2 Q.B. QUEEN'S BENCH DIVISION.

297

" ' t h a t vessel'—treating the word ' v e s s e l ' in this part of the C. A.
" Act as used figuratively for the owners of the vessel." ^52
I, therefore, consider t h a t the decision in The Cairnbahn2i
affords no assistance to the argument of the defendant. B u t „
even if the defendant could bring his liability to the female KIMBEE.
plaintiff within the word " damage " in section 1 (1) of the Act Morris L.J
of 1945 the counterclaim would, in my judgment, for the reasons
which have been given, nevertheless fail. I concur, therefore, in
the conclusion t h a t the appeal fails, as I also do in the conclusion
t h a t the female plaintiff's cross-appeal in regard to the amount
of the damages also fails.
Appeal dismissed.
Cross-appeal dismissed.

Solicitors: Hewitt, Woollacott & Chown; B. 1. Lewis & Co.

C. G. M.
« [19H] P. 25.

T E A N S T E U S T S . P . E . L . v. D A N U B I A N T E A D I N G C. A.
CO. L D . 1952
Mar. 10, 11,
[1951 T. 507] 12, 28.
Somervell,
Sale of Goods — Contract — Confirmed credit — Failure to provide — Denning and
Bepudiation of contract—Loss of profit—Measure of damages—Sale 1
of Goods Act, 1893 (56 & 57 Vict. c. 71), s. 50 (3).

The defendants contracted to buy from the plaintiffs a quantity

of steel which the plaintiffs were to purchase from A, a Belgian
company to whom the manufacturers of the metal had given an
option to buy. Neither the plaintiffs, defendants, nor A, were in
a position to provide the money necessary to obtain delivery of the
steel. I t was a term of the contract that payment by the defendants
should be by cash against shipping documents from a confirmed
credit to be opened at a Brussels bank, in favour of A, by an
American corporation to whom the defendants had in turn contracted
to sell the steel. The defendants failed to procure the opening of the
credit and eventually repudiated the contract. The plaintiffs
thereupon claimed from the defendants, as damages for breach of
contract, the profit which they would have made if the transaction
had been carried through. They also claimed to be indemnified
by the defendants against any damages which A might subsequently
VOL. II. 1952. 20
298
QUEEN'S BENCH DIVISION. [1952]
C- A. claim and recover against them. It was admitted that the market
jogo price of steel at the time of the repudiation was substantially higher
than the contract price.
TBANS TRUST The trial judge held that the loss of profit claimed was not
S.P.R.L. too remote, although it was consequent upon the plaintiffs'
DANUBIAN impecuniosity, because it might reasonably have been in the con-
TBADINO templation of the parties as likely to flow from the breach of
Co. LD. contract. He also granted the declaration claimed by the plaintiffs
that they should be indemnified against any damages that might
be recovered against them by A. On appeal by the defendants: —
Held, that it must have been in the contemplation of the parties
that in the event of a breach of the contract the loss to the plaintiffs
would be their profit on the transaction. Therefore, although the
loss resulted from their own impecuniosity, the plaintiffs were
entitled to recover it.
Dicta of Lord Wright in Monarch Steamship Co. Ld. V.
Karlshamms Oljefabriker A/B [1949] A.C. 224 followed.
Held, further, that the defendants had no knowledge that A
depended on the credit in order to get the goods themselves and
therefore it could not have been in the contemplation of the parties
that A might have a claim for special damages against the plain­
tiffs ; that even if that head of damage was recoverable it would
not be correct to make a declaration of indemnity, and to that
extent the appeal must succeed.
Decision of McNair J. [1952] 1 K.B. 285 partly affirmed, partly
reversed.

APPEAL from McNair J . 1

I n September, 1950, the plaintiffs, a Belgian company, who
had contracted to buy from another Belgian company, t h e S. A.
Azur, 1,000 tons of steel at a m e a n price of 7,555 Belgian francs
per ton, agreed to sell the steel to the defendants, general
merchants and commission agents trading in London, at a m e a n
price of 8,025 Belgian francs per ton. Neither the plaintiffs, the
defendants, nor S. A. Azur were in a position to provide the
financial resources necessary to obtain delivery of the steel from
the manufacturers, and it was accordingly provided by the
contract between the plaintiffs and the defendants t h a t p a y m e n t
was to be made by the defendants by cash against shipping
documents from a confirmed credit, to be opened by t h e Leland
Corporation, an American company, to whom the defendants had
resold the steel, the credit to be opened at a named Belgian bank
in favour of S. A. Azur. The credit was in fact never opened,
and on October 16 the defendants repudiated the contract. The
plaintiffs thereupon brought the present action, claiming, as
damages for breach of contract, their loss of profit on the
i [1952] 1 K.B. 285.
 2
2 Q.B. QUEEN'S BENCH DIVISION. "

transaction, namely, £3,214 5s. 8d. They also claimed a declara- C. A.

ti.on that they were entitled to be indemnified against any damages ^52
which might be recoverable against them by the S. A. Azur.
TRANS TRUST
It was admitted that at the date of the breach the market s.P.R.L.
price of steel was higher than the contract price of 8,025 Belgian «•
francs per ton, but owing to their impecuniosity the parties were TRADING
Co LD
unable to take advantage of the rising market. - -
McNair J. held that there was a firm agreement between the
representatives of the parties that the defendants should purchase
the steel and procure that the American corporation would make
available forthwith a credit in favour of S. A. Azur; that on the
facts as found by him the loss of profit claimed by the plaintiffs
was not too remote, although consequent upon their own
impecuniosity, because the loss was such as might reasonably
be expected to have been in the contemplation of the parties as
likely to flow from the breach of the obligation undertaken by
the defendants. He also held that the plaintiffs were entitled
to the declaration of indemnity claimed.
The defendants appealed.

Rodger Winn for the defendants. The judge erred in holding

that the defendants undertook to procure a credit. Having
regard to his finding that each of the parties knew that the other
was unable to carry the burden of the financial transaction it is
contrary to probability that the defendants would accept, with a
contracting mind, the obligation to open the credit. As to the
measure of damages, prima facie this is a contract for the sale
of goods, and where at the date of the breach the market price of
the contract goods was higher than the contract price, then on
the repudiation by the buyer the seller can claim only nominal
damages, because the seller can resell the goods at a profit. The
compensation must be as nearly as possible what will put the
injured party in the same position as he would have been in if
there had been no breach. Special damages will only be given for
reasonable expenses which the parties could reasonably have con­
templated. Eegard should not be had to the price at which the
buyer under the contract resold, or to the price at which the
seller bought unless the buyer, being unable to get the goods
from the seller, has to buy in the market. Then the difference
between the contract price and the market price is the measure
of damages. Here the learned judge has given to the plaintiff
sellers damages because, owing to their impecuniosity, they are
unable to take up the goods and sell at a much higher price.
300 QUEEN'S BENCH DIVISION. [1952]
C. A. » The defendants' breach is really a failure to pay money and
igg2 only interest is recoverable: Wallis v. Smith.2 Failure to pay a
sum of money, even with knowledge that it will cause destruction
S.P.B.L. °f another's trade, does not give rise to damages: British
v
- Columbia Saw Mills Ld. v. Nettleship.3
TRADING The loss suffered by the plaintiffs was really due to their own
Co. LD. impecuniosity and therefore is in law too remote: see The Lies-
bosch 4 and Muhammad Issa el Sheikh v. Ali.5
The declaration of indemnity should not have been granted.
That S. A. Azur might have a claim for damages was not and
could not have been contemplated by the parties, and the
imposition on the defendants of a potential liability must fail
for remoteness.
Mocatta Q.C. and T. O. Roche for the plaintiffs. The trial
judge found that there was a binding contract between the
parties, and it is submitted that this court will not depart from
that finding. The plaintiffs are clearly entitled to recover their
loss of profit. It is a question of fact for the tribunal to decide,
whether or not in any particular case the impecuniosity of the
sellers can be said to have been within the reasonable contempla­
tion of the parties. The plaintiffs' case comes within the principle
of Hadley v. Baxendale," as explained by Asquith L.J. in Victoria
Laundry (Windsor) Ld. v. Newman.7 With regard to the
question of indemnity, the plaintiffs rely on Household Machines
Ld. v. Cosmos Exporters Ld.*
Cur. adv. vult.
March 28. The following judgments were read : —

SOMERVELL L.J., having stated the facts and read the material
documents, correspondence and evidence, and found that the
defendants had repudiated their agreement, continued:—With
regard to the measure of damage, the plaintiffs claimed, and the
judge awarded them, a sum equal to the profit which they would
have made if the credit had been opened and the successive sales
had gone through. This was £3,214 5s. 8d. It was not disputed
before us that at the date of the breach the market price of steel
was higher than the contract price. I agree, of course, with
Mr. Winn that prima facie in these circumstances, on a repudia­
tion by the buyer, the seller can claim nominal damages only.

2 (1882) 21 Ch.D. 243. « (1854) 9 Exch. 341.

s (1868) L.R. 3 C.P. 499. ' [1949] 2 K.B. 529.
* [1933] A.C. 449. « [1947] K.B. 217.
» [1947] A.C. 414.
2 Q.B. QUEEN'S BENCH DIVISION. 301

The two rules in Hadley v . Baxendale * were recently considered C. A.

by this court, and their operation analysed by Asquith L . J . in lg52
Victoria Laundry (Windsor) Ld. v. Newman Industries Ld.10
There is also a helpful sentence which I will cite from Lord s PKL
W r i g h t ' s speech in Monarch Steamship Co. Ld. v. Karlshamms »■
Oljefabrilcer A/B11: " T h e s e general s t a t e m e n t s could be TRADING
" multiplied, but t h e question in a case like the present m u s t Co. LD.
always be what reasonable business m e n must be taken to Somervell L.J.
" have contemplated as the natural or probable result if t h e
" contract was b r o k e n . " The judge found, and on this point the
evidence wholly supports his finding, t h a t t h e plaintiffs and
defendants knew t h a t neither of t h e m were in a position to open
t h e necessary credit. Their role was t h a t of intermediaries
making a profit if the defendants had been able to perform their
undertaking to procure t h e opening forthwith by t h e Leland
Corporation of t h e necessary credit. This then was, it is said,
t h e contemplated loss if the defendants failed to carry out their
undertaking.
The judge summarized the issue in this w a y : " I t was estab­
lished t h a t at all material times t h e market value of t h e steel
" in t h e hands of anyone who was in a financial position to obtain
" it from the suppliers, was in excess of t h e contract price as
" between t h e plaintiffs and t h e defendants, but it was also
" established t h a t both t h e plaintiffs and t h e defendants knew
" t h a t neither of t h e m were in a position to put up t h e necessary
Belgian francs to satisfy their purchase obligations, unless the
" American buyers made t h e money available through their
" letter of credit. Accordingly, it would be within the reasonable
contemplation of both of t h e m t h a t failure to p u t up t h e letter
" o f credit would m e a n t h a t t h e deal could not go t h r o u g h . " I n
t h e present case t h e seller would get only nominal damages if
t h e prima facie measure as laid down in section 50 (3) of t h e Sale
of Goods Act was applicable. H e gets more t h a n t h e prima
facie measure. One can imagine cases in which the principle
as applied by t h e judge would give him less. If the market price
had fallen so t h a t t h e prima facie measure gave a larger sum
t h a n t h e loss of profit, t h e seller might find himself restricted to
his loss of profit on t h e deal if t h a t was t h e loss contemplated in
t h e circumstances by t h e parties.
Mr. W i n n submitted t h a t t h e defendants' breach was a failure
to pay money, and t h a t t h e only damage recoverable in such a
9
9 Exch. 341. " [1949] A.C. 196, 224.
i» [1949] 2 K.B. 529, 539.
302
QUEEN'S BENCH DIVISION. [1952]
C A. case is interest: Wallis v. Smith.12 The judge regarded the
1952 principle as inapplicable to a failure to procure the provision of
a letter of credit. There is, I think, a further difficulty. If, on
TRANS TRUST a 8a e
S.P.R.L. ^ °f g°°ds, the buyer fails to open a credit or to provide the
v
- purchase price, and this can be and is accepted as a repudiation
TRADING °f the contract, the principle clearly has no application. The
C(XLD. seller is not entitled merely to interest but to damages to be
Somervell L.J. assessed according to the prima facie measure or having regard to
the special circumstances, if any. This seems to show that the
principle relied on by Mr. Winn is inapplicable in the present
case even if one treats the failure to open the credit as a failure
to pay money.
Mr. Winn further submitted that the loss here was due to the
plaintiffs' impecuniosity, and that such loss is in law too remote.
We were referred to The Liesbosch13 and Muhammad Issa el
Sheikh Ahmad v. Ali.'* The result is stated by Lord Wright in
the former case, namely, that damages due to impecuniosity may
not be too remote if the loss might reasonably be expected to be
in contemplation of the parties. The judge stated his conclusion
as follows: '' Here I have reached the conclusion, on the facts
" of this case, that the loss of profits claimed by the plaintiffs
" is not too remote, although consequent upon the plaintiffs'
" impecuniosity, because the loss was such as might reasonably
'' be expected to be in the contemplation of the parties as likely
" to flow from the breach of the obligation undertaken by the
" defendants." I agree with that conclusion, and have only one
comment to make upon it. The real question is what was the
loss contemplated by the parties rather than the reason for it.
Even if the plaintiffs had been very rich it might still have been
'' contemplated '' that if the defendants did not procure the
obtaining of the credit the plaintiffs could not and would not
themselves have used their resources for the opening of a credit
for this steel.
The judge ordered a declaration that the plaintiffs were entitled
to recover from the defendants such damages as in law may be
due from them to S. A. Azur, and which they may be adjudged
liable to pay. The question whether this damage was too remote
was, I think, argued more fully before us than before the judge.
The defendants undoubtedly knew that S. A. Azur were sellers
to the plaintiffs. The credit was to be opened in their name.
Prior to October 1 and, therefore, at the time of the contract
14
12 21 Ch.D. 243. [1947] A.C. 414.
" [1933] A.G. 449.
'A Q.B. QUEEN'S BENCH DIVISION. 303

between plaintiffs and defendants, t h e m a t t e r as between t h e C. A.

plaintiffs and S. A. Azur appeared to have been conducted orally. 1952
There is no evidence t h a t t h e defendants were aware either of ~ ~
TBANS TRUST
S. A. Azur's " impecuniosity," or their position vis-a-vis t h e S.P.R.L.
manufacturers, except t h a t they had an option. As t h e credit, DANTDBIAN
although transferable, was to be opened in their n a m e , t h e defen- TBADINQ
dants might, if they had considered t h e matter, have assumed J
their relationship with t h e manufacturers was a close one, and Somervell L.J.
t h a t they might still be parties to the sale of t h e steel, perhaps
at a higher price and profit, if t h e defendants failed in their
obligations to t h e plaintiffs.
I have come, with respect, to t h e conclusion t h a t there is not
sufficient evidence, applying t h e judge's principle as between
plaintiffs and defendants which I have quoted, to justify t h e
extension of t h a t principle to any claim S. A. Azur may have
against t h e plaintiffs. I think it is too remote. The judge, in
making.the declaration which he did, followed with modification a
declaration made in somewhat similar circumstances by Lewis J .
in Household Machines Ld. v. Cosmos Exporters Ld.15 The prob­
lem can be shortly stated. B sues C for breach of contract. The
court holds t h a t B is entitled as against C to recover damages in
respect of B ' s liability to A arising out of C's breach of contract.
At the time of t h e hearing B is not in a position to call evidence
to quantify this damage. There may be some cases in which
the court can state a principle which makes t h e subsequent
quantification of this damage simple. On the other hand,
difficult questions m a y arise, depending, for example, (1) on any
variation of t h e terms of the contract between B and C as between
B and A, (2) on t h e question whether A took the steps which
should have been taken to mitigate damage. No declarations
ought to prejudice or preclude a proper determination of these
issues, on which t h e defendants should be entitled to be heard.
I t might, as it seems to m e , be more satisfactory if there were
liberty to apply for directions as to the determination of these
issues, if any, and quantification of damages under this head as
between plaintiffs and defendants, should disputes arise. Some
order in this form, at any rate, in some cases, might be more
satisfactory t h a n a declaration in t h e form ordered.

I think the appeal should be allowed to t h e extent I have

stated.
" [1947] K.B. 217.
304 QUEEN'S BENCH DIVISION. [1952]

C. A. DENNING L.J. This is another case concerned with the modern

ig62 practice whereby a buyer agrees to provide a banker's confirmed
;— credit in favour of the seller. This credit is an irrevocable promise
T R A N S THRUST
S.P.E.L. ky a banker to pay money to the seller in return for the shipping
»■ documents. One reason for this practice is because the seller
TRADING wishes to be assured in advance not only that the buyer is in
Co. LD. earnest but also that he, the seller, will in fact obtain his money
when he delivers the goods. Another reason is because the seller
often has expenses to pay in connexion with the goods and he
wishes to use the credit so as to pay those expenses. He may,
for instance, be himself a merchant, who is buying the goods from
the growers or the manufacturers, and has to pay for them before
he can obtain delivery, and his own bank will only grant him
facilities for the purpose if he has the backing of a letter of credit.
The ability of the seller to carry out the transaction is, therefore,
dependent on the buyer providing the letter of credit, and for
this reason the seller stipulates that the credit should be provided
at a specified time well in advance of the time for delivery of
the goods.
What is the legal position of such a stipulation? Sometimes
it is a condition precedent to the formation of a contract, that is,
it is a condition which must be fulfilled before any contract is
concluded at all. In those cases the stipulation " subject to
" the opening of a credit " is rather like a stipulation " subject
" t o contract." If no credit is provided, there is no contract
between the parties. In other cases a contract is concluded and
the stipulation for a credit is a condition which is an essential
term of the contract. In those cases the provision of the credit
is a condition precedent, not to the formation of a contract, but
to the obligation of the seller to deliver the goods. If the buyer
fails to provide the credit, the seller can treat himself as dis­
charged from any further performance of the contract and can
sue the buyer for damages for not providing the credit.
The first question is: what was the nature of the stipulation
in this case? When the buyers sent their order, they stated in
writing on September 25, 1950, that " a credit will be opened
" forthwith." It was suggested that the buyers were not making
any firm promise on their own account, but were only passing
on information which had been given to them by their American
buyers. The judge did not accept that suggestion and I agree
with him. The statement was a firm promise by the buyers by
which they gave their personal assurance that a credit would be
opened forthwith. At that time there were some discrepancies
 305
22 Q.B. QUEEN'S BENCH DIVISION.

about gauges and dates of delivery which had to be cleared up. C. A.

But these were all resolved at the meetings in Brussels, and there lg52
was then, as the judge found, a concluded contract by the sellers
TRANS TRUST
to sell, and the buyers to buy, the steel for December-January s.P.B.L.
v
delivery, and it was a part of that contract that the buyers would -
be personally responsible for seeing that a credit should be opened TRADING
forthwith. On those findings it is clear that the stipulation for Co. LD.
a credit was not a condition precedent to the formation of any Denning L.J.
contract at all. It was a condition which was an essential term
of a contract actually made.
That condition was not fulfilled. The sellers extended the
time for the credit but it never came, not even after reasonable
notice. The sellers were, therefore, discharged from any further
performance on their side, and are entitled to claim damages.
But what is the measure of damages? That is the important
question in the case. The price of the goods had steadily risen
from the date of the contract onwards, and the buyers say that
the sellers could at any time have resold the goods for more than
the contract price, and are, therefore, only entitled to nominal
damages. If the claim of the sellers had been for damages for
non-acceptance of goods, or for repudiation of the obligation to
take delivery, then the damages would, no doubt, be nominal.
But it is none of those things. It is a claim for damages for not
providing a letter of credit. The buyers say that, even so, the
credit is only a way of paying the price, and that the damages
recoverable on that score are only nominal, because the seller
could resell the goods at a profit.
This argument reminds me of the argument we heard in Pavia
& Co. S.P.A. v. Thurman-Nielsen.16 It treats the obligation to
provide a credit as the same thing as the obligation to pay the
price. That is, I think, a mistake. A banker's confirmed credit
is a different thing from payment. It is an assurance in advance
that the seller will be paid. It is even more than that. It is
a chose in action which is of immediate benefit to the seller.
It is irrevocable by the banker, and it is often expressly made
transferable by the seller. The seller may be relying on it to
obtain the goods himself. If it is not provided, the seller may
be prevented from obtaining the goods at all. The damages he
will then suffer will not in fact be nominal. Even if themarket
price of the goods has risen, he will not be able to take advantage
of the rise because he will not have any goods to resell. His loss

« [1952] 1 K.B. 84.

306 QUEEN'S BENCH DIVISION. [1952]
C. A. will be the profit which he would have made if the credit had
1952 been provided. Is he entitled to recover that loss? I think he
is, if he can show that such a loss was at the time of the contract
S.P.E..L. foreseeable by the buyer as the probable consequence of a breach:
■»■ see the Victoria Laundry case.17 That was clearly the case here.
r ne
TRADING ^ buyers knew that the sellers could not obtain the goods- at
Co. LD. all unless the credit was provided. The foreseeable loss was the
Denniug L.J. loss of profit, no matter whether the market price of the goods
went up or down. It is, therefore, the proper measure of damages.
It was said that the breach here was a failure to pay money
and that the law has never allowed any damages on that account.
I do not think that the law has ever taken up such a rigid stand­
point. It did undoubtedly refuse to award interest until the
recent statute: see London, Chatham and Dover Railway Go. v.
South Eastern Railway Co.ls; but the ground was that interest
was " generally presumed not to be within the contemplation of
" the parties " : see Bullen & Leake, 3rd ed., at p. 51. That is,
I think, the only real ground on which damages can be refused
for non-payment of money. It is because the consequences are
as a rule too remote. But when the circumstances are such that
there is a special loss foreseeable at the time of the contract as
the consequence of non-payment, then I think such loss may well
be recoverable. It is not necessary, however, to come to a firm
conclusion on this point, because I regard the provision of a credit
as different from the payment of money and not subject to the
special rules, if any there are, relating thereto.
It was also said that the damages were the result of the
impecuniosity of the sellers and that it was a rule of law that
such damages are too remote. I do not think there is any such
rule. In the case of a breach of contract, it depends on whether
the damages were reasonably foreseeable or not. In the present
case they clearly were.
There is one way, however, in which the buyer might be able
to rely on the rise in price. It might be a ground for mitigation
of damages. I can well understand that the buyers might in
some cases be' able to say that the sellers ought to have offered
the goods elsewhere and found someone else to provide a letter
of credit. But no such case can be made here. The sellers
acted very reasonably throughout. They kept the matter open
for the buyers in the hope and expectation that the credit would
be provided, and eventually lost their own option because the
18
" [1949] 2 K.B. 629. [1893] A.C. 429.
2 Q.B. QUEEN'S BENCH DIVISION. 307

credit was not provided. The sellers have, therefore, lost their C. A.
profit without any fault on their part and they are entitled to 195 2
recover it from the buyers as damages.
The only remaining question is whether the sellers are entitled s.P.E.L.
to be indemnified for any damages they may have to pay the «•
Azur Company who were selling to them. I think not. That is TRADING
Co
a special loss which was not within the contemplation of the - LD-
parties to this contract. The buyers did not know that the Azur Denning L.J.
Company depended on the credit in order to obtain the goods
themselves. The buyers had no reason to suppose that, on a
rising market, the Azur Company would have any claim against
the sellers. This head of damage is, therefore, not recoverable.
I would only add that I agree with my Lord that, even if this
head of damage were recoverable, it would not be correct to make
a declaration of indemnity. If the liability of the sellers to a
third party were within the contemplation of the parties, but had
not yet been assessed, then the proper course for the judge was
to reserve that head of damages. Judgment could be entered for
the damages already ascertained, leaving the rest to be ascertained
later by the same or another judge.
I agree with my Lord that the appeal should be allowed as to
the declaration but dismissed as to the money award.

EOMER L.J. I agree with the judgments which have been

delivered and with the proposed order. I only desire to make two
observations. First, I am not, as at present advised, prepared
to subscribe to the view that in no case can damages be recovered
for non-payment of money; I agree with Denning L.J. that in
certain circumstances such damages might well be recoverable
provided that the loss occasioned to the plaintiff by the defen­
dant's default was reasonably within the contemplation of the
parties when the bargain between them was made. Secondly, I
am also in agreement with my brethren that there is no rigid rule
that damage suffered by a plaintiff and resulting from his own
impecuniosity is in all cases too remote to be recoverable in an
action based on breach of contract.

Appeal dismissed as to damages but allowed

as to declaration of indemnity.

Solicitors: A. & G. Tooth; Hardmam, Phillips & Mann.

A. W. G.