Lakatamia Shipping Co Ltd & Ors v Nobu Su & Ors

The prima facie market measure of damages may be displaced where the defaulting buyer repeatedly assures the seller that performance will occur and thereby induces the seller to retain the goods or positions. The court must apply the compensatory principle to the loss actually caused in the circumstances. No waiver, estoppel or variation is required.

Where corporate parties transfer loss-making positions within a group solely to provide substitute collateral, an implied indemnity may arise if necessary to prevent the claim against the contract-breaker being extinguished. A shareholder’s loss is distinct from the company’s loss and requires separate proof.

The claim concerned an oral forward freight agreement under which positions were to be transferred to Lakatamia for one month and then repurchased by TMT at a one-point profit. The claimants alleged that Nobu Su was personally bound and that all companies in the TMT group were liable. The defendants contended that only TMT Liberia was party to the agreement.

The principal issues were the identity of the contracting parties, the measure of loss after the promised repurchase failed, and the effect of novations by which four-fifths of the positions were transferred from Lakatamia to Slagen and Kition. The court also considered claims by the ultimate beneficial owner and claims for margin-related losses.

1. Contracting parties. The oral agreement created an overarching personal contract between Nobu Su and Polys Haji-Ioannou. The corporate trades were the mechanism by which that agreement was performed. The wording “Messrs TMT” and “TMT” in the guarantee was generic and all-embracing. It bound TMT Liberia and the other companies properly within the TMT group, while Iron Monger was additionally liable under its guarantee.
2. Damages. Section 50(3) of the Sale of Goods Act 1979 states a prima facie market rule. That rule did not apply. Su and TMT repeatedly represented that the positions would be repurchased, sought indulgence, controlled the timing and level of later sales, and made partial payments and freight credits. The true compensatory measure was therefore the loss arising when the positions ultimately closed, less credits already received. Lakatamia’s loss was US$36,054,310.24.
3. The same conduct defeated the mitigation argument. Lakatamia was not speculating by retaining the positions while the contractual buyer continued to promise performance. The expert evidence also showed that orderly disposal of the unusually large position would have depressed the market substantially.
4. The novations extinguished Lakatamia’s direct liability to RBS for four-fifths of the positions, but under New York law an implied contract required Lakatamia to indemnify Slagen and Kition. The transfer was made solely for group collateral purposes and otherwise would have produced a commercially absurd windfall for the defendants. The implied indemnity preserved recovery of the losses.
5. Mr Haji-Ioannou had a distinct shareholder loss, namely diminution in the value of his shareholding, but its amount required separate proof. Unquantified group losses and restitutionary recovery were not established. Judgment was entered for Lakatamia against Su and the TMT companies, with damages for Mr Haji-Ioannou to be assessed if necessary.