Tigris International NV v China Southern Airlines Company Ltd & Anor

Secret dealing with another party’s agent is not, without more, an independent basis for terminating a contract. The principle in bribery cases concerns fraudulent and dishonest conduct. A party may rescind a contract ab initio where its agent was bribed to enter it, subject to the equitable requirements for rescission. Bribery occurring during performance may instead justify termination for the future when discovered.

A seller which reasonably explores a sale to another buyer if the existing buyer defaults does not thereby repudiate the existing contract. The conclusion differs where the seller dishonestly procures, or knowingly assists, a diversion of the buyer’s opportunity. A damages award must be supported by evidence. A court cannot preserve an unproved component by selecting a broad, arbitrary figure.

Tigris agreed to buy six aircraft, engines and spares from China Southern Airlines (CSA) under an aircraft sale agreement. It paid most of the deposit and took delivery of one aircraft, but did not pay for or accept the remaining aircraft within the contractual timetable.

Tigris alleged that CSA secretly agreed with Mr Pakdaman and Mr Venter, who were connected with Tigris, to divert the purchase of the remaining aircraft to their new company, Thesa. It treated CSA’s conduct as repudiatory and sought return of its deposit. CSA counterclaimed for losses caused by Tigris’s non-acceptance.

Simon J dismissed Tigris’s contractual and tortious claims and awarded CSA damages: [2013] EWHC 2211 (Comm). Tigris appealed only the contractual ruling and the amount awarded for parking, maintenance and insurance.

1. Appeal allowed in part. The appeal against dismissal of Tigris’s contractual claim was dismissed. The award on CSA’s counterclaim was reduced by US$9.71 million, together with applicable interest, because the US$10 million allowed for parking, maintenance and insurance was unproved; Tigris accepted liability for US$290,000 of parking charges.
2. The court explained the equitable and contractual consequences of bribery of an agent. Under Panama and South Pacific Telegraph, a principal whose agent is bribed to enter a contract may rescind it ab initio, provided restitution can be made and the right has not been lost. Where bribery occurs during performance, the principal may end the contract for the future on discovery. At common law, bribery is a repudiatory breach which the innocent party may accept. The expression “surreptitious dealing” must be read in its context of fraudulent conduct akin to bribery; it does not create a free-standing remedy for all undisclosed dealings with an agent.
3. Whether an agent owes fiduciary duties depends on the terms on which the agent acts. The judge was entitled to find that Mr Pakdaman’s authority to act for Tigris was revoked on 25 August 2009 and that the relationship of trust and confidence had then completely broken down. Termination of authority did not necessarily remove duties arising from the former relationship, but it did not establish wrongdoing by CSA.
4. CSA had neither made a secret agreement to divert the contract nor acted fraudulently or in bad faith. It was entitled, while requiring Tigris to perform, to consider a sale to another purchaser if Tigris defaulted. CSA consistently required Tigris’s consent to any transfer while the aircraft sale agreement remained alive. Its discussions with Mr Pakdaman and GALink did not deprive Tigris of disinterested advice or prevent Tigris from performing. CSA also lacked the knowledge or wilful blindness needed for liability based on knowingly assisting a fiduciary breach.
5. The Thesa letter of intent was not communicated to Tigris, depended on an unpaid deposit, lapsed after five days, and did not prevent CSA from performing the aircraft sale agreement. It was therefore not a repudiation capable of acceptance. Although CSA’s notices extended the original delivery dates and could found a waiver or estoppel despite a reservation-of-rights clause, that conclusion arose only in the court’s conditional analysis of the consequences had CSA repudiated.
6. CSA bore the burden of proving its disputed losses. Its schedules contained unexplained and inconsistent figures, included charges when aircraft were in service, and made no allowance for operating income. The judge’s reduction of the claim to US$10 million was not a reasoned assessment supported by the evidence. The court set that sum aside, save for the US$290,000 conceded by Tigris.

• Court of Appeal (Civil Division): Allowed the appeal only as to the unproved component of CSA’s damages award. It dismissed Tigris’s appeal against the rejection of its contractual claim: [2014] EWCA Civ 1649.
• Commercial Court: Simon J dismissed Tigris’s claims and entered judgment for CSA on its counterclaim: [2013] EWHC 2211 (Comm).