Tarkin AG v Thames Steel UK Ltd

This is an application by the claimant, Tarkin AG, for summary judgment under a guarantee dated 23 May 2008, the defendant, Thames Steel UK Limited, being the guarantor. Much of the factual background is not in dispute. Tarkin is a company incorporated in Switzerland which carries on the business of purchasing and selling steel scrap. Thames Steel is a company incorporated in England which, through an intermediary company incorporated in Georgia called Energy and Industry Complex LLC, owns a company called Georgian Steel JSC. Georgian Steel is also incorporated in Georgia, and carries on the business of producing and selling steel scrap. Georgian Steel operates a steel plant from premises in Rustavi, Georgia, and at the material time had been producing steel scrap from the demolition of buildings in the steel plant.

The guarantee came to be entered into as follows. By a Sale Purchase Contract stated to be signed on 22 May 2008, Georgian Steel (as seller) agreed to sell to Tarkin (as buyer) 20,000 metric tonnes of steel scrap f.o.b. Poti Port at a price of $11,600,000. Tarkin was to “arrange the shipment of the material by latest 30th August 2008”. By a document called a “Holding and Title Certificate” also dated 22 May 2008, Georgian Steel declared that it held 10,000 metric tonnes of steel scrap to the order of Tarkin, and that full title to the goods would transfer to Tarkin upon receipt by Georgian Steel of $5,800,000 prepayment. It confirmed that it was holding the goods in a secure location at the Rustavi plant, and that the goods were stored separately from all other goods on the premises. In point 7, it confirmed that upon written instruction from Tarkin, it would deliver the goods to Poti Port in accordance with the Sales Purchase Contract. This document was governed by Georgian law.

By a Deed of Guarantee stated to be dated 23 May 2008, Thames Steel (which was, as I have explained, Georgian Steel’s ultimate parent) agreed as follows:

“In consideration of Tarkin A.G. executing the Contract, Thames Steel unconditionally and irrevocably guarantees to Tarkin A.G., by way of continuing guarantee and on first demand, the due performance of each and every obligation of Georgian Steel under the Contract, (“the Guaranteed Obligations”) so that at Tarkin A.G.’s option Thames Steel shall either pay to Tarkin any monies paid by Tarkin A.G. to Georgian Steel under the contract plus interest for material not delivered or any cost, claims or losses incurred under the contract.”

The guarantee was governed by English law. It erroneously states under the address and details of registration that Thames Steel is “authorised and regulated by the Financial Services Authority”. This seems to have come about because an associated company was so authorised. Tarkin claims that it relied upon this mistaken statement, but it make no difference to the issues I have to decide, and for the purposes of the summary judgment application I need say nothing more about it.

On 27 May 2008 when it received the contract and the certificate, Tarkin arranged for pre-payment of the first tranche of 10,000 metric tonnes as the contract required. A payment of US$5.8 million was made to Georgian Steel on 28 May 2008. The claim on the guarantee is effectively to recover this sum, no steel scrap in the event having been delivered to Tarkin, in circumstances which I must now describe.

The facts are set out in witness statements of Mr Pete Hopkins for Tarkin, and Mr Andrew Baker and Mr Stephen King for Thames Steel. Neither of the latter had any direct involvement in the matter, and they explain why (because of a dispute as to the ownership of the companies) their ability to obtain evidence has been limited. Be that as it may, it is sufficiently clear on the evidence that Georgian Steel could not effect delivery of the first tranche in June 2008 because of congestion in Poti Port in Georgia. An email of 23 July 2008 from Mr Hopkins says that when the “green light” was given by Georgian Steel towards the end of June/beginning of July, Tarkin’s customer base had effectively gone into its August shut-down mode. Unfortunately, events then overtook the parties, in that from 8 August 2008 Georgia was at war with Russia. The latest shipment date of 30 August 2008 passed without Tarkin arranging for shipment of the material. The evidence shows contact between the parties on various occasions from September 2008 (by which time hostilities had ceased) onwards. There was an inspection of the scrap steel at the Rustavi plant on 11 October 2008. The parties are in dispute about which of them was in breach of contract this time, and Tarkin accepts that this is not a dispute that can be resolved at the summary judgment stage.

For the purposes of the summary judgment application, Tarkin has put its case on an alleged refusal of Georgian Steel to make delivery of the steel scrap in March 2009. This happened as follows. By an email sent by Tarkin to Georgian Steel on 8 March 2009, it stated:

“We are ready to lift the 10,000mt of steel scrap presently stored by Georgian Steel according to Holding and Title Certificate No 49 dated 22 May 2008 and Sales Purchase Contract No 27 dated the same. In accordance with point 7 of the Holding and Title Certificate, we hereby instruct you to deliver the entire 10,000mt from your storage yard at the Rustavi mill to Poti Port to permit loading on the following vessels to Diliskelesi, Turkey (discharge port is subject to reconfirmation) by 31 March 2009 as per the individual laycan periods stated below”.

Details of three liftings on two vessels in respect of which the first laycan commenced on 16 March 2009 and the last laycan terminated on 29 March 2009 were then set out, together with details of the vessels.

The email continued:

“In order to fix the above vessels firmly and finalize our sale to our customer, kindly confirm your acceptance of the above vessels with the laycans and demurrage rates noted. We need to reply by 16:00 GMT on March 10, 2009 to the vessel owner/operator in order to finalize with the owner and, subsequently, finalize with our buyer.”

Confirmation was requested that the load rate would be a minimum of 800 metric tonnes per day. The email continued:

“Given the current market environment for all commodities, scrap included, we need to reply promptly to our potential customer. Furthermore, given the price fluctuations in the market at the moment for scrap and steel products in general, steel mills/scrap consumers are demanding very short delivery times and often are buying ex stock only. We have explained that we have cargo in stock available for immediate delivery”.

On 9 March 2009, Georgian Steel sent a letter by email and fax confirming its readiness to send the product. It also said however that:

“Coming out from this situation [in other words non-delivery the year before], the expiration of the contract, we want to proceed the date of the contract by the amendment on duration of the contract during the April and May 2009, in condition to send the product”.

The suggestion seems to be that Georgian Steel wanted to make delivery in April and May. The letter also appears to require the payment of storage charges in the sum of US$950,000.

Tarkin responded later that day saying that:

“Given that it has been held by you separately for us at the Rustavi mill, we do not understand why you seek to delay the delivery of it until April/May 2009. As you know it was always understood that the scrap steel held by you under the Holding and Title Certificate could and would be moved to the Port of Poti ready for loading within a short period of time of us nominating suitable carrying vessels”.

Confirmation was sought that the cargo could be dispatched to Poti to meet the schedule.

Georgian Steel responded early on 10 March 2009 to the effect that it had other liabilities during the period in question, and was “ready to confirm the last vessel starting on March 26. The loading rate will be as mentioned before 800mt. Within April 1-4 we have another delivery and after this period you are free to make another shipment schedule”. Tarkin responded saying that this was not acceptable, to which Georgian Steel stated, “We confirm that we owe you 10,000mt scrap and we will deliver it to you but not by the end of March. You suddenly appeared after 6 months and want immediate delivery. Till March 26 we will not be able to start shipping as we have other obligations … I hope starting from March 26 we will be able to deliver the whole quantity”.

The reply from Tarkin came late on 11 March 2009, saying that the message of the day before:

“… leaves us in no doubt that you are unable to make available to us at Poti by the end of March the 10,000mt steel scrap for which we have already paid and in respect of which we hold the Holding and Title Certificate. This amounts to a repudiatory breach of the Contract (as varied). Further it is apparent from your messages that you do not in fact have in your possession the steel which was required to be held under the Holding and Title Certificate. This is also a repudiatory breach of the Contract. Tarkin accepts each of these repudiatory breaches as terminating the Contract. Accordingly, we ask for the immediate return of the prepayment made in May 2008 in sum of $5.8million.”

For its part, Georgian Steel regarded Tarkin’s behaviour as being a repudiation of the contract and on 26 May 2009, its solicitors informed Tarkin’s solicitors that it was accepting such repudiation and terminating the contract.

For the purposes of the summary judgment application, Tarkin accepts that the court cannot resolve whether or not Georgian Steel had in its possession the steel which was required to be held under the Holding and Title Certificate. Nor does it seek to argue that the guarantee was a primary obligation payable on first demand. It is common ground that the guarantee is as to the “due performance” of Georgian Steel’s obligations, being an obligation to “see to it” that Georgian Steel performed its obligations in the sense explained by Lord Diplock in Moshe v Lep Air Services Ltd [1973] AC 331 at 348. It accepts therefore that it must show that Georgian Steel was in repudiatory breach in refusing to deliver in accordance to the terms of the contract by not agreeing to the shipping schedule sent by Tarkin on 8 March 2009. On its part, Thames Steel has also narrowed the issues in oral argument from those set out in its skeleton argument and defence. It no longer contends (as pleaded) that a claim under the guarantee must await an arbitration award as between Tarkin and Georgian Steel, or that the contract concluded was not the contract guaranteed. Furthermore it accepts, and it is common ground, that the contract remained on foot despite the passing of 30 August 2008 without delivery. It submits (in essence) that there was an implied term that reasonable notice (three weeks) would be given before delivery would be required, alternatively that the email sent on 8 March 2009 was only an inquiry, and was dealt with accordingly. It need only show that it has real prospects of successfully defending the claim on this basis. Alternatively, it submits that under rules of equity, the guarantee was discharged by reason of an unauthorised variation, alternatively that there are other compelling reasons why the case should proceed to trial. I shall deal with these various submissions in order.

The delivery clause in the Sales Purchase Contract provided that, “The schedule for arrival of material in the port to be as required by the Buyer. Material is to be delivered in the port immediately upon the Buyer’s request. The Seller will guarantee to deliver the material in the port at a minimum rate of 800MT per day”. The Load Rate was agreed at, “800 MTS PWWD SHINC” (in other words the cargo was to be loaded onto the ship at the rate of 800 metric tonnes per weather working day Sundays and holidays included). Mr Nicholas Craig for Tarkin submits, in my view correctly, that Georgian Steel’s obligation was to get a minimum of 800 metric tonnes a day to port immediately upon Tarkin’s request, and to load the vessel at the same rate. Mr David Brownbill QC for Thames Steel accepted in argument, also correctly in my view, that by the use of the word “immediately”, the parties made time of the essence in that respect. The commercial background is to be found in the Holding and Title Certificate, by which title to the goods passed to Tarkin upon prepayment, and by which the goods were to be stored separately at the Rustavi Plant.

By March 2009, the 30 August 2008 date by which Tarkin had to arrange shipment was past, but as I have said, it is common ground that the contract thereafter remained on foot. It follows that Tarkin is correct to submit that the obligation to arrange shipment by this date was waived. It is not decisive of this application, but I would also accept Tarkin’s submission that thereafter it remained entitled to call for the steel scrap to be delivered in the port immediately upon its request, but that if no such request was forthcoming, Georgian Steel could call on it to take delivery within a reasonable period of time.

A number of points are taken by Thames Steel in this regard. It was suggested that delivery in accordance with the email of 8 March 2009 was an impossibility given the amounts of scrap steel involved. But once one accepts that the contract remained on foot, and that “immediately upon the Buyer’s request”, Georgian Steel agreed to “guarantee to deliver the material in the port at a minimum rate of 800MT per day”, Tarkin is right to submit that as a matter of contractual obligation there was sufficient time to meet the loadings stipulated in the email of 8 March 2009, with the full 10,000 metric tonnes loaded by 31 March 2009.

To meet this point, Thames Steel has submitted that a term was to be implied into the contract for the period after 30 August 2008 requiring Tarkin to give three weeks notice or other reasonable notice that it required delivery. On the evidence, it is right to say that this was mentioned in previous emails from Georgian Steel. For example on 6 November 2008, Georgian Steel said that, “Your steel scrap is spread and accumulated in different places around the mill … better if you start shipment with 3000m/t vessel and try to give us three weeks notice”. Tarkin responded saying that, “When I spoke to you at our inspection you said only 7000 tonnes was then in stock. You did confirm during our call that some of the original stock had been sold to other parties. What you are now saying is that you have not sold Tarkin’s steel but moved it to other parts of the factory?” Georgian Steel responded saying that, “we can provide you with your 10,000m/t scrap”. Again, on 15 January 2009, Georgian Steel emailed, “As I told you before better if you tell us three weeks in advance before shipment”.

However it is not suggested that the parties reached agreement in this respect. Further, Thames Steel accepts that if a term is to be implied into a contract, it must be implied at the time that the contract is made, and not at some point afterwards. In my view, the implied term contended for is inconsistent with the terms expressly agreed by the parties (Attorney General of Belize v. Belize Telecom [2009] 1 WLR 1988 at [26] – [27]). The buyer had paid in full for 10,000 metric tonnes of steel on the basis that title was transferred on payment and the steel stored separately. The seller agreed to deliver the steel in the port “immediately” upon the buyer’s request, guaranteeing to do so at a minimum rate of 800 metric tonnes per day. It being common ground that the contract continued after 30 August 2008, those provisions remained in force. There is, in my judgment, no basis for the implied term contended for.

As narrowed in argument, Thames Steel’s other points were as follows. First, it was submitted that the email of 8 March 2009 was not a mandatory “request” within the delivery provisions in the Sales Purchase Contract. Second, it is submitted that there was no refusal by Georgian Steel to comply with it. In this latter regard, Thames Steel submitted that Tarkin was careful to avoid saying that refusal would result in termination, otherwise it would have received the “wrong answer”, namely that Georgian Steel would comply at the expense disappointing its other customers. The request, counsel submitted, was wholly artificial, the intent being to trap Georgian Steel, and allow Tarkin to terminate the contract. There is, it is submitted, real suspicion that this was a “try on”. Further, there is no proof in the correspondence that Tarkin had in fact arranged for shipping, and this is a matter which requires disclosure.

It appears to me that these submissions are ill founded. Tarkin’s motives in requesting delivery as it did on 8 March 2009 are irrelevant. The question is whether it had the contractual right to request delivery. Furthermore, the argument advanced on this point assumes that loading within the time frame requested was in fact possible, contrary to Thames Steel’s earlier submissions that it was an impossibility. In the email of 8 March 2009, the details of the vessels concerned, together with laycan and demurrage, are all set out, albeit the vessels were not fixed pending confirmation of the dates from Georgian Steel. The contention that this was all contrived to trap Georgian Steel appears to me to be speculative, and I see no reason to accede to the submission that disclosure is required to illuminate the issue.

Equally, I consider that there is no force in Thames Steel’s submission that the email of 8 March 2009 was merely an enquiry. It states that, “In accordance with point 7 of the Holding and Title Certificate, we hereby instruct you to deliver the entire 10,000mt from your storage yard at the Rustavi mill to Poti Port to permit loading on the following vessels …” (underlining added). Georgian Steel is asked to “… kindly confirm your acceptance of the above vessels with the laycan and demurrage rates noted”. The fact that it was understood as a “schedule” within the delivery provisions of the contract appears from Georgian Steel’s email of 10 March 2009 to the effect that after April 4, “… you are free to make another shipment schedule”. This and the subsequent email of 10 March 2009 which I have set out above made it clear that Georgian Steel would not comply with the request. Contrary to what has been submitted, there was therefore a refusal to comply. In those circumstances, in my judgment Tarkin was entitled to accept this as a repudiatory breach terminating the contract. It was not obliged to tell Georgian Steel in advance that it intended to do so. It follows that in my judgment, Thames Steel has no real prospect of successfully contending that Georgian Steel was not in repudiatory breach by refusing to deliver in accordance with the shipping schedule sent on 8 March 2009. That is my decision on the first issue.

Alternatively, Thames Steel submits that after 30 August 2008, the parties continued the contract, but it was open ended, in that there was no longer any time limit by which shipment was to be arranged. None of the parties had envisaged that the steel would have to be kept by Georgian Steel for such a long time. It is a basic rule of equity, it is submitted, that variations to the underlying contract which prejudice the guarantor will discharge the guarantor. Whilst this rule can be avoided by suitable terms in the guarantee, on its true construction this guarantee fails to avoid the application of this rule on its wording.

Clause 2 of the Deed of Guarantee provides that:

“Thames Steel’s obligations under this Deed shall not be affected by any matter or thing which, but for this provision might operate to affect or prejudice those obligations, including, without limitation:

…

The … variation … of … the Guaranteed Obligations …”.

By its terms therefore, a variation of the Sales Purchase Contract was not to affect the obligations of Thames Steel as guarantor. This is a perfectly acceptable and usual way to prevent a guarantee being discharged by subsequent variations of the underlying contract. I see no reason why “any” in clause 2 should not mean “any”, and should not encompass the extension of the contract after 30 August 2008. The submission that this guarantee was discharged was described by Mr Brownbill QC as a “difficult” one, and it is not, in my view, an arguable one.

Finally, Thames Steel submits that there is a compelling reason why the case should be disposed of at a trial, and not on a summary judgment application. In its skeleton argument, this submission is put, first, on the basis there are factual disputes that, prior to disclosure, it would be premature to resolve. But that submission, as I see it, has largely fallen by the wayside, because Tarkin has accepted that it must demonstrate that Georgian Steel was in repudiatory breach of contract in refusing to comply with the delivery request sent on 8 March 2009. For reasons set out above, in my judgment it has succeeded in doing so.

In oral argument, the point was put primarily on the basis that a dispute exists as to the ownership of Thames Steel. The dispute I am told is the subject of proceedings in Gibraltar. Thames Steel cannot get cooperation from Georgian Steel at present, and in those circumstances, it is submitted that it would be unjust for judgment to be entered against it at this stage. Quoting from its skeleton argument, Thames Steel “ought to be allowed sufficient time and the opportunity to gather documents (and to see Tarkin’s disclosure) in order to defend itself. The prejudice to Tarkin in waiting to trial is minimal, for it can be compensated for by interest and costs. But the prejudice to Thames Steel is considerable, for it will have judgment against it because effectively it was not, in the time and in the circumstances, able to deploy its documents and evidence.”

These points are expanded upon in a further witness statement handed in on the morning of the hearing. It says that those advising Thames Steel have formed the view that the “only possible step that could be considered by Thames Steel in due course in order to obtain compensation for what it regards as the wholly illegal misappropriation of the shares in Georgian Steel is for Thames Steel to bring a claim under the Bilateral Investment Treaty between the UK and Georgia by way of an ICSID arbitration with a view to obtaining compensation from the Georgian government. The basis of the claim would allege maladministration by either the Georgian Courts or the Georgian authorities which allowed a wrongful misappropriation of the shares in Georgian Steel. This claim is effectively the only asset of Thames Steel. Even if Thames Steel can find the means to fund it, which itself may take time, I have little doubt that bringing such a claim will take a number of years and certainly will not be resolved speedily …”. On that basis, it is said that the “practical reality” for Tarkin is that “even if they are successful in obtaining a Judgment, there are simply no assets in Thames Steel against which such a Judgment could currently be enforced and the only hope of recovery for Tarkin would be if there is a successful claim by Thames Steel against the Georgian Government”.

These matters have been properly put before the court, but the dispute as to the ownership of Thames Steel and thereby Georgian Steel does not in my judgment provide a reason for permitting this claim to proceed to trial. There is no basis for doing so on the ground that something may turn up in documents yet to be seen. In that regard, it is to be noted that Mr King’s first witness statement shows that information was in fact obtained from Georgia, at least up to July 2009. Furthermore, insofar as it is a relevant consideration, it appears from the latest evidence that it is incorrect to say that the prejudice to Tarkin in waiting to trial is “minimal” because it can be compensated for by interest and costs. On the contrary, it is now positively asserted that Thames Steel has no realisable assets in order to meet such a liability. There is in my view no “compelling reason” to require Tarkin to pursue its claim to trial. The fact is that Tarkin paid in advance for the first tranche of this scrap steel, and it did so on the basis of Thames Steel’s guarantee. The steel was not delivered, and the guarantee has become payable, and Tarkin is entitled to summary judgment. I should add that in the course of the application, everything that could possibly be said on Thames Steel’s behalf has been said by its solicitors and counsel.