W Nagel (A Firm) v Pluczenik Diamond Company NV

A contract continues to govern unforeseen circumstances unless the change frustrates it. A qualification may be implied only where reasonable parties clearly would have intended it.

Contract damages compensate actual loss. The date-of-breach approach is a rule of thumb, and later known events must be considered where mitigation does not crystallise the loss. If substantial loss is proved but its amount is uncertain, the court should make a rational estimate from the available evidence, potentially on a conservative basis.

A commodity exchange requires trading among participants. The commodity market extends to comparable open-market trading. An outlet through which one producer sells at fixed prices to selected buyers falls outside those concepts. The exception in the Commercial Agents (Council Directive) Regulations 1993 should be construed narrowly and consistently with protecting goodwill generated by commercial agents.

For many years W Nagel acted as Pluczenik Diamond Company’s broker in negotiating purchases of rough diamonds from De Beers. In return for a reduction in commission, Pluczenik orally agreed to retain Nagel while it remained a De Beers sightholder. Pluczenik terminated the agency after brokers ceased to be compulsory.

Popplewell J, in [2017] EWHC 1750 (Comm), held that the termination breached the oral agreement and awarded US$3,326,551 in damages. He dismissed Nagel’s alternative claim under the Commercial Agents (Council Directive) Regulations 1993, holding that De Beers sights fell within the commodity-market exception.

Pluczenik appealed against liability and quantum. Nagel cross-appealed on the Regulations. The issues were the effect of unforeseen changes on the oral agreement, whether substantial damages had been proved, and whether purchases at De Beers sights occurred on a commodity exchange or in the commodity market.

1. Appeal dismissed. Leggatt LJ, with whom Newey and Henderson LJJ agreed, held that Pluczenik was not entitled to advance for the first time on appeal a factual case which had neither been pleaded nor put to the relevant witness. Procedural fairness requires an important contradictory factual case to be put in cross-examination. The trial judge’s supported finding about what was orally agreed was not plainly wrong: paras 20–29.

2. The unforeseen removal of the requirement to use a broker did not release Pluczenik from its promise. Unforeseen circumstances do not ordinarily end a contract. Unless the contract is frustrated, its application depends on proper construction. Whether analysed as construction or implication, a qualification could be introduced only if it was clear that reasonable parties would have intended it. Brokers remained useful and common, so no such qualification could be implied: paras 30–38.

3. The damages award was upheld. Contract damages compensate the loss actually sustained by comparing the claimant’s financial position after breach with the position performance would have produced. Assessment at the breach date is a rule of thumb, principally reflecting mitigation in an available market. Where that principle does not crystallise the loss, subsequent losses, gains and known events must be considered: paras 40–43 and 59.

4. A claimant’s failure to produce the best evidence does not require rejection of a substantial-loss claim where a rational evidential basis permits estimation. The court must do the best it can and may adopt a conservative assessment because of evidential shortcomings. Although the multiplier used below was unsuitable in principle, its errors strongly favoured Pluczenik. A correct assessment could reasonably have produced a materially larger award: paras 49–62.

5. On the cross-appeal, Leggatt LJ concluded that a commodity exchange requires commodities or associated rights to be freely traded among participants. The wider commodity market comprises comparable general open-market trading. De Beers sights were instead a distribution outlet through which one producer sold predominantly at fixed prices to selected buyers: paras 74–78.

6. The commodity-market exception must also be construed in light of the Directive’s purpose of protecting agents who generate goodwill, and exceptions from a Directive’s general scope are construed strictly. Nagel therefore operated within the Commercial Agents (Council Directive) Regulations 1993 and would have been entitled to regulation 17 compensation. That conclusion was unnecessary to dispose of the appeal, so the court made no order on the cross-appeal: paras 79–87.

1. Court of Appeal (Civil Division): In [2018] EWCA Civ 2640, the court unanimously dismissed Pluczenik’s appeal against liability and damages. It concluded that Nagel’s activities fell outside the commodity-market exception but made no order on Nagel’s cross-appeal because no additional compensation was sought.

2. London Mercantile Court: Popplewell J, in [2017] EWHC 1750 (Comm), held that Pluczenik had breached the oral agency agreement and awarded US$3,326,551 in damages. He dismissed the claim under the Commercial Agents (Council Directive) Regulations 1993.