CL-2021-000431 - [2025] EWHC 1940 (Comm)

The Reliance Issue

I have set out the Defendants’ amendment in respect of the Misrepresentation Claim above and have referred to the key paragraph, namely para. 36A of the Re-Amended Reply to Defence to Counterclaim.

It is to be noted that the Misrepresentation Claims essentially rest on two premises.

First, the Defendants rely on the existence of a duty to speak on the Claimant on and from 16th April 2021 when the damage was discovered by the Claimant through its Master and crew, which duty to speak the Claimant knowingly breached from that time onwards up to and including the date of the issuance of the Switch Bills on 12th May 2021. It is alleged that the Second Defendant entered into various contracts and took various steps in, inter alia, April and early May which it would not have done, had it known the truth: see para. 36A(14). Similarly it is alleged that the First and Third Defendants would not have taken any steps to buy their portions of the Cargo from the Second Defendant: para. 36A(13). Reliance is pleaded as separately depending and based upon the duty to speak and the breach thereof: see the concluding words of para. 36A(11).

Secondly, the Defendants rely upon the issuance of the Switch Bills on 12th May as making an implied representation as to the condition of the Cargo. That has been expanded by the Defendants in the Surrejoinder, served in response to the Claimant’s Rejoinder, to extend to implied representations made in the various drafts of the Switch Bills circulated by the Claimant before 12th May:

“As to paragraph 8.1 the Defendants have pleaded, and confirmed in Replies 1 & 2 of their Reply dated 31 January 2025 to the Claimant’s Request For Further Information dated 10 January 2025, that in issuing the Switch Bills of Lading the Claimant made the implied representation(s) alleged. For the avoidance of doubt that includes all drafts of the Switch Bills of Lading which were sent (via others) between the Claimant and the Second Defendant between 5 and 12 May 2021.”

The only basis upon which summary judgment is sought relates to the Defendants’ case on reliance. As stated in the Application Notice, “The Defendants' plea of reliance, which forms an essential part of their claims in deceit and negligent misrepresentation, stands no realistic prospect of success”.

While in Mr Stembridge’s third witness statement at para. 36.1 it is stated that summary judgment was also sought in relation to the existence of a duty to speak (“The dismissal of the duty to speak pleaded in paragraph 36A(9), on the basis that it is hopeless to suggest that there was a duty to speak in these circumstances;”), that does not reflect the Application Notice, which was not sought to be amended.

The issue was not separately addressed by the Claimant’s Skeleton Argument which focussed on reliance (in these terms: “This represents a severe and critical flaw in the Defendants’ case. The Defendants plead the Switch Bills were issued “in early May 2021”. The Switch Bills were actually issued between 16:49 and 20:21 on 12 May 2021. By 16:49 on 12 May 2021, the cargo holds had been opened and all of the Defendants knew the condition of the cargo. In these circumstances, the Defendants simply cannot have relied upon any implied representation, or any failure to speak, as to the condition of the Cargo.”, see para. 90, emphasis as original, footnotes omitted). Nor was it addressed orally, when I identified that Mr Stembridge’s statement went beyond the terms of the Application Notice and grounds therein.

Mr MacDonald Eggers KC submitted rather that, given the precise form of the Defendants’ pleading, the reliance issue on which he relied went both to the duty to speak and the misrepresentation. He relied upon the fact that in para. 36A(11) it is stated that “in light of its discovery of cargo damage on /or after 16 April and thereafter, the said representations were false (as the Claimant knew) and/or it knowingly breached its duty to speak. In the premises, the Claimant is liable in deceit to the Defendants who relied upon the said implied representations and/or the Claimant's duty to speak.” [emphasis his]. It was submitted that this meant that the Defendants’ case on reliance both in relation to the duty to speak and to the implied representations, all turned on the Switch Bills and their date of issuance. That is not in my view an available reading of para. 36A(11), either read alone or when read with paras. 36A(10) and (13) and (14).

It follows that the case of duty to speak and all acts of reliance alleged by reference to the breach of that duty to speak (i.e. in April and early May and thereafter) will be decided at trial and are unaffected by the summary judgment application.

As to the Claimant’s case that the reliance case in relation to the implied misrepresentation is hopeless, this is founded upon the fact that the Defendants became aware of the damaged nature of the Cargo in the inspections on 10th-11th May and therefore cannot have relied on the implied representation said to have been made as to the condition of the Cargo by the issuance of the Switch Bills on 12th May.

The Defendants answer that in two ways.

First, they refer to the implied representations made in the drafts circulated before the inspections and on and from 5th May and on acts and understandings on the part of the Defendants from that date onwards.

Secondly and, perhaps more importantly for the purposes of summary judgment, they rely upon the fact that their understanding as at 12th May as to the state of the Cargo was limited.

As it is summarised in the Defendants’ Skeleton Argument at paras. 81 and 82:

“81 […] the Defendants have set out a detailed case as to what they would have done if they had known the full facts and there is no conceivable basis for suggesting that this is to be disbelieved. In particular, it is not the damage observed on 11 May which is relevant: the parties took up the bills of lading on the understanding that some damage had been observed to visible cargo; what is relevant is that the receivers did not know and could not have known that before they bought the cargo and before the ship left Ukraine, the owners had discovered the cargo to be suffering wet damage and had discarded that cargo; had the receivers known the cargo was damaged, the Second Defendant would not have sold it, and the First and Third Defendants would never have been in a position to purchase it; nor would either have agreed to do so had they known; nor, had the bills contained a reference to it would they have accepted the bills and paid for the cargo […]

82.

Furthermore, this demonstrates that the Claimant’s assertion that the initial inspection on 11 May meant that the Defendants, therefore, knew of “the damage” and “the condition of the cargo” is unsustainable. The Defendants knew of some, it says, relatively minor damage to the visible layer of cargo – everything beyond that is in dispute.” [Emphasis as original].

Based on these two points, there are accordingly a range of factual issues underpinning the case on reliance in relation to the implied misrepresentation connected with the Switch Bills, whether in draft or as issued.

I consider that it cannot be said that there is no realistic prospect of establishing that, even if the Defendants knew that the Switch Bills contained inaccurate statements post the inspections on 10th -11th May, they did not as a matter of fact appreciate the degree or seriousness of falsity (i.e. the facts relied upon by the Defendants of the Claimant having discovered the wet damage on 16th April 2021 and having discarded disputed quantities of cargo in an effort to remedy the problem before the issue of the Switch Bills. It is at least arguable in terms of reliance, that false implied representations as to condition would, as the Defendants put it, “not have induced the Defendants to accept lightly damaged Cargo (or Cargo damaged to the extent of their knowledge), but they could have induced acceptance by concealing the true state of the Cargo. Whether or not the representations in the switch bills did have such an effect upon the Defendants is a matter of fact to be determined at trial.” (Skeleton, para. 85).

In addition, it seems to me artificial and unrealistic to try to separate out at this stage, rather than on the full factual enquiry at trial, the issue of reliance in relation to the implied representations in the draft and issued Switch Bills from the closely related issue of reliance on the duty to speak, running from 16th April, which is unaffected by the summary judgment application.

It follows that I dismiss the Claimant’s summary judgment application on the second ground in relation to reliance.