IS BECKER ENTITLED TO RECOVER THE MONEYS IT PAID TO THE BANK?
93 The parties have chosen their own battleground on the question of the quantum of damages flowing from Scanbox's breach of the Final Distribution Agreement. As I have noted, Becker does not claim the sum of $360,000 from Scanbox as an entitlement accrued under the Final Distribution Agreement prior to the termination of that Agreement on 14 September 2000. Becker claims that its damages include the sum of $360,000 that it was forced to pay to the Bank under the Assignment Agreement. Mr Bevan submits that the payment of this sum by Becker to the Bank was a foreseeable consequence of the Final Distribution Agreement (which includes the Side Letter) and on that basis Scanbox is liable to compensate Becker for the payment made by it to the Bank pursuant to the Assignment Agreement.
94 As I followed the argument, Scanbox does not dispute Becker's starting point. Mr Southwick accepts that if Becker validly terminated the Final Distribution Agreement in consequence of Scanbox's repudiation, Scanbox is liable to compensate Becker for any amount it was required to pay to the Bank under the Assignment Agreement. He does not make any submission that the damages should be recovered in the sum of $120,000 that Becker was obliged to pay under the Side Letter. However, Mr Southwick contends that Becker was not obliged to pay the Bank anything. The reason he gives is that the Bank was not entitled to recover the sum of $360,000 from Becker unless and until Becker had received a Notice of Initial Delivery as required by cl 2(a) and Recital B of the Assignment Agreement. Mr Southwick submits that the Bank had never given the required Notice of Initial Delivery. Thus, so he contends, Becker's decision to accede to the Bank's demand was not causally linked to Scanbox's breach of contract.
95 Although Scanbox does not dispute that it is liable for any payment Becker was obliged to make to the Bank under the Assignment Agreement, I should nonetheless consider the foundation for Becker's contention. Mr Bevan relies on two authorities to support Becker's argument: Carr v Berriman and Lamson Paragon Ltd v Spicers (Australia) Ltd [1953] SASR 297.
96 In Carr v Berriman, a proprietor of land contracted to supply a builder with structural steel to be fabricated by the builder or by a sub-contractor to the builder. The builder duly entered into a contract with a sub-contractor to fabricate the steel. The proprietor then repudiated its obligation to deliver the steel and the builder elected to terminate the building contract and sue for damages. The High Court considered it right to allow a 'substantial amount' to compensate the builder for damages recoverable by the sub-contractor from the builder under the fabrication contract (at 352). Since there was no challenge in the High Court to the amount awarded by the trial Judge under this head, the award was upheld.
97 In Lamson Paragon v Spicers, A contracted to sell B fifty tons of manilla board by sample. A knew B intended to resell the board to a sub-purchaser. The manilla board did not correspond with description. The sub-purchaser sued B who, in turn, issued a third party notice against A. Ligertwood J held that B could recover from A the damages and costs B was ordered to pay C, as well as B's costs of defending C's action.
98 Both Carr v Berriman and Lamson Paragon v Spicers deal briefly with the damages issue and thus do not examine the underlying principles in depth. However, the relevant principles were stated by the Court of Appeal in Hammond & Co v Bussey (1887) 20 QBD 79 and were applied by the House of Lords in R & H Hall Ltd v W H Pim (Junior) and Co Ltd (1928) 33 Com Cas 324. See also GEC Marconi Systems v BHP Information Technology, at 211-212 [934]-[940], per Finn J.
99 In Hammond v Bussey, the defendant sold 'steam-coal' to the plaintiffs. The defendant knew the plaintiffs intended to resell the coal to the owners of steamers calling at Dover. The plaintiffs did in fact resell the coal and in due course were sued by the sub-purchasers on the ground that the coal did not correspond to description. The plaintiffs defended the action but the steam-coal was ultimately found not to have been of satisfactory quality.
100 The defendant accepted that he was liable to compensate the plaintiffs for the damages they had to pay to the sub-purchasers by reason of the defendant's failure to supply steam-coal of the requisite quality. However, the defendant resisted the plaintiffs' claim to recover the costs they had incurred in defending the sub-purchasers' action. The Court of Appeal found in favour of the plaintiffs. The Court applied the so-called second limb of Hadley v Baxendale (1854) 9 Ex 341, at 354, 156 ER 145, at 151:
'Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.' (Emphasis added.)
101 Lord Esher MR considered (at 89) that the second limb of Hadley v Baxendale was not confined to a sub-contract that had actually been made at the date of the principal contract, but extended to a contract that would probably be made. Given that the defendant was aware that the plaintiffs intended to resell the steam-coal subject to warranty similar to that provided by the defendant, the bringing of an action by the sub-purchasers and the defence of such an action by the plaintiffs were circumstances that could reasonably be supposed to have been in the contemplation of the parties at the time they made the contract as the probable result of the breach. See, too, at 100, per Fry LJ.
102 In Hall v Pim, the House of Lords accepted that the law as to the calculation of damages due to breach of a contract had been settled by Hadley v Baxendale as explained in Hammond v Bussey: see at 328, per Viscount Dunedin. Accordingly, where a seller of a cargo of wheat failed to deliver the wheat in accordance with the contract of sale, damages were awarded to the purchaser for loss of profits on contracts under which it had resold the wheat. See, too, James Finlay & Co Ltd v NV Kwik Hoo Tong Handel Maatschappij [1929] 1 KB 400; North Sea Energy Holdings NV v Petroleum Authority of Thailand [1997] 2 Lloyds' Rep 418.
103 In each of these cases, the party in default failed to deliver or supply goods as promised. In the present case, Scanbox repudiated an obligation to pay money. In England, it has been held that a plaintiff can recover as special damages under the second limb of Hadley v Baxendale a loss, such as borrowing expenses, suffered in consequence of a failure to pay a sum due under a contract: Wadsworth v Lydall [1981] 1 WLR 598, approved in President of India v La Pintada Compania Navigacion SA [1985] AC 104, at 127. The High Court has gone further, holding that losses attributable to the withholding of money in breach of contract can be recovered without recourse to the second limb of Hadley v Baxendale: Hungerfords v Walker (1989) 171 CLR 125. As Mason CJ and Wilson J said (at 142):
'If a plaintiff sustains loss or damage in relation to money which he has paid out or forgone, why is he not entitled to recover damages for loss of the use of money when the loss or damage sustained…was reasonably foreseeable as liable to result from the relevant breach of contract or tort? After all, that is the fundamental rule governing the recovery of damages, according to the first limb in Hadley v Baxendale…'
104 In this case, the Side Letter, the Short Form Agreement, the Assignment Agreement and the Long Form Agreement are all interconnected, even though the Bank did not become aware of the Side Letter until long after it was signed. The first three documents were executed more or less simultaneously. The Side Letter refers expressly to the Short Form Agreement and to the (then unexecuted) Long Term Agreement. The Side Letter also records that Scanbox had already paid $28,000, being part of the deposit of $40,000 payable by Becker on execution of the Long Form Agreement. Becker was to pay the balance of $12,000 but was not obliged to pay Scanbox the remaining $28,000.
105 The Short Form Agreement, like the Side Letter, records the parties' intention to prepare and execute the Long Form Agreement. The Assignment Agreement records that under the terms of the 'Distribution Agreement', Becker had agreed to pay the 'Minium Guarantee' and requires Becker to pay the Minimum Guarantee to Scanbox for the benefit of the Bank. The Assignment Agreement also provides that the Distribution Agreement is and remains in full force and effort and requires Becker to fully perform that Agreement.
106 The Long Form Agreement, as the parties agree, was intended to supplant the Short Form Agreement. It sets out in more detail than the Short Form Agreement the respective rights and duties of Scanbox and Becker. These include Becker's obligation to pay the Advance of $400,000, of which $40,000 is payable on execution of the Long Form Agreement and the balance of $360,000 on 'Notice of Initial Delivery'.
107 The Side Letter does not merely require Scanbox to pay Becker $360,000 upon satisfaction of the condition specified in par (b). Becker is required by par (c) to pay that amount to the Bank in accordance with Scanbox's instructions. Moreover, Scanbox is not obliged to release the 'delivery materials under the [Long Form Agreement]' until the Bank confirms that Becker has paid $360,000 unconditionally to the Bank. In my opinion, it is quite clear that Scanbox was to pay Becker the precise sum that Becker was required to pay to Becker for the benefit of the Bank under cl 2(a) of the Assignment Agreement. Scanbox was aware of the precise terms of the Assignment Agreement. Scanbox was also aware that Becker had incurred the obligation to pay the Bank the Minimum Guarantee on the faith of its (Scanbox's) promise to put Becker in funds to enable the latter to do so. Scanbox's promise was the very foundation of the arrangement between Scanbox and Becker.
108 It seems to me that, in these circumstances, it was plainly within the contemplation of the parties to the Side Letter that the probable, indeed inevitable result of repudiation by Scanbox of its obligations under the Side Letter would be that Becker would become liable to pay the Bank $360,000 under the Assignment Agreement without having been put in funds by Scanbox to meet that liability. It is equally clear that Becker would not have agreed to incur a liability to the Bank under the Assignment Agreement but for Scanbox's undertaking to put Becker in funds to meet that liability. The case therefore falls within the second limb of Hadley v Baxendale. Subject to Scanbox's contention that Becker was not in fact obliged to pay the Bank the $360,000 under the Assignment Agreement, Becker is entitled to recover the sum of $360,000 as damages for loss sustained by reason of Scanbox's breach of the Final Distribution Agreement.
109 On Scanbox's argument, the critical question is whether Becker was legally obliged to yield to the Bank's demand that it pay $360,000 pursuant to the Assignment Agreement. Scanbox does not say that the Bank could not have taken the steps necessary to render Becker liable to pay that sum under the Assignment Agreement. The contention is that at the time Becker made the payment, the Bank had not given the Notice of Initial Delivery required by the Assignment Agreement. Thus the precondition to Becker's liability had not been satisfied and Becker had paid the money to the Bank without being under any legal compulsion to do so.
110 Clause 2 of the Assignment Agreement provides that notwithstanding anything to the contrary in the Distribution Agreement, for the benefit of the Bank, Becker agrees unconditionally to pay Scanbox for the benefit of the Bank the Minimum Guarantee in strict accordance with Recital B. Recital B records that under the terms of the Distribution Agreement, Becker has agreed to pay Scanbox the Minimum Guarantee of $400,000 payable in instalments upon satisfaction of the specified conditions. Payment of the instalment of $360,000 is said to be conditional upon 'Notification from Bank…that the picture is ready for Delivery ("Notice of Initial Delivery")'.
111 There are some curious features to the Assignment Agreement. The expression 'Distribution Agreement' is not defined. The fact that Recital B records that under the terms of the Distribution Agreement Becker 'has agreed' to pay the Minimum Guarantee suggests that the reference is to the Short Form Agreement, since the Long Form Agreement had not then been executed. This is strongly reinforced by cl 2(b) of the Assignment Agreement which provides that the Distribution Agreement 'is and shall remain in full force and effect'. On the other hand, Recital B1 records that Becker has agreed to pay the Deposit upon signature of the 'Distribution Agreement'. Under the Short Form Agreement, the Deposit of $40,000 is payable upon the signing of the Long Form Agreement. Thus the reference to the 'Distribution Agreement' in Recital B1 is apparently to the unexecuted (or agreed) Long Form Agreement.
112 Recital B2 of the Assignment Agreement records that under the terms of the Distribution Agreement Becker has agreed to pay $360,000 'upon Notification from Bank…that the picture is ready for Delivery'. The Short Form Agreement does not expressly so provide. It requires payment of $360,000 '[o]n notice that the Initial Delivery Materials are ready for delivery', but does not state that notification is to be given by the Bank (which of course is not a party to the Short Form Agreement). The Long Form Agreement provides that Becker is to pay $360,000 on Scanbox's notice to it by Scanbox that the Initial Delivery Materials are ready for delivery, but adds the proviso that notice is not to be given until Becker has accepted or been deemed to have accepted delivery of the Initial Delivery materials in accordance with cl 4. Clause 4 sets out an elaborate procedure for determining when the Delivery Materials are accepted or deemed to have been accepted by Becker.
113 Scanbox's argument appears to assume that Becker could incur a liability to pay $360,000 for the benefit of the Bank under the Assignment Agreement only if the requirements of the Long Form Agreement are met. I do not think that this assumption is correct. It is true that, as between Becker and Scanbox, the Long Form Agreement replaced the Short Form Agreement. But the rights and obligations of Becker and the Bank must be determined by the terms of the Assignment Agreement, which is the only document recording an agreement between them.
114 I think that on its proper construction the Assignment Agreement imposes an unconditional obligation on Becker to pay $360,000 to Scanbox for the benefit of the Bank upon notification by the Bank that the Film is ready for delivery. It is not necessary in order that Becker incur the obligation that it accept or be deemed to have accepted the Delivery Materials in accordance with cl 4.3 of the Long Form Agreement. In my view, the reference to the 'Distribution Agreement' in Recital B of the Assignment Agreement is to the Short Form Agreement then in existence, not to the Long Form Agreement the terms of which had not been settled at the date the Assignment Agreement was executed. As I have noted, that construction is supported by cl 2(b) of the Assignment Agreement. Clause 2(a) and Recital B, when read together, require Becker to pay $360,000 for the benefit of the Bank upon notification by the Bank that the Film is ready for delivery. Taking into account the cross-reference to the Short Form Agreement in Recital B, this means notification that the Initial Delivery Materials are ready for delivery.
115 The Assignment Agreement makes it clear that cl 2 is to prevail notwithstanding anything to the contrary in the Distribution Agreement. Becker's obligation is unconditional and must be carried out in accordance with Recital B2. Becker's payment to Scanbox of the Minimum Guarantee is said to be a condition precedent to the grant of rights to Becker pursuant to the Distribution Agreement (cl 2(c)). These provisions suggest that the Assignment Agreement is intended to impose an obligation on Becker strictly in accordance with the language of that Agreement, and is not to be influenced by any arrangement subsequently made between Becker and Scanbox and incorporated into the Long Form Agreement. It is hardly likely that the Bank would have contemplated that Becker's obligation to pay moneys for the Bank's benefit could be altered by the terms of a subsequent agreement (the Long Form Agreement) to which the Bank was not a party.
116 Given this construction of the Assignment Agreement, in my opinion the Bank gave the notification contemplated by Recital B2 of the Assignment Agreement in its letter of 1 May 2000. That letter, despite its heading, specifically stated that the Film was ready for delivery. It is true that the letter appears to contemplate that a more formal Notice of Delivery will be given by the Bank. But that fact, in my view, does not prevent the letter being effective to satisfy the requirements of the Assignment Agreement. That is, the letter, by stating that the Film was ready for delivery, satisfied the terms of cl 2(a) and Recital B of the Assignment Agreement.
117 There is no evidence to suggest (if it matters) that the Initial Delivery Materials were not in fact ready by 1 May 2000. This is so notwithstanding that Scanbox took nearly four months to ship the key components of the Film. The delay appears to have been due to the developing dispute between Becker and Scanbox and not to the unavailability of the Initial Delivery Materials, as Scanbox advised Becker on 7 June 2000 that it was ready to ship all Initial Delivery Materials to Atlab. In any event, I infer that by the time of the Bank's demand on 18 September 2000, the Initial Delivery Materials had been dispatched by Scanbox or were in the process of being dispatched.
118 If I am wrong in my view of the letter of 1 May 2000, any defect in that letter was cured by the letter of 18 September 2000 from the attorneys for the Bank. The attorneys' letter stated that Becker had already received 'Notification' and demanded payment of a sum that included the $360,000 due under the Assignment Agreement. The letter of 18 September 2000 also stated that, although not required for payment of this sum, the Initial Delivery Materials were being held by Atlab, the Australian laboratory. If no previous letter from the Bank or its agents satisfied the requirements of the Assignment Agreement, it seems to me that the attorney's letter did so.
119 Mr Southwick relied in argument on the fact that the Revised Assignment Agreement includes a provision (cl 9) that deems Notice of Initial Delivery to have been duly given upon the execution of that Agreement. In my view, that provision, in an agreement executed as part of the settlement between the Bank and Becker, has no bearing on whether Becker was obliged to pay $360,000 to or for the benefit of the Bank when it made the payment.
120 For these reasons, I think that Becker, at the time it paid $360,000 to the Bank was contractually obliged to make that payment for the benefit of the Bank. I therefore do not accept Scanbox's argument that Becker was not obliged to pay that sum to the Bank under the terms of the Assignment Agreement.
121 I should add that I have approached this issue on the basis that Becker cannot recover the sum of $360,000 unless, no later than the date of payment, that sum was due and payable pursuant to the Assignment Agreement. I think, however, that it would be enough for Becker to have acted reasonably in paying the $360,000 as demanded by the Bank. If the Bank had neglected to comply fully with the preconditions specified in the Assignment Agreement, but could have cured the defect at any time, I think that it would have been reasonable for Becker to have paid the $360,000 to or for the benefit of the Bank without requiring the defect to be cured. If, therefore, neither the letter of 1 May 2000 nor the letter of 18 September 2000 was formally sufficient to constitute a Notice of Initial Delivery under the Assignment Agreement, but the Bank could have served a proper Notice at any time, Becker would be entitled to recover the sums paid by it to the Bank as damages for breach of the Final Distribution Agreement. Accordingly, even if there was some formal defect in the letters I would not have regarded that of itself as a barrier to Becker recovering $360,000 from Scanbox as damages for breach of the Final Distribution Agreement.