Uzinterimpex JSC v Standard Bank Plc

An autonomous demand guarantee must operate according to its express terms. A court will not imply an uncertain repayment obligation merely to prevent recovery exceeding the beneficiary’s loss, particularly where the underlying contract already permits an accounting between its parties.

Knowing receipt requires trust property to be received otherwise than ministerially and knowledge making retention of its benefit unconscionable. The recipient’s state of mind must be established when each relevant receipt occurs.

The ordinary duty to take reasonable steps to avoid loss applies to conversion. Section 11 of the Torts (Interference with Goods) Act 1977 does not displace that duty. Damages should provide just compensation for the claimant’s actual loss, and no universal valuation date applies.

Uzinterimpex sold cotton to A. Meredith Jones & Co Ltd. Standard Bank financed the advance price through a syndicated facility secured by an autonomous demand guarantee. The buyer obtained and resold some cotton without taking up conforming documents. The Bank subsequently received proceeds of the sub-sales and recovered under the guarantee.

Uzinterimpex claimed repayment of an alleged double recovery, proprietary relief, knowing receipt and damages for conversion of cotton represented by documents which the Bank retained. David Steel J, in [2007] EWHC 1151 (Comm), rejected the double-recovery and knowing-receipt claims but awarded limited damages for conversion. He held that Uzinterimpex had failed to mitigate its loss by refusing a proposed sale of the deteriorating cotton.

The appeal concerned the proposed implied term, the effect of the buyer taking the goods, title to sale proceeds, knowing receipt, and whether a claimant in conversion must mitigate its loss.

1. Appeal dismissed. The guarantee was an autonomous contract which had to operate according to the terms appearing on its face. No term requiring the Bank to account for an excessive or double recovery was implied by law, business efficacy or the parties’ presumed intention. Such a term was unnecessary to make the guarantee effective, would create uncertainty and would link the guarantee improperly to separate transactions. Any adjustment ordinarily belonged between the parties to the underlying sale contract.
2. The buyer’s acquisition of goods outside the contractual documentary mechanism did not oblige the Bank to accept non-conforming documents or reduce the guarantee. Acceptance of goods may create liability between buyer and seller, but it does not make the issuing bank liable under a documentary credit or alter an autonomous guarantee.
3. Where the buyer sold cotton to which it lacked title, legal title to the resulting proceeds vested in the buyer, subject to a trust in the seller’s favour. The seller could not recover the balance of the mixed Transaction Account as its own property because the relevant proceeds had not been identified in that balance.
4. Knowing receipt requires receipt of trust property otherwise than in a merely ministerial capacity and a state of mind making retention of its benefit unconscionable. Whether the Bank held the Transaction Account as trustee or as agent for the syndicate, it had a sufficient interest for potential liability. The claim nevertheless failed because there was no evidence that, when any particular remittance was received or before it was distributed, the Bank had knowledge making its retention unconscionable.
5. A claimant whose goods are converted must take reasonable steps to avoid or minimise both proprietary and consequential loss. Section 11 of the Torts (Interference with Goods) Act 1977 does not remove that duty. Contributory negligence and failure to mitigate address different causal situations. Damages for conversion seek just compensation for actual loss, and their valuation depends on the circumstances rather than an inflexible date.
6. The judge was entitled to find that Uzinterimpex acted unreasonably by refusing a controlled sale of deteriorating commercial cotton with the proceeds secured pending resolution of the dispute. Moore-Bick LJ delivered the judgment; Laws LJ and Sir Anthony Clarke MR agreed.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously: [2008] EWCA Civ 819.
2. High Court, Queen’s Bench Division (Commercial Court): David Steel J rejected the claims based on an implied term and knowing receipt, but held the Bank liable in conversion and limited damages because Uzinterimpex had failed to mitigate: [2007] EWHC 1151 (Comm).