Goodwin (t/a Appropriate Solutions) v Unwins Properties Ltd.

This is an action by the claimant ("Mr. Goodwin"), who describes himself as a Russian export contract resourcer, against the defendant ("Unwins"), a major seed producer, for a substantial sums of money as commission allegedly due under a written agreement made between Mr. Goodwin and Unwins on the 19 March 1993 (“the Unwins Agreement”).

The Unwins Agreement related to the introduction by Mr. Goodwin to Unwins of a buyer in Russia for Unwins' seed. Pursuant to the agreement Mr. Goodwin introduced Unwins to a Russian buyer called Rostok. Thereafter Rostok purchased and paid for quantities of seed on which commission was paid to Mr. Goodwin. Nevertheless, as I will elaborate in this judgment, Mr. Goodwin contends that he has not been paid the commission which he was due under the Unwins Agreement because seed was sold which has never been accounted for and that other seed was wrongly categorised with the result that less commission has been paid than should have been the case.

On the 22 May 1998, Unwins terminated the Unwins Agreement with Mr. Goodwin on the ground that he had failed to act diligently and in good faith towards Unwins. Mr. Goodwin disputes that the contract was validly terminated and contends that Unwins has wrongly failed to account to him for commission due in respect of sales which continued until 2004, when the seed business of Unwins was sold on to an unrelated group of companies known as Westlands.

Mr. Goodwin commenced these proceedings in July 1998 in the Exeter County Court claiming a sum in excess of £13,000 for unpaid commission. In October 1998, the matter was transferred to the Cambridge County Court and in December 2000 and March 2002 Mr. Goodwin amended his claim to add claims for substantially larger sums amounting to in excess of £400,000. In October 2002, the case was transferred to the Chancery Division. In May 2004, the claim was amended once again with the result that Mr Goodwin now claims a sum in the region of £460,000 plus continuing loss of commission to trial and damages for breach of contract. He also seeks any necessary accounts.

On the 11 May 2005, Master Price ordered that the trial of the claim should, in the first instance, be limited to all issues of liability and the amount of any commission payable to Mr. Goodwin up to and including the period ended 31 March 1998.

Unwins has accepted before me that certain additional payments are due to Mr Goodwin arising from computation errors and the like. I do not refer to these further; this judgment is concerned only with those matters which remain in dispute.

In 1992 Mr. Goodwin carried on trade under the name of Appropriate Solutions and, in December of that year, identified a need for packeted garden seeds in Russia. He had various Russian contacts and, in particular, had located two Russian seed companies who where keen to purchase seed. Mr. Goodwin does not speak or read Russian and in all of his dealings he relied upon his wife, Mrs. Galena Goodwin (originally his partner, Mrs Galena Shvetsova) to carry out all necessary translation and interpretation for him. The first company he identified, called Russian Seeds, was the Russian State seed company, and the second, Rostok, was owned by a Professor Anatoly Zaitsev. Upon checking with various United Kingdom seed retailers, Mr. Goodwin found that they purchased their stocks from seed producers, such as Unwins, on a sale or return basis, receiving a credit against purchases for any stocks returned at the end of the season. Mr. Goodwin then made enquiries of a company called Suttons Seeds and these revealed that, because of restrictions apparently placed on them by EC regulations, the major garden seed producers treated returned stocks as a waste product and destroyed these stocks together with surplus production at the end of each season. Mr. Goodwin enquired whether Suttons Seeds had considered selling these stocks to Russia and it indicated that would be desirable but, until now, had not had an opportunity to do so. Mr. Goodwin appreciated that here was an opportunity to bring together the Russian seed buyers with the United Kingdom seed producers. In February 1993 he entered into an agreement with Suttons Seeds and he introduced this producer to Russian Seeds.

Mr. Goodwin made contact with Unwins on the 1 March 1993 and then repeated the same process that he had undertaken with Suttons Seeds. First, he confirmed that Unwins had the same policy of destruction towards returned stock and surplus production and secondly, put forward his suggestion of finding it a purchaser in Russia. He was advised to contact Unwins' sales director, Mr. Michael Wilson. This he did and a meeting subsequently took place on the 9 March 1993. At that meeting were present Mr. Goodwin, Mrs Galena Goodwin and Mr. Wilson.

At that meeting Mr. Goodwin recalls that he was told that Unwins had, on average, seven million packets of returned stocks per year available for sale to Russia. Mr. Goodwin told Mr. Wilson that Unwins was not the only seed company for which he acted, of the existence of his agreement with Suttons Seeds and that neither Suttons Seeds nor Unwins, nor any other company could, as Mr Goodwin put it, “have any exclusive rights”. Mr. Goodwin provided Mr. Wilson with a copy of his standard terms of engagement. Mr. Wilson, however, preferred that Unwin's solicitors draw up an alternative agreement. Eventually, a draft drawn up by Unwins was agreed between the parties and signed on the 19 March 1993 – the Unwins Agreement. Under the Unwins Agreement Mr. Goodwin was engaged to find a purchaser in Russia for Unwins' returned seed and residual stock. In return, Mr. Goodwin would be paid a commission on all purchases of returned seed and residual stock by that Russian purchaser. The relevant terms of the Unwins Agreement were as follows:

It is apparent from these terms that the Unwins Agreement related only to "returned seed” meaning seed returned unsold by retailers at the end of the season and "residual stock" meaning stock lying unsold in Unwins' warehouse at the end of the season. As Mr. Goodwin himself explained, all these seeds were generally destroyed at the end of the season and consequently had no value to Unwins. It is convenient to record at this point that it was agreed between the parties that the season for seeds runs from the 1 July each year to the 30 June of the following year. Secondly, it is to be noted that, by clause 5 of the agreement, commission was to be paid on sums received from the purchaser in payment for returned seed and residual stock, and not in respect of goods actually sent to the purchaser or on the invoice value of those goods. Thirdly, a commission on returned seed was payable at 28.75% and on residual stock at 5%. This is a significant difference and one of Mr Goodwin’s complaints is that Unwins wrongly characterised some seed sold to Rostok as residual seed rather than returned seed with the result that he received less commission than he was entitled to. Another of the issues between the parties concerns the precise meaning of the terms "residual stock" and "returned seed" and, in particular, whether they cover what has been described as "recycled seed". These are matters to which I will return later in this judgment.

Shortly after the Unwins Agreement was signed, Mr. Goodwin arranged for Mr. Wilson and Mr. McManus, the general manager of the Chester branch of Unwins, to travel to Russia to meet representatives of the Russian purchaser, Rostok. On the 16 April 1993 Unwins signed a five year agreement with Rostok for the supply of returned stocks ("the Rostok Agreement"). The material terms of the Rostok Agreement were as follows:

A number of points are to be noted from the Rostok Agreement. First, the agreement covered only returned seeds, referred to in the contract as "unsorted seeds" even though the Unwins Agreement dealt with both returned seeds and residual stock. Secondly, as Mr. Wilson explained, the arrangements with Rostok did not form part of the mainstream business of Unwins since all it, Unwins, was doing was disposing of seeds which would otherwise have been destroyed for no financial return at all. Thirdly, the seeds were to be delivered by container, with the first two containers being delivered during August of each year and the remaining containers delivered by 31 December.

Pursuant to the Rostok Agreement Unwins duly made deliveries of returned seeds to Rostok during the 1993/94 season.

On the 30 March 1994 Mr. Goodwin formed a separate company called Enterprise Russia Limited ("Enterprise Russia") to provide business consultancy and training in Russia. Mr. Goodwin arranged with Enterprise Russia that he would give the company his income from his Russian seeds contracts over the ensuing two years. His position is that Enterprise Russia had no rights over the contracts and no assignment of the contracts ever took place. He asked all his clients, including Unwins, to make payments thereafter to Enterprise Russia. This matter gives rise to another of the issues between the parties to which I will return. Mr. Goodwin contends that his contractual relationship with Unwins remained essentially unchanged. Unwins contends that, at this point, there was a novation of the agreement and that, for the next two years, Unwins was contracted to Enterprise Russia. The importance of this matter is that Unwins contends that it can have no liability to Mr Goodwin over that period. I should add that Enterprise Russia has since been dissolved.

Sales by Unwins to Rostok continued through the 1994/95 season. During the course of 1994 it seems, however, that certain problems began to arise between Unwins and Rostok as to the quality of the returned seed. Some of the stock was too short dated or even out of date. During the first half of 1995 meetings took place in Russia and at the premises of Unwins in Histon in Cambridge. At these meetings discussions took place about the quality of the returned stock supplied and Unwins also offered to sell to Rostok residual stock which remained unsold at the end of the season and which, as I have indicated, it was also at the time their practice to destroy. This led to the first amendment to the Rostok Agreement on the 16 April 1995 (“the first Rostok amendment”). By that agreement Rostok agreed to take unsorted seeds at the price of US$ 0.04 per packet and boxed sorted seeds at a price of US$ 0.045 per packet. Following the first Rostok amendment, in the 1995/96 season both returned seed and residual stock were sent to Rostok.

In the 1995/96 season, there were further problems with Rostok. In particular, and as I will elaborate later in this judgment, Unwins sent all of its returned seed and all of its residual stock and overlooked the fact it had agreed to send stock lists of residual stock to Rostok from which it could order particular varieties.

A second point of contention between Unwins and Rostok at this time concerned a further complaint by Rostok that some of the seeds which it had been sent were out of date. In the result Mr. McManus agreed with Rostok that Rostok were only to be charged US$0.04 per packet for residual stock sent to them instead of the US$0.045 referred to in the contract.

On 25 March 1996, Mr. Goodwin wrote to Unwins stating that as from the 31 March, Unwins should no longer pay commission to Enterprise Russia and instead that commission payments should revert to himself.

On 11 June 1996, Unwins entered into a further agreement with Rostok (“the second Rostok amendment”). By this agreement Unwins agreed to supply Rostok with packets of unsorted (returned) flower and vegetable seeds for the 1996/97 season at a price of US$ 0.04 per packet. But, as Mr. McManus explained in his evidence, this did not prevent Unwins from selling residual stock to Rostok in addition to the returned seeds. Over the course of September, Rostok agreed to buy quantities of residual and unsorted returned seeds and, in addition, substantial quantities of new production.

It is Unwins’ contention that, as from the end of November 1996, it did not supply Rostok with any further quantities of residual stock or returned seed. It is said that after that date Unwins only supplied Rostok with new production. This is not accepted by Mr Goodwin and it gives rise to a further substantial issue between the parties.

Finally, by a letter dated 22 May 1998, Unwins terminated its agreement with Mr. Goodwin on the grounds that, contrary to clause 7(1) and (8) of the Unwins Agreement, he had failed to act diligently or in good faith in that he acted as agent for two of Unwins' competitors, namely Suttons Seeds and Johnson's in making sales to Rostok or that he acted as agent for Rostok in negotiating purchases from Suttons Seeds or Johnsons.

Against this background, the parties have agreed that the issues arising in this action which I must determine are whether:

I heard evidence from a number of witnesses of fact. Mr Goodwin gave evidence on his own behalf and that evidence was supported by evidence from his wife, Mrs Goodwin. I found both the evidence of Mr. Goodwin and that of his wife to be fair and it is right to note that Mr Goodwin clearly believes and has believed for some time that Unwins has failed properly to account to him in respect of commissions due. He has reached this conclusion, at least in part, as a result of the difficulties that he has had over the years in extracting a consistent statement from Unwins of what commission is due. At the end of the day, however, it became apparent that he had little personal knowledge of many of the dealings in issue and, although able to point to matters giving rise to suspicion, was not in a position to contradict the evidence of fact given on behalf of Unwins.

On behalf of Unwins, I heard evidence from three witnesses of fact. The first was Mr. Michael Wilson, who joined Unwins in October 1975 and was the sales director from

His employment came to an end on the 13 September 2003. The second witness was Mr. Andrew Irvin, the finance director and company secretary of Unwins at all relevant times. He is no longer employed by Unwins. The third witness was Mr. Frank McManus who was employed by Unwins as the general manager of the Chester branch and has also now left the company. Mr McManus reported directly to Mr. Wilson. I found all of these witnesses to be honest and throughout their cross examination they did their best to recall the details of the events giving rise to the claims before me. It is important to note that no allegation of fraud or dishonesty has ever been made against Unwins or any of these witnesses. It was never suggested during the course of the cross examination that Unwins were guilty of fraud or had deliberately concealed trading activities with a view to depriving Mr. Goodwin of monies to which he was properly entitled. No suggestion was ever made to any witness that he was not telling the truth. I accept the submission made to me on behalf of Unwins that these matters are important because Messrs. Irvin, Wilson and McManus are the only three individuals who ever apparently had personal dealings with Rostok. Other than payments which they have expressly disclosed it was never suggested to any of these individuals that they had received cash payments for seed from Rostok which did not pass through the books of Unwins and for which commission was properly payable. Further, it was never suggested to any of these individuals, and particular Mr. Irvin, the finance director, that there were undisclosed bank accounts or other undisclosed arrangements whereby receipts from Rostok were channelled to Unwins or another associated company with the aim or result of depriving Mr. Goodwin of commission to which he was entitled.

In addition to the evidence of Messrs. Wilson, McManus and Irvin, Unwins relied on a witness statement of Anatoly Zaitsev who declined to come and give evidence in person because he was on holiday. I have read the statement, as invited, but I attach little or no weight to it. I have not relied upon it in any way in reaching the conclusions set out in this judgment.

In addition to the witnesses of fact, I heard evidence from two accountancy experts. On behalf of Mr. Goodwin I heard evidence from Mrs. Elizabeth Tandy. Mrs Tandy is a member of the Institute of Chartered Accountants. She qualified in 1985. She has been involved in general practice and taxation work since that time and has regularly been instructed by solicitors to prepare accountancy based reports for use in civil litigation.

On behalf of Unwins I heard evidence from Mr. Roger Guthrie, a fellow of the Institute of Chartered Accountants and a member of the Chartered Institute of Taxation. He practices as a partner in the firm of Peters, Elworthy and Moore. He acts for a large number of business clients and is involved in advising those clients on all aspects of their business. He has had some experience as acting as an expert witness. Mr. Guthrie's firm has acted for Unwins, in particular as its auditor. Mr. Guthrie explained that he himself has never been involved in any such audit of Unwins.

It was suggested to me by counsel on behalf of Mr. Goodwin that Mr. Guthrie's evidence lacked objectivity. I reject that submission. It seemed to me that both experts did their best to assist the court and gave their evidence fairly and objectively. The criticism of Mr. Guthrie was essentially based upon the contention that he had failed adequately to check the various instructions that he was given and had simply accepted matters reported to him by Unwins. I do not think that this is a fair criticism. Both experts have quite clearly done an enormous amount of work in seeking to understand and explain the business activities of Unwins in relation to the matters in issue. They have explored these issues in very great depth through a number of reports. Clearly at some point a line had to be drawn. I have no doubt that Mr. Guthrie was entitled to draw the line where he did. His reports and evidence were quite clear as to those matters which he had investigated. I found the evidence of both experts to be very helpful.

Before addressing each of the individual years the subject of this issue it is necessary to explain in a little more detail the way that Unwins and Rostok conducted business. It was, as submitted to me on behalf of Unwins, somewhat unusual. Mr. McManus explained that seed was effectively sold to its customers on a sale or return basis. The unsold seed was returned to Unwins in Chester in sacks from about June through to September each year. Approximately 800 varieties of seeds were contained in the sacks. All of this retuned seed was of no realisable value to Unwins and was usually destroyed by burning. The arrangement made with Rostok was that the seeds would be sent by container to Rostok in the sacks in which they had been returned to Unwins by its customers, unopened and unchecked. Unwins had nothing to lose because the seeds would have been destroyed if they had not been sold to Rostok.

Rostok needed to have an invoice with the shipping documents. Mr. McManus made a rough estimate of the number of packets per kilo in the sacks by weighing and test counting one or two sacks of packets. These were loaded into containers which were weighed before and after loading and the approximate number of packets calculated from the net weight. He then had an invoice prepared showing that number of packets and a price based on it. The invoice was not entered on the accounts system. It was sent to Rostok for shipping and importation purposes only.

On arrival, Rostok would count the packets in the sacks, taking advantage of the extremely low labour costs in Russia and would confirm the number of packets contained in the shipment. Rostok would also send a detailed list giving the number of packets of each variety. It referred to this as a specification. The accuracy or otherwise of the specification was not of concern to Unwins and the only significant issue was the total number of packets which determined the payment Unwins was to receive. For seasons 1995/96 onwards, Mr. McManus would then arrange for an accurate invoice based upon Rostok's packet figures to be drawn up. This accurate invoice would bear the same number and date of the original estimated invoice and would replace it. It, together with the attached specification was sent to Rostok for payment and a copy sent to Unwins' head office. The invoice was in US $ and was paid in US $.

The Unwins Agreement provided that Mr. Goodwin would be paid quarterly in arrears upon payments received by Unwins. In order for Mr. Goodwin to succeed in his claim under this head, it must be established that Rostok paid Unwins sums in excess of those recorded by Unwins and in respect of which commission has already been paid.

Mr. Goodwin claims £25,714 unpaid commission in respect of this season. Sales at this time were governed by the Rostok Agreement of April 1993.

The claim for unpaid commission is founded on the contention that Unwins made actual sales of seeds to Rostok of $278,337. This in turn is based upon a fax from Mr Zaitsev of Rostok to Mr. Wilson dated the 12 July 1996, which I have been provided with in various forms. In that fax Mr. Zaitsev refers to a demand from his new bank concerning the total sum of the contract and requesting that Mr. Wilson confirm the value of the total contract to that point (which covered four seasons) as US$ 1,052,006. This included carriage expenses. On the 16 July 1996, Mr. Wilson signed a document confirming that the sum of the contract was US$1,053,000.

I am unable to accept this contention. Mr. Guthrie has analysed the estimated invoices sent initially by Unwins with the loads. He has shown that the total in the fax of 12 July 1996 relates to the initial estimated value of the stock delivered to Rostok. He has also considered a fax record showing the number of packets actually accepted by Rostok for payment over this season. This shows that Rostok accepted a total of 4,780,086 packets which, at 3 cents per packet, amounted to $143,403. Mr. Guthrie has considered the record of Rostok's payments and this shows that Rostok paid Unwins $160,400. After deduction of carriage charges and costs, commission was due to Mr. Goodwin on $143,403 and commission of £27,625 was duly paid to Mr. Goodwin.

Mr McManus gave a detailed account of the trading activity and correspondence with Rostok in his evidence. He concluded that, to the best of his knowledge and belief, the total payment made by Rostok for seed in the 1993/94 season was just in excess of $143,400. It was never suggested to him that this evidence was not truthful and it was never suggested to him or any other witness that additional payments were made and concealed. I reject this as an unrealistic possibility. Moreover, I am supported in this conclusion by the fact that there are manuscript annotations on the fax of 12 July 1996 in Mr. Irvin's handwriting. He explained that he wrote in manuscript "295,243.05 invoiced initially". He was intending to confirm to Mr. Wilson that this was indeed the total value of the original estimated invoices raised, although he was well aware that a much lower sum had in fact been paid. His understanding was that what was referred to was the maximum potential dollar exporting value of the contract. He assumed that it was on this basis that Rostok was asking Unwins to confirm the $295,242.25 figure and accordingly he was happy for Unwins to do so.

Much the same considerations apply to this claim for £14,434. Here the estimated number of packets invoiced was 7,000,000 but Rostok paid only $127,932 for a much more limited number of packets. Mr. Guthrie has identified payments made by Rostok and again set those out in a schedule to his report and, as a result, £21,881 was paid to Mr. Goodwin as a commission. That position is supported by the evidence of Mr McManus.

Mr. Goodwin's claim is based upon the estimated invoice value of $210,000 and, once again, it is said that the claim is supported by the fax from Rostok of the 12 July 1996 in which Rostok asked Unwins to agree that the value of the contract in 1995 was US$225,905. However, as in the case of the previous season, Mr. Wilson has annotated this figure stating that it was the sum invoiced initially, including carriage charges of $16,950. Mr. Wilson gave evidence that he was intending to confirm that this was indeed the total value of the original invoices raised and he was happy for Unwins to confirm that figure.

I reject this claim for like reasons to those that I have set out in relation to the claim for the 1993/94 season. There is no evidence that Unwins made additional sales or received additional payments. To assert to the contrary amounts to an allegation of fraud which has never been made.

There are essentially three different claims made in respect of this season. The first is similar to that made in respect of the two earlier seasons and relies upon the contention that Unwins made further sales of stock for which it has not accounted. The second is based upon what have been described as sales ledger anomalies. The third is based upon a contention that Unwins mischaracterised some sales of residual seed as returned stock and consequently underpaid the commission due. I will deal with them in turn.

The first aspect of the claim in respect of this season is for £12,400. Sales over this period were governed by the Rostok Agreement and the first Rostok amendment of the 17 April 1995. As I have indicated, Unwins agreed to sell "sorted" seeds by which Unwins meant residual seeds at US$0.045 per packet and returned seeds at US$0.04 per packet.

In schedule three of his report Mr. Guthrie has analysed the invoices for returned and residual seeds. As to returned seeds he has determined that seed to the value of $103,005.88 was supplied to Rostok and paid for.

Mr. Goodwin's claim is based upon a version of the 12 July 1996 fax from Rostok on which the figure of $235,258.83 is stated as the 1996 figure (including carriage of $14,685). The fax has been annotated "Agreed as near as practicable". Mr. Irvin explained in evidence that he wrote this and it represents the total of the original estimated invoices plus the shipping costs. Thus far the claim is indistinguishable from that made in respect of the 1993/94 and 1994/95 seasons and the same considerations that I have set out above apply equally. There is, however, one further matter to which I should refer.

On the 30 October 1995, Unwins submitted invoice number 004 for 900 sacks containing 1,007,613 packets of mixed flower and vegetable seeds at a price of US$30,228.39. On the 24 November 1995, additional invoice number 005B was submitted for 225,310 packets of mixed flower and vegetable seeds packed in approximately 200 sacks at a price of US$6,759.30. It will be noted that invoice number 004 has, on the given number of packets, been miscalculated. At US$0.04 per pack, the figure should have been $40,304.52. Likewise invoice number 005B ought also to have been invoiced at US$0.04 per pack giving an invoice price of $9,012.40. It is pointed out on behalf of Mr. Goodwin that in a shipping document dated 29 November 1995 issued by the Latvian Shipping Co. a total of 1,165,360 of mixed flower and vegetable seeds are reported to have been shipped. This appears to be a combination of invoices 5 and 5B. Invoice 5 to which I have not referred thus far, relates to new seed. Nevertheless, this combination of invoices and the shipping document are said to show that Unwins were well aware of precisely how many packets were being shipped. Further, it is pointed out that the total of the invoices of 004 and 005B amounts to US$36,987.68 which is precisely the figure which Unwins subsequently invoiced under a single invoice number 004, back dated to the 30 October 1995 after delivery of the stock.

I have to say that this body of documentation is rather curious. Nevertheless, I think that the most likely explanation for it is that advanced on behalf of Unwins. Unwins suggest, and I agree, that Rostok recognised that the prices on invoices 004 and 005B had been wrongly calculated using a unit price of US$0.03 per packet instead of US$0.04 per packet. This of course meant that the amount it would have to pay was rather less. Then, instead of actually counting the packets delivered, Rostok simply divided the total figure of US$36,987.68 by the correct price of US$0.04 per packet to arrive backwards at the number of packets they were prepared to pay for. That gave a figure, as recorded in the backdated invoice of 30 October 1995, of 924,692 packets. This is a rather lesser figure than that set out on the original estimated invoices.

Overall, and for like reasons to those which I gave set out in respect of the years 1993/94 and 1994/95, I reject this claim.

The next aspect of the claim in respect of this season is for £21,870 in respect of sales ledger anomalies. The anomaly relates to two journal entries and two cash entries amounting collectively to £74,519.17. Mr. Goodwin alleges that Rostok paid this sum to Unwins for returned seed and that he is entitled to a commission on the figure.

I reject this claim. There is no basis in the evidence that I have heard for any contention that Unwins received any such sums by way of cash in respect of supplies of seed to Rostok. I did not understand any of the witnesses called on behalf Unwins to be challenged on this point. Furthermore, and importantly, Mr. Guthrie has found that the two entries, coupled with a recorded exchange rate difference, reconcile precisely with two invoices for a further contract entered into with Rostok on the 31 October 1995 ("Contract 2") in respect of sorted flower and vegetable seeds in Russian text. The price per packet was $0.12 (twelve cents US) excluding delivery and insurance. It is accepted that these are new seeds in respect of which Mr. Goodwin has no commission entitlement. I have reached the conclusion that the entries do not support an allegation of undisclosed supplies of returned seed to Rostok and that Mr. Goodwin is not entitled to commission.

The final head of claim in respect of this season is for £7,741 and is based upon a contention that stock sold and delivered to Rostok in the first and third containers delivered in 1995/6 was all returned seed generating a commission of 28.75% rather than residual stock on which a commission of only 5% was due.

Mr. McManus explained the position in relation to these containers in his evidence as follows. The first container in July contained only boxes of residual stock, the second contained only sacks of returned seed and the third contained both residual stock and returned seed. He simply sent all of the returned seed and all of the residual stock held by Unwins. In doing so he overlooked the fact that, in accordance with the first Rostok amendment, Unwins had agreed to send stock lists of residual stock to Rostok from which it could order particular varieties. This caused an upset with Rostok and one which was compounded by the fact that Rostok said that some of the residual stock was out of date.

Mr. McManus also explained that he went to Russia to check the position for himself in September 1995 and found that Rostok's complaint was justified. He agreed with Rostok that, in respect of that shipment, it only needed to pay US$0.045 per packet for residual stock which it would have ordered had it been sent the stock lists. Nevertheless, Rostok agreed to retain the rest of the residual stock, apart from out of date stock, at a reduced price of US$0.04 per packet, that is to say the same price as the returned seed.

Moreover, in August 1995, a telephone discussion took place between Mrs. Goodwin and Rostok confirming that Rostok was complaining about Unwins sending residual stock without offering a choice. The substance of this was then related by Mr and Mrs Goodwin to Mr McManus in a further telephone conversation. These matters are confirmed by a letter dated the 25 August 1995 from Mr. McManus, on behalf of Unwins, to Rostok. In that letter Mr McManus explained that he understood from Mr Goodwin that Rostok (Mr Zaitsev) was unhappy because Unwins had sent all the “sorted” (ie residual) stock without informing them in advance. Mr McManus apologised and pointed out that having taken out all the unsold stock dated for 1995 and sent it to Africa, the remaining stocks were at such a low level that to further reduce them would not have been commercially viable. In my judgment, this is an important letter. It is a clear indication that Unwins did indeed send residual stock and it has never been suggested that the letter is other than genuine. It provides powerful support for the evidence of Mr McManus.

On September 1 1995, Rostok sent a fax to Mr. McManus in relation to the first container indicating that many of the seeds were marked with the 1995 year, which was a problem, but acknowledging that there were 195,000 packets of the most popular seeds that Rostok was able to buy at US$0.045 per packet. This also indicates, quite clearly to my mind, that these were indeed residual seeds. Had they been returned seeds then only US$0.040 was payable.

Confusion over this rather complicated set of transactions reflected itself in the commission statements supplied to Mr. Goodwin. In particular, the calculations were initially carried out on the basis that all the seeds sold at US$0.040 were returned seeds and, not surprisingly, caused him considerable concern. That concern was exacerbated when, on disclosure, he saw a fax from Mr Irvin to Mr. McManus stating, in relation to Mr. Goodwin "I will string him along for a few days more…". Under cross examination Mr. Irvin recognised that this was an inappropriate thing to say but said it was borne of frustration at the time taken to resolve the issue of payment for what he considered to be an aspect of the business of lesser importance.

I am also conscious that Mrs. Tandy has identified discrepancies between the packets counted by Rostok from deliveries in containers one and three and the Unwins’ residual stock lists of June 1995. In particular, she refers to the facts that the split between vegetable and flower categories counted by Rostok is inconsistent with the split between vegetable and flower stock on the residual stock list, the ageing of stock counted by Rostok is inconsistent with the residual stock list, the flower and vegetable stocks are irreconcilable with those delivered and that Rostok requested documentary proof for Russian customs that pea and bean stocks were included in container one, yet no such stock is listed in the residual stock list.

At the end of the day there is no explanation which satisfactorily addresses all these anomalies. However, Mr McManus has provided a possible explanation for some of them. He said that a specification sent by Rostok on 8 August cannot have been based upon any count of the actual contents of container one because it had not, by that time, arrived. He also explained that since that specification refers to peas and beans, Rostok would have wanted peas and beans to be referred to on the packing list for Russian customs to maintain consistency and secure customs’ clearance. There is however, no satisfactory explanation for all the discrepancies arising on the fax from Rostok dated 1 September, but conversely there is no other evidence to support the aggregate figures that Rostok there provided.

Despite the matters identified by Mrs Tandy I have come to the overall conclusion that the balance of the evidence does lie firmly in favour of the contention advanced on behalf of Unwins that containers one and three did contain residual stocks. I should also mention in this regard Mr. Goodwin relied upon a fax from Rostok dated the 31 July 1997. That refers to deliveries of "the previous year" and that packets sent in boxes were in fact returned seeds. It may well be that fax was referring to 1996 and, in any event, it does not make clear that the entire stock was returned seed. As I have indicated, it was agreed that the claim for £7,741 is based upon the contention that all stock sold and delivered to Rostok in containers one and three was returned stock and I have reached the conclusion that that case is not made out.

There are two claims in respect of this season. The first is again based upon the fax from Rostok dated 12 July 1996 and is for the sum of £27,105. The second is based upon an alleged sales ledger anomaly and is for the sum of £28,286. I will address them in turn.

The fax refers to a contract price for 1996 of $ 294,600. After deduction of carriage charges of $15,968 this is said to reveal that Unwins sold returned seed to Rostok for $ 288,632. As in relation to the previous seasons, I am unable to accept this submission. As pointed out on behalf of Unwins, it was sent before there had been any deliveries at all for the 1996/97 season. The figure was not based upon any invoices or deliveries but rather upon the second Rostok amendment dated 11 June 1996 which stated that “The total value in 1996 will be no more than $294,600 …. including delivery costs”. Mr Guthrie has shown that the actual value of goods accepted and paid for by Rostok was $123,594, on which commission was paid.

The claim based upon sales ledger anomalies is based upon the contention that Unwins had undisclosed receipts of £98,343.45 upon which Mr Goodwin is entitled to commission at 28.75%. As in relation to the previous claim in respect of such anomalies, there is no basis in the evidence for any contention that Unwins received such undisclosed payments for residual stock or returned seed supplied to Rostok and again, it was never suggested to any witness that such payments were made and concealed. In addition, Mr Guthrie has matched the alleged anomalies with US$ payments on two contracts referred to as Contract 3, entered into on 9 July 1996 and Contract 4 entered into on 28 November 1996. Both of these contracts were for “sorted” seeds under which it is accepted that no commissions are due. Accordingly, I reject this claim.

This is a substantial claim. It amounts to in excess of £320,000 up to the year 2000 and continues thereafter until the sale by Unwins of its business to Westlands in 2004. In respect of the period after 31 March 1998, an account is sought and this forms the subject of issue 4, to which I return later in this judgment.

Unwins ceased paying commission to Mr Goodwin after the 1996/97 season. It says that thereafter it only supplied new stock, upon which no commission was payable. Mr Goodwin’s case is that this is not true and that Unwins continued to supply returned and residual seed, as such or under the description of recycled seed. Before addressing the substance of the claim I must first set out a little more background as it emerged from the evidence.

In early 1996 Unwins appointed a new Managing Director called Mr Burrell. By this time virtually all of Unwins’ seed was packed in foil wraps which meant that it had a shelf life of more than one or two seasons. He decided that Unwins should itself resort returned seed and return to stock for the following season any returned seed which was still in date. He also decided that residual stock should also be sorted out and any that remained in date returned to stock and carried over to the next season. Any stock that was out of date or would shortly fall out of date was to be destroyed as before. The seeds that were returned to stock were called recycled stock.

Another development also took place in 1996. Particular certificates called phytosanitary certificates were needed to import seed into Russia. These were issued by MAFF. Prior to 1966, MAFF was content to test random samples of seed held in stock and then to issue certificates for all possible returned seed based upon these tests. In the summer of 1996, however, MAFF became aware that packets of seeds of a particular variety sent to Russia might have different lot numbers to those tested. MAFF decided that this was not satisfactory and that it would be necessary to test the samples of the particular lots to be supplied. Unwins decided that this would be too expensive for the low value returned seeds.

Mr McManus explained that these two developments meant the end of the supply to Rostok of returned seed or residual stock. The last supply was made in late 1996 and the last payment of commission to Mr Goodwin was in respect of the three months to the 31 March 1997.

As I have mentioned, from 1995 Unwins had also entered into agreements with Rostok for the supply of new stock on which it is accepted that no commission was payable. The first contract was Contract 2 and a series of other contracts followed. Mr McManus was responsible for making up these orders. It was his evidence that they were made up at Histon from new production stock. They would then be delivered to Chester on shrink wrapped pallets. Sometimes it was necessary to supplement the orders from stocks held in Chester. When this was necessary, it was done by making up the balance with the necessary new production stock held at Chester. Mr McManus was clear that recycled stock (as it became available) was not used for this purpose. It was held in a different part of the warehouse and was not considered suitable for the Russian orders because Rostok needed longer dated stock. Mr McManus was not effectively challenged on this evidence.

This is, to my mind, powerful and highly persuasive evidence that Mr Goodwin is not entitled to further commission. There is a further very important matter to which I must refer. Mr Guthrie has considered the records held by Unwins and has found no evidence of orders, invoices or payments relating to returned or residual stock after

He has reconciled all payments from Rostok to (i) sales made by Unwins in respect of which it is accepted that Mr Goodwin is not entitled to commission and (ii) sales upon which it is accepted that commission has been paid. It was his view that additional sales at the level suggested could only have occurred if they had been systematically excluded from the disclosed documents. In short, it required me to make a finding of fraud. In her evidence Mrs Tandy accepted that the case advanced required a finding that Unwins had behaved dishonestly. But this was not a case that was ever pleaded or put to a witness.

I must now consider the facts and matters relied upon in support of the submission that, despite these matters, I should find that Unwins supplied quantities of returned seed, residual stock or recycled stock to Rostok after 1996.

The first and principal element of the case advanced on behalf of Mr Goodwin was based upon import permissions obtained by Rostok. Mrs Tandy determined the maximum value of sales that could have been made based upon the unused element of Rostok import permissions after taking into account disclosed contracts entered into by Unwins, contracts with other suppliers and provision for damaged or rejected goods. This formed the basis of the allegation that in excess of £320,000 was due in respect of the period up to the year 2000. Mrs Tandy contended that an import permission can only be obtained if the importer holds a contract with the supplier of those goods and that if an import permission is not used then the importer risks losing future import permissions. She noted that the unmatched quantities on the import permissions replicate the historic annual quantities of returned and residual seeds supplied by Unwins under the Rostok agreement.

I do not find this a persuasive point. Mrs Tandy apparently worked on the assumption that Rostok normally obtained separate permissions for each supplier. However, it emerged during the course of cross examination that an import permission could cover a number of different suppliers. One permission was disclosed which related to imports from the United Kingdom and the Czech Republic. There is no suggestion that Unwins have ever had any business in that country. So it must relate to more than one supplier. Further, Mr Goodwin accepted that that the import permissions could relate to other United Kingdom suppliers such as Johnsons and Suttons Seeds. Johnsons was supplying seeds to Rostok in about July 1996. Moreover, as pointed out on behalf of Unwins, import permissions were obtained by Rostok for the period between December 1997 and January 1999 for some 17 million packets and it seems rather a nonsense to suggest that these were clandestinely supplied by Unwins when the Rostok Agreement and the first Rostok amendment provided for the sale of up to 7 million packets of returned seed.

Secondly, it was suggested that categories of Unwins’ seeds have been advertised for sale by Rostok and purchased from Rostok sales outlets which have not been detailed on disclosed invoices. I accept that there are certain discrepancies. However, Mr Guthrie has explained that there is an explanation for in the region of 95% of the categories listed by Rostok and for all or virtually all of the packets purchased. I have not found this an easy issue to assess from the materials in the experts reports. However, having heard the evidence of the witnesses, the experts' and reviewed the reports of the experts I am not satisfied that anything other than minor discrepancies remain. I am wholly unpersuaded that this supports a conclusion that Unwins has engaged in an undisclosed trade. Only some of the points apparently taken by Mrs Tandy were put to the witnesses called on behalf of Unwins and I formed the view they had a plausible explanation for them. The following are illustrations.

Mr Goodwin relied upon a document entitled “Addition to invoice 18864”. This is tied to invoice 18864 dated 2 March 1999. The addition refers to “Vegetable seeds (unsorted)”, which, it is suggested, indicates that the seeds were returns. All of these goods are described in that invoice as being in boxes. Moreover, they were supplied under a contract referred to in the proceedings as “Contract 8” at a unit price of $ 0.10 to $0.15, which is an indicator that these were new stock. Further, they had a code 6000 which Mr McManus explained meant that the packets were in Russian text. True it is that I was shown an English text packet which appeared in a price list with a 6000 code. But there was no sure way of tying that packet to the particular item on the price list. The weight of the evidence is that these were not returns.

Reliance was also placed upon the fact that many of the packets purchased were in the English language and had English prices on the back. As Mr McManus explained, however, Rostok was entirely content to take quantities of English language packs because some Russian customers apparently preferred them. These stocks would be taken from surplus stocks destined for the United Kingdom market.

Before leaving this topic I should say that there was some confusion about the date of stock production. Mr McManus gave evidence that to his understanding the date of production could be determined from a number code on the back of the pack and the same information was also set out in a letter from Unwins’ solicitors. It became clear, however, in the course of evidence that this explanation could not possibly be correct. In the event, no other explanation was offered on behalf Unwins. Although this rather unsatisfactory position does not alter my conclusion, it did give rise to a measure of confusion and unnecessary evidence.

Thirdly, it was said that items of the disclosure indicate that seeds were supplied from the Chester branch into which returned or residual stock had been recycled. This is accepted by Unwins. Mr McManus was clear, however, that the recycled stock was kept separate from the new stock and was not used in relation to the Rostok orders.

Fourthly, it was contended that packets of Unwins specialist packets of seeds such as National Trust varieties were purchased from Rostok sales outlets and these cannot possibly have been new production stock. I do not accept this submission. Mr McManus explained that these were indeed new production stock and this could be determined because they did not have an English price on the back. New production stock for supply into the United Kingdom market would have such a price, but even then might be diverted abroad if needed and surplus to requirements.

Fifthly, it was contended that phytosanitary certificates have been disclosed which could not be matched to invoices. However I am not persuaded this is a material point. The certificates accompanied the initial invoices and these were never an accurate record of the goods supplied because of the unusual way the business was conducted.

Finally, it was said that anomalies in the sales ledger supported the conclusion that there were undisclosed trades. For the reasons I have given I do not accept that any such anomalies have been established.

Overall, I have reached the clear conclusion that the case under this head has not been made out. I accept the evidence Mr McManus gave on this issue. That evidence was supported by the evidence of Mr Irvin and Mr Wilson. A finding that the case advanced has substance would require me to make a finding that Unwins has behaved dishonestly. That case was never pleaded and was not put to a witness. It must be rejected.

In the light of my findings the remaining issues can have no bearing on the result of the case. Nevertheless, I will set out my conclusions.

It was contended on behalf of Unwins that Mr Goodwin was not entitled to make a claim in respect of the period 18 July 1994 to 31 March 1996 because, over that period, Unwins had a contract, not with Mr Goodwin, but with Enterprise Russia.

On 18 July 1994 Mr Goodwin wrote to Unwins stating that he had “changed our company name” and requested that all future payments be made to Enterprise Russia. Thereafter commission statements were in the name of Enterprise Russia, invoices were rendered by that company and Unwins paid commission to that company. That remained the position until 25 March 1996 when Mr Goodwin wrote to Unwins to say that henceforth payments should revert to himself.

It was submitted that, in these circumstances, Mr Goodwin had incorporated his business and had ceased to be a sole trader. In support of the submission Unwins relied upon the fact that Mr Goodwin’s VAT number was transferred to Enterprise Russia. Overall, it was said, by the letter of 18 July 1994, Mr Goodwin terminated his contract with Unwins and Enterprise Russia entered into a new contract with Unwins on the same terms. All the parties entered into the necessary novation.

On behalf of Mr Goodwin it was submitted there was no novation and all that happened was that Mr Goodwin requested Unwins to make commission payments to his company Enterprise Russia.

I prefer the submissions advanced on behalf of Mr Goodwin. It seems to me quite clear from the matrix of facts that Mr Goodwin was at all times the person with whom Unwins was dealing. Obligations were owed by Unwins to Mr Goodwin and by Mr Goodwin to Unwins. Enterprise Russia was no more than a vehicle set up by Mr Goodwin to receive payments. So much was confirmed by Mr Goodwin during the course of his evidence and, importantly, by Mr Wilson on behalf of Unwins. Mr Wilson was quite clear. He explained that he had no reaction to the letter of 18 July and that it did not affect his relationship with Mr Goodwin. Throughout he considered Mr Goodwin to be a self employed agent and the request to make payments to Enterprise Russia did not alter that position.

On 22 May 1998, Unwins terminated the Unwins Agreement. It wrote a letter stating that Mr Goodwin had failed to comply with his obligations under clauses 7(1) and 7(8) by “working with our UK competitors in shipping their products to our purchaser in Russia”. Under clause 7(1), Mr Goodwin was at all times to work diligently to protect and promote Unwins’ interests and under clause 7(8), he was under a duty to act towards Unwins in good faith.

The background to the termination is as follows. The last commission payment made to Mr Goodwin under the Unwins Agreement was in March 1997. As I have concluded earlier in this judgment, after 1996 Unwins did not make supplies of returned seed, residual stock or recycled stock to Rostok. What it supplied was new production. Mr Goodwin was, of course, aware of this. He had ceased to receive commission payments. Moreover, it was apparent during the course of 1996 that the nature of Unwins’ business was going to change in this way, as both Rostok and Mr Goodwin appreciated.

On 29 July 1996 Mr Goodwin wrote to Mr Irvin in relation to his commission payments and continued:

This letter must be seen against the background to which I have referred. Unwins had decided that sales of returned stock and residual seed would shortly be coming to an end, as Rostok and Mr Goodwin were well aware. It must also be seen against the background that Mr Goodwin had told Unwins at the outset of his relationship that he acted for other seed producers. In the event, Mr Irvin did not raise any objection to the course that Mr Goodwin told him he would be taking, namely that, at the request of Rostok, he would be finding them further supplies of residual stocks or returned seed from other seed producers. I should also note that it seems clear that at this time (July 1996) Rostok had started to deal with Johnsons.

The next document to which I must refer is a note of a meeting in Russia between Rostok and Unwins in December 1997. The note was produced by Mr Wilson, who attended on behalf on Unwins. In that note Mr Wilson recorded that he was told by Rostok that the lack of returns was hitting Rostok’s margins and that they had taken supplies from Johnsons and Suttons. He was told that Rostok had been introduced to these suppliers by Mr Goodwin. Mr Wilson requested confirmation of this in writing, which was duly done by letter of 19 December. The note also records that Mr Wilson told Rostok the level of commission that Mr Goodwin was receiving, at which Rostok expressed some surprise, and that Mr Goodwin’s involvement was no longer acceptable to Unwins.

As I have indicated, it was not until May that Unwins wrote to Mr Goodwin terminating the Unwins Agreement.

I have not found this an easy issue to determine. I have reached the conclusion, however, that Unwins was not entitled to terminate the agreement as it did. In my judgment Mr Goodwin did work diligently to protect Unwins’ interests with Rostok throughout the period of the agreement. Whenever there was a difficulty in connection with the supply of stocks of residual or returned seeds Mr Goodwin sought to assist Unwins to resolve it where he could do so. He was frequently assisted in this by his wife who had the benefit of speaking Russian and being essentially fluent in English. During the course of 1996, however, it became apparent that Unwins would no longer supply Rostok with returned or residual seed and this meant that Rostok wished to obtain an alternative source of supply. Mr Goodwin was the obvious person to turn to. He told Unwins that this was happening in his letter of 29 July 1996 and Unwins raised no objection. So far as Mr Goodwin was concerned there was no conflict because he was simply endeavouring to meet the requirements of Rostok that Unwins was no longer interested or in a position to fulfil. In my judgment it cannot be said that in taking the actions he did he failed to work diligently to protect Unwins’ interests. Despite his requests, Unwins had decided to cease supplies. In short, “Unwins’ interests” had changed and it cannot be said that by Mr Goodwin’s actions he failed to work to protect and promote them. For like reasons I have reached the conclusion that Mr Goodwin always acted towards Unwins in good faith.

For the reasons I have given it has not been established that Unwins supplied returned or residual seed to Rostok after 1996. Nor has it been established that Unwins supplied recycled stock to Rostok. Accordingly, it is not appropriate to order an account.

The issue to be determined is whether, as a matter of construction, recycled stock falls within the scope of the Unwins Agreement because it is “returned seed” or “residual stock”.

The object of any exercise of interpretation is to determine the intention of the parties. This is an objective issue and must be considered in the light of the agreement as a whole and against the relevant factual background.

I accept the submission advanced by Unwins that the following are important background facts. First, in 1993 Unwins’ seed was usually packed with a one year sell by date. Second, the seed which remained unsold at the end of the season or which was returned by retailers was destroyed. It had no value to Unwins. Third, Unwins had no market for this seed.

Against this background Unwins and Mr Goodwin entered into the Unwins Agreement. Mr Goodwin found Unwins a market for the seed which had no value. Consequently, he negotiated and became entitled to a very high commission of 28.75% on returned seed. But it always appreciated that Mr Goodwin was not entitled to a commission on new production. If Unwins had entered into an agreement with Rostok for new production at the outset and had only ever supplied new production then Mr Goodwin would not have received any commission at all.

It is of course true to say that recycled stock was taken from stock left over at the end of the season or from stock returned by retailers. However that is only the start of the story. Recycling became possible because of the widespread use of improved packaging. The recycling process involved considering and resorting all the seeds returned by retailers and stocks left over at the end of the season. Stock which was or would become out of date was discarded. Only stock which was in date was retained. This inevitably involved time and expense. The result of the exercise was to produce stock which had a significant value. It could be sold back to retailers in the United Kingdom. It did not need to be destroyed. To my mind this stock was effectively new production for the purposes of the domestic market. For all these reasons it was not “residual stock” or “returned seed” within the meaning of the Unwins Agreement.

For the reasons given in this judgment the claim must be dismissed.