JK Sons (PVT) LTD v Virani LTD (2007)
An English textile wholesaler was liable to a Pakistani textile producer for sums owing under invoices for cloth supplied by the producer to North American end-customers as the wholesaler had agreed to become liable irrespective of whether the end-customer paid.
The claimant Pakistani textile producer (J) claimed sums due for unpaid invoices from the defendant textile wholesaler (V). V counterclaimed for damages for J's repudiation of contracts for the supply of cloth and for the return of sums made in respect of advance payments.
J and V, who traded as seller and buyer of cloth respectively, had entered into a joint venture to sell cloth to North American companies identified by V. J supplied the cloth directly to the North American end-customers, who were liable to J for the actual supply of the cloth. V subsequently obtained credit insurance giving J protection in the event of non-payment by the end-customers. In order to effect the insurance it was necessary for invoices and bills of lading to be made out to V, but without V having to pay or accept any obligation to pay. Several shipments were made covered by the insurance and V received further purchase orders but was unable to get further credit insurance. Delays occurred in the making of payment arrangements and J had to obtain bank finance in order to make shipments. However, under its rules the bank required acceptance by V and, as a result of that requirement, J requested that V accept liability to pay in any event for the further shipments. Certain of the end-customers failed to pay for the cloth provided and V refused to pay J until paid by the end-customers.
J contended that the nature of the arrangements between it and V were such that V was liable for sums outstanding to it. J submitted that it was also entitled to sums in respect of Pakistani tax sales refunds that it lost through V's failure to honour the invoices. V contended that although the invoices and other documents were made out to it, it had no obligation to pay unless and until it was paid by the relevant end-customer. V accepted that some sums were due to J under the invoices but sought to set-off those sums against advance payments made by it which, it contended, should not have been made.
(1) J was entitled to sums due under the invoices. On the evidence it was clear that V had given unconditional acceptances against the documents presented in relation to the relevant shipments. It was clear that V understood that because of what J's bank required in order to fund further shipments V would have to become liable to J as buyer of the cloth irrespective of whether the end-customer paid. (2) On the evidence it was within the reasonable contemplation of the parties that any sales tax refunds payable to J in Pakistan were at risk if the invoices presented by J were not paid. Accordingly, V was liable for damages in respect of the sales tax refunds that J had lost through V's failure to honour the invoices. (3) On the evidence V was liable to make full payments in respect of the cloth for which it had made advance payments and it was, therefore, not entitled to the return of any advance payments. (4) J had repudiated certain of the contracts by requiring V to make payment to J by means of a letter of credit before any supplies were effected. V had accepted J's repudiation and was entitled to damages.
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20 Dec 2007
Queen's Bench Division
Judge Waksman QC