, involved several SRTs, an audit inspection in the Netherlands and many months to consider and draft the audit report. Moreover, when considering probabilities the following matters are also to be borne in mind. Mr. Magwire, Rembrandt’s knowledgeable and experienced consultant on egg products, gave evidence that by December 2015 the issue of continuous inspection in the Netherlands had become a major industry concern and that the industry had planned a meeting with USDA in early January 2016 to discuss the issue. The USDA’s own figures show that thousands of tons of egg products were imported into the US from the Netherlands in 2016 and yet Mr. Magwire was not aware of FSIS using its powers to stop such product from entering. Thus the probabilities do not suggest that the objective analysis is wrong.[35]Reliance was placed on the approval given to the draft audit report by the Netherlands authorities in May 2015 and the absence of any substantial comment upon it. Since the report in fact referred to the relevant inspection list I do not consider that any inference can be drawn from the failure of the Netherlands authorities to make an adverse comment upon the draft report.[36]Thus it was that on 1 June 2015 FSIS formally approved the Netherlands egg products inspection system. Shortly before that, and following the outbreak of avian flu in the US, Rembrandt and NIVE signed a contract for the sale and purchase of dried egg products. It is now necessary to refer to that contract and to give an account of the renegotiations which followed it.

The contract and the renegotiated price

[37]Before recounting the events which led to a renegotiation of the price it is necessary to mention the witnesses who gave evidence about those negotiations.[38]NIVE called Mr. Jasper van Loon, the Chief Financial Officer of NIVE. He gave evidence in a clear manner with little hesitation and appeared to have an impressive knowledge of the documents. He was also, as will become clear, candid about the fact that figures put forward by NIVE as the costs of complying with US requirements actually included an element of profit and so were not just “costs”. However, he was, as will also become clear, reluctant to accept that the figures put forward as a genuine estimate of costs were not in fact a genuine estimate of costs. That they were not a genuine estimate of costs was the inevitable consequence of his evidence that they contained an element of profit. His reluctance to accept that showed that he was mindful of how his answers might affect NIVE’s case. That being so I concluded that I should be careful when reviewing his evidence.[39]Much adverse comment was made by counsel for Rembrandt as to the absence of Joost van Loon, the Chief Commercial Officer of NIVE, as a witness since he sent most of the emails and appeared to be the principal negotiator on behalf of NIVE. I do not consider that Jasper van Loon’s explanation for his absence was the whole explanation; and if NIVE had maintained that the costs estimate had been genuine his absence would probably have been worthy of adverse comment. But in circumstances where counsel for NIVE, in his oral closing submissions, did not seek to resist a finding that the costs estimate had not been genuine I do not consider that the absence of Joost van Loon really mattered.[40]Rembrandt called Mr. Paul Hagist, the Senior Director of Supply Chain. He was a negotiator but not, it seems, a decision taker. Although he did answer many questions the manner in which he gave his evidence was defensive in the extreme. At times he appeared reluctant to answer questions, only answering them after the question had been repeated because he had not answered it. So defensive was he that I formed the view that it would not be safe to rely upon his evidence save to the extent that it was supported by the contemporaneous documents and/or the probabilities or was not in dispute. Rembrandt also called Mr. David Rettig, the President and CEO of Rembrandt. It was Mr. Rettig who took the final decision to accept an increase in the agreed price of the egg product. By contrast with Mr. Hagist he gave his evidence in an engaging manner and was, it seems, forthcoming in most of his answers. There was, however, a difference in emphasis between his written statement and his oral evidence as to the extent to which it was in Rembrandt’s interests to secure a supply of egg product from NIVE quickly. This was relevant to the question whether a misrepresentation as to the costs of complying with US regulations induced Mr. Rettig to agree the requested price increase. In this regard counsel for NIVE said that Mr. Rettig’s evidence was not forthcoming. When considering his evidence in this regard it will be necessary to consider carefully what he said and what he did not say and to have regard to the context in which Mr. Rettig found himself when he agreed to the requested price increase.[41]Rembrandt began its negotiations with NIVE on 30 April 2015, the very day on which the FSIS sent its draft audit report to the Netherlands’ authorities. NIVE initially requested 50% on a fixed price basis and 50% on a market index basis (the Urner Barry index). That was not agreed. NIVE then put forward its requested prices for dry whole egg, dry yolk and dry white which, save for a small adjustment, were agreed. By 13 May 2015 the contract had been signed by both parties. (Shortly before the contract was signed it appears that NIVE received a copy of the FSIS audit report from Anevei (a Netherlands trade body). NIVE’s Group Quality manager, Mr. Robert Jan Zwanenburg, said in an email dated 12 May 2015 that he saw nothing in it which was not correct or damaged NIVE’s export position. Jasper van Loon gave evidence that he read the Executive Summary and relied upon what he had been told by Robert Jan Zwanenburg.[42]The contract provided that it would commence on the date when the Netherlands was approved by the USDA/FSIS. The term of the contract was two years and the volume of egg product to be supplied and the price to be paid were agreed. The agreed prices were EUR 6.15/kg for dry whole egg, EUR 4.15/kg per dry yolk and EUR 14.90/kg for dry white egg. NIVE warranted that the product would comply with the Specification (though it appears that no specification was exhibited to the contract), that the Netherlands and the plant producing the product would be approved by the USDA/FSIS and listed as eligible to export product into the US and that the product would be approved for import into the US. The governing law was that of the UK and the parties agreed to the courts of the UK having exclusive jurisdiction to determine any disputes.[43]On 21 May 2015 Joost van Loon emailed Mr. Hagist to inform him that the authorities in the Netherlands had advised that all eggs for the US “need to be candled in packing station before breaking.” Joost van Loon said that this would have a “major impact on our cost pricing”. He said that this “unforeseen cost” had to be added “only 1 for 1 to our agreement”. The cost was “calculated” at EUR 1-1.25 per kg of egg powder. Jasper van Loon explained in his evidence that “1 for 1” meant that 100% of the cost had to be added to the price and that NIVE would not be making a profit on the extra cost. On the same day Mr. Hagist received instructions from Jonathan Spurway, the Vice President of Marketing and Optimisation of Rembrandt, that Rembrandt could “manage the cost increase”.[44]On 1 June 2015 the US authorities issued a list of establishments in the Netherlands which were certified as fit to export egg products to the US. NIVE was one of 5 such establishments.[45]On 2 June 2015 NCAE met with Anevei to discuss “the practical matters of supervising egg products”. (It appears that it was at this time that NCAE’s Inspection List for egg products to the USA was forwarded to Jasper Van Loon. He gave evidence that it was. Whilst the email to him from Anevei does not list it as an attachment it is referred to in the body of the email and he certainly sent it on to his brother and father.)[46]Also on 2 June 2015 there were further email exchanges between Jasper van Loon and Mr. Hagist concerning candling and the permitted origin of eggs. Mr. Hagist gave evidence that he thought NIVE might be having second thoughts about having a locked in price lower than the rising market price. This view appears to have been correct. For Jasper van Loon gave evidence that he was concerned not only as to the additional costs caused by the US requirements but also as to the rise in the European market price for shell eggs. He wished to renegotiate the price.[47]On 9 June 2015 there was a meeting in the Netherlands between Mr. David Rettig, then the President and Chief Executive Officer of Rembrandt, and Joost, Jasper and Joop van Loon. Joop van Loon was the father of Jasper and Joost and Chief Executive Officer of NIVE. Jasper van Loon who gave evidence on behalf of NIVE at the trial made no mention of this meeting in his witness statement but he confirmed in his oral evidence that it took place and that he was present. Mr. Rettig said in his witness statement that he sought assurances that supplies would start quickly. He also said that the additional costs were discussed. He said NIVE’s responses were “vague with regard to cost”. Jasper van Loon, when cross-examined, said that he requested that the costs be passed on to Rembrandt because they were not foreseen and the market price had risen sharply.[48]Also on 9 June 2015 there was a further meeting between NCAE and Anevei. On 10 June 2015 Anevei advised NIVE that NCAE inspectors would only be present “on the day the eggs are broken and on the day of shipment of the final goods”. Information was given as to the nature of the inspection before breaking and upon the need for traceability records concerning the sites of grading and processing. This advice, obviously given to Anevei from NCAE, shows that NCAE’s understanding was that the inspections required for US exports had to be in accordance with the inspection list it had provided to FSIS.[49]On 11 June 2015 Mr. Hagist emailed Joost van Loon asking whether he had yet heard anything “on rules and regulations”. Joost van Loon replied saying that he had no such news but hoped to have some the next week.[50]On 12 June 2015 Mr. Hagist advised Joost van Loon that “the certificate has been approved”. He asked when shipping could start.[51]Later on 12 June 2015 Joost van Loon replied saying that he had not yet heard that news. He said that “no inspectors for grading and processing processes” had yet been appointed and only after that could they start shipping. He then said as follows:
“We also still need to agree on the cost for grading and inspection, which we have estimated as EUR 2.50/kg after thorough calculation. This request has been forced by the USDA, not by our authorities. Also we would like to have some kind of comfort by trading for example 50% fixed and 50% Urner Barry to manage our cash position. At the same time when the market calms down later during the contract, you will have the revenues of this mechanism.”
[52]This email contained two matters. The one was a request to agree the costs of grading and inspection which were “estimated” but after “a thorough calculation” at EUR 2.50 per kg. The other was a suggestion that the contract be varied from a fixed price to one in which 50% of the product was fixed and 50% was based upon the Urner Barry index of market price. I infer, notwithstanding that Urner Barry is an index of US prices, that the latter suggestion arose out of a concern that, as prices increased, NIVE would be paying more for its raw product, shell eggs. I was also shown a document which indicated that the European market price of eggs rose dramatically during May 2015.[53]In fact, as stated by Jasper van Loon in his evidence, EUR 2.50/kg was “a starting point …based on the assumption that this amount would cover the costs we would incur as a result of the US additional requirements and include some profit margin.” This seems likely to be correct because there was no documentary evidence of any “thorough calculation”. When asked whether the reality was that NIVE saw this as an opportunity to renegotiate the price at a time when egg prices had been going up and that the matter was presented to Rembrandt as being based upon additional costs he replied “partially, yes”. The conclusion I draw from Jasper van Loon’s evidence was that NIVE wanted to increase the agreed price and used the probability of additional costs as a reason for demanding an increase of EUR 2.50/kg though no detailed examination of such additional costs had been carried out.[54]On 13 June 2015 Mr. Rettig advised Mr. Hagist that “we are not going to agree there [sic] price increases, nor 50/50%”. He add that “we have to say we have a contract, willing [ot] talk but the economics of their present requests are off the table”.[55]On 15 June 2015 Mr. Hagist replied to Mr. Rettig saying that he, Mr. Hagist, should conduct the discussions and that he was concerned that adding another person would disrupt “our ability to close down his attempts to renegotiate the deal he made”.[56]On 16 June 2015 a telephone discussion took place between Joost and Jasper van Loon on behalf of NIVE and Mr. Hagist and Ginny Gunderson of Rembrandt. It appears that Erin Bernaciak of Rembrandt took a note of the conversation. She sent Mr. Hagist a typed note of the call at 1725 but at 1732 sent a revised note of the call. There is one difference between the two notes, namely, the revised note contains the entry “threatened to delist from the USDA approval letter and sell to EU countries instead.” There is no evidence from the note taker explaining the reason for that difference, though Mr. Hagist suggested in his evidence that she had checked her notes, found that the typed note contained an omission and revised the typed note to include the missing item. This appeared to be his surmise. The note in question (“threatened to delist from the USDA approval letter and sell to EU countries instead”) was in a section dealing with the origin of eggs. That is not a subject at the heart of the present dispute. It is not clear what it meant in that context. Mr. Jasper van Loon denied making the comment when cross-examined. Mr. Hagist recalled it being said and said that he was stunned and angry but said he did not react. It is likely, as submitted by counsel on behalf of NIVE, that whatever was said was the subject of some misunderstanding. That is consistent with it being added to the revised note in a place which does not make much sense. Mr. Jasper van Loon gave evidence that there had been discussions about future business and that he may have said that future business could be forgotten if agreement were not reached as to price. He suggested that this may have been misunderstood by the note taker. Given the problems with the note this seems more likely than not.[57]The section of the note which is at the heart of the present dispute is concerned with the “cost of grading inspections”. That section of the note evidences a discussion between the parties as to how much Rembrandt was willing to pay in respect of the grading inspections. Rembrandt offered EUR 1.25 per kg. (The note says $ but in the context must mean EUR.) NIVE said they wanted “to have the grading cost covered” and Rembrandt “proposed 1.75 increase”. Joost van Loon said he would discuss the matter with his father.[58]On 17 June 2015 Mr. Hagist received advice from Rembrandt’s financial analyst that increasing the price by EUR 1.25, 1.75 and 2.50 would increase the sum paid over the life of the contract by, respectively, $6m., $8m. and almost $12m. He discussed the matter with Mr. Spurway who requested “visibility on cost”. Jasper van Loon accepted that this request for a breakdown of the 2.50 figure was made by telephone on 17 June 2015.[59]On 22 June 2015 Joost van Loon in an email headed “calculation” provided the calculation on which “we based our on cost of EUR 2.50/kg egg powder.” The calculation was headed “On cost calculation for United States production”. It contained a number of items and concluded that for “whole egg powder as an example” the cost was EUR 2.59 per kg. Joost van Loon ended the email as follows “It is up to you to accept it or not, but I think you understand we cannot do a business which gives us a loss. Please let me know how you wish to proceed….. ”[60]Jasper van Loon gave evidence that some of the items in the breakdown contained “an element of profit or buffer”. When asked whether he had worked backwards from 2.50 “to reverse engineer figures that could then justify getting to 2.50” he replied “partially, yes”. However, he did not accept that the figures were not real figures at all. He said that they contained some “conservative” estimates, for example, the suggested 60% yield following grading. NIVE had had no experience of doing that for the US market. But in relation to other figures, for example, the logistic or transport cost of 0.50 (which he accepted was 7 times too high) he agreed that the figure was well over anything that might reasonably be the cost.[61]On 22 June 2015 there was some email discussion between Mr. Hagist, Mr. Rettig and Mr. Spurway (Vice President of Marketing and Optimisation). The additional EUR 2.50 per kilogram for “candling and inspections” was discussed. Mr. Rettig wondered whether it could be avoided by not shipping to the US. Mr. Hagist said that he wanted “to get the contract done and moving before putting more issues out there” and Mr. Spurway said “It’s coming to the US. No matter what.” This contemporaneous exchange reflects, it seems to me, Rembrandt’s need for the dried egg product from NIVE in the short term.[62]By 24 June 2015 Rembrandt had accepted the requested price increase of EUR 2.50 per kg. It appears that the decision was taken by Mr. Rettig. He gave evidence, which was not challenged, that he took the decision. He said his reasons for doing so were threefold. First, given the shortage of eggs in the US market he wished to secure product quickly to secure an advantage over competitors. Second, despite the requested increase in price, the pricing remained “viable”. In particular the dried egg white price remained lower than the Urner Barry market price. Third, he had no reason to believe that the costs put forward by NIVE were not genuine and although they appeared higher than Rembrandt’s own costs he thought they would be much the same for all Netherlands producers. Mr. Rettig also said in his witness statement that had he known that the stated costs were not NIVE’s real costs of complying with US regulations but contained a very significant element of profit he would have viewed the situation very differently.[63]It was suggested to Mr. Rettig in cross-examination that he was very anxious to get dried egg product from NIVE and that he “didn’t really have anywhere else to go”. He said that was not true; what was imported from NIVE “was less than 15% of our overall imports”. He said “if we didn’t end up with NIVE, we could find other suppliers, whether with Spain, Italy, Latvia, the other countries that produced.” NIVE was going to be “certified first and certified to sell finished egg products”. But shell eggs could be pursued elsewhere. It was suggested to him that NIVE was his best option. He replied that “short term, NIVE was the first option.” He accepted that with the increase of EUR 2.50 per kg. the contract would be “commercially viable”. He said he was very interested in procuring product quickly because “the customers were in deep, deep, deep need of product” and he accepted that he was “keen to lock in the deal” He was asked what he would have done had he been told that 2.50 was not a real number, that the additional costs could be between 1.50 and 2.50 but that NIVE were insistent on getting an extra 2.50 per kg. He replied:
“I don’t know. It’s hypothetical. I can’t answer.”
It was suggested to him that Rembrandt was sufficiently desperate for the eggs that he would have agreed to the demand. Mr. Rettig replied:
“Oh my gosh. After this testimony, I mean, we had 30 other countries we were working with. We were interested in an early solution. I’ll stand by my previous testimony.”
[64]The contract containing the revised prices was signed on 25 June 2015. The revised prices were EUR 8.86/kg for dry whole egg, EUR 6.65/kg for dry yolk and EUR 17.40/kg for dry white egg.

Subsequent events

[65]These can be described shortly because they are not of direct relevance to the issues which must be decided.[66]Although it had been envisaged that supplies would commence promptly there were in fact no shipments in July and August 2015. Shipments did not commence until September 2015.[67]A consultant, Mr. Fillipsen, engaged by Rembrandt considered the revised price agreed to be paid to NIVE very high. In an email dated 2 September 2015 he said that “even without the 2.50 EUR per kg the prices do not seem very attractive.” Another consultant, Mr. Morton Ernst, said in an email on the same day “Wow this contract is BAD.” Discussions took place with NIVE as to how costs might be reduced but they were not successful.[68]In November 2015 there were rumours in in the US industry that the Netherlands may be producing product which did not comply with US requirements. Mr. Magwire, one of Rembrandt’s consultants, heard about them and passed them onto Mr. Rettig. Rembrandt’s customers became concerned.[69]In January 2016 Rembrandt arranged for Mr. Magwire to carry out an audit of NIVE’s facilities. This was to validate the practices that were said to justify the regulatory surcharge and to consider NIVE’s overall regulatory compliance. It was as a result of this audit that Rembrandt were informed by Mr. Magwire that there was no continuous inspection. Mr. Magwire advised against sale of the product in the US.[70]That advice was taken and by letter dated 29 January 2016 Rembrandt informed NIVE that its product was in breach of warranty and that the product which had been supplied was rejected. Repayment of the price which had been paid was claimed. Rembrandt required NIVE to make its inspection procedures compliant with the contract.[71]Attempts were made by Rembrandt to resell the product which had been supplied but (save for two sales of egg white powder for human consumption in January 2016) the only sales possible were for the use of the product as pet food.[72]On 30 March 2016 NIVE commenced these proceedings.[73]As I have said Rembrandt has two defences to NIVE’s claim, fraudulent misrepresentation and breach of warranty. I shall therefore consider each of the two defences.

Fraudulent misrepresentation

[74]Rembrandt’s case is that it was induced to enter the revised contract by a fraudulent misrepresentation that the additional costs of complying with the US requirements were EUR 2.50/kg. Although other misrepresentations were relied upon it was common ground by the time of final submissions that the case of misrepresentation depended upon what was said about NIVE’s additional costs.[75]Some submissions as to the elements of a misrepresentation were made but the relevant law, which I did not apprehend to be in dispute, can be taken from the judgment of Hamblen J. (as he then was) in Cassa di Risparmio della Republica di San Marino SpA v Barclays Bank Limited [2011] EWHC 484 (Comm). Hamblen J. summarised the relevant law in these terms: “215. A representation is a statement of fact made by the representor to the representee on which the representee is intended and entitled to rely as a positive assertion that the fact is true. In order to determine whether any and if so what representation was made by a statement requires(1) construing the statement in the context in which it was made, and(2) interpreting the statement objectively according to the impact it might be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee: see Raiffeisen, supra, at [81]; Kyle Bay Ltd v Underwriters Subscribing under Policy No. 01957/08/01[2007] Lloyd's Rep IR 460, 466, at [30]–[33], per Neuberger LJ. 216. In order to be actionable a representation must be as to a matter of fact. A statement of opinion is therefore not in itself actionable. However, as stated in Clerk & Lindsell para 18-13: "A statement of opinion is invariably regarded as incorporating an assertion that the maker does actually hold that opinion; hence the expression of an opinion not honestly entertained and intended to be acted upon amounts to fraud." 217. In addition, at least where the facts are not equally well known to both sides, a statement of opinion by one who knows the facts best may carry with it a further implication of fact, namely that the representor by expressing that opinion impliedly states that he believes that facts exist which reasonably justify it – see Clerk and Lindsell para 18-14, citing among other cases Smith v Land and House Property Corp (1884) 28 Ch D 7, 15, per Bowen LJ, and Brown v Raphael [1958] Ch 636. 218. A statement as to the future may well imply a statement as to present intention: "that which is in form a promise may be in another aspect a representation" - Clerk & Lindsell, para 18-12, quoting Lord Herschell in Clydesdale Bank Ltd v Paton [1896] AC 381, 394. …………….. 221. In a deceit case it is also necessary that the representor should understand that he is making the implied representation and that it had the misleading sense alleged. A person cannot make a fraudulent statement unless he is aware that he is making that statement. To establish liability in deceit it is necessary "to show that the representor intended his statement to be understood by the representee in the sense in which it was false" – per Morritt LJ in Goose v Wilson Sandford & Co. [2001] Lloyd's Rep PN 189 at para. 41. In other cases of misrepresentation this is not a requirement, but one would generally expect it to be reasonably apparent to both representor and representee that the implied representation alleged was being made. 222. It is necessary for the statement relied on to have the character of a statement upon which the representee was intended, and entitled, to rely. In some cases, for example, the statement in question may have been accompanied by other statements by way of qualification or explanation which would indicate to a reasonable person that the putative representor was not assuming a responsibility for the accuracy or completeness of the statement or was saying that no reliance can be placed upon it. Thus the representor may qualify what might otherwise have been an outright statement of fact by saying that it is only a statement of belief, that it may not be accurate, that he has not verified its accuracy or completeness, or that it is not to be relied on: Raiffeisen,supra, at [86].[76]It was accepted by counsel on behalf of NIVE that the representation concerning additional costs had been made but it was submitted that it was only an estimate. It is true that in the email of 12 June 2016 it was described as an estimate but it was said to follow a “thorough calculation”. Moreover, when asked for details, NIVE provided a “calculation” on 22 June 2015. Nevertheless, I consider that Rembrandt must have appreciated that it was an estimate of future costs to be incurred. Some of the figures (eg the 60% yield on grading) could only be an estimate. If it had been an estimate which NIVE honestly believed to be a genuine estimate it would be difficult to say there had been a misrepresentation of fact as opposed to one of opinion which is not actionable. However, if NIVE did not honestly believe it to be a genuine estimate then there was a misrepresentation of fact, namely, that NIVE did in fact consider it to be a genuine estimate of its additional costs.[77]It was Rembrandt’s case that neither Joost van Loon, who was the author of the emails, nor Jasper van Loon, who was party to the “estimate” being sent, believed it to be a genuine estimate. That case is supported by the fact that Jasper van Loon himself gave evidence that the estimate contained elements of “profit or buffer”. If so (and there is no reason to doubt that it did) then it is difficult to accept that either Jasper or Joost van Loon believed it to be a genuine estimate of the cost to NIVE of complying with US regulations.[78]Jasper van Loon was asked in cross-examination whether he agreed that the figure of EUR 2.59/kg in the 22 June 2015 email was not a genuine estimate of what the actual costs were likely to be. He first replied “with hindsight” and then, when asked to ignore hindsight, said “it is a high figure”. I was not sure that he had answered the question and so I asked him whether it was a genuine estimate or not. He replied:
“Yes, that depends on what you see as “genuine”
. I accept that it’s overstated, so it’s a question whether it’s then still genuine or not. As I said, it was an overstated figure.”[79]I infer from that answer that Jasper van Loon had difficulty in saying that it was a genuine estimate of what the actual costs were likely to be. If it had been a genuine estimate of what the costs were likely to be he could very easily have said so whilst accepting that the estimate had proved to be on the high side.[80]The difficulty which Jasper van Loon had in saying that it was a genuine estimate stemmed from the fact that, as I find, he appreciated that it was not a genuine estimate but something which was said in order to bring about a renegotiation of the price.[81]In his witness statement Jasper van Loon, who said that he was surprised and disappointed by the claim that NIVE had somehow fraudulently misled Rembrandt, explained:
“Our negotiations for the extra EUR 2.50/kg were standard commercial negotiations between two equally experienced companies.”
[82]When cross-examined he said:
“You take a position and you try to end up at a certain point.”…………… “So the 2.50 is merely the price increase which is being asked.”
[83]It seems to me that what was said about the additional costs was a negotiating device used to persuade Rembrandt to agree an increase to the already agreed price. The EUR 2.50 per kg. was not believed by NIVE to be a genuine estimate of the additional costs. That is why Jasper van Loon described it as “merely” the price increase which was being sought. That is why he found himself unable to say that it was a genuine estimate of the additional cost. He knew that it contained additional profit. It must follow that NIVE misrepresented a fact, namely, that NIVE believed that the figures were a genuine estimate of the additional costs. Counsel for NIVE fairly accepted in his closing oral submissions that he could not argue the contrary.[84]Jasper van Loon expressed the view that it was obvious to Rembrandt that NIVE was not passing on calculated costs but was quoting a fresh price for doing something. He said that must have been obvious to Rembrandt because(i) the discussions were taking place in the context of moving markets and(ii) Rembrandt had not queried the calculation. He said :
“In the context of these kind of discussions, it had been clear to Rembrandt that there was an element of renegotiating the price in the light of increasing market prices and raw material costs was involved in the discussions.”
[85]Of course, if Rembrandt, having regard to the context in which the representation concerning additional costs was made, had appreciated that all that NIVE was doing was, at a time of rising shell egg prices, putting forward a suggested price increase to start a renegotiation over the price then it would be difficult for the claim of fraudulent misrepresentation to succeed. There would be difficulty in establishing both the misrepresentation and the necessary reliance.[86]I accept that it is more likely than not that Rembrandt appreciated that NIVE felt vulnerable in circumstances where it had agreed a fixed price at a time of rising prices. Mr. Hagist gave evidence that he appreciated as early as 2 June 2015 that that was NIVE’s concern. NIVE’s request on 12 June 2015 for a 50/50 split between a fixed price and one based upon the Urner Barry market index must have confirmed that appreciation. But there is, it seems to me, no basis for saying that Rembrandt appreciated that that was NIVE’s only concern. The question of additional costs had first been raised on 21 May 2015, was again raised on 12 June 2015, was discussed in the telephone call on 16 June 2015 and was finally, in response to a request, the subject of the “calculation” in the email dated 22 June 2015. The question of additional costs was thus clearly stated to be a reason for a price increase separate from the fact that the market price was increasing. NIVE wanted Rembrandt to understand that and to be persuaded by it to agree an increase in the agreed price. I accept that it is more likely than not that Rembrandt understood that. In the circumstances I consider that NIVE represented that it believed the stated additional costs to be a genuine estimate of the additional costs to be incurred by NIVE.[87]It is true that the calculation provided by email on 22 June 2018 was not queried by Rembrandt. But it does not follow that Rembrandt must have appreciated that the calculation was not a genuine estimate of the additional costs. Had Rembrandt been renegotiating, at time of a rising market price, with another US supplier who said the cost of inspections in the US was a sum which Rembrandt found to be high but which Rembrandt did not challenge, it might be a fair inference that the reality was that Rembrandt appreciated that what was in fact being sought was a price increase to reflect the rising market price. But in this case Rembrandt was dealing with a Netherlands supplier and had no experience of the cost of inspections in the Netherlands. Judged objectively the impact on Rembrandt of a statement about additional costs of inspections in the Netherlands is likely to be different from the impact of a statement about the costs of inspections in the US.[88]Mr. Rettig said “we understood how America works, but we did not understand how the rules were going to be interpreted by the NCAE.” He said that “we had no way to validate these numbers”. When it was put to him that if he thought the figures were important he would have “tweaked the numbers” and suggested a deal, Mr. Rettig replied that he trusted that NIVE “had a better understanding of how NCAE was going to administer the process. And we had really no way of validating any of these numbers.” Yet earlier he had explained that the system in the Netherlands was “entirely different” from the US system. Counsel also put to Mr. Rettig that the reason Rembrandt did not go back to NIVE and challenge their figures was that he appreciated that Rembrandt was engaged in “what was really a horse trade, where it was a question of what you were willing to pay and what NIVE was willing to have as its bottom line.” Mr. Rettig replied that “that’s just not the case”. I accept that evidence. It appears to me to be more likely than not to be true and to be in accordance with the probabilities.[89]Counsel for NIVE sought to place NIVE’s statements as to the expected cost increase on the same footing as statements made in negotiations as to a person’s bottom (or top) line. I do not consider that they are comparable. The latter are the sort of comment often made in negotiations which are most unlikely to give rise to an actionable misrepresentation.[90]Reliance was placed on Vernon v Keys (1810) 12 East 632 where an untrue statement by a defendant that his partners would not pay more than he had offered was held not to be an actionable misrepresentation but “gratis dictum”, a phrase used by Lord Ellenborough to indicate a statement made without any obligation for accuracy or correctness. Whereas a seller is liable in deceit “if he fraudulently misrepresent the quality of the thing sold to be other than it is in some particulars”, he was not so liable if he misrepresent “the seller’s chance of sale, or the probability of his getting a better price for his commodity than the price which such proposed buyer offers.[91]More recent authority explains that the test is whether the representee is entitled to take the statement seriously rather than with a pinch of salt; see De Beers Abrasive Products Ltd v International General Electric Co of New York [1975] 1 WLR 972 at p.978 per Walton J., MCI WorldCom International Inc v Primus Telecommunications Inc [2004] 2 AER (Comm) 833 at paragraph 30 per Mance LJ and Misrepresentation, Mistake and Non-Disclosure by Cartwright 4th ed. paragraph 3-14, headed “Sales talk”.[92]Having regard to the number of times that NIVE raised the question of additional costs and NIVE’s provision, in response to a request, of a “calculation” of such costs I find it impossible to say that Rembrandt was not entitled to take what NIVE said seriously. Rembrandt was intended by NIVE to regard the figures as a genuine estimate of cost.[93]The remaining question is whether NIVE’s fraudulent misrepresentation induced Mr. Rettig to agree to amending the price of the egg products by EUR 2.50/kg.[94]It is first necessary to consider what must be established in this regard. Counsel for NIVE relied upon the judgment of Christopher Clarke J. (as he then was) in Raiffeisen Zentralbank Osterreich v Royal Bank of Scotland [2010] EWHC 1392. In that case it was held that a claimant alleging misrepresentation must show that the representation played a real and substantial part in inducing him to enter into the contract in question, that it was not necessary to show that it was the sole inducement or that it played a decisive part but that it was not sufficient to show that the claimant was supported or encouraged in reaching his decision by the representation in question; see paragraph 153. It was further held that in order to establish that the representation played a real and substantial part in inducing the contract it was necessary to show that but for the misrepresentation the claimant would not have entered into the contract on the terms which he did; see the analysis by the judge of the authorities between paragraphs 153-199 and, in particular, of the judgment of Clarke LJ (as he then was) in Assicurazioni Generali SpA v Arab Insurance Group [2003] 1 All E R (Comm) 140.[95]The judgment of Christopher Clarke J in Raiffeisen was the only authority to which I was referred on this topic, notwithstanding that Misrepresentation, Mistake and Non-Disclosure by Cartwright 4th.ed. at paragraph 3-54 refers to “some disagreement in the authorities”. When I raised the matter with counsel for Rembrandt the submission was made that the “but for” test did not have to be satisfied because the test was not mentioned in Zurich Insurance Co. plc v Hayward [2017] AC 142 and that “one should take one’s lead from the Supreme Court”. However, the issue in that case was whether it was necessary to establish that the representee had believed the misrepresentation to be true. It was held, in particular by Lord Clarke of Stone-cum-Ebony (as he had become) that, whilst the representee’s belief might be relevant to the issue of inducement, it was not necessary to establish such belief. There was no discussion of what had to be established to show inducement and neither Assicurazioni Gnerali SpA v Arab Insurance Group nor Raiffeisen Zentralbank Osterreich v Royal Bank of Scotland were cited to or by the Supreme Court. In those circumstances I am unable to accept counsel’s oral submission that the propositions established by those cases as to the need for the “but for” test to be satisfied must no longer be regarded as good law. (Indeed, Lord Clarke quoted at paragraph 33 with approval a statement by Lord Hoffman in Standard Chartered Bank v Pakistan Shipping [2003] 1 AC 959 at paragraph 15 where the language of the “but for” test was used in the context of a fraudulent misrepresentation.)[96]The question of inducement was also mentioned by Hamblen J. in Cassa di Risparmio della Republica di San Marino SpA v Barclays Bank Limited [2011] EWHC 484 (Comm) at paragraph 232 where he said:
“232. As analysed by Christopher Clarke J in Raiffeisen, supra, at [153]-[199], to establish inducement for the purpose of a claim under s.2(1) of the Misrepresentation Act, it is necessary to show that, but for the representation, the claimant would not have entered into the contract that he did.”
[97]In circumstances where in recent years the test of inducement has been said by judges of this court to be determined by the application of the “but for” test I consider that that is the test that I should apply. But Hamblen J. went on to say at paragraph 233:
“233. In that case, Christopher Clarke J concluded that where a fraudulent misrepresentation has been made, the requirement is weaker: it is sufficient to show that the representation was a factor in the claimant's decision and that but for it he might have acted differently - Ibid at [196]-[199], referring to Barton v Armstrong[1976] AC 104 and Barton v County NatWest [1999] Lloyd's Rep 408; and see also Dadourian Group International v Simms [2009] 1 Lloyd's Rep 601, 618 at [99] + [101]. This conclusion was challenged by Barclays. It submitted that a fraudulent representation must cause a loss to create a cause of action and to do so it must cause the entry into the contract from which the loss is said to arise. It follows that it must induce the representee to enter into the contract and be a cause of him doing so. It is not necessary to resolve this issue but I propose to proceed on the basis that the approach of Christopher Clarke J is correct. ”
[98]In Raiffeisen Zentralbank Osterreich v Royal Bank of Scotland Christopher Clarke J. (who was not dealing with a fraudulent misrepresentation) rejected the weaker “but for the misrepresentation he might have acted differently” test; see para.195. He referred to Barton v Armstrong [1976] AC 104 a Privy Council case on appeal from New South Wales which concerned an agreement entered into as a result of duress. Lord Cross (who gave the majority judgment in the Privy Council) said that the “but for” test did not need to be satisfied by analogy with agreements entered into on account of fraud. Lord Cross said that if the duress was “a” reason for entering the contract it did not matter that the claimant might well have entered the contract even if there had been no duress. Christopher Clarke J. distinguished that case on the grounds that the case before him did not involve a fraudulent misrepresentation. That is no doubt why Hamblen J. observed that Christopher Clarke J. had “concluded” that in such cases there was a weaker “but for the misrepresentation he might have acted differently” test.[99]This suggested weaker test in the case of a fraudulent misrepresentation was not the subject of any submissions in the present case. However, in circumstances where both Christopher Clarke J. and Hamblen J. have recognised the weaker test (although in neither case was it the subject of an actual decision) I consider that I should proceed on the basis that the suggested weaker test applies in the case of fraudulent misrepresentation. Misrepresentation, Mistake and Non-Disclosure by Cartwright 4th.ed. at paragraph 3-54 suggests that it is “generally accepted”.[100]Counsel for Rembrandt submitted that what was said about additional costs was shown by the evidence to be “a reason” for Rembrandt agreeing to pay an extra EUR2.50/per kg and that it did not matter that that there were other reasons for making that agreement. Reliance was also placed on the presumption of inducement or “fair inference of fact” which arises where a false statement is made which is likely to induce a contract and where the representee enters the contract. The inference which arises is that the representee was influenced by the statement: see Zurich Insurance Co. plc v Hayward [2017] AC 142 at paragraph 34 per Lord Clarke of Stone-cum-Ebony. Where the misrepresentation was made fraudulently the inference is “particularly strong”. The inference or presumption of inducement can be rebutted but that is “very difficult”; see paragraphs 34-37 per Lord Clarke. In Raiffeisen Christopher Clarke J suggested that Barton v Armstrong may be regarded as establishing that in a case of fraudulent misrepresentation “the presumption of inducement is not rebutted if all that can be said is that the representee might well have contracted without the [fraudulent misrepresentation].”[101]I have already summarised Mr. Rettig’s evidence on this topic. He said his reasons for accepting the increased price were three-fold. First, given the shortages of eggs in the US market he wished to secure product quickly to secure an advantage over competitors. Second, despite the requested increase in price, the pricing remained “viable”. In particular the dried egg white price remained lower than the Urner Barry market price. Third, he had no reason to believe that the costs put forward by NIVE were not genuine and although they appeared higher than Rembrandt’s own costs he thought they would be much the same for all Netherlands producers. Mr. Rettig also said in his witness statement that had he known that the stated costs were not NIVE’s real costs of complying with US regulations but contained a very significant element of profit he would have viewed the situation very differently.[102]In the light of this evidence it seems clear that the representation was one of three matters which Mr. Rettig considered and took into account before reaching his decision. At the very least the representation was a matter which “supported or encouraged” him in reaching his decision. But that is not enough, as was held by Christopher Clarke J in Raiffeisen at paragraph 153 following Dadourian v Simms [2009] EWCA Civ 169 at paragraphs 99 and 100, itself a case of fraudulent misrepresentation. The representation must be a matter but for which Mr. Rettig would not have reached the decision he did or, since this is a case of a fraudulent misrepresentation, but for which Mr. Rettig might have acted differently. That is not saying that the representation must be the only reason for his decision; for as Christopher Clarke J. accepted in Raiffeisen there can be more than one “but for” cause; see paragraphs 170-171.[103]There was no evidence from Mr. Rettig that but for the representation made concerning additional costs Rembrandt would not have agreed to the requested price increase or that Rembrandt might not have agreed to the requested price increase. The most that he said was that he would have viewed the situation very differently. As counsel for NIVE observed there was no evidence as to what would have been the causal consequence of Mr. Rettig having viewed the matter differently. Mr. Rettig did not say that he would have acted differently, only that he would have viewed the situation differently. When asked in cross-examination what he would have done he said that he did not know.[104]However, the representation was made by NIVE for the purpose of persuading Rembrandt to agree the requested price increase and Rembrandt did accept the requested price increase. There is therefore a “particularly strong” presumption, or a “fair inference of fact”, that the representation induced Mr. Rettig to reach his decision in the sense that but for the representation he would not, or might not, have agreed to the requested price increase. The evidential burden therefore lies on NIVE to rebut that presumption or inference. That is “very difficult” to do (per Lord Clarke). It is not rebutted (per Christopher Clarke J.) if all that can be said is that the representee might have entered the contract had there been no representation. The presumption will only be rebutted, in a case of fraud, by showing that the representee would have entered the contract had there been no representation.[105]Counsel for NIVE submitted that the presumption or inference was rebutted. The first reason relied upon was that Rembrandt had an urgent need for NIVE’s egg products and that even with the increase in price the contract remained viable. It was clear from Mr. Rettig’s witness statement that there was an urgency in securing the contract with NIVE. Having described the risks facing Rembrandt’s customers as a result of avian flu Mr. Rettig said “we had supply agreements in place with customers, which we would not be able to meet without the supply we had agreed with NIVE.” When cross-examined he explained that Rembrandt could also source shell eggs from other countries. This was not, however, a solution mentioned in his witness statement. I accept that shell eggs could probably be sourced from elsewhere but his witness statement made clear that the contract with NIVE had a particular importance to Rembrandt. This was, I think, acknowledged by Mr.Rettig in his evidence when he accepted that in the “short term, NIVE was the first option.” Even Mr. Hagist accepted that in the short term Rembrandt had no other options for dried egg powder. It was also clear from Mr. Rettig’s witness statement that even with the increased price the contract “remained viable in terms [of] the fundamentals of the US market.” My understanding of that evidence is that the contract would remain profitable. That was put to Mr. Rettig who did not deny the suggestion, saying again that “we thought it was going to be a commercially viable contract”. Thus, quite apart from the representation concerning additional costs, there were good reasons for accepting the increased price, notwithstanding that the price had already been agreed. These reasons were also acknowledged by Mr. Hagist who said:
“Our S&OP group was telling us this would still work. We needed to go ahead. And we were anxious to get the product for our customers.”
[106]The second reason relied upon by counsel for NIVE was that the first suggested price increase was not the subject of “push back” and that the particulars of the additional costs on 22 June were not questioned. These matters are consistent with there being good reason to accept the increased price but I do not consider that they by themselves amount to a cogent reason for rebutting the presumption or inference. The first requested increase was much less than EUR 2.50/ per kg and, as I have already accepted, there were reasons why Rembrandt would not be able to question the additional costs in the Netherlands.[107]The third reason relied upon was that Mr. Rettig failed to say whether or not he would have accepted the increased price but for the representation as to additional costs. His statement addressed this question at paragraph 37 but, although saying he would have viewed the situation very differently, he did not say what he would have done. I am struck by Mr. Rettig’s failure to say that had he known that the figures were not real costs he would not have agreed or might not have agreed to the requested additional price of EUR 2.50/ per kg. Had the position been that but for the representation about additional costs he would not have agreed or might not have agreed the requested increase in price I would have expected him to say so. Even if, because it was a hypothetical question, he could not be sure I would have expected him to say that he was unlikely to have agreed the requested price increase, if that was the case. His failure to say what he would have done or what he was likely to have done was therefore striking. Counsel for NIVE gave Mr. Rettig another opportunity to answer the question during cross-examination. He was asked what he would done had he questioned NIVE and been told that the costs were between EUR 1.50 and 2.50 per kg but that NIVE were insistent on receiving an extra EUR 2.50 per kg. He replied that he did not know, it was hypothetical and that he could not answer.[108]Mr. Rettig’s failure to answer the question, first, when put to him in his witness statement and, second, when cross-examined, can properly, depending upon the circumstances of the case, cause or increase doubt as to the fact of inducement, although it is not conclusive; see Smith v Chadwick (1884) 9 App Cas 187 at pp.195-196 per Lord Blackburn. I have asked myself whether Mr. Rettig’s reticence can be credibly explained. The only reason he gave when being cross-examined was that the question was hypothetical. I agree that it was and that that can make the question difficult to answer. But the difficulty with answering a hypothetical answer is in being certain. I do not consider that this hypothetical question was so difficult to answer that Mr. Rettig could not have replied, if it was the truth, that he was unlikely to have agreed the requested price increase.[109]I have also considered the evidence of Mr. Rettig, when asked whether he was very anxious to get NIVE’s egg product and did not have anywhere else to go, that the suggestion was not true. I have asked myself whether that answer indicates that but for the representation as to additional costs he would not have agreed to pay the requested increase in price. If he was not anxious to get NIVE’s egg product one would expect that he must have agreed to the requested price increase for some other reason, namely, the representation as to the additional costs. However, if that were so one would have expected him to have little difficulty in replying, when asked what he would have done had he known that the costs were not costs but a request for additional profit, that he would not, or might not, have agreed to the requested price increase. Yet he failed to give that answer. In any event I consider that he was very anxious to secure NIVE’s egg product. That was the tenor of his written statement and when cross-examined he accepted that he was “very interested …. in procuring product .… because the customers were in deep, deep, deep need of product”. He further accepted that he was “keen to lock in the deal”. Rembrandt may have been able to secure shell egg from other countries but in the short term egg product was required.[110]In summary, there is, on the one hand, evidence from Mr. Rettig (which I accept) that the representation was one of three matters which he considered when reaching his decision. It was in that sense actively in his mind when he took the decision. That suggests that the representation contributed to his decision to agree to the requested price increase. On the other hand, there were other reasons for agreeing to the requested price increase and Mr. Rettig was surprisingly unable to say what he would have done had the representation not been made. The issue is whether the existence of those other reasons, in conjunction with Mr. Rettig’s inability to say what he would or might have done had the representation not been made, are strong enough to rebut the presumption or inference of inducement in the sense of showing, not merely that Mr. Rettig might have agreed to the requested price increase but that he would have agreed to the requested price increase.[111]In considering this question I have noted the dicta of high authority, brought together by Lord Clarke at paragraphs 37-38 of his judgment in Zurich Insurance v Hayward, which demonstrate how difficult it is to rebut the presumption or inference where the misrepresentation is fraudulent. In particular, the dicta suggest that a party who has made a fraudulent misrepresentation in order to achieve a particular result and does so cannot be permitted to question that his fraudulent misrepresentation was in fact causative. Since the issue remains a question of fact there can be no rule of law to that effect. But the dicta reflect the difficulty in rebutting the presumption or inference where the misrepresentation is fraudulent. Hence Lord Clarke’s conclusion that it is “very difficult” to do so.[112]The conclusion I have reached is that, whilst Mr. Rettig might have agreed to the requested price increase, NIVE cannot show that he would have agreed to the requested price increase. The fraudulent misrepresentation as to the additional costs of complying with the US regulations was made for the very purpose of persuading Rembrandt to agree the requested price increase. That end was achieved. Very strong evidence is required to rebut the presumption or inference of inducement in such a case. Whilst there is evidence that Mr. Rettig, on behalf of Rembrandt, might have agreed to the requested price increase had the misrepresentation not been made I do not consider that that evidence has the clarity and cogency necessary to enable to enable NIVE to persuade the court that Mr. Rettig would in fact have agreed to the requested price increase even if the misrepresentation had not been made.[113]For these reasons the defence of fraudulent misrepresentation succeeds.[114]Before considering the consequences of this conclusion it is necessary to consider Rembrandt’s second defence, the suggested breach of warranty.

The defence of breach of warranty

[115]Rembrandt has alleged, in its counsel’s closing submissions, breach of four warranties. I shall deal with each in turn.[116]The first warranty (described as RS1) is to be found in the specification and provides as follows:
“This product shall be of food grade and in all respects including labelling in compliance with Federal Food, Drug and Cosmetic Act if 1938 as amended and all applicable regulations thereunder.”
[117]It is common ground that the reference to the 1938 Act should be regarded as a reference to EPIA and the regulations made thereunder.[118]The submission made on behalf of Rembrandt was that pursuant to EPIA and the regulations made thereunder accreditation or approval of the procedures in the Netherlands was not sufficient to ensure compliance with EPIA and the regulations made thereunder. The product did not comply with EPIA and the regulations because it could not lawfully be imported into the US unless it was processed under continuous inspection in the same way as domestic product.[119]The submission made on behalf of NIVE was that it was sufficient that egg product was produced under an approved equivalent foreign inspection system. There was no additional requirement that imported egg products had also to comply with the inspection regime which was required in the US.[120]Counsel for Rembrandt relied upon a passage in the expert evidence of Mr. Hibbert, a US lawyer with experience of food and agriculture issues, which said:
“….just as a plant which is granted approval in the US must produce product under continuous inspection and in compliance with the regulatory requirements, the mere listing of a plant as eligible to import product to the US does not operate as a waiver of the requirements that the plant comply with the underlying regulatory requirements. The failure to do so results in the product being ineligible for distribution in commerce in the US. The requirements in 9 CFR Section 590.910 make clear that egg products from a foreign country must still meet the same standards and requirements applicable to comparable domestic product. To suggest that the approval of a foreign country operates as waiver of these requirements would render the regulatory requirements meaningless and is not correct…”
[121]Counsel for NIVE submitted that 9 CFR Section 590.910 cannot mean that egg products produced under an approved equivalent foreign inspection system must also comply with the inspection regime that would have prevailed had they been produced in a US plant because such a requirement would make a nonsense of the foreign approval system. Unless that system was identical to the US system production under the foreign system could never satisfy the requirements of EPIA.[122]It is therefore necessary to set out the terms of 9 CFR section 590.910. This is part of the regulations issued under EPIA. Section 590.910 provides as follows:
“(a) Whenever it is determined by the Administrator that the system of egg products inspection maintained by any foreign country is such that the egg products produced in such country are processed, labelled, and packaged in accordance with, and otherwise comply with, the standards of the Act and these regulations including, but not limited to the same sanitary, processing, facility requirements, and continuous Government inspection as required in section 590.500 through 590.580 applicable to inspected articles produced within the United States, notice of that fact will be given by listing the name of such foreign country in paragraph (b) of this section. Thereafter, egg products from the countries so listed shall be eligible subject to the provisions of this part and other applicable laws and regulations, for importation into the United States. Such products to be imported into the United States from these foreign countries must meet, to the extent applicable, the same standard and requirements that apply to comparable domestic products as set forth in these regulations. ”
[123]Mr. Hibbert did not set out this section in his expert evidence or explain what principles would be applied by the US courts in construing it but simply stated his opinion of its effect. He did not explain how the language of the section supported his opinion. NIVE called no expert evidence from a US lawyer.[124]The question whether egg product produced under the Netherlands system of inspection (on two occasions only, first, when the eggs were broken and, second, pre-shipment) which had been approved by FSIS as equivalent to the US system of continuous inspection could not be lawfully imported or traded in the US depends upon the true construction of section 590.510 of the relevant regulation. When I read that section the answer to the question appeared to me to depend in part upon the meaning of the words “to the extent applicable” in the last sentence at the end of paragraph (a). If the last sentence required foreign products to meet the same standards and requirements that applied to comparable domestic products in the US then there would be, it appeared to me, no purpose in the approval of a foreign system of inspection. Of course the egg product would have to have been produced under the approved inspection system but if it was it would appear to be contrary to the purpose of approving foreign inspection systems to deny import to the US on the grounds that the foreign system of inspection did not comply with the system of inspection approved in the US. The words “to the extent applicable” govern and limit the requirement that the imported product must meet the same standards and requirements that apply to comparable domestic products. In the context of import from countries whose inspection systems have been approved the words “to the extent applicable” refer, in my judgment, to the extent applicable having regard to what systems of inspection have been approved.[125]Counsel for Rembrandt submitted that the words “to the extent applicable” refer to the particular product being looked at and noted in that regard paragraphs of the regulations which provided certain requirements for shell eggs and certain requirements for egg products. I was not persuaded by that submission since the result would be the unlikely result that even though the production of egg product had been inspected in a manner approved by FSIS it still could not be imported into the US because it had not been inspected in the manner required for domestic egg product. Counsel also relied upon section 1046 of EPIA which stated that no egg products shall be imported into the US unless they were processed under an approved continuous inspection system of the government of the foreign country of origin “and otherwise comply with the standards of this chapter and regulations issued thereunder applicable to such articles within the United States.” I was unpersuaded by that for the same reason. It would be pointless to go through the process of approving a foreign system only to say on import that the US domestic system had not been deployed.[126]Mr. Hibbert did not address the improbability inherent in his opinion. When he gave evidence by video link it appeared that the basis of his opinion (and perhaps the reason why he did not address the improbability inherent in his opinion) was that FSIS had no discretion to depart from the requirement for continuous inspection. He was asked whether he was saying that if the foreign inspection system is not as strict as the US system, for example, because the inspector is not present at all stages of processing, then the eggs cannot be imported into the United States. He replied that that was not quite right. He restated his opinion but in similar terms to those used in his report. He was asked whether his opinion applied even if the foreign plant is complying with the system that has been approved by the FSIS as an equivalent system. He replied that while the plant and country are eligible “those specific products are not eligible for market inspection because they have got nothing produced under continuous inspection.” He was then asked whether, if FSIS agreed with the Netherlands that all that was required was the presence of an inspector at breaking of eggs and at pre-shipment and if NIVE complied with that, would the egg products produced under such a system of inspection be eligible to be imported and sold in the United States. He replied that if FSIS said they were eligible then they were considered to be eligible but that the question assumed a situation where FSIS would be operating contrary to US law. That last answer reflected his opinion as expressed in his report that FSIS had no discretion to modify or dispense with the “fundamental requirement” of continuous inspection, “a fundamental tenet of the US egg products regulatory regime”.[127]The difficulty with that view is that two matters, which were put to Mr. Hibbert in cross-examination, indicated that FSIS had a discretion as to how to interpret the requirement for continuous inspection. One was a letter dated 12 January 2017 from USDA/FSIS to the Chief Veterinary Officer in the Netherlands which identified particular situations where continuous inspection was not required, namely, during stabilisation and heat treatment of dried egg whites. The other was a publication by the USDA/FSIS in the Federal Register for 13 February 2018 which sought public comment on a proposal to reinterpret the requirement for continuous inspection of the processing of egg products to permit inspection “at least once per shift, instead of during all processing operations.” Mr. Hibbert (although he somewhat surprisingly regarded the publication as irrelevant) accepted that the publication was a reinterpretation by the FSIS of what it understood by continuous inspection. The significance of these documents is that they indicated that FSIS considered that it had a discretion as to how to interpret the requirement for continuous inspection. Mr. Hibbert’s opinion that (the assumed) approval by FSIS of a Netherlands system which only required the presence of an inspector on two occasions would be contrary to US law was therefore questionable. Indeed, he accepted that the proposed reinterpretation of continuous inspection would have been reviewed by the Office of Management and Budget to ensure that the proposed regulation was consistent with the applicable law.[128]I was therefore not persuaded that Mr. Hibbert’s opinion was correct. Although NIVE called no evidence of US law I have concluded that paragraph 590.910 of the regulations did not prevent the import of egg product which had been produced under an inspection system in the Netherlands approved by FSIS but which differed from the inspection system required for US produced egg product.[129]For these reasons I did not consider that there had been a breach of warranty RS1.[130]Warranty RS2 was the second part of the specification which provided as follows:
“This product is to be produced in an establishment in the Netherlands under an inspection system certified by USDA/FSIS as equivalent to USDA/FSIS inspection and produced, packed and supplied in accordance with and otherwise meeting all European Regulations and requirements.”
[131]In the light of my earlier findings as to what FSIS approved, namely, the Netherlands inspection system which consisted of the presence of an inspectors on two occasions (the breaking of eggs and pre-shipment), this warranty was not breached. NIVE’s egg product was produced in an establishment in the Netherlands under an inspection system certified by USDA/FSIS as equivalent to USDA/FSIS inspection.[132]The third warranty relied upon is the last sentence of the second warranty of clause I of the contract, namely, “the Product produced shall be approved for import into the United States.” For the reasons I have already given the egg product produced by NIVE was approved for import into the United States.[133]The fourth warranty relied upon is the third warranty of clause I of the contract, namely, “all Products sold to Rembrandt pursuant to this Agreement will not be adulterated or misbranded” within the meaning of EPIA. The suggested breach is based upon the failure to comply with the US system of inspection. But for the reasons I have given, so long as the product was inspected in accordance with the procedure in the Netherlands approved by FSIS the product does not have to comply with the US system of inspection. There was therefore no breach of this warranty.[134]It follows that Rembrandt’s second defence to this claim, breach of warranty, fails. Rescission for misrepresentation[135]The defence of misrepresentation having succeeded the question arises whether Rembrandt is entitled to an order for rescission of the contract. The argument proceeded along the following lines. Rembrandt is so entitled so long it is able to provide restitution of the egg product supplied to it between September 2015 and January 2016. That it cannot do because the egg product has been sold by Rembrandt. It was therefore submitted on behalf of NIVE that rescission was not available. In response it was submitted on behalf of Rembrandt that it can give “pecuniary counter-restitution” in the form of the proceeds of selling the egg product. It was submitted that that was permissible because it was “practically just”, notwithstanding that it would not “restore the parties precisely to the state they were in before the contract”; see Erlanger v New Sombrero Phosphate Co. (1878) 3 App Cas 1218 at pp. 1278-1279 per Lord Blackburn. On behalf of NIVE it was said that English law does not permit “substitutive counter restitution” by paying over the value of the goods supplied instead of returning the goods themselves. Both parties relied upon academic writing on this subject.[136]Before reaching a decision on this issue it is, I think, necessary to note an unusual feature of this case. It is now accepted that the effect of rescinding the revised contract is that the original contract is resurrected. The original contract had been brought to an end by the operation of clause P of the revised contract. Once the revised contract is rescinded, it cannot now be regarded as having brought the original contract to an end. Thus it is now common ground, subject to certain further arguments, that the effect of rescission is that NIVE can still recover damages for breach of the original contract (the original contract having been entered into freely and unaffected by any misrepresentation and there being no defence of breach of warranty). Such damages must be assessed upon the basis of the originally agreed prices, ignoring the increase in price by EUR 2.50 per kg.[137]The further arguments are three in number.[138]First, it is said that in circumstances where NIVE believed it would make a loss on the original contract it should not be compensated on the basis that it would have made a profit. The legal basis of this argument is the suggestion that NIVE repudiated the contract by the discussion on 16 June 2015 and by its email dated 22 June 2015. I do not accept either the factual or the legal basis of this argument.[139]In June 2015 prices were increasing and NIVE may well have been concerned that it might make a loss if the price of eggs went up but the price under the contract with Rembrandt was fixed. As it happened the price of eggs fell and it is now apparent, as the work of the forensic accountants showed, that NIVE would have made a profit on the contract. As to the legal basis of the argument. I do not accept that the contract was repudiated in the conversation of 16 June 2015. As I have already said the note relied upon (“threat to delist”) probably reflected a misunderstanding. I do not accept that the van Loon brothers repudiated the contract during that call. The penultimate sentence of the 22 June 2015 made reference to NIVE suffering a loss on the contract but I do not regard that as a repudiation of the contract. In any event there was never any acceptance of the alleged repudiation.[140]Second, reliance is placed on the circumstance that the original contract did not contain a specification. I had understood that what was being said was that the original contract was therefore no more than an agreement to agree and was therefore unenforceable. Counsel for NIVE objected to this point being taken because it had not been pleaded and was first raised in closing submissions. He said it was far too late to raise the point because there were many exchanges before and after the contract, some not in the trial bundles. There appears to me to be force in this objection. However, whilst counsel for Rembrandt accepted that he could not pursue his third point (that the original contract was too vague to be performed) for the reasons adumbrated by counsel for NIVE he said that his second point was that NIVE would have seized on any point not to perform the original contract and the absence of an agreed specification would have been seized on in that context. The thrust of the second point was therefore that “in the light of NIVE’s conduct and contemporaneous threats not to perform, it cannot be assumed that that the original contract would have been performed”.[141]From NIVE’s point of view the renegotiation was an attempt to increase the already agreed price at a time when the price of eggs was rising and it was becoming apparent that there would be additional costs in complying with US regulations. Mr. Jasper van Loon said that he had a bottom line, namely, an increase in price of EUR 1.50 per kg. but he appreciated that if the costs turned out to be more expensive than the extra price agreed “we knew we would have to foot the bill”. He said that NIVE wanted to establish a strong negotiating position and were willing to push hard. That I do not doubt. In the course of the negotiation NIVE put forward as “costs” figures which in fact included additional profit and were not honestly believed to be just “costs”. But it does not follow that if agreement on an increased price had not been achieved NIVE would have walked away from the contract. NIVE were obviously keen to supply to the US. They had agreed a contract with little delay. I was told (by reference to a document provided to me during the trial) that the market price of eggs in Europe began to fall quite sharply in the Netherlands from 22 June, the very day on which NIVE sent their “calculation” of EUR 2.59 per kg. I was further told (by reference to a document provided to me during the trial) that the figure for increased costs in Jasper van Loon’s witness statement was much lower than EUR 2.59 per kg, namely, EUR 1.16 per kg, and that the forensic accountants had agreed that the actual costs were even less, EUR 0.695 per kg. Thus the need for an increased price would have fallen away quite soon. In those circumstances it seems to me more likely than not that NIVE would have performed the original contract even if it had not negotiated an increase to the agreed price.[142]The third point is that the original contract was too imprecise to be capable of enforcement. As I have already noted counsel for Rembrandt abandoned this point in his oral closing submissions.[143]The position therefore is that the availability of the remedy of rescission, the financial consequences of rescission, including NIVE’s liability to return the price paid to Rembrandt, and NIVE’s claim to damages for breach of the original contract must be assessed on the basis that as a result of the rescission Rembrandt remains bound by the original contract.[144]That being so it appears to me that there is considerable force in the submission made on behalf of NIVE that what is “practically just” in this case is to remove the benefit received as a result of its misrepresentation, namely, the extra EUR 2.50 per kg; see paragraph 131 of NIVE’s closing submissions. So far as the goods actually delivered are concerned that means requiring NIVE to restore to Rembrandt EUR 2.50 per kg, namely, EUR 1,594,750.050, That is the sum which, in my judgment, should be restored to Rembrandt rather than the total price paid of EUR 5,568,200.[145]On that basis there is nothing which Rembrandt is obliged to restore to NIVE by way of counter restitution. Rescission in this particular case does not in fact require Rembrandt to return the goods or their monetary equivalent and so rescission can be granted. For this reason it is not necessary for the court to resolve the interesting questions of law as to the extent to which, if at all, a party seeking rescission may give “pecuniary counter restitution” where return of the goods themselves is not possible.

NIVE’s damages

[146]NIVE claims damages in the sum of EUR19,445,036. It is agreed that there was no relevant market for the egg product and so damages are assessed on the basis of the loss of the profit that NIVE would have made on the sale of product to Rembrandt during the two years that the contract ought to have run. The loss of profit must be assessed upon the basis that NIVE is not entitled to damages on the basis of the increased price but only upon the original price. Whilst forensic accountants have done much to assess the net profit there remain five issues of fact and legal principle to be resolved. Depending upon how those matters are resolved the recoverable loss may be somewhat less than the amount claimed. I shall deal first with the outstanding issues of fact. Capacity[147]The expected contractual volume was 175mt per month but NIVE failed to deliver that volume of product between July 2015 and January 2016. Nothing was supplied in July and August and only 110 mt were supplied in September. 264 mt were supplied in October but only 132, 88 and 44 mt were supplied in November, December and January. The Claimant’s claim assumes that 100% of the contractual volume would have been supplied for the remainder of the contract. This is not accepted by Rembrandt who say that the court should assume that NIVE’s performance going forward was likely to have reflected its performance in the six months to January 2016. The lowest capacity allowed by Rembrandt’s forensic accountant is 65%.[148]The evidence of Jasper van Loon was that there was a lack of grading capacity at Weko’s plant which “put a limit on the amount of product that we could produce for US export”. It may be that such lack of grading capacity was a reason why the amount of product supplied between July 2015 and January 2016 was so far below the expected contractual quantities. But Jasper van Loon’s statement does not say that in terms. There is no detailed evidence from him explaining the failure to supply in accordance with the contract. Nor is there any evidence from Jasper van Loon explaining why that capacity would not have remained a difficulty and so would have reduced the amount of product NIVE could have supplied. Jasper van Loon did say that Weko “had to lay off part of our retail customer base” from which I was invited to infer that by so doing additional grading capacity was made available to supply US product. However, this is not a matter explained in any detail by Jasper van Loon. Some work was done by Rembrandt’s forensic accountant as to nominal and net grading capacity for “normal” and “peak” weeks and compared such figures with the number of eggs graded by Weko in 2015. I was not persuaded that these figures enabled any reliable conclusions to be drawn.[149]Mr. Rettig gave evidence that he was told in June that the reason for the delay in the shipment of any eggs in July and August was inspector availability. Rembrandt suggested that the cause of the poor performance from July 2015 to January 2016 was a shortage of NCAE inspectors. This is based upon two matters, first, a passage in Jasper van Loon’s evidence which suggested a shortage of inspectors and, second, a calculation by the forensic accountants that the number of inspections per week was 1.73 compared with a calculation that inspections of 3.02 per week were needed to meet the contracted deliveries. I do not consider that much can be inferred from Jasper van Loon’s evidence. He was explaining why NCAE did not have the capacity to perform continuous inspection in the manner suggested by Rembrandt. Also, I do not consider that much can be inferred from the two calculations of 1.73 actual inspections per week and a required figure of 3.02 inspections per week. If there were grading problems they would have limited the number of inspector visits.[150]My finding is that the shortfall in production from July 2015 and January 2016 probably had something to do with restrictions on grading capacity as stated by Mr. Jasper van Loon. But it probably also had something to do with a shortage of inspectors given that the US authorities had only approved the Netherlands procedures on 1 June 2015 and that NIVE told Mr. Rettig that the problem in July and August was inspector availability. Both restrictions are likely to have eased with time and it is to be expected that NIVE would have sought to improve their rate of production. But there were still problems in November, December and January. They were substantial restrictions even then. There is no firm evidential basis for saying that they would have been solved in the short term. Since 52% of the contracted quantity was supplied between July 2015 and January 2016 and some improvement can properly be allowed for I consider that NIVE’s damages should be assessed on the basis that NIVE would supply 75% of the contractual quantity. The tonnage supplied in October 2015 shows that, with effort, more than 175 tons could be produced in a month. But the evidence does not enable me to find that NIVE would have achieved anything better than 75% over the life of the contract. Surplus egg yolk[151]There is no dispute that the production of egg products would have resulted in surplus liquid yolk. No factual evidence was given as to whether this would have been used elsewhere or sold. However, there was evidence from Rembrandt’s market expert that there was a market for liquid yolk. On that basis NIVE’s forensic accountant considered that it should not be regarded as a cost of production. However, no documents were produced by NIVE evidencing sales of such surplus product. Rembrandt says that it should be accounted for as a cost.[152]It is unlikely that the surplus yolk would have been wasted given that there was a market for it. However, in the absence of any evidence as to sales it is speculative to assume that its cost would have been recovered in full. It may or may not have been. I do not consider that NIVE has proved this aspect of its quantum claim and so it should be accounted for as a cost. NIVE eggs[153]This does not appear to be a dispute because it is common ground that the eggs to be provided under the contract would have been broken 50/50 between NIVE and Van den Burg. Thus 50/50 should be used for the damages calculation. Catch up[154]This is a question of construction. Was NIVE entitled to “catch up” on the short deliveries between July 2015 and January 2016 ? It was submitted on behalf of NIVE that it was, because if the monthly quantities were set in stone there would have been no purpose in specifying a total annual amount. It was submitted on behalf of Rembrandt that it was not, because it cannot have been intended that NIVE could supply a year’s worth of product as and when it suited.[155]Clause B provided:
“…..Rembrandt shall purchase and NIVE will supply 175 metric tons per month of Products, for a total of 2100 metric tons of the Products for each Contract Year during the Term; provided, that for July and August 2015, it is recognised that a ramp up in volume will occur, and that during such period, NIVE shall be obligated to supply any volumes of Products eligible to be exported to the US. Such purchases shall otherwise take place at the approximate volumes set forth in Exhibit B, attached hereto, as adjusted by mutual written agreement between the parties. Each load shall consist of approximately 22 metric tons of Products.”
[156]The clause provides for monthly deliveries of 175 tons per month and a total of 2100 tons per year. It also contemplates that more than 175 tons may be supplied in July and August 2015. Otherwise the clause contemplates deliveries will be in the “approximate” volumes in Exhibit B, some 175 tons per month. In my judgment deliveries of 175 tons per month plus or minus 5% would be permitted within the word “approximate”. However, where there has been a substantial shortfall as happened between July 2015 and January 2016 I do not consider that NIVE is entitled to make up the shortfall by adding substantially to the usual monthly delivery. It may of course do so with consent but I do not consider that Rembrandt was obliged to take substantially more than 175 tons per month, notwithstanding that the contract envisaged an annual supply of 2100 tons. The leeway inherent in an approximate delivery of 175 tons per month was no doubt required because of the difficulty in ensuring a delivery of precisely 175 tons per month. I do not consider that it was intended to enable NIVE to force upon Rembrandt a quantity substantially in excess of 175 tons simply because it had breached its supply obligation. I note that that was done in October 2015 (when 264 tons were supplied) but that was accepted by Rembrandt. Thus the answer to the question of construction is that catch up was not permitted save with consent. In any event, in the light of my findings on capacity NIVE are unable to prove it could have caught up. The Henningsen %[157]This dispute has given rise to an issue of law concerning the recovery of damages. There appears to be no dispute that NIVE arranged that about 50% of the supply of egg white powder to Rembrandt would be provided by Henningsen, a company which, like NIVE, was part of the Interovo group (see NIVE’s closing submissions at paragraph 255 and Rembrandt’s closing submissions at paragraphs 152 and 153). It is common ground that NIVE did not communicate that intention to Rembrandt pre-contract. Although Rembrandt subsequently agreed to accept some egg white powder from Henningsen and to be invoiced directly by Henningsen it is also common ground that Henningsen had no direct rights against Rembrandt. Those are the circumstances in which NIVE has included within its claim damages in respect of the 50% of egg white powder which would have been supplied by Henningsen. The question of law is whether it can make such a claim.[158]On 13 April 2018, that is, shortly before the trial in this action, NIVE and Henningsen entered into a “Settlement Agreement.” It was signed by Jasper van Loon on behalf of NIVE and by his father on behalf of Henningsen. Recital C recorded that between July and September 2014 it had been agreed orally that Henningsen would supply approximately 50% of the dried egg white powder to Rembrandt and that Henningsen would be entitled to the profits. Recital D recorded that Henningsen had suffered a loss of profits. Recital G stated that Henningsen and NIVE had settled Henningsen’s loss of profit claim (if any) against NIVE. Clause 3 provided:
“If NIVE is entitled to recover lost profits from Rembrandt, NIVE shall, within fourteen Business Days of the date of a payment from Rembrandt to NIVE in respect of such profits, pay to Henningsen the total sum of EUR6,189,667……If NIVE recovers only a proportion of the total costs claimed against Rembrandt, it will pay to Henningsen the same proportion of EUR6,189,67. 514”
[159]It was submitted on behalf of NIVE that NIVE could make a claim in respect of the profits lost by Henningsen in accordance with a principle which permits a party to a contract, A, to recover from the other party to the contract, B, a loss which has in fact been sustained by a third party, C, on the grounds A has suffered the loss of his “performance interest”, that is the failure to provide C with the benefit of the contract. This principle has been discussed in Linden Gardens Trust v Lenesta Sludge Disposals [1994] 1 AC 85, Alfred McAlpine Construction Ltd v Panatown [2001] 1 AC 518 and Lowick Rose LLP v Swynson [2017] UKSC 32.[160]Counsel have referred to the differing statements of principle in these and other cases but it is, from the point of a view of a first instance judge, convenient (and appropriate) to take the principle from the most recent judgment of the Supreme Court in Lowick Rose LLP v Swynson. Lord Sumption (with whom Lords Neuberger, Clarke and Hodge agreed) described the principle in these terms:
“Transferred loss 14. The principle of transferred loss is a limited exception to the general rule that a claimant can recover only loss which he has himself suffered. It applies where the known object of a transaction is to benefit a third party or a class of persons to which a third party belongs, and the anticipated effect of a breach of duty will be to cause loss to that third party. It has hitherto been recognised only in cases where the third party suffers loss as the intended transferee of the property affected by the breach. The paradigm case is the rule which has applied in the law of carriage of goods by sea ever since the decision of the House of Lords in Dunlop v Lambert (1839) 2 Cl & F 626, that the shipper may sue the shipowner for loss of or damage to the cargo notwithstanding that the loss has been suffered by the consignee to whom property and risk (but not the rights under the contract of carriage) have passed. In Albacruz (Cargo Owners) v Albazero (Owners) [1977] AC 774, 847 Lord Diplock, with whom the rest of the Appellate Committee agreed, expressed the rationale of the carriage of goods rule as being that: “in a commercial contract concerning goods where it is in the contemplation of the parties that the proprietary interests in the goods may be transferred from one owner to another after the contract has been entered into and before the breach which causes loss or damage to the goods, an original party to the contract, if such be the intention of them both, is to be treated in law as having entered into the contract for the benefit of all persons who have or may acquire an interest in the goods before they are lost or damaged, and is entitled to recover by way of damages for breach of contract the actual loss sustained by those for whose benefit the contract is entered into.”
The party recovering is accountable to the third party for any damages recovered: ibid, p 844. 15. In Linden Gardens Trust v Lenesta Sludge Disposals Ltd[1994] 1 AC 85, this rationale was extended to contracts generally. A contractor had done defective work in breach of a building contract with the developer but the loss was suffered by a third party who had by then purchased the development. The developer recovered the loss suffered by the purchaser. Lord Griffiths, however, suggested (at p 97) that the result could be justified on what has become known as the “broader ground”. This is that the developer had himself suffered the loss because he had his own interest in being able to give the third party the benefit that the third party was intended to have. He could recover the cost of rectifying the defects because it represented what the developer would have to spend to give the third party that benefit, even though he had no legal liability to spend it. On the broader ground, the principle would not be limited to cases where the loss related to transferred property. 16. It is, however, important to remember that the principle of transferred loss, whether in its broader or narrower form, is an exception to a fundamental principle of the law of obligations and not an alternative to that principle. All of the modern case law on the subject emphasises that it is driven by legal necessity. It is therefore an essential feature of the principle that the recognition of a right in the contracting party to recover the third party’s loss should be necessary to give effect to the object of the transaction and to avoid a “legal black hole”, in which in the anticipated course of events the only party entitled to recover would be different from the only party which could be treated as suffering loss: see Alfred McAlpine Construction Ltd v Panatown Ltd[2001] 1 AC 518, 547-548 (Lord Goff), 568 (Lord Jauncey), 577-578 (Lord Browne-Wilkinson), 582-583 (Lord Millett). That is why, as the House of Lords held in this last case, it is not available if the third party has a direct right of action for the same loss, on whatever basis. 17. In the present case the relevant duty was owed to Swynson but the loss has in the event been suffered by Mr Hunt. Since Mr Hunt did not suffer his loss in his capacity as the owner of property, only the broader principle of transferred loss could be relevant to his case. Like others before me, I consider that there is much to be said for the broader principle. But it is not necessary to decide the point on this appeal because it is plain that the principle cannot apply in either form to the present facts. The reason is that it was no part of the object of the engagement of HMT or indeed of any other aspect of the 2006 transaction to benefit Mr Hunt. That is the main reason why no duty of care was owed to him. It is also one reason why the engagement letter was unassignable without consent. Mr Hunt’s loss arises out of the refinancing of December 2008, which had nothing to do with HMT and did not arise out of their breach of duty.[161]It is apparent from the decision in that case, as summarised in paragraph 17 of the judgment of Lord Sumption, that in order for the principle of transferred loss to apply there must have been an intention, known to the defendant, to benefit the third party. The argument failed in that case because “it was no part of the object of the engagement of HMT [the defendant] or indeed of any other aspect of the 2006 transaction to benefit Mr Hunt [the third party].” This reflects the account given by Lord Browne-Wilkinson in Panatown of the essential feature of the principle upon which NIVE relies:
“The essential feature of the broader ground is that the contracting party A, although not himself suffering the physical or pecuniary damage sustained by the third party C, has suffered his own damage being the loss of his performance interest, ie the failure to provide C with the benefit that B had contracted for C to receive. ”
[162]I note in particular the description of A’s performance interest as “the failure to provide C [the third party] with the benefit that B had contracted for C to receive.”[163]In the present case it is not said that Rembrandt had contracted for Henningsen to receive any benefit or that it was part of the contract to benefit Henningsen. In those circumstances it must follow that, just as Swynson was unable to recover Mr. Hunt’s losses in Lowick Rose LLP v Swynson, so NIVE is unable to recover Henningsen’s losses in the present case.[164]Counsel for NIVE has sought to argue, with reference to other passages in the judgments in Panatown, that there is no requirement that both parties to the contract must have intended, pre-contract, to confer a benefit on the third party. For the reasons I have given, derived from the decision in the most recent Supreme Court case and the judgment of Lord Browne-Wilkinson in Panatown (which counsel for NIVEsaid was the most useful summary of the principle) I am unable to agree.[165]Having now determined the five issues of fact and legal principle NIVE’s recoverable damages can be assessed. The table provided to me summarising the calculations of the forensic accountants states that the applicable figure is that to be found under “Osborne 2”, namely, EUR 7,743,570. However, that includes the increased price of EUR 2.50 per kg. That must be deducted. I request the parties to agree upon the appropriate adjustment. I do not understand that it can be extracted from the table provided to me.[166]It was submitted on behalf of NIVE that in the absence of any misrepresentation Rembrandt would have entered into a different contract with NIVE on the basis of paying EUR 1.25 per kg more because they agreed to do so on 21 May 2015. However, although it seems that Rembrandt was willing to pay that increased price that was only after a representation had been made as to the increased cost of candling, allegedly based upon a “calculation”. I do not consider that NIVE can establish that absent the misrepresentation made later in June 2015 Rembrandt would have agreed to pay more than NIVE had agreed to accept in the original contract. It is possible that Rembrandt may have been willing to do so but I do not consider that it can be shown to be more likely than not Rembrandt would have done so if it knew there had been no calculation and that in reality NIVE was seeking to renegotiate a price which had been fairly and freely agreed. NIVE’s invoice claims[167]These are mentioned at paragraphs 257-258 of NIVE’s closing submissions and concern three shipments in January 2016. They do not appear to have been dealt with in Rembrandt’s closing submissions but they may have been dealt with by the forensic accountants. I request the parties to seek to agree what is due in respect of these claims in the light of this judgment and in particular upon the basis that NIVE cannot recover the additional EUR 2.50 per kg.

Rembrandt’s damages caused by the misrepresentation

[168]Since the price paid has been dealt with by way of rescission the only remaining element to consider is a claim for EUR 706,515 in respect of the costs of receiving, storing and handling the delivered goods. These are not recoverable in circumstances where the financial consequences of the rescission are to be assessed upon the basis that Rembrandt remained liable under the original contract. Under that contract Rembrandt was responsible for clearing customs in the US and so the customs costs would have been for Rembrandt’s account. Similarly the shipping costs which appear to relate to the costs of unloading would have been for the account of Rembrandt. Finally there are costs in respect of storage. In circumstances where Rembrandt remained liable under the original contract these sums must be for the account of Rembrandt.

Conclusion

[169]Rembrandt is entitled to rescission of the revised contract by reason of the fraudulent misrepresentation of NIVE. As a result of such rescission the original contract remains in force. By reason of the rescission NIVE must repay to Rembrandt the extra EUR 2.50 per kg. paid pursuant to the revised contract, that is, a sum of EUR 1,594,750.00.[170]The defence of breach of warranty having failed, NIVE is entitled to recover damages from Rembrandt assessed by reference to the prices agreed in the original contract. On the basis of the revised contract the damages would have been EUR 7,743,570. That sum must be reduced by the amount of EUR 2.50 per kg. The parties are to agree the appropriate calculation.[171]The parties are to agree what figure, if any is due in respect of the invoice claims in the light of this judgment.[172]I am very grateful for the assistance of all counsel and those instructing them in this case.

Cited in 1 later judgment