Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Before :
THE HON. MR JUSTICE POPPLEWELL
Between :
W NAGEL (A FIRM) | Claimant |
- and – | |
PLUCZENIK DIAMOND COMPANY NV | Defendant |
Oliver Segal QC (instructed by DWF LLP) for the Claimant
Robert Anderson QC and Peter Head (instructed by Mishcon de Reya LLP) for the Defendant
Hearing dates: 27 April, 2-4, 8-11 & 16 May 2017
Judgment Approved
The Hon. Mr Justice Popplewell :
Introduction
Diamonds are not forever. This is a claim by a diamond broker against its client for termination in August 2013 of a relationship which originated in the 1960s, involving the purchase of rough diamonds from De Beers at Sights in London. The claim is for compensation pursuant to The Commercial Agents (Council Directive) Regulations 1993 (SI No 3053 of 1993) (“the Regulations”), alternatively in debt and damages at common law.
The Claimant is a partnership formed in 1991 between Mr William Nagel, known as Willie, and his family company W Nagel Limited. I shall refer to him as Willie Nagel and to the firm as WN. On its formation, WN assumed the brokerage which Willie Nagel had already been performing for the Defendant (“Pluczenik”) for some 24 years.
Pluczenik is a Belgian company founded in 1963 by Isaac Pluczenik. It is one of the world’s leading diamantaires, purchasing rough diamonds and processing them into polished diamonds and jewellery for retail sale. It also resells rough diamonds as a smaller part of its business.
Sightholders, brokers and De Beers
As is well known, De Beers dominated the market in rough diamonds for much of the twentieth century. By the time Cecil Rhodes died in 1902 De Beers accounted for 90% of the world’s rough diamond production and distribution. Its dominance was consolidated and increased under the ownership and leadership of the Oppenheimer family, when other producers channelled their supplies through the De Beers sale system. It was not until the 1970s, when Botswana became a major alternative mining source, that other diamond producers started testing alternative sales channels, and only in the 1990s that other major producers started selling rough diamonds on the world market independently of De Beers, who nevertheless still sold over 80% of the world’s rough diamonds at that time. De Beers’ market share shrank significantly in the early 2000s following a three year anti-competition investigation by the European Commission and De Beers giving undertakings to reduce and then cease purchasing from Russia’s largest diamond company. By 2010 De Beers had approximately 35% of the market by value. It remains the world’s largest diamond producer by value and continues to mine, sort and market a significant proportion of the world’s rough diamonds.
One of the methods by which De Beers maintained its dominance was control of the supply side by selling rough diamonds to wholesalers at “Sights” in London, held 10 times per year and lasting a week from Monday to Friday. It did so through its selling arm the Central Selling Organisation, subsequently the Diamond Trading Company (“the DTC”), which were trading names of De Beers UK Ltd. In 2013 the selling subsidiary became De Beers Global Sightholders Sales (Pty) Ltd. Nothing turns on the name or corporate identity of the De Beers selling entity and I shall refer to them simply as the DTC or De Beers.
No one could purchase diamonds at the Sights unless they were accredited by De Beers as a Sightholder. Until 2003 new Sightholders were typically appointed twice a year and their status reviewed annually. Because of De Beers’ market dominance, being a Sightholder was a coveted position. Until 2003, each Sightholder was required by De Beers to have an accredited DTC broker.
The Sights held at De Beers’ premises in Charterhouse Street in London, known as the International or Global Sights, were the main channel by which De Beers released rough diamonds into the wholesale market. De Beers carefully controlled the supply, such that generally all Sightholders were striving to be allocated a larger supply of stones than De Beers made available to them. One of the traditional roles of the DTC broker was to help its client to achieve as large an allocation of stones as possible in the particular sizes, grades and categories it desired.
In addition to these International Sights in London, there were other more minor sights, for example in South Africa, Namibia and Botswana, through which De Beers released rough diamonds for local manufacture/polishing or resale. However it was the London Sights which in the period relevant to this dispute constituted the main source for diamantaires such as Pluczenik to obtain their supply of rough diamonds.
In 2003 the Sightholder system underwent a change. Accreditation as a Sightholder was replaced by accreditation as a Supplier of Choice (“SOC”), although they were commonly still referred to as Sightholders. Under the new SOC system, announced on 12 July 2000 and implemented on 7 July 2003, the Sightholder was given a fixed term contract, at the end of which it had to reapply for SOC designation. The fixed terms were July 2003 to July 2005; July 2005 to July 2008; March 2008 to March 2011, extended to March 2012; and March 2012 to March 2015. When the SOC system was introduced, De Beers ceased to insist that Sightholders had an accredited broker, although it encouraged them to do so. The majority retained a DTC broker, although a significant minority ceased to use one.
The rough diamonds sold at the Sights were sorted by De Beers into defined categories by colour, crystal shape, size and quality, and for the most part sold in boxes of stones by category. In addition there would be “Special” stones of a larger weight, and “Exceptionals” which were very high value stones sold individually.
Being a Sightholder, did not itself ensure the ability to purchase any particular diamonds. Before 2003, the system was that the DTC broker would apply about a month before each Sight for the allocation which its client sought. Shortly before the Sight, the DTC would notify the allocation to each Sightholder through the broker. The basis for allocation by the DTC was entirely discretionary and opaque. At the Sight, the Sightholder could inspect the allocated boxes or specials, and was not obliged to accept the diamonds at the price offered by De Beers or at all. There might sometimes be negotiation over the price. Sometimes additional stones over and above the allocation might be made available at the Sight. The Sightholder might complain that the sorting had gone awry and that the box contained non-conforming stones. In the later years there grew up a practice of permitting the Sightholder to reject up to 10% or 15% of the stones in a box on this basis, but this was not something which happened very often. Although there was no obligation on the Sightholder to buy, there was an incentive to take up the full allocation, not only because of the shortage of supply but also to achieve goodwill for future allocations.
Under the SOC system introduced in 2003, there was a more formalised process of allocation which was intended to be more transparent. Designation as an SOC was based on a substantial and detailed contract proposal questionnaire (“CPQ”) completed by or on behalf of the SOC at the beginning of the contract period (called a Sightholder Profile for 2005). The format and criteria changed for different contract periods, but in general terms it required illustration of financial strength and reliability, market position, marketing ability, and technical and manufacturing ability. Based on this information and published criteria, each year the DTC would issue an “intention to offer” detailing the intended allocation for the year. The stones covered by these annual intended allocations were known as “in plan” diamonds. In addition, De Beers might make available to a Sightholder additional supplies at the Sights, known as “ex plan”. About a month before each Sight, the Sightholder would submit a notification of the in plan stones it wanted for that month, and a request for ex plan stones. The process at the Sight itself remained as described above. Apart from the periodic process of allocating contracts, there were annual reviews within each contract period.
Estimates varied of the number of Sightholders whom De Beers accredited from time to time. The exact number does not matter. When the SOC system was introduced there was a significant cut, reducing from about 350 to something of the order of 80 to 100. A Bain & Co report of 2011 stated that there were 74, ignoring affiliates.
The number of DTC brokers was much smaller, and each would act for a number of Sightholders. The Claimant was one of the smaller brokers: it had 9 Sightholder clients when SOC was introduced, of whom only 4 still retained their Sight at the date of Pluczenik’s termination.
In November 2013 De Beers moved the Global Sight from London to Gabarone, Botswana, which has replaced South Africa as the leading source of diamonds in the world by value. The intention to move was announced in 2011 and the last Global Sights in London were in August and October 2013. It was this move which provided the occasion for the termination of the brokerage between the parties.
The relationship between the parties
Isaac Pluczenik became involved in the diamond industry in the late 1940s after moving from Poland to Belgium. He bought diamonds from De Beers at Sights in South Africa from about 1950. The South African Sight was open only to local licence holders, of which Isaac Pluczenik was not one, but he achieved the same result by taking a financial interest in a South African Sightholder, Van Zwam and Peeters (“VZW”). Universal Venture, a joint venture between Isaac Pluczenik and VZW built up a global diamond business which by 1960 had become a major player in diamonds from South Africa, then the source for about 90% of all diamonds mined worldwide. In 1963 the Defendant company was incorporated, with which Universal merged in 2000. At the time of Pluczenik’s incorporation, however, Isaac Pluczenik was not a Sightholder in London, from where the majority of De Beers’ diamonds from South Africa and elsewhere were sold.
Willie Nagel became a DTC broker in 1959. He had come to this country in 1946 and studied as a lawyer, but as a result of trading in small parcels of diamonds he established a client base which also took advantage of connections in Israel, where his father lived. By the 1960s he had built a relationship with De Beers as a DTC broker.
It is common ground that Pluczenik appointed Willie Nagel as its DTC broker to acquire a sight in London, and that following such appointment Pluczenik became a Sightholder in 1967. Chaim Pluczenik, Isaac Pluczenik’s son, who joined the business in 1966 and succeeded his father as managing director of the company on the latter’s death in 1997, sought to suggest that this was no more than a formality and occurred very quickly. I prefer the evidence of Willie Nagel that it took a number of years after Willie Nagel was appointed in place of a previous broker, Mr Stern, and was the result of successful lobbying by Willie Nagel using his influence and contacts at De Beers.
It was also common ground that the agreed commission was 1% on sales by De Beers, which was the usual commission for DTC brokers at the time. There was a dispute as to the scope of the retainer, both as to Willie Nagel’s role and the precise commission terms, to which I shall have to return.
In 1991, WN was formed as a firm, and the invoices and correspondence issued to Pluczenik bore its name. It was common ground that as a matter of legal analysis from this point the brokerage was with WN, the firm, rather than Willie Nagel himself, although in practice nothing changed and everyone conducted themselves as if it were the continuation of the existing arrangements.
In the early 1990s, perhaps about 1994, it was agreed that WN’s commission would be reduced from 1% to 0.5% (“the commission variation agreement”). Willie Nagel’s evidence, was that this was in return for an agreement by Isaac Pluczenik that WN would remain Pluczenik’s broker for as long as Pluczenik held a Sight with De Beers; and that the commission rate would not be reduced further in the future. This was disputed by Chaim Pluczenik whose evidence was that no conditions were attached. I consider the evidence and my findings on this issue below.
In July 1997 Isaac Pluczenik died, aged 79.
When the SOC system was being introduced in 2003, WN prepared some standard terms and conditions which were sent to their clients. They were sent to Pluczenik on 14 May 2003. The standard terms provided for commission of 1%, but the covering letter identified that in Pluczenik’s case the commission would be “as per the current arrangements”, a reference to the commission rate variation agreement. The standard terms provided that WN could terminate for specified causes but otherwise the agency was only determinable on 6 months notice if the client lost the Sight and had not regained it within 36 months. Pluczenik did not agree to the new standard terms. Chaim Pluczenik wrote to Willie Nagel on 30 May 2003 saying that in the light of the fact that he and his father had been working with Willie Nagel for over 40 years, he saw no need to change anything in the existing relationship and expected it to continue in the future according to the “same rules and practices as before”.
In 2005 Pluczenik agreed with WN that the latter would not be entitled to commission on sales by De Beers at the local Botswana Sight, at which diamonds were sold solely for use in local manufacturing in Botswana. I accept Willie Nagel’s evidence about the circumstances giving rise to this agreement. In essence he was persuaded to waive any entitlement to commission on the basis that establishing a local manufacturing capability would be costly and risky for Pluczenik. It was therefore a temporary arrangement which was to be revisited once the operation was no longer loss making. The Botswana allocations were relatively small and the Sights in Botswana were held at the same time as the London Sights so that they would not be attended by either the Pluczenik or WN personnel. A similar agreement was reached in 2011 in relation to the Namibia Sight obtained by Pluczenik.
On 7 July 2013, Pluczenik wrote to WN saying that in the light of the move of the London Sight to Gabarone, it had decided to enter into a direct relationship with the DTC without the intervention of a broker, and that “our commercial relationship will therefore be terminated”. It effectively gave notice of termination to take effect after the last London Sights in August and October 2013.
Further discussion and correspondence continued between the parties about the termination. On 26 August 2013, during the August Sight, there was a meeting at which WN was asked to sign a letter abandoning any claims arising out of the termination if it were retained for the August and October Sights. WN refused to agree to the terms of the letter or to sign it.
On 27 August 2013 Pluczenik wrote “to confirm again that our commercial relationship has ended as per 7 July 2013.” This purported to be termination with immediate effect and it is common ground that this was the date of termination of the agency.
The Issues
WN claims the following amounts pursuant to the Regulations:
Commission due on sales prior to termination pursuant to Regulation 7. The claim is for unpaid commission of US$273,376.80. Of this Pluczenik admits that US$198,376.80 is due and unpaid. The US$75,000 which is in dispute represents commission on a sale of US$15m worth of diamonds by De Beers to Pluczenik at the November 2012 Sight which was concealed from WN. Pluczenik’s case is that this does not fall within the category of sales on which WN was entitled to commission.
Commission on post termination sales under Regulation 8. The claim is for commission on all sales by the DTC to Pluczenik at the International Sights from the date of termination to the end of the SOC contract period which then subsisted, i.e. March 2015. Pluczenik denies any sum is due on the grounds that (a) the Regulations do not apply and (b) in any event no entitlement arises under Regulation 8; (c) alternatively any Regulation 8 claim falls to be deducted from any Regulation 17 claim.
Compensation for failure to give three months notice pursuant to Regulation 15; this amounts to US$163,764.88 as commission calculated on sales between 27 August 2013 and 31 October 2013. It is an alternative to the Regulation 8 claim in respect of that period. Pluczenik disputes the claim on the grounds that the Regulations do not apply.
Compensation for termination pursuant to Regulation 17. The claim is for £3,547,546. The claim is disputed on the grounds that the Regulations do not apply; alternatively that it is to be quantified in a much smaller sum. The quantification issue gives rise to a large number of evidential and legal sub issues.
WN submits in the alternative that if the Regulations do not apply, it is entitled to:
commission on sales prior to termination, calculated in the same way as the Regulation 7 claim;
damages for breach of the commission variation agreement;
alternatively, damages for failure to give a reasonable period of notice.
Additionally and in any event, WN claims:
£18,489.91 in respect of expenses disbursed by WN on behalf of Pluczenik personnel when visiting London. It is common ground that WN is entitled to such reimbursement, but Pluczenik argues that the sums are due from the individual family members for whom the services were provided, not from the Defendant company.
A declaration of non-liability in respect of two alleged breaches of duty alleged by Pluczenik in Belgian proceedings.
It is convenient to address the issues in the following order:
Is WN entitled to commission on the US$15m November 2012 sale?
Do the Regulations apply?
If not:
What were the terms of the commission variation agreement?
What was a reasonable period of notice?
If so:
Is there a Regulation 8 claim and if so for how much?
How much is the Regulation 17 claim?
In either event:
Is Pluczenik liable for the £18,481.91 of expenses?
Is Pluczenik entitled to a declaration of non-liability in relation to the allegations of breach in the Belgian proceedings?
Before turning to the issues I should say something about the evidence.
The Evidence
The events with which this dispute is concerned go back over 50 years. It is unsurprising that relatively few documents survive from the early part of the period. Nor is it surprising that the witnesses were to some extent unable to recall specifics or details in the absence of such documents. For the later part of the period, there is a fuller documentary record from WN which includes notes of meetings, and in particular an internal report on each Sight. By contrast there is almost no disclosure from Pluczenik of contemporaneous documents. Mr Segal QC asked me to conclude that this was due to a deliberate suppression of documents directed by Chaim Pluczenik. Although Chaim Pluczenik’s evidence was in a number of respects unsatisfactory, as I explain below, I do not feel able to reach any such conclusion. Two factors explain the comparative lack of documents. One is a computer malfunction in 2013 giving rise to significant data loss. The other is a disinclination on the part of Chaim Pluczenik to document anything, because as he explained in his evidence he heeded his father’s advice that “whatever you write, you can’t take back”. He said that both he and Willie Nagel could say what they wanted in evidence to the court when there was nothing on paper. This attitude of deniability, which also permeated the aspects of his evidence in which he refused to accept any proposition adverse to his case if not set out in a document (and sometimes even when it was) does him no credit; but it goes some way towards explaining the comparative paucity of documentation disclosed by his company. I am prepared to accept that he was not closely involved in the disclosure exercise or its supervision.
WN adduced factual evidence from the following witnesses:
Willie Nagel. He was a measured and articulate witness who showed no signs of diminishing acuity at the age of 92. His evidence of events, whilst not taken from documents, proved in a number of details to be confirmed by them. He naturally tended to emphasise the importance of his role as broker, but he was not consciously exaggerating it, and was inclined to concede points unfavourable to his case where appropriate.
Adam Nagel, Willie Nagel’s son, joined the firm in 1997 after working for De Beers for two years. He gave the most evidence about the running of the broking side of the family business, including a good deal of the evidence upon which the experts relied in quantifying the Regulation 17 claim. He was, however, less well placed than his sister to do so because he himself was mostly concerned with other aspects of the family business. On the whole he was a straightforward witness, but when it came to the detail for the general propositions he advanced as to the times and costs attributable to various aspects of the business, it was apparent that he was reliant on information provided by his sister, from whom the evidence was not led.
Antonia Nagel, known as Toni, Willie Nagel’s daughter. In recent years she has managed the firm in London and handled the agency business for clients with the DTC. Willie Nagel still went into the office on three or four days of the week, and attended the Sights, but she seems to have borne the greater burden of acting as Pluczenik’s broker over the final decade of its existence. She was a loquacious witness who seemed anxious to argue WN’s case when addressing any question.
Marcus Schwalb was Willie Nagel’s and WN’s representative in Belgium from 1974, where Pluczenik was based. He was an impressive witness whose evidence was articulate and convincing.
Pluczenik adduced evidence from three factual witnesses:
Chaim Pluczenik. He has been the managing director of Pluczenik since the death of his father in 1997. His brother in law, brother and sons also work in the company, and were present in court but did not give evidence. As is apparent from what I have already said, he was not a satisfactory witness. He regularly found himself retreating from what he had said in his witness statement and indeed saying the opposite whilst vainly pretending that there was no departure from the former. He was prone to exaggeration and evasion in equal measure, and was so anxious to advance his company’s case that he sought to diminish the functions performed by Willie Nagel and WN in a way which was both unrealistic and controverted by the documents. He would have had me believe that Pluczenik received no benefit from having Willie Nagel or WN as a broker, and that their role was solely administrative in the sense of preparing invoices and arranging shipment. This is not only contrary to the evidence of Willie Nagel and Marcus Schwalb, but is demonstrated by the documents to be a travesty of Nagel’s role. His combative and careless approach to giving evidence gave rise to a justifiable sense of mistrust on the part of WN that there were a significant number of “hidden purchases” concealed by Pluczenik on which WN had been denied commission. This arose out of the pleading, which he signed, and his witness statement which suggested that there had been numerous purchases on which WN had not been paid commission because they were outside the terms of the retainer. Only two sales were specifically identified as not having generated commission to WN, one being the sale of US$15m of diamonds in November 2012 (initially averred to have been in November 2011) and another smaller sale in August 2011 in which it was conceded that commission was due but had not been paid because it had not been invoiced. The explanation for this latter transaction may well be true and it may have simply been an administrative error. The suggestion by Chaim Pluczenik that there were many other occasions when Pluczenik had bought diamonds from De Beers, both at London Sights and outside them, when no commission had been paid to Nagel proved untrue. De Beers provided disclosure during the course of the trial of all sales since 1990, which revealed that Nagel had been paid commission on all bar the two specific transactions in August 2011 and November 2012 previously identified. It was characteristic of Chaim Pluczenik’s evidence that when faced with such disclosure he resolutely maintained the hopeless position that it did not differ from what he had previously said. Even making due allowance, as Mr Anderson QC asked me to do, for the fact that he is a forceful character and English is not his first language (although he is fluent), I am afraid that I felt unable to place any reliance on his evidence unless corroborated by documents or in accordance with inherent probabilities.
Philippe Mellier was until June 2016 CEO of De Beers, having worked there since July 2011. He was able to speak authoritatively as to the practices in relation to DTC brokers generally during the last two years of WN’s brokerage for Pluczenik, and to say something about whether during that period the diamonds sold might be described as commodities, but was unable to speak to the position during the vast majority of the time when Willie Nagel and WN were acting as Pluczenik’s DTC broker.
Kennedy Hamutenya has been the Namibian Diamond Commissioner since 2001. His evidence was unchallenged and not of any significance in resolving the dispute.
In addition, Pluczenik sought to rely on a series of letters from other DTC Sightholders expressing views or making statements about commission payable when terminating a brokerage or changing brokers. These were not in the form of witness statements, were not served as such, and the authors were not called or tendered for cross-examination. In those circumstances I attach no weight to them.
There were expert reports from witnesses on two topics. Mr Nobels and Mr Aggett provided reports and an agreed memorandum on the market practice of DTC brokers, largely in relation to notice periods and compensation for termination. They did not differ in any important respect and neither side wished to cross-examine the other’s expert. I also heard evidence from forensic accountants in relation to the price which a purchaser would have paid for the brokerage for the purposes of quantifying the Regulation 17 claim. Mr Paley gave evidence for WN. Mr Pearson gave evidence for Pluczenik. Both were well qualified and seeking to assist the Court.
Issue 1: Is WN entitled to commission on the US$15 million November 2012 sale?
The evidence about this sale became clearer during the course of the hearing after De Beers gave third party disclosure. Prior to that point Chaim Pluczenik had been reticent about providing any detail. This was no doubt because he was told that it was to be kept confidential because it was a sale in which Pluczenik was to sell on the diamonds to an entity owned or controlled by the Oppenheimer family. The sale took place during the course of a Sight, and the fact that WN were not aware of it, or that it was to be kept confidential from WN, is not such as to take it outside the scope of the retainer. The agreement was that WN would be paid its commission on all sales from the DTC at London Sights and this fell within that category. WN is entitled to the US$75,000 commission, under Regulation 7 if the Regulations apply, or at common law if they do not.
Issue 2: Do the Regulations apply?
Regulation 2(1) defines a commercial agent as “a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal ….”
Regulation 2(2)(b) provides that the Regulations do not apply to “commercial agents when they operate on commodity exchanges or in the commodity market”.
On behalf of Pluczenik, Mr Anderson disputed the applicability of the Regulations on two grounds. He submitted that WN did not have continuing authority to negotiate purchases on behalf of Pluczenik so as to fall within the definition of a commercial agent; alternatively that the Sights were sales on “commodity exchanges or in the commodity market” within the meaning of Regulation 2(2)(b).
Continuing authority to negotiate
As Morison J observed in Tamarind International Ltd v Eastern Natural Gas (Retail) Ltd[2002] CLC 1397 at [28], the purpose of the European Directive to which the Regulations give effect was to protect agents by giving them a share of the goodwill which they have generated and from which the principal has benefitted after the agency agreement has been terminated. This is the rationale, originating in French law, for the compensation provided for in Article 17: see Lonsdale v Howard & Hallam Ltd[2007] 1 WLR 2055 per Lord Hoffmann at [9]. The important question in determining whether a person is a commercial agent falling within the protection of the Regulations is therefore whether the scope of his authority and retainer includes the development of goodwill in the principal’s business. As Fulford J observed in PJ Pipe & Valve Co Ltd v Audco India Ltd[2005] EWHC 1904 (QB) at [149], that is a more relevant consideration than whether the agent actually participates in discussions on price or commercial terms.
The parties both suggested that the appropriate point of time at which to judge the nature and scope of WN’s retainer was on its appointment in 1991. I disagree. The relevant time at which to judge the nature and scope of the agent’s retainer is in my view the date on which it is necessary to determine whether it is or is not a commercial agent for the purposes of the relief being claimed. In this case that is the date of termination because the remedies claimed (other than that under Regulation 7 which arises equally in contract at common law in any event) are consequent on termination or the position post termination. Speaking generally, the terms and the content of an agent’s retainer may expand, change or reduce over the course of an agency as a result of agreement between the parties by words or conduct, or sometimes as a result of external events. It is the authority at termination which determines whether the claimant is entitled to the remedies which the Regulations confer in the event of the termination of agencies of commercial agents as defined. WN would not be entitled to compensation for termination under Regulation 17, for example, if it were not a commercial agent as defined at the date of termination, irrespective of whether it had previously been one at an earlier stage of the relationship.
Nevertheless it is important to bear in mind that the question whether an agent has continuing authority to negotiate is a question which is to be determined by reference to the terms of the contract with the principal, not by the extent or frequency of the exercise of that authority. An agent may have authority to carry out functions which in the event he never performs, or performs only occasionally. Absent agreement to the contrary, the scope of his retainer at the time of termination is not to be regarded as reduced from that which has existed at any previous stage of the history of the relationship. The focus is on the scope of the arrangement, not what happened pursuant to the arrangement: see Edwards v International Connection (UK) Ltd[2006] EWCA Civ 662 per Moore-Bick LJ at [19].
The precise scope of WN’s role was never spelled out, either orally or in writing. When Isaac Pluczenik originally engaged Willie Nagel to obtain a Sight and act as DTC broker, the understanding must have been that WN would fulfil the traditional role which was customarily performed by such brokers and would customarily thereafter be so performed. That is what both sides regarded Willie Nagel and, from 1991 WN, as doing. The change in brokerage from Willie Nagel to WN was almost imperceptible in practice (and Chaim Pluczenik stated that he did not perceive it). WN’s authority from 1991 included all that which Willie Nagel had been retained to do (save that the original task of seeking to secure a Sight was now one of seeking to maintain it). Some of the specific functions required of WN changed with the introduction of the SOC system, including in particular the expansion of the authority to cover CPQs, contracts and annual reviews; but the scope of the retainer in general terms remained the same: WN was to continue to perform what were regarded as the appropriate and necessary functions of a DTC broker in the new environment. This is not a case in which there was any agreement to curtail the scope of authority previously granted or exercised. It is therefore appropriate to define the scope of the retainer at the date of termination as covering any of the services which Willie Nagel, and subsequently WN in fact performed from the date Pluczenik received the Sight in 1967, unless it is clear that any particular services were identified contemporaneously as one off and beyond the existing authority; the retainer was wide enough to cover the services commonly and traditionally performed by DTC brokers, whether or not specifically performed by WN.
Those services were described by a number of witnesses, including Willie Nagel and Marcus Scwalb, whose evidence about them I accept, and to some extent evidenced by the documents. I find that Willie Nagel and WN’s role was as follows.
WN did not have authority to conclude purchases on behalf of Pluczenik. Pluczenik determined which diamonds it bought and at what price. Moreover the negotiation of price was very largely conducted by Isaac or Chaim Pluczenik at Sights themselves. Where WN personnel were involved in proposing or relaying negotiating positions, it was by reference to instructions from Pluczenik, not as part of a broking role conducting an independent bargaining strategy for subsequent adoption or rejection by Pluczenik.
Chaim Pluczenik sought to distort this undoubted constraint on WN’s authority to negotiate, in the sense of authority to agree a price without reference to Pluczenik, into a characterisation that WN’s role was purely administrative, in the sense that it did no more than pass on information pursuant to specific instructions and provide logistical services in relation to invoicing, payment and transport for the diamonds purchased. This bore no relation to the true role which WN played and was engaged to play, and involved Chaim Pluczenik seeking to rewrite history to support his case. Willie Nagel developed a strong relationship with the senior executives at De Beers from the time he became a broker in 1959, including with Mr Nicholas Oppenheimer who exercised considerable power and control for a substantial part of the relevant period. He used these relationships to promote Pluczenik’s interests by acting as a strong advocate for Pluczenik. He lobbied on behalf of Pluczenik to secure the greatest possible allocation of diamonds. This took place not only in the written applications for allocations but also in the course of regular meetings with Mr Oppenheimer and other senior executives in which he would press Pluczenik’s case. He fostered a relationship of trust and confidence between De Beers and Pluczenik which was important to the latter’s status in De Beers’ eyes and contributed to the success of Pluczenik’s business. He emphasised Pluczenik’s appetite for rough diamonds, flexibility, financial strength and suitability to be a strong client for De Beers in good and bad times. When Toni and Adam joined the business they too performed these lobbying and advocacy roles. That is not to say that the Pluczenik family did not also themselves seek to promote the company, especially at the Sights. But these activities were complementary and those of Willie Nagel and WN added real value in a world where relationships mattered and allocation was not governed by any formal structure. After the introduction of the SOC system, the discretion in allocating diamonds was more circumscribed by what were intended to be more transparent criteria; but in practice there remained a role for brokers to influence the outcome by continuing lobbying and exploitation of personal relationships. In 2013 Mr Ralfe, a former Managing Director of De Beers, gave a toast in honour of Willie Nagel whom he described as known throughout the diamond industry as the quintessential broker who was a vociferous champion of his Sightholder clients and their allocations. Pluczenik was his biggest client and I have little doubt that Willie Nagel and WN championed it enthusiastically with executives of De Beers, if not daily then on a very frequent and regular basis.
Apart from general lobbying and promotion of goodwill, and general advocacy in relation to allocations, there were also occasions on which Willie Nagel and WN used their influence to secure the availability of specific large special deals for Pluczenik, which were only available to a handful of Sightholders. Even after the introduction of SOC, WN could influence De Beers to offer special and exceptional stones to Pluczenik which were ex plan. WN also worked with Pluczenik in determining a balanced range of goods which Pluczenik were willing to buy, choosing not only the most desirable categories but also boxes which were more difficult to sell, so as to balance Pluczenik’s immediate desire for supply with the creation of goodwill for the purposes of future supplies. This all took place in the weeks prior to the Sights.
With the introduction of SOC, WN was able to advise Pluczenik and guide it through the CPQ and contract allocation process, and the annual reviews, advising both on content and presentation, checking consistency of data, identifying what was required and finalising the documentation. This was a lengthy and involved process, in which WN was well placed to advise what would and what would not most effectively produce the desired outcome.
Marcus Schwalb, based in Belgium, also played an important role. He would discuss with Pluczenik every month the different ranges of diamonds it wished to apply for, and would liaise with the London office to prepare the applications. He was influential in relation to information submitted to De Beers concerning what happened to the diamonds after purchase by Pluczenik. Both before and after SOC, De Beers had strategies and policies in relation to such use which had an important effect on allocations; distribution channels, marketing strategy, and financial structures were important elements. Mr Schwalb regularly advised Pluczenik how best to position itself to meet these requirements, and worked consistently with Chaim Pluczenik to prepare information for submission to De Beers in the most advantageous way. He would prepare Pluczenik family members prior to Sights, reminding them of the information previously provided to avoid inconsistencies and contradictions, with the benefit of the notes WN had taken of discussions at previous Sights. Mr Schwalb also attended on visits made by De Beers to Pluczenik’s factories in Belgium and India when De Beers was checking for adherence to required strategies and practices, and, as part of the advice on such practices, warned of any corrective action required before such a visit.
At the Sights Mr Schwalb would be present throughout, assisting Pluczenik in sorting and assessing the diamonds on offer, participating in informal discussions with De Beers’ personnel to help obtain additional stones, submitting requests for such stones and assisting in the negotiations. Along with the Nagels, he would be involved in using their influence with senior executives at the Sights to persuade De Beers to make additional special stones available to Pluczenik. The Pluczenik personnel would not generally attend for all five days of the Sights, and sometimes Mr Schwalb and others at WN would be left to carry on the conduct of negotiations for stones, albeit as a go between and subject to instructions from Pluczenik.
In addition WN performed the administrative functions of invoicing, payment, packaging and transport, whose efficient administration helped maintain Pluczenik’s goodwill with De Beers.
In summary, the generation and maintenance of Pluczenik’s goodwill with De Beers was at the heart of the services which WN was engaged to perform. It therefore had authority to negotiate within the meaning of that expression in Regulation 2(1).
In the pleadings and opening submissions Pluczenik argued that WN’s authority was not “continuing” because WN was appointed on an ad hoc “Sight by Sight” basis or “transaction specific basis”. In the light of the evidence this point was abandoned and rightly so. Even if one ignores any commission variation agreement to the effect contended for by WN, it is clear that the retainer was a continuing one for an indefinite period and there was no separate instruction or appointment Sight by Sight or transaction by transaction.
Commodity Market or Commodity Exchange
In opening, Pluczenik argued that the Sights involved sales on a commodity market, not a commodity exchange. In closing it relied on both expressions as synonymous, by reference to the Oxford English Dictionary definition of “commodity exchange” as “an organised market for the bulk purchase of certain commodities, a commodities market”; alternatively it argued that if different, each was fulfilled in this case.
Both parties referred me to English dictionary definitions. I did not consider this to be a very helpful starting point, given that the text of the Regulations in issue comes directly from a European Directive with authoritative texts in other languages, and which itself was based primarily on French and German domestic law. For example the French text of the Directive provides: “…. aux agents commerciaux dans la mesure où ils opèrent dans les bourses du commerce ou sur les marchés de matières premières”.
The words the commodity market must be wider than simply connoting the sum of all commodity exchanges for a particular commodity; otherwise their inclusion would be superfluous. This is clear from the French text which uses two quite separate, if overlapping, concepts.
I would expect to have found assistance on the scope of the exclusion by examining clues to its purpose. However I have found it difficult to identify any clear rationale for excluding agents concerned with sales on a commodity exchange or in the commodity market from the applicability of the Regulations. I was not provided with any material on the history of the Directive or the Regulations which might cast light on the purpose or scope of such exclusion. It appears that there was no equivalent exclusion in the original draft Directive, which was that upon which the House of Lords Select Committee and Law Commission each commented adversely in 1977. That draft of the Directive contained an exclusion of “intermediaries who carry on their activities in the insurance or credit fields”. The explanatory Memorandum said that “the reason for excluding them is that in a number of States there exist special laws which apply to agents of this kind or else they are exempted from the ambit of particular laws which apply to commercial agents.” The Directive as implemented did not apply to services at all, but it does not appear from this draft that commodity activity was the subject of special treatment in the German or French domestic law or practice which gave rise to the Directive.
In 1987, following the Directive and as part of the process of consultation for the implementing domestic legislation, the Department of Trade and Industry published “an Explanatory and Consultative Note”. In the section on the excluded category of commercial agents when they operate on commodity exchanges or in the commodity market, the Note said; “A clearer definition will be required in the United Kingdom’s implementing legislation and comments are invited from those with a particular interest or involvement in this area on a definition along the following lines:- …… for the purposes of this exclusion the term “commodity market” is defined as a “market for any kind of tangible assets (other than assets of a financial nature) which is in fact traded on a commodity exchange in any part of the world.” In the event, however, no clearer definition was included and the Regulations simply repeated the wording of the Directive.
In 1994 the Department of Trade and Industry published Guidance Notes on the interpretation of the Regulations. In relation to the provision in question the Notes said: “A commodity is any tangible good. So called “commodity exchanges” deal in such goods and to a large extent, in commodity “futures” ie the right to buy or sell a particular commodity at a particular price at a particular time in the future hence e.g. “coffee futures”.
None of this is of any great assistance in seeking to identify the purpose of exempting this class of commercial agent activity. Neither party put forward any convincing underlying rationale for the exception. Mr Segal suggested that trading on a commodity exchange was excepted because it was in essence trading in financial instruments, rather than goods for physical delivery. But not all commodities can be traded as futures, and trading on recognised exchanges may be for physical delivery. Moreover commercial men would consider that a grain broker who purchased a bulk cargo of grain on the water from an individual seller was acting on the commodity market. It is possible that it was thought that those operating on established commodity exchanges might be expected to be regulated by particular laws or by a longstanding customary set of rules established or supervised by a trade body or association, which were to be regarded as sufficient to protect commercial agents in those special environments; but this is somewhat speculative.
My starting point is that in interpreting a Directive and Regulations aimed at commercial agents, it is necessary to interpret “commodities” in its commercial sense, i.e. as it would be understood as such by commercial parties both as principals and agents. Commodities is a term often used in the commercial world of trade and finance in a particular sense, which is a narrower sense than the everyday use of the word. In everyday use it can cover almost all things which can be bought or sold; but in its commercial sense it is not synonymous with “any tangible goods”. In the commercial world it includes, for example, oil and gas products, some precious and industrial metals, grain and other agricultural or raw foodstuffs such as coffee, sugar or pork bellies. Many are subject to futures and options trading, but not all.
A statutory definition is to be found in section 9A(9) of the Building Societies Act 1986, section 9A(1) of which prohibits building societies from acting as a market maker or trading in commodities, amongst other things. The definition is:
“ “commodity” means any produce of agriculture, forestry or fisheries, or any mineral, either in its natural state or having undergone only such processes as are necessary or customary to prepare the produce or mineral for the market.”
A similar form of wording is found in s. 11(2) of the Financial Services (Banking Reform) Act 2013 for the purposes of regulating certain proprietary trading, save that the subsection uses the words as an inclusive but not exclusive definition.
This is a useful starting point, provided agriculture is treated as wide enough to include animal farming. However in determining whether there is a sale on a commodity exchange or commodity market, it is not enough to inquire whether the goods in question are a commodity. The relevant question is whether the sale is of the goods as a commodity, and the sale is on “the commodity market” or a commodity exchange. The focus must be on the manner and place of sale as well as the nature of the goods sold. Coffee beans bought by description in bulk are a recognised category of commodity sale. The same coffee beans sold in a packet in the supermarket are not. Commodity markets are limited to wholesale trading. Moreover not all wholesale purchases of goods which fall within the statutory definition identified above would be regarded by commercial men as trading in commodities. Billingsgate would not be regarded as a commodity market. The fact that some sales of raw materials falling within even the narrowest definition of commodities will not constitute commodity trading illustrates the need to focus on the nature of the sale process and not just the nature of the goods.
The concept of a commodity sale generally focusses on generic goods in bulk, goods which are indistinguishable in origin or features from other goods of the same type. But that is not always so. A sale afloat of a specific cargo of oil from a specific refinery would be regarded as a commodities sale. I was for a time attracted by a distinguishing criterion of whether goods were bought by description, sight unseen, as opposed to goods being subject to inspection. However this cannot be decisive. What are generally accepted as sales of commodities may have been subject to inspection by sampling, whether by the buyers or others. A grain broker who purchases a cargo of grain afloat with the benefit of inspection certificates would be regarded as making a purchase on the commodity market, as he would in an ex warehouse or FOB sale where the buyer had the power of inspection and rejection himself. Where generic goods are bought by description, that is a pointer towards their being bought as commodities, but the opportunity to inspect is not fatal to their being so.
I have concluded that the sale of the boxes at Sights at De Beers were sales on the commodity market and the Sights were in this respect a commodity exchange. My principal reasons are as follows:
This was a wholesale market in a single class of unprocessed minerals. The Sights were the first point of sale following mining. The rough diamonds consisted of raw material mined from the ground which had not been processed, save by sorting them for the purposes of categorisation. The rough diamonds are comparable to precious metals, in which there is a recognised commodity exchange and commodity market (indeed metals traded as commodities have often undergone a greater degree of processing than rough diamonds sold by De Beers).
The majority of the purchasing activity by a Sightholder at the Sights was of a box or boxes of a generic class of goods of a certain description at a fixed price. This is a characteristic feature of commodity trading. In particular:
The boxes were sold by category and description. By way of example, a document for the October 2002 Sight identifies about 100 different banding categories. WN’s application for allocation to Pluczenik for that Sight was for stones in 34 bands, in some cases to a certain value and in others without any indication of quantity.
The boxes were intended to contain, and overwhelmingly did contain, a standardised selection of stones of the given categorisation. They were not strictly speaking homogenous because the categories might be of a weight range rather than exact weight of stone. However within most banding categories the boxes were standardised and the contents were the same as all other boxes in that category, subject to any sorting errors. M. Mellier explained the sorting process. It was designed to create consistent boxes irrespective of the source mine or mining history. Although in one sense all rough diamonds are unique, as are most agricultural products, the content of the boxes in a given category were interchangeable with any other in that category. It is true that there was an opportunity to inspect and reject any particular box; and in some cases the Sightholder might reject stones as non-conforming to the description. However as M. Mellier testified, this was exceptional and did not happen very often. The majority of the purchasing activity by a Sightholder at the Sights was of a box or boxes of a generic class of goods of a certain description.
For the most part the boxes were sold at a fixed price which applied to the category. The prices for boxes of special stones were separately negotiated, as was the price for all stones sold individually, but for the standard categorisations the price was generally fixed. Although a Sightholder could try to negotiate the price for any box, variations from the fixed price were exceptions rather than the rule. As M. Mellier described it, these were regarded as the spot prices for that category, Sight by Sight.
As Adam Nagel summarised the position: “De Beers sell the majority of diamonds in boxes at a fixed price, grouping similar diamonds together.”
At least in the later years, the boxes could be and were traded on by Sightholders to third parties unopened and sight unseen, including by sales on the internet, as M. Mellier testified. There was also some documentary support for Chaim Pluczenik’s evidence that there was, again at least recently, a website providing an online platform for members to trade rough diamonds and obtain information on rough diamond trading in real time; and that a company called Rappaport had for some time been providing a weekly list of rough diamond prices by category, including the current price of various DTC boxes. I have not overlooked the fact that M Mellier could only speak to the position during the final two years of the agency; and that Chaim Pluczenik’s evidence was also that at some unspecified point prior to the SOC change De Beers insisted that its rough diamonds were only used in manufacturing by Sightholders or their associates, and De Beers used to make checks that that was so. This was not supported by any documents, but since it was contrary to Chaim Pluczenik’s interests it might bear some weight despite my misgivings about his reliability. Nevertheless, if and insofar as there was a change in practice, it is that which obtained for the later years which is relevant, because that was the market to which WN’s retainer was addressed at the time of termination and it would have been regarded as having those features for the foreseeable future. EU competition law would not have permitted a restriction on resale, even if it had existed prior to 2000. Trading on of boxes unopened and sight unseen was a feature of the market since the SOC change in 2003.
The proportion of the world’s rough diamonds sold at the Sights varied over time, but it was always a very substantial proportion. Anyone seeking to identify the rough diamond market would have said that De Beers sales were an important part of that market and that purchases at the Sights were purchases on that market. These were sales on the rough diamond market, and if, as I find, it is appropriate to treat sales of rough diamonds in this way as sales of commodities, they are properly to be categorised as sales on the rough diamond commodity market. Moreover the Sights had the hallmarks of an organised market or exchange. They were regular organised events in which a regulated and restricted class of persons was able to buy a share of the commodities in question. The process had its own rules and regulations, set by De Beers, including the SOC and CPQ system after 2003.
Mr Segal advanced various arguments why the Sights were not sales on the commodity market or a commodity exchange:
He submitted that commodities were only properly categorised as such if they were the subject of futures and options trading, and had transparent and publicly quoted prices. That would not be the understanding of commercial men. Although there are options and futures for a number of grades of oil or grain products, there is by no means an options and futures market for all specifications, nor are there publicly quoted prices for all such specifications; yet the sale of such other specifications would be regarded as a commodity sale. The DTI Guidance quoted above recognises that not all commodity exchanges deal in futures.
He submitted that De Beers did not operate a trading environment in which Sightholders could trade their diamonds. This is true, but does not prevent the sales by De Beers being on the rough diamond market or the Sights being treated as a rough diamond exchange. An exchange in its historical and commercial sense is simply a place for sales to take place. Each Sight is an event at a particular time and place which comprises an organised opportunity for the buying of a large proportion of the world’s rough diamonds by regulated participants from De Beers. The fact that there is only one seller does not deprive it of this character, but is merely the result of such single seller having control of the supply of such a large proportion of the goods in question.
He submitted that any commodity market is open to all and at transparent prices. This is not so. Membership of established exchanges is usually a prerequisite to participation. A seller of commodities may choose to make them available to a limited range of buyers. The price may not be publicly quoted.
So far I have been addressing the sales of the boxes at the Sights. The position in respect of the sale of special and exceptional stones is different. They were generally single specific stones or groups of stones also in boxes, inspected by the Sightholder and negotiated over as individual items or a specific unique collection. I entertain considerable doubt whether taken alone such sales would be regarded as sales of goods as a commodity. That is not, however, the pertinent question. The question is whether the purchases of such special and exceptional stones at the Sights were on the commodity market or a commodity exchange. The principal business at the Sights was the sale of the boxes and in plan goods, as evidenced by the quantities involved and the SOC and CPQ system for allocation. The fact that an ancillary part of the process involved specific heterogeneous stones does not prevent them being purchased on what is the commodity market for rough diamonds; nor does it prevent them being bought on a commodity exchange, if that is an apt description of the Sights in relation to its predominant business of selling the boxes.
It is not legitimate in such circumstances to treat WN’s DTC brokerage as in part governed by the Regulations and in part not. One cannot approach the issue, at least on the facts of this case, by treating the retainer as if it were two separate agencies, one governed by the Regulations and one not. WN was engaged to promote and maintain Pluczenik’s goodwill with De Beers at the Sights whose effect would be indivisible between sales of boxes and sales of specials and exceptionals. One cannot treat that as involving separate retainers dependent on the different stones bought at the Sights.
The rubric of Regulation 2(2)(b) includes the words “when they operate”, which in the French text is “dans la mesure où”. This might suggest a pro tanto approach to the applicability of the Regulations, such that a split could be based on the extent of qualifying activity in fact performed. However such an approach would be wrong for two reasons. First, the applicability of the Regulations depends upon the nature and scope of the agent’s authority, not the particular way in which the authority is exercised. It would therefore be illegitimate to seek to allocate some proportion of the agency to the qualifying and non-qualifying functions for the purposes, for example, of calculating compensation or indemnity under Regulation 17, by reference to the proportion of qualifying activity undertaken. Nor could such a proportion be estimated with any degree of accuracy at the time of the creation of the retainer.
Secondly, Regulation 2(3) excludes from the category of commercial agents those whose activities would otherwise qualify but are only secondary activities, and guidance is given in the Schedule as to when activities may be regarded as secondary. Although expressed in terms of activities, this is not a pro tanto consideration of which activities are caught by the Regulations, but a criterion for determining whether the Regulations apply at all to any part of the agency. If the activity the agent is engaged to perform which would fall within the Regulations is only secondary to a main activity which falls outside the Regulations, the agent is not to be regarded as a commercial agent in respect of the secondary activity.
This is an additional reason why the Regulations do not apply, irrespective of whether a retainer to purchase only special or exceptional stones would be regarded as on the commodity market or a commodity exchange. The bulk of the purchases at the Sights in relation to which WN was engaged were the boxes, such that the retainer in relation to specials or exceptionals can properly be characterised as for secondary activities.
Accordingly the Regulations are not applicable to WN’s agency and the claim under the Regulations fails.
Issue 3(a): The commission variation agreement.
WN’s evidence was that at some time in the early 1990s, he believed in about 1994, he agreed to reduce the commission from 1% to 0.5%, at Isaac Pluczenik’s instigation, in return for a commitment that WN would remain Pluczenik’s broker for as long as Pluczenik held a Sight with De Beers and that the commission rate would not be reduced further in the future. He said that this agreement was reached between the two of them at the InterContinental Hotel in London; and that Chaim Pluczenik was not present, although he may have joined them later after the deal had been done.
Chaim Pluczenik’s evidence was that it was he, not his father who had negotiated the reduction in commission and that it had not involved any commitments on Pluczenik’s side. This had occurred, he said at a dinner at his father’s house.
I have little hesitation in rejecting Chaim Pluczenik’s evidence, which had internal inconsistencies and was of a piece with his generally unreliable testimony. As Willie Nagel convincingly said, it would not have been in keeping with the long relationship for Isaac to have asked Chaim to deal with a matter of such importance as this. I accept Willie Nagel’s evidence that there was a commitment given to him by Isaac Pluczenik in return for the reduction. It is necessary to examine more closely what that commitment was and its legal significance and effect.
Marcus Schwalb’s evidence was that he was told of Willie Nagel’s agreement with Isaac Pluczenik within weeks of it happening. In his witness statement as amended, which formed his evidence in chief, he said that Pluczenik’s letter of 7 July 2013 indicating an intention to terminate the agency was given to him by Chaim Pluczenik in Antwerp; and that when he opened it, he had a conversation with Chaim Pluczenik, in which he (Marcus Schwalb) said that Chaim’s father had agreed with Willie Nagel that Pluczenik would not appoint another broker; and that Chaim had answered that he had done nothing wrong because Pluczenik would no longer be using a broker. The statement went on to say that he had understood from Willie Nagel that the agreement had been that Pluczenik would retain WN as its broker for so long as it had a Sight. The distinction between retaining WN as a broker and not appointing another broker would not have been one which occurred to anyone when the agreement was reached in 1994, because at that time it was compulsory to have a broker. The distinction is, however, critical to the issue I have to decide. If all that was agreed was that Pluczenik would not appoint another broker, there was no impediment to termination without appointing a replacement (subject to reasonable notice) and Pluczenik was not in breach; if, on the other hand the agreement was to retain WN as broker for so long as Pluczenik had a Sight, the termination was prima facie a breach sounding in damages.
I have concluded that on the balance of probabilities the agreement was one to retain WN as the broker, not merely an agreement not to appoint a different broker. It is inherently more likely that the sense of the agreement would have been that WN would retain the brokerage for so long as Pluczenik retained the Sight. The agreement was the quid pro quo for WN reducing its commission, and therefore the emphasis would have been on what WN was to continue to receive, which depended on it remaining the broker. Willie Nagel’s evidence was that the agreement was that WN would be retained for as long as Pluczenik had a Sight. Willie Nagel was not cross-examined on the basis that the agreement was one not to appoint a different broker; the case put to him was that the agreement had been reached in the manner suggested by Chaim Pluczenik and involved no commitment of any kind. It was clear that his recollection was as to the thrust of the agreement and he did not purport to recall the particular language used. Given the passage of time and the fact that neither he nor Isaac would have identified the distinction here in issue, which did not exist at the time, it may be that he could not have convincingly testified that the agreement was in one form rather than the other. He was not, however, afforded the opportunity to do so. Marcus Schwalb was cross examined on the distinction, and his evidence when questioned closely on what he had been told over the years by Willie Nagel supported the latter’s formulation. He maintained that although in the conversation on 7 July 2013 he had only referred to Pluczenik not appointing another broker, he had always understood the agreement to be that Pluczenik would retain WN as its broker for so long as it had a Sight, and that in a subsequent conversation he had expressed it in that way to Chaim Pluczenik. Marcus Schwalb was a careful and impressive witness. Moreover there was no evidence from Pluczenik that there was an agreement for a continued retainer but that it only applied so long as Pluczenik had a broker. It was not the case pleaded nor that advanced by Chaim Pluczenik in evidence.
It follows that the commission variation agreement became a term of the agency and that whereas before such agreement the agency would have been terminable upon reasonable notice, from then on it had a defined duration, namely so long as Pluczenik retained a Sight with De Beers. On the facts of this case I do not need to consider whether there were circumstances which might have arisen whilst Pluczenik still held a Sight which the parties would implicitly have agreed would allow termination of the agency. Mr Anderson did not argue for any such implied terms; although he raised questions in cross-examination of Willie Nagel as to whether the agreement could have been intended to last beyond Willie Nagel’s involvement in the firm, or if the firm were sold, they were directed to the likelihood of such an agreement having been made at all, not to any implied terms, which were not contended for.
Accordingly termination in August 2013 was a breach of the terms of the commission variation agreement.
Damages
In his written final submissions, Mr Anderson submitted that in this eventuality, WN should be awarded no damages because it had not particularised or proved any loss. There was no evidence before the Court, he submitted, as to the likely period for which Pluczenik would retain its Sight with De Beers, and such evidence would have to have addressed De Beers’ ability to continue to sell rough diamonds in Botswana; the extent to which Pluczenik would seek to source its diamonds from other major suppliers such as Alrosa and Dominion; and the amount of purchases made from the local Botswana and Namibia Sights which are not subject to commission; and it would need to be discounted for future cash flow. In his oral final speech, Mr Segal submitted that, subject to one point, the quantum of damages was the same as that calculated for the purposes of the Regulation 17 claim. The only point of difference identified by Mr Segal was that for the common law claim the calculation would have to be based on pre-tax earnings because the judgment sum would be taxed. Mr Anderson did not address the quantification issue at all in his oral final speech.
The quantification exercise for a Regulation 17 claim is not the same as it is for damages at common law for termination of an agency on the terms of the commission variation agreement. For a Regulation 17 claim, which was what was addressed by the factual and expert evidence, it was common ground that the calculation of compensation to be made in accordance with the guidance of the House of Lords in Lonsdale v Howard & Hallam Ltd [2007] 1 WLR 2055 required the court to value the Pluczenik brokerage at the date of termination, which involves valuing the net future income stream from commissions at the date of termination, and applying a suitable multiplier, by reference to what a purchaser would have been prepared to pay for it. At paragraphs [12]-[13] Lord Hoffmann identified certain assumptions which fell to be made:
“12. Like any other exercise in valuation, this requires one to say what could reasonably have been obtained, at the date of termination, for the rights which the agent had been enjoying. For this purpose it is obviously necessary to assume that the agency would have continued and the hypothetical purchaser would have been able properly to perform the agency contract. He must be assumed to have been able to take over the agency and (if I may be allowed the metaphor) stand in the shoes of the agent, even if, as a matter of contract, the agency was not assignable or there were in practice no dealings in such agencies: compare Inland Revenue Comrs v Crossman[1937] AC 26. What has to be valued is the income stream which the agency would have generated.
13 On the other hand, as at present advised, I see no reason to make any other assumptions contrary to what was the position in the real world at the date of termination. As one is placing a present value upon future income, one must discount future earnings by an appropriate rate of interest. If the agency was by its terms or in fact unassignable, it must he assumed, as I have said, that the hypothetical purchaser would have been entitled to take it over. But there is no basis for assuming that he would then have obtained an assignable asset: compare the Crossman case. Likewise, if the market for the products in which the agent dealt was rising or declining, this would have affected what a hypothetical purchaser would have been willing to give. He would have paid fewer years’ purchase for a declining agency than for one in an expanding market. If the agent would have had to incur expense or do work in earning his commission, it cannot be assumed that the hypothetical purchaser would have earned it gross or without having to do anything.”
By contrast, quantification of a common law claim is not concerned with a notional sale. Damages for breach of contract are intended to put the innocent party in the same financial position as if the contract had been performed. This is the compensatory principle which "has been enunciated and applied times without number and is not in doubt" per Lord Bingham in Golden Strait Corpn v Nippon Kubisha Kaisha (The Golden Victory)[2007] 2 AC 353 at [9] (see also per Lord Scott at [29]). Therefore the quantification of loss is concerned amongst other things with costs saved by WN as a result of the cessation of the Pluczenik agency, not costs which would be incurred by a notional purchaser.
Moreover although damages for breach of contract will normally be assessed by reference to the position at the date of breach, a later date may be used for the assessment if in all the circumstances of the case to do so would more accurately reflect the overriding compensatory principle: The Golden Victory at [12]-[13]. A later date of assessment may be justified by what is sometimes called the “the Bwllfa principle”: Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co[1903] AC 426, which is that where the court making an assessment of damages has knowledge of what actually happened it need not speculate about what might have happened but should base itself on the known facts. In this case Mr Anderson has not invoked the principle and the Court has not been given evidence of the actual purchases by Pluczenik from Sights in Gabarone since November 2013. This may be because taking the date of breach would work to Pluczenik’s advantage: there is evidence that Pluczenik still retains the Sight with De Beers, and had one taken the date of trial as the date of assessment, a multiplier would have taken account of the existing period of almost 4 years as well as a projection of future retention from now on. However that may be, neither side contends for any date of assessment later than the date of breach and I can therefore take the date of breach as the relevant date.
On that footing there is no substance in the points made by Mr Anderson as to a lack of evidence. The risks he identified are all risks which would affect a notional purchaser and were in issue and were addressed by the parties and the experts as part of the dispute over the relevant multiplier to use for quantification of the Regulation 17 claim.
Accordingly the damages for breach of the commission variation agreement are to be calculated in the manner identified below in respect of the Regulation 17 claim, save for the instances I identify where the applicable principles differ, and save for the taxation point on which I will hear further submissions if necessary.
Issue 3(b): reasonable notice
This issue does not arise because of my conclusion on the commission variation agreement, but I will address it. Generally speaking an agent is entitled to reasonable notice of termination of a bilateral agency agreement under which it is expected to incur expense in promotion of the goodwill of the principal’s business: see for example: Martin-Baker Aircraft Co Ltd v Murison[1955] 2 QB 556; Decro-Wall v Practitioners in Marketing Ltd [1971] 1 WLR 361; Alpha Lettings Ltd v Neptune Research & Development Inc[2003] EWCA Civ 704. What amounts to reasonable notice must be determined at the date of termination and depends upon a number of factors which are fact specific to each case. The following factors fall for consideration in this case:
custom and practice in this market;
the formality of the relationship;
the length of the relationship;
the SOC contract structure and WN’s work on the CPQ;
WN’s ability to make adjustments for loss of the agency;
the Regulations.
the nature of WN’s obligation;
Custom and practice in this market
The industry experts agreed that as a matter of industry practice the broker relationship may be terminated with immediate effect between Sights. They were unaware of compensation ever being paid on termination of a DTC brokerage, save that one of Mr Aggett’s Sightholder clients had volunteered payment of 6 months commission. Their agreed evidence did not go so far as to support an argument that this amounted to a custom of the kind to be implied into a contract, which the law requires to be invariable, certain and notorious. The terms of the relationships between Sightholders and brokers varied, and neither expert had visibility of the full extent or variety of those terms and relationships. Their views are not conclusive as to a reasonable period of notice, but are clearly of weight in suggesting no notice or a very short period would be regarded as reasonable subject to particular factors which might be regarded as unusual.
The formality of the relationship
An important consideration in determining what notice period is reasonable will be the degree of formality in the relationship. The more informal the relationship, the less likely it is that the law will imply a lengthy notice period: see Alpha Lettings at [31]. Here the relationship was not recorded in a written document and it lacked formality. This was a deliberate decision on both sides. The standard terms and conditions were only sent to Pluczenik, according to Willie Nagel, because he was advised to send them to all his customers in the light of the SOC changes; he said that he did not intend Pluczenik to sign up to them; in declining to do so Pluczenik expressly relied on the informality of their existing arrangements and WN was happy with this approach.
The length of the relationship
The position of an agent is not analogous to that of an employee, with longer serving employees commanding longer periods of notice: see Alpha Lettings at [32]. The contribution by Willie Nagel and WN to the success of Pluczenik was of greater significance in the earlier years of the relationship. By 2013, WN’s contribution to Pluczenik’s ability to secure the diamonds it wanted at Sights was relatively minimal. Pluczenik did not really need a broker any longer and had not done so for a number of years. Nevertheless the efforts of Willie Nagel and WN had contributed historically to Pluczenik gaining and retaining the Sight and to its favour with De Beers, and accordingly some period of notice would properly reflect the small residual effect of that contribution.
The SOC contract structure and WN’s work on the CPQ
This requires a nuanced approach tailored to the date of termination. The efforts of WN which might be said to have had the greatest causative potency towards Pluczenik’s success with De Beers in 2013 came in its assistance (and that of the consultants it engaged) in the CPQ and contract award process prior to March 2012. That contract lasted until March 2015. Had termination occurred shortly after contract award, a longer period of notice would be justified than at the end of the contract period. In this case termination came some 18 months into the three year contract period. Given that WN’s remuneration was to reflect its continuing day to day promotion efforts, in addition to the one off CPQ and contract award assistance, and given that the causative potency of the latter was of far less significance in relation to Pluczenik’s success by comparison with Pluczenik’s own status and efforts, I do not regard a reasonable period of notice as being any longer than it would otherwise be on account of WN’s work on the CPQ and contract award process.
The nature of WN’s obligation
WN’s obligation during the period of notice would remain a duty of loyalty to promote Pluczenik’s interests and goodwill. This militates in favour of a shorter period rather than a longer one: see Alpha Lettings at [33].
WN’s ability to make adjustments for loss of the agency
Pluczenik was a major customer for WN, being the largest and most important of its four Sightholders by some margin. Nevertheless WN’s position as a family company with few staff and relatively few other customers would have enabled it to adapt and bring the Pluczenik brokerage business to an orderly conclusion by the time of the move of the Sight to Gabarone, which was a major shift and would have required logistic adjustments for WN in any event.
The Regulations
Although the Regulations do not apply on the facts of this case, it is relevant that Regulation 15(2) requires a minimum of three months' notice to terminate an agency contract that has lasted for three or more years.
Conclusion on reasonable notice
Weighing all these considerations, I conclude that a reasonable period of notice if there had been no commission variation agreement would have been three months, or if longer, two more Sights.
Issue 4: the Regulation 8 and Regulation 17 claims
In the light of my conclusion that the Regulations do not apply these issues do not strictly speaking arise. However the Regulation 17 issues are relevant to the quantification of WN’s common law claim for termination of an agency which included the commission variation agreement. The Regulation 8 claim issues do not arise, but I will state my conclusions briefly in case I be wrong on the application of the Regulations.
Issue 4(a): the Regulation 8 claim
Under Regulation 8 a commercial agent is entitled to commission earned on transactions concluded after the termination of the agency if the transaction is mainly attributable to his efforts during the agency and the transaction is entered into within a reasonable period of termination. WN argued that a reasonable period comprised the remainder of the period of the fixed term contract Pluczenik had with De Beers, which expired in March 2015, and that all purchases by Pluczenik at the London and Gabarone Sights were mainly attributable to WN’s assistance in the contract and CPQ process which had led to it.
I am unable to accept this argument. Whilst the efforts of WN in relation to preparation of the CPQ and contract documentation were of some assistance to Pluczenik in securing the contract, as to a small degree were WN’s efforts over the years to promote Pluczenik’s goodwill, it cannot be said that the sales after termination were mainly attributable to WN’s efforts in either respect. In terms of causative potency, Pluczenik’s own status and reputation, its financial, manufacturing and marketing strengths, its own self-promotion initiatives, its purchasing record and its own contribution to the CPQ and contract award process were of far greater weight in Pluczenik securing the contract on those terms and in purchasing diamonds at Sights pursuant to it. WN’s efforts, both in the CPQ and contract award process and in its earlier representation of Pluczenik, were not the effective cause of those purchases.
Issue 4(b): the Regulation 17 claim
Future income stream
WN’s expert, Mr Paley, treated the level of maintainable future commission as US$1.2m per annum. Pluczenik’s expert, Mr Pearson, treated it as being US$1.1m. Mr Paley’s figure of US$1.2m was originally based on an error. He originally included the commission for 11 Sights in his annual figure rather than 10 Sights. He recognised the error in the Joint Memorandum and produced a revised figure of US$1,161,636. However instead of then adopting that corrected figure, he sought to support his original US$1.2m figure on the basis that there was an “upward trend in the 10 Sights to July 2013”. This “upward trend” was not a matter relied upon in his original report to uplift his original (erroneous) annual income figure, so as to enhance the then figure of US$1.2m upwards. Mr Pearson’s approach of taking the average monthly commission from Sights over the 3 year period pre-termination is to be preferred. It is apparent from the graph produced by Mr Paley that there were significant fluctuations in commission income over that period.
Mr Paley adopted the US Dollar/Sterling exchange rate as at 27 August 2013. However by parity of reasoning, Mr Pearson’s approach of taking the average exchange rate over the 3 year period is to be preferred.
Mr Pearson’s figure cannot simply be adopted, however, because the figures would need to be recalculated to take account of the commissions which would have been paid in August 2011, November 2012 and August 2013.
Costs of the agency
The costs of running the DTC brokerage as a whole and of the Pluczenik agency in particular were complicated by the fact that WN conducted other family business, and that there were no time keeping records to assist in allocating staff time and costs between the two areas of business, nor as to the share spent on Pluczenik’s business.
The Claimant’s evidence as to the allocation of costs as those attributable to running the Pluczenik brokerage was not very satisfactory. It was dealt with at length in Adam Nagel’s evidence, but under cross-examination it emerged that he was not speaking in many respects from personal knowledge but was dependant on estimates and calculations by his sister Toni. Mr Anderson did not subsequently cross-examine Toni Nagel again on most of these areas. This was a reasonable approach in the light of the fact that she had not given the evidence and that he had a limit on cross-examination time determined by an equitable division of the time available. Mr Segal invited me to draw an inference that if matters which Adam Nagel identified that his sister would be better able to assist with were not taken up again with her in cross-examination, Pluczenik had no grounds to challenge them. However that is to put matters the wrong way round and would be an impermissible inference for the Court to draw. The Claimant bears the burden of proof, and in seeking to discharge that burden, it chose for the most part to rely solely on the evidence given by Adam Nagel in relation to this aspect of the claim. I rejected an attempt by the Claimant to introduce substantial further evidence from Toni Nagel on this issue as being too late. The Claimant cannot complain if the witness from whom it chose to lead the evidence was shown to be unable to speak to it. It cannot complain if no better evidence is before the Court.
Infrastructure costs
Mr Paley’s approach to determining the infrastructure costs of running the Pluczenik brokerage was as follows. First, he took the percentage of WN’s costs which WN claimed should be allocated to the brokerage side of its business. In this respect he relied on a figure emanating from Adam Nagel of £127,495 out of total infrastructure costs of £265,931 (48% of the total). Secondly, he added a cost for legal, professional and accountancy fees of £7,500 p.a. Thirdly he deducted 10% of the brokerage costs on the grounds that they were attributable to WN’s non-Sightholder clients. Fourth he added a cost for travel to Sights in Botswana (£30,000 p.a.). Fifth he split the resultant figure (£151,495) equally between the four clients represented by WN in 2013. Sixthly he added a CPQ consultancy fee of £1,750. This produced total projected overhead costs for running the Pluczenik brokerage of £39,624.
In my judgement this calculation falls to be adjusted in the following way:
The proportion of partnership costs attributable to the DTC brokerage for all Sightholders and potential Sightholders should be increased to 60% of the infrastructure costs, the Claimant having failed to satisfy me on the balance of possibilities that a lesser sum is justified.
The deduction of 10% for non Sightholder activity is unjustified. The notional purchaser of an agency with Pluczenik as a sole client would still be expected to act on behalf of potential Sightholders and incur the costs of doing so (as would WN itself for the purposes of quantification of the common law termination claim). Those costs were always defrayed by the commission income from those with Sights; potential Sightholders were not charged for the service. This approach is consistent with Lord Hoffmann’s guidance that the hypothetical purchaser is to stand in the shoes of the agent, and the common law compensatory principle.
There should be an uplift from 25% to 40% in allocating the cost between WN’s four Sightholder clients because Pluczenik was by far the largest, representing about 60% of WN’s Sightholder commission between 2011 and 2013; and although there can be no linear apportionment, the evidence of Adam Nagel and Marcus Schwalb suggested that Pluczenik commanded a greater share of the time and expenses of the DTC brokerage, as one would expect of the largest and most prestigious client.
The £7,500 figure for consultancy costs does not need to be increased for the purposes of the common law claim, although it would for the Regulation 17 claim. It is based on the fact that a more streamlined CPQ application process was introduced for the 2015-2018 contract period. Since that was a cost which was reduced for WN, the common law claim takes the actual cost incurred. However for the Regulation 17 claim, one is not allowed the benefit of hindsight because the calculation takes a hypothetical purchaser at the date of termination. I find on the evidence that that change would not have been foreseen by a potential purchaser in August 2013, it being announced on 18 March 2014, and Mr Pearson’s figure of £20,000 based on consultancy fees in the last contract process would apply to a Regulation 17 claim.
Salary costs
WN’s case, adopted by Mr Paley in his calculations, was that salary costs attributable to time spent on the Pluczenik brokerage were £103,667 per annum based on a proportion of time attributed to each relevant employee (20% of Toni Nagel’s, 25% of Tamsin Hartin’s, 35% of Marcus Schwalb’s and none of Willie or Adam Nagel’s). This was then reduced by approximately 50% on the grounds that a potential purchaser could have run the Pluczenik agency alone with only two employees working part time and a local representative in Botswana, resulting in hypothetical labour costs of a little over £52,000. This notional rearrangement of affairs by a hypothetical purchaser was to my mind unrealistic, and is irrelevant to the common law claim which is concerned with what WN actually did having lost the Pluczenik agency, absent any arguments on failure to mitigate which were not advanced. Mr Segal did not argue that the common law claim was different from the Regulation 17 claim and so did not advance a case that there was no saving or a lesser saving than the proportion of time being spent by the various members of staff. There were a number of sub issues under this heading, but it would give a spurious degree of accuracy to seek to apply a particular value to each of them. A broad brush approach is required. The appropriate figure is £130,000.
Overseas office costs
Mr Pearson added £42,000 as Pluczenik’s share (one third) of the costs of an office in Antwerp, Mumbai and Botswana which it is said would have been necessary for the hypothetical purchasing entity. For the purposes of the common law claim they are not costs which have been saved and do not fall to be deducted. For the purposes of a Regulation 17 claim I am not satisfied that the purchasing agency would have incurred such costs and would not have included them.
Multiplier
Mr Paley proposed a multiplier of 6.6 to the net earnings after tax. Mr Pearson applied a multiplier of no more than 1 to the EBITDA earnings, i.e. pre-tax earnings. Neither had any material on remotely comparable agencies to work on. Each therefore took as a starting point a simple average of the four figures for the mean and median price/earnings valuations of small companies for November 2012 and November 2014 according to the UK200 Group in its Small and Medium Enterprises Valuation Index. This gave Mr Paley’s 6.6 figure. He did not consider that it required upward or downward adjustment for the particular circumstances of the Pluczenik agency. Mr Pearson considered that the particular features justified a very considerable reduction.
Many of Mr Pearson’s grounds for reducing the multiplier were unsound or did not justify such a large reduction. In particular:
One of the major risk factors which Mr Pearson relied upon was that the agency being considered was a single client agency. That will often be an important factor for a purchaser because of the risk of termination by that client. However in this case termination by Pluczenik is not a relevant factor: the common law claim looks at the position had Pluczenik fulfilled its contractual bargain by retaining WN for so long as it held a Sight; the Regulation 17 claim assumes that the agency is not terminated on contractual notice. This caused Mr Pearson to adopt a figure which was unrealistically low.
He discounted for the risk that the multiplicand had been overstated; and for the risk that the volume of diamonds purchased might reduce. In circumstances where there was nothing in the trends or foreseen external events which would make it any more likely that the value of total purchases would fall rather than rise in the foreseeable future, this is not a sound reason for discounting the multiplier. Moreover it could not justify a reduction of the common law claim for damages, however conservative a purchaser might be in practice on this score. If the value of purchases, and therefore commissions, might just as well rise as fall, the multiplier should not be adjusted either way when applied to the pre-termination average sales.
He discounted for the risk of a negotiated reduction in the rate of commission to 0.25% or less. This is not a relevant consideration for the quantification of the common law damages claim which assumes continued engagement at the agreed 0.5%. Nor is it on the facts of this case relevant to the Regulation 17 claim which posits the agency continuing on the terms existing at the date of termination.
Mr Pearson’s figure was obviously too low given that at the date of termination Pluczenik was a Supplier of Choice under a contract which had some 18 months to run.
Mr Paley’s multiplier, on the other hand, was too high because it failed to apply any sufficient discount for the following risks, viewed at the date of termination:
the risk that Pluczenik would lose its Sight with De Beers; and
the risk of Pluczenik sourcing diamonds from elsewhere in the light of its obligation to pay commission to WN in respect of continued purchases from De Beers.
In my judgement the appropriate multiplier to be applied to the net annual earnings after tax is 5.
I should record that Mr Paley referred to multipliers used in other cases, in particular Berry v Laytons[2009] EWHC 1591 (QB): pre-tax multiplier of 4, equivalent to post-tax multiplier of c. 5.5; Invicta v International Brands Ltd [2013] EWHC 1564 (QB): post-tax multiplier of 4.5; Alan Ramsay Sales & marketing Ltd v Typhoo Tea Ltd[2016] EWHC 486 (Comm): post-tax multiplier of 4; Monk & Collins v Largo Foods Ltd[2016] EWHC 1837 (Comm): post-tax multiplier of 4. He was right, however, to treat these as of no real assistance because they concern different agencies and each case is highly fact specific.
Issue 5(a): the expenses claim
The only issue in relation to this claim is whether the agreement to reimburse the expenses was that of the Defendant company or that of individual members of the Pluczenik family for whom the expenses were incurred. I find that the liability is that of the Defendant company. The loan account was used to pay for both private and business expenses of the Pluczenik family, often but not always incurred in relation to visits to London which were related to business activity. The account was in the past discharged, at least in part or on occasion, by the Defendant company, and it was the company, rather than the family members individually, with which WN had the relationship giving rise to the operation of the loan account.
Issue 5(b): the Belgian proceedings issues
The Belgian proceedings were commenced for tactical reasons in an attempt by Pluczenik to found jurisdiction in Belgium and to dissuade WN from bringing its claim in these proceedings, which had been foreshadowed in a letter before action. The two allegations of breach by WN on which those proceedings were founded were described in Chaim Pluczenik’s witness statement. It was common ground that the claim by WN for a declaration of non-liability was properly a matter for this Court to decide, although Mr Anderson submitted that WN’s argument that even if there were breaches they had not resulted in loss could not be addressed because loss was a matter for the Belgian Court.
The first allegation was that WN failed to file the CPQ by the deadline of midnight on 7 March 2005; that this was a non-negotiable deadline and put Pluczenik’s Sight in jeopardy; and that Pluczenik only managed to salvage the situation and retain the Sight following a meeting with the senior management of DTC. Toni Nagel’s evidence, which is supported by contemporaneous emails and which I accept, was that the 7 March 2005 was not the final deadline for submission of the CPQ. That was some days earlier, and that earlier deadline had been met by submission of a hard copy of the CPQ. However it had to be uploaded to the relevant online platform and then released as a data transfer to the DTC, which was due to occur on 7 March 2005 at about 1730. At 1336 on that day Toni Nagel requested an extension of time on the basis that a computer glitch at the DTC end had caused a three hour delay, and that the checking process might therefore not be completed by 5 p.m. She was told by the DTC in an email of 1411 not to worry about the deadline because although the data transfer would go ahead, the data would not be treated as final by the DTC until the middle of April and WN would be able to go online from the following week to check it and could amend the data via the account manager. There was no question it being a final deadline or of non-submission of data risking the loss of the Sight. Toni Nagel was specifically told that it was not a deadline which needed to be met, and there were no adverse consequences of the checking not being complete by that time. I have little hesitation in rejecting Chaim Pluczenik’s suggestion that he had to rescue the situation, which is not supported by the documents and is at odds with his acceptance in cross-examination that he didn’t know anything about it until about 2012, many years later. This was not an allegation which was made by Pluczenik to WN at any time prior to commencement of the Belgian proceedings. The incident was exaggerated and mischaracterised in order to provide some basis for a claim in Belgium. There was no breach of contract or duty by WN.
During the course of the hearing the allegation changed to one that WN filed the wrong CPQ, in that it mistakenly filed the CPQ of another client, Smolensk Diamonds NV, in place of that for Pluczenik, thereby filing Smolensk’s CPQ twice and failing to file Pluczenik’s at all. This allegation is not made out. There was no evidence to support the allegation and I accept the evidence of Toni Nagel that it would have been virtually impossible as a matter of the practical use of the online platform for this to have happened online and it did not happen.
The second allegation in the Belgian proceedings is that in a conversation in 2011 with Mahiar Borhanjoo and Varda Shine, senior executives of De Beers, Toni Nagel made negative remarks about Pluczenik’s selection as a Sightholder and spoke in favour of its other client, Smolensk, comparing Pluczenik’s CPQ unfavourably to that of Smolensk.
This allegation is equally unfounded. Toni Nagel’s evidence, which is again supported by contemporaneous notes and which I accept, is that the occasion was one on which she and others at WN were giving their views to Mr Borhanjoo at an ad hoc meeting (Varda Shine was not present). They were addressing the feedback reports which De Beers promulgated on the CPQ results, which were promulgated as explaining and making transparent the CPQ and SOC process. Toni Nagel was explaining that in a number of respects the feedback was confusing and misleading, especially in some of the pictorial representations in the charts. In doing so, Toni Nagel gave as an illustrative example that the feedback reports did not explain why Pluczenik had done better than Smolensk in some respects, and vice versa, in a way which did not accord with their CPQs. This was a small part, by way of example, of a more general point she was making about the unhelpful format of the feedback reports. This was not a breach of the duty of loyalty nor a breach of confidence in respect of either client. It did not involve promoting another customer’s interests at Pluczenik’s expense. It was an attempt to promote both their respective interests by questioning the CPQ system and feedback, and seeking to understand it and improve it.
Quite apart from the fact that WN was not in breach of contract or duty in either of the respects alleged, it is in any event clear on the evidence before me that neither incident caused Pluczenik any loss. Moreover any claim in respect of the 2005 incident is time barred. WN is entitled to the declaration of non-liability sought in respect of these allegations.
Conclusion
There will be judgment for the Claimant.