Case No: 2013 Folio 445
Neutral Citation Number: [2015] EWHC 2696 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Rolls Building
Fetter Lane
London, EC4A 1NL

Date: 29/09/2015

Before: 
Mr Justice Simon

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Between:

	T & L Sugars Limited
	Claimant	
	and
		
	Tate & Lyle Industries Limited
	Defendant	

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Mr Ian Mill QC and Ms Leona Powell (instructed by Clifford Chance) for the Claimant
Mr Laurence Rabinowitz QC and Mr Yash Kulkarni (instructed by Linklaters) for the Defendant

Hearing dates: 6-7, 11-12 and 20 May 2015

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Judgment
Mr Justice Simon: 
Introduction 
1.	On 30 June 2010 Tate & Lyle Plc (and some of its subsidiaries) agreed to sell its European sugar business to American Sugar Holdings Inc (‘ASH’) pursuant to a Share and Business Sale Agreement (‘the Original SBSA’). The Original SBSA was subsequently amended and restated; and a final Share and Business Sale Agreement (‘the SBSA’) was made between Tate and Lyle Industries Ltd (‘the Defendant’) as principal seller and T&L Sugars Ltd (‘the Claimant’) as principal purchaser. Although the SBSA was signed on 30 September 2010 (the Closing date), by clause 1.2.2 it was deemed to be dated 30 June 2010. 
2.	In this action the Claimant claims that the Defendant is in breach of express and/or implied terms of the SBSA; and its claims fall into three factually distinct areas.
(1)	The first claim, for €24,918,811, relates to the Defendant’s Inward Processing Relief (‘IPR’) balance, (‘the IPR claim’). 
(2)	The second claim, for a total of US$26,038,055, relates to sugar futures contracts transferred to the Claimant at Closing which it contends were not properly transferrable on the proper construction of the SBSA, (the ‘Futures Claim’)
(3)	The third claim relates to a Biomass Plant which was transferred as part of the sale, (‘the Biomass Claim’).
3.	Before turning to the issues raised by these claims it is convenient to set out the way in which the sugar market operated and the way in which the Defendant conducted its business.
Background to the IPR claim

The operation of the market and the payment of import duty at the relevant time
4.	The background and, in particular, the way in which the sugar market and the IPR scheme operated was largely common ground.
5.	All raw unrefined sugar imported into this country has the same physical and chemical make-up. There was, however, a clear distinction as to how it was treated for tax purposes, which depended on its source. There were two main categories: ‘Preference Sugar’ and ‘World Sugar’. Preference Sugar was sugar exported from particular countries (for example, Fiji, Guyana and Belize) in respect of which either no import duty was payable, or duty was payable at a reduced rate. World Sugar was the term used to describe sugar from all other origins, and carried high import duties. 
6.	World Sugar was an exchange traded commodity whose price fluctuated according to the operation of market conditions. In contrast, there was no exchange for Preference Sugar and the price for consignments was negotiated between buyers and sellers. 
7.	Historically, the price of Preference Sugar had been heavily controlled by the European Union and, in particular, by the imposition of quotas and regulated minimum price levels. Prior to 2010, the price of Preference Sugar was consistently higher than the price of World Sugar. The import duty scheme regime operated as a tariff barrier which discouraged the permanent import of World Sugar into the EU; and import duty levels were set at high levels so as to achieve this purpose. 
8.	IPR was a mechanism administered by HM Revenue and Customs (‘HMRC’) which allowed import duty on non-EU goods that were imported and processed within the EU to be suspended, with the liability to pay duty being discharged if relevant goods were exported within a specified timeframe. In the context of sugar, the expressed purpose of the IPR regime was to enable EU sugar refineries to compete on an equal footing in the world market. Without the IPR regime the level of import duties payable would have made this impossible. 
9.	UK businesses wishing to use the IPR regime had to apply for an authorisation from HMRC which would allow specified types and quantities of goods (here, raw unrefined World Sugar) to be temporarily imported without paying import duty. The IPR authorisations were issued for 6 month periods: January to June and July to December and applications for the renewal of IPR authorisations had to be sought twice a year. 
10.	The HMRC authorisations specified the maximum quantity of goods that might be imported, and the time period within which the goods (or their equivalent) had to be exported outside of the EU. The time within which the goods had to be exported was described as the ‘throughput period’. HMRC would not grant an IPR authorisation unless the applicant certified that it intended to export the equivalent amount of goods within the throughput period; and if the goods were not exported within the throughput period, the full amount of import duty was payable. 
11.	For this reason imported World Sugar had to be kept in a bonded warehouse, and the throughput period started to run from the moment the sugar was released from bond for the purposes of refining. 
12.	The Defendant’s practice was to provide monthly returns to HMRC setting out: (a) the previous month’s IPR balance; (b) the volume of World Sugar which had been de-bonded, (thereby increasing the IPR balance); (c) the volume of sugar exported from the EU (thereby reducing the IPR balance); and (d) the resulting IPR balance for that month. 
13.	There were two ways of avoiding the obligation to export IPR sugar without paying import duty. The first, was to sell Preference Sugar onto the World Market, thereby reducing the IPR liability pro tanto. The second way was to de-bond more World Sugar and sell it on to the world market. Although this would not reduce the IPR liability, it would put back the export obligation. This practice was known as ‘rolling’. HMRC treated imports and exports on a first-in, first-out basis. Consequently de-bonding had the effect of adding to the current month’s IPR balance, with the export sale reducing the oldest historic export obligation. Accordingly, by continuing to de-bond and export World Sugar it was possible to roll an IPR balance forward. However, as noted above, although rolling delayed the liability to pay import duty, it did not reduce the liability and (as explained below) it might involve significant costs. 
The position between 2006 and 2010
Preference Sugar
14.	Until 2006 the volume and the price of sugar within the EU was effectively guaranteed through a combination of supply quotas and the imposition of a minimum ‘reference price’ for Preference Sugar. However, from 2006 onwards, the European Commission began a series of changes to the EU sugar regime. In September 2008, the reference price for raw Preference Sugar was reduced from €496 per mt to €448 per mt. In September 2009, the reference price for raw Preference Sugar was further reduced to €335 per mt. From 1 October 2009, the UK’s supply quota of Preference Sugar was removed. Until that point, the Defendant (as the UK’s only cane refiner) had a guaranteed supply of 1.1million mt of raw Preference Sugar per year; after 1 October 2009 that guaranteed supply ceased.
15.	The Preference Sugar market was traditionally a ‘premium’ market, in the sense that sellers of Preference Sugar received a premium price for selling their raw sugar into the EU compared to selling to the World Market. The consequence of the EU changes in policy was to make the sale of Preference Sugar into the EU less profitable for traditional Preference Sugar suppliers, at a time when the World Sugar price was increasing. This exacerbated a shortage of Preference Sugar supply into the EU, since the narrowing of the difference between the fixed EU prices for Preference Sugar and the price of World Sugar gave Preference Sugar suppliers the opportunity to sell onto the World Market for as good or better prices than they could obtain by selling into the EU.
16.	By mid-2010 there was an unprecedented market-wide shortage of Preference Sugar. World Sugar prices, which had risen sharply in early 2010, rose again from April onwards, at times overtaking the price of Preference Sugar. Eventually the market shortages became so serious that the European Commission intervened with a programme of exceptional measures. Despite these measures, the price of Preference Sugar continued to rise for the whole of the period from early 2010 up until early 2013. 
World Sugar
17.	The high volatility of the market in World Sugar led to refiners hedging their exposure to the World Sugar price by buying or selling sugar futures contracts. 
18.	For present purposes there were two relevant types of futures contracts. The first were ‘#11’ futures. These were raw sugar futures contracts in which a single lot was 112,000 lbs or 50.8 mt, priced in US cents per lb. The second were ‘#5’ futures. These were refined white sugar futures contracts in which a single lot was 50 mt, priced in US$ per mt.
19.	Every futures contract had a specific month of expiry (for example, #11 futures had expiry dates of March, May, July or October each year); and each type of futures contract had its own market in which trades took place up until the expiry date of the contract. At that point the holder of the futures contract  was bound either to deliver or to receive the relevant quantity of sugar. In order to avoid this obligation the holder of the contract had to close out its position prior to expiry by either paying or receiving the difference between the price paid for the future contract and the current market price. If the current market price were lower than the futures market, the market price was said to be in ‘contango’: conversely, if the current market was higher than the futures market, the market was said to be in ‘backwardation’.
20.	For much of the period 2008-2009 the sugar futures market was in contango. However, from about mid-2010 until December 2010 the market was in backwardation with the spot price of sugar higher than the futures price. The significance of this was that in a backwardated market, ‘rolling’ (effectively postponing) the obligation to sell World Sugar would entail making losses on the futures market. For example, if it were necessary to extend a futures position from March to May, it would be necessary to extinguish the March futures position (by buying back those futures) and to sell May futures instead. If May futures were trading at a lower price than March futures, this would inevitably give rise to a loss.
The Defendant’s business 
21.	The Defendant’s Thames refinery was the only sugar refinery in the UK; and the refinery operation was a high volume and low margin business. Since there was only one refinery, imported Preference Sugar and World Sugar were physically mixed as part of the refining process. The sugar was physically the same, but had the different economic characteristics identified above. One of the issues which arises in relation to the first claim is how commodities which were physically the same but different in their fiscal characteristics should have been treated.
22.	The Defendant’s UK refining business had two parts, which reflected the different business treatment of Preference Sugar and World Sugar. First, there was the EU refinery business, known as the Thames Division (‘Thames’). This was responsible for securing supplies of raw Preference Sugar for refining and selling refined sugar to EU customers. Secondly there was the World Sugar business, known as the World Market Sugars Division (‘WMS’). This division was responsible for purchasing raw World Sugar from the world market for refining and selling refined sugar into the world market.  
The Defendant’s IPR authorisations 
23.	The application forms for IPR authorisation had an ‘Economic Conditions’ annex, in which the applicant had to declare the purpose for which IPR would be used during the authorisation period. A condition for IPR authorisation was that the applicant had to intend to re-export the relevant goods within the throughput period. 
24.	During the period 2007-2010, the Defendant’s stated purpose for using IPR sugar was the utilisation of the Thames refinery to its maximum capacity in order to maintain processing at economic levels, with a notification that importing non Preference Sugar into the EU market would be uneconomic. 
25.	During the period from 1 January 2007 until October 2009, the Defendant built up an IPR balance which did not exceed 50,000 mt, although there was a ‘spike’ in the IPR balance in mid-2008, when it reached 57,626 mt. 
26.	In early 2009, the Defendant established a committee (‘Project Snow’) whose function was to monitor and deal with Preference Sugar supply issues. Data was produced for Project Snow meetings, under the title ‘Future Demand and Supply’. These were referred to as ‘FDS Reports’, and they tracked the Defendant’s Preference Sugar sale commitments against its Preference Sugar arrivals. 
27.	The FDS Report for 4 January 2010 showed an expected Preference Sugar shortfall of around 48,000 mt for the year ending April 2010. The supply forecasts for the following year showed a considerably larger shortfall of 137,000 mt.
28.	The Defendant intended to deal with this issue by importing World Sugar under its IPR authorisation, de-bonding it, and using it to meet its Preference Sugar sales obligations. On 16 March 2010, it wrote to HMRC, requesting an extension of the throughput period under its IPR authorisation from 6 months to 12 months. The letter stated:
We will need to import and process significantly larger volumes of world market sugar under IPR in order to supply our domestic market customers. Without an extension to our allowed throughput period we will not be able to meet domestic sales demand as well as the required level of balancing exports. This is a direct consequence of exceptional circumstances, beyond our control, restricting our access to preferential sugar supplies.
29.	In April 2010, the IPR balance reached 85,023 mt and, in July, 96,357 mt. The FDS report dated 29 July 2010 showed that the Defendant expected to have a Preference Sugar deficit of around 72,000 mt for the year ending September 2010, with the position expected to remain in deficit for the whole of 2011.
30.	By the end of August 2010, the deficit had increased further. The FDS Report dated 29 August 2010 showed that, at that point, the Defendant expected to have a deficit of 125,000 mt for the year ending September 2010, with a forecast deficit of 64,000 mt for the year end September 2011. 
31.	The FDS report dated 14 September 2010 showed an expected Preference Sugar deficit of 141,000 mt for the year ending September 2010. The report also recorded that the Defendant expected its Preference Sugar sales to be in balance with Preference Sugar arrivals for the year end September 2011; although it also showed that a Preference Sugar deficit would be carried through to September 2012, at which point the business expected to be carrying a Preference Sugar deficit of 90,000 mt. 
32.	By the end of September 2010, the Defendant’s IPR balance stood at 130,331 mt. It is common ground that this was completely unprecedented. 
33.	The increase in the IPR balance up to 30 September 2010 was due to the Defendant’s use of World Sugar to meet its EU sales obligations, doing so in the hope and expectation that it could obtain sufficient Preference Sugar supplies to enable it to ‘pay back’ the Preference Sugar deficit.
34.	The Defendant plainly monitored the balance and considered that it could be managed in the same way that IPR balances had always been managed: by rolling it forward until market conditions improved or there was an intervention by the EU Commission having similar effect. One of the issues which arises in this case is the extent to which the Claimant was aware of and agreed to this course.
35.	In an internal email exchange between Mr Mason (then employed by the Defendant) and Mr Bamberger (acting on behalf of ASH) on 28 June 2010, Mr Bamberger was informed that the IPR balance was 78,000 mt as at the end of June 2010. In his evidence Mr Bamberger said that he was content for there to be a balance of the order of 80,000 mt at Closing. In a later email exchange on 3 August 2010 between Mr Tate (also then employed by the Defendant) and Mr Bamberger, Mr Tate sought permission to purchase World Sugar in order to prevent stocks running out for EU customers, and to use World Market supplies to cover World sales. Mr Bamberger agreed. In an email of 18 August Mr Bamberger informed Mr Smith (Chief Financial Officer of ASH’s parent company American Sugar Refining Group) that the Defendant had recently purchased additional World Sugar because they were short of Preferred Sugar for domestic sales, and that this would create an obligation to export refined sugar ‘within 6 (or 12) months’. There was also material in the monthly management reporting packs made available to the Claimant’s senior management from which they might have questioned how it was that from March 2010 to August 2010 Thames had sold 100,000 mt more refined sugar into the EU than it had refined raw Preference Sugar.
36.	Mr Bamberger accepted in evidence that, although he was aware that World Sugar was being used to supply EU customers at a time the market was in backwardation, he did not instruct the Defendant to cease supplying EU Customers with de-bonded World Sugar, nor did he monitor the IPR balance after being told that it had reached a figure of 78,000 mt at the end of June 2010. 
37.	In the light of this evidence, Mr Rabinowitz submitted that all that had happened was that the IPR balance had increased more than had been expected; and it was telling that the Claimant had never suggested to the Defendant either that there should be a consequential reduction in the purchase price, or that the Defendant should provide an indemnity against losses arising from the IPR balance. 
38.	Shortly after Closing, the Claimant discovered that the IPR balance was very much larger than it had understood, that the Defendant had been using World Sugar to fill a deficit between its contracted Preference Sugar purchases and its EU sales commitments, and that it had effectively passed on an obligation either to pay import duty on 130,331 mt of World Sugar, or to export the equivalent quantity of Preference Sugar (which it did not have) into the World Market. 
39.	It is clear that none of the FDS reports were disclosed to the Claimant and that, by the end of September 2010, the IPR balance stood at 130,331 mt, over twice the amount during the ‘spike’ in the IPR balance in mid-2008. Furthermore the FDS report of 14 September 2010 showed that, even if the Defendant reduced its sales by 100,000 mt, the business still had no foreseeable prospect of repaying the IPR balance from Preference Sugar arrivals up to September 2012. 
40.	The Claimant formed the view that the best way to extinguish the IPR balance was to purchase Preference Sugar and sell it into the world market, so as to avoid paying duty. It sourced as much Preference Sugar as it could, and made equivalent export sales so as to reduce the IPR balance as soon as reasonably practicable. The actual IPR balance was reduced to just over 11,000 mt by July 2011 (and it thereafter remained below around 20,000 mt). In relation to the specific export obligation that existed at Closing, 130,000 mt of sugar had been re-exported by March 2011. 
41.	Following Closing the Claimant raised an issue as to whether, under the applicable accountancy rules, the Closing Statement should have included a liability for approximately £47m, with a view to adjusting the purchase price downwards on the basis that it was a suspended import duty and therefore a ‘liability arising from [the Sugars Business]’ as at 30 September 2010. This was one of a number of issues which were referred to the Reporting Accountants, Deloitte LLP, under the terms of §3.8 of Schedule 10 of the SBSA; and their ‘determination of any matter falling within their jurisdiction’ was to be treated as ‘final and binding … save in the event of manifest error’. 
42.	The Reporting Accountants rejected the argument that there was a ‘liability’ as a result of the Defendant’s IPR position at Closing, finding that there was no requirement for what was termed ‘hypothetical’ duty to have been recorded in the Closing Statement. The Defendant relies on this finding in so far as it bears on a matter which is otherwise in dispute between the parties.
43.	It is common ground that in view of the existence and extent of the IPR balance at Closing the Claimant was faced with three alternative courses of action: either (1) to pay the import duty; or (2) to purchase the additional Preference Sugar needed, and sell it into the World Market so as to reduce or extinguish the IPR balance; or (3) to roll the IPR balance forward. I shall refer to these as the three options.
44.	The Defendant’s case is that the Claimant could and should have decided on option (3) and rolled the adverse balance forward until market conditions improved, most likely by the intervention of the EU Commission. There were sufficient supplies of Preferential Sugar at Closing to meet all of its EU sales commitments and it could have managed the IPR balance. The Defendant points out that in the immediate post-Closing period the Claimant, once it had control of the Business, committed it to further sales into the EU on the basis of the existing supply, notwithstanding the state of the IPR balance. It submits that, for whatever reason, either the Claimant (or its parent, ASH) subsequently changed the way the business had been run and decided to extinguish the IPR balance rather than rolling IPR balance forward and using the IPR regime in the way that it had previously been used.
45.	I have considered these submissions, the evidence at trial and the very full closing written submissions, and have come to the following preliminary conclusions.  
46.	First, although the Defendant had historically and in different market conditions run the IPR balance by rolling it forward, it is in no position to complain that the Claimant concluded that this was not a sensible approach in the prevailing market conditions. Such an approach would necessarily be founded on the expectation that market conditions would improve. Other than viewed in hindsight, it was an equally justifiable view that market conditions might get worse, and that the costs and risks of trading out of trouble were not commercially acceptable. 
47.	Rolling the IPR balance forward would have postponed the problem but it would not necessarily have solved it. It would in addition have required the Claimant to speculate on the future price of Preference Sugar in a rising market. Nor was it a cost-free option: whether immediately or in the future, the Claimant still had to purchase sufficient Preference Sugar to satisfy its obligations, and would have to bear the cost of rolling the IPR balance forward in the meantime. 
48.	Secondly, and subject to the legal analysis, I am not attracted by the Defendant’s argument that, since it had unconfined access to the business and the personnel of T&L Plc for a period of 3 months, the Claimant cannot be heard to complain about the position it found itself in. It amounts to little more than the proposition that, if it had known what to look for and why it should look for it, the Claimant might have discovered the extent of the worsening IPR balance.
49.	In this context it is significant that neither the FDS reports, nor the Defendant’s letter of 10 March 2010 to HMRC, with its reference to ‘significantly large volumes’ and the expressed purpose being to supply its domestic market customers, were disclosed to the Claimant nor the contents adverted to prior to Closing. 
50.	In the light of these findings I turn to the relevant contractual provisions, the arguments of construction and the further factual issues that arise.
(1) The IPR Claim: Excluded Liability

The contractual provisions of the SBSA relevant to the Claimant’s Excluded Liability claim
51.	The SBSA defined ‘Excluded Liabilities’, at clause 1.1, as ‘all Liabilities referred to in clause 2.3.4’.
52.	Clause 2.3.4(vi) provided:
Notwithstanding Clause 2.3.3, the Business Sellers [the Defendant] shall retain, and shall duly and punctually pay, satisfy, discharge, perform or fulfil and the Business Purchasers [the Claimant] shall not be obliged to accept the transfer of and shall not assume or have any responsibility for … 
(vi) any Liability in respect of Taxation arising up to Closing
53.	Clause 1.1 defined ‘Liability’ and ‘Taxation’: 
‘Liabilities’ means all liabilities, duties, payables, costs and obligations of every description, whether deriving from contract, common law, statute or otherwise, whether present or future, actual or contingent, ascertained or unascertained or disputed and whether owed or incurred severally or jointly or as principal or surety (and ‘Liability’ shall be construed accordingly);
‘Taxation’ or ‘Tax’ means all form of taxation and statutory, governmental, state, provincial, local governmental or municipal impositions, duties, contributions and levies…
54.	Clause 8 was headed ‘Post-Closing obligations’, and included Clause 8.1, ‘Indemnities’.
…
8.1.2 Indemnity by Business Sellers [the Defendant] against Excluded Liabilities.
The Business Sellers shall indemnify and keep indemnified the Business Purchasers against: 
(i)  all Excluded Liabilities; and 
(ii) any Losses which the Business Purchasers [the Claimant] may suffer by reason of the Business Purchasers taking any reasonable action to avoid, resist or defend against any Excluded Liability.
55.	Clause 8.2 was headed ‘Conduct of Claims’ and included:
…
8.2.2	Excluded Liabilities etc.
(i)  If the Principal Purchaser becomes aware after Closing of any claim which constitutes or may constitute an Excluded Liability or which could give rise to a Liability for a member of the Purchasers’ Group in respect of which it is entitled to be indemnified by a Relevant Seller pursuant to Clause 8.1.2, the Principal Purchaser shall as soon as reasonably practicable … give written notice thereof to the Relevant Seller (provided that the failure to provide such written notice within such time period shall not release the Relevant Seller from any of its indemnification obligations under Clause 8.1.2 except to the extent that the Relevant Seller is materially prejudiced by such failure) and shall not admit, compromise, settle, discharge or otherwise deal with such claim without the prior agreement of the Relevant Seller, such prior agreement not to be unreasonably withheld unless the Relevant Seller agrees to indemnify the Principal Purchaser or relevant member of the Purchasers’ Group for any such Liability.
(ii)	The Business Purchasers shall take such action as the Relevant Sellers may reasonably request to avoid, dispute, resist, appeal, compromise, defend or mitigate any claim which constitutes or may constitute an Excluded Liability subject to the Business Purchasers being indemnified and secured to their reasonable satisfaction by the Relevant Sellers against all Losses which may thereby be incurred ….
56.	It was common ground that the liability to pay the IPR balance represented ‘a liability in respect of Taxation arising (before) Closing’ and was, as such, an Excluded Liability within the meaning of clause 2.3.4(vi).
57.	On this basis Mr Mill submitted that the Claimant had a right to be indemnified, under clause 8.1.2(ii) in respect of any losses which it incurred in taking action to avoid liability in respect of the IPR balance. He argued that, by acting as it did (purchasing additional Preference Sugar and selling it into the world market so as to reduce or extinguish the IPR balance) the Claimant took reasonable action to avoid an Excluded Liability (the liability to pay duty). The importation and use of World Sugar under IPR authorisations resulted in an IPR balance of 130,331 mt at Closing and a liability for duty of €54,608,689. The Claimant had avoided liability for this duty by the payment of €24,918,811, in respect of which they were entitled to be indemnified under clause 8.1.2(ii). 
58.	Mr Rabinowitz submitted that the Claimant’s argument failed to take sufficient account of the terms of clauses 10.5 and 10.10.1 of the SBSA, which provided:
10.5 Contingent Liabilities
No Relevant Seller shall be liable under this Agreement … in respect of any Liability which is contingent unless and until such contingent Liability becomes an actual Liability and is due and payable.
…
10.10.1 Recovery for Actual Liabilities
No Relevant Seller shall be liable to pay any amount in discharge of a claim under this Agreement ... unless and until the Liability in respect of which the claim is made has become due and payable. 
59.	Although liability to pay customs duty under the IPR regime was to be regarded as an Excluded Liability within the meaning of clause 2.3.4(vi), he submitted that the provisions of clause 10 make clear that the seller is not to be liable in respect of contingent liabilities unless they become actual liabilities  which are due and payable (clause 10.5); and that the seller is not required to pay any amount in discharge of a claim unless and until the ‘liability’ (here the liability to pay IPR duty) in respect of which the claim is made has become ‘due and payable’ (clause 10.10.1).
Conclusions on the Excluded Liability Claim
60.	The first issue is how the provisions of clauses 8 and 10 are to be reconciled.
61.	The Defendant’s construction of these provisions has the anomalous commercial consequence that, if the Claimant had taken no action (reasonable or otherwise) to prevent a contingent Excluded Liability from becoming an actual and payable liability (option (1)), it would be able to be indemnified in full by the seller under Clause 8.1.2(i), whereas if it took reasonable steps to avoid such liability arising, and incurred losses in mitigating that liability (option (2)), it would not be entitled to recover the costs of doing so, even where such costs were reasonable and reduced the overall liability to pay duty. 
62.	It seems to me that the parties are unlikely to have intended that result.
63.	If the claim for an indemnity were made under clause 8.1.2(i) against ‘all Excluded Liabilities’, I accept that the indemnity would only arise when it became an actual liability; but here the claim is made under clause 8.1.2(ii) which is concerned with losses that the purchaser incurred by reason of taking action to avoid liability in respect of an Excluded Liability.
64.	Clause 8.1.2(ii) provides that the purchaser is entitled to an indemnity against ‘any Losses’ incurred (in consequence of any reasonable actions taken by it) to ‘avoid … Excluded Liability’. ‘Excluded Liability’ includes, by definition, both actual and contingent liabilities. The word ‘avoid’ highlights that conduct which is designed to prevent a contingent liability becoming an actual liability is covered, notwithstanding the provisions of clause 10. Thus clause 8.1.2(ii) covers losses reasonably incurred in avoiding a contingent Excluded Liability becoming an actual Excluded Liability. 
65.	Mr Rabinowitz submitted that the word ‘and’ between clauses 8.1.2(i) and 8.1.2(ii), rather than ‘and/or’ or ‘or’, demonstrated that the right to recover losses under clause 8.1.2(ii) only arose in the case of an Excluded Liability which (by reason of clause 10) was an actual liability. I do not accept that submission. The word ‘and’ indicates that these parts of clause 8.1.2 are dealing with different matters and are not alternatives. There is in my view no justification for treating them as qualifying each other. 
66.	Nor do I accept the Defendant’s argument that the construction of clause 8.1.2(ii) is materially affected by clause 8.2.2(ii), so that recovery is excluded unless there has been a notified claim in respect of which the sellers have requested action to be taken. Clauses 8.1.2 and 8.2.2 are dealing with different situations: the latter is concerned with third party claims in respect of which the sellers could be assumed to have a material contribution to any defence or settlement. I can see no good reason to read into clause 8.1.2(ii) the obligation in clause 8.2.2(ii) so as to narrow the buyer’s rights so that reasonable actions could only be taken following the seller’s request. 
67.	If, contrary to my view, the relevant provisions are capable of more than one construction, I am of the further view (for the reasons already expressed) that the Claimant’s construction most accords with commercial good sense, see for example the judgment of the Supreme Court in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 [23]-[24]. 
68.	Where the intention of the parties to the SBSA, expressed in clause 2.3.4, was that the Defendant should retain responsibility for the specified categories of liability, including liability to pay duty, it could be expected that reasonable actions to avoid or reduce that liability would be covered by the indemnity. As already noted, if the Claimant had failed to pay down the IPR balance within the throughput period and duty had become payable, the Defendant would have been liable to indemnify the Claimant against the full amount of that duty under clause 8.1.2(i). 
69.	The Determination of the Reporting Accountants does not assist the Defendant on this issue. It was not (and could not purport to be) a determination of the legal rights of the parties under the SBSA. 
70.	The issue then is whether the Claimant acted reasonably.
71.	In my judgment the assessment of whether the Claimant acted reasonably, as required by clause 8.1.2(ii) involves (i) assessing its conduct at the time and not with the clear vision of hindsight, (ii) identifying what was known (or should have been known) to the Claimant at the time, (iii) recognising that the Claimant might be faced with more than one option, each of which could be characterised as reasonable in the circumstances, and (iv) recognising a partial analogy with the principles which apply to mitigation of loss. It is only a partial analogy because the contract has provided for a decision to be made in particular circumstances: it is not a decision that has to be made because the adverse party has committed a breach of contract or ‘created the emergency’, see for example, the speech of Lord Macmillan in Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452 at 506.
72.	As already noted there were effectively three options: (1) to pay duty on the IPR balance (more than €54m), (2) to purchase Preference Sugar and sell it on the World Market during the throughput period, thereby satisfying the re-export obligation (and incurring costs of €24.19m) or (3) to roll the IPR balance forward by importing and then exporting more World Sugar, thereby deferring the obligation to purchase Preference Sugar for sale into the World Market. 
73.	It is the Defendant’s case that, even if the Claimant were able to bring itself within clause 8.1.2(ii), it did not act reasonably to avoid the Excluded Liability, and disregarded a contractual requirement in clause 8.2.2 to give notice to the Defendant of what it intended to do. It contends that, if the Claimant had given notice, the Defendant would have succeeded in persuading it against adopting such a course. 
74.	In support of its argument that it should have been given the opportunity to persuade  the Claimant against exercising option (2), the Defendant relied on the evidence of Mr Gibber (General Counsel for Tate & Lyle Plc) in cross-examination.
I think if [the Claimant’s management team] had really thought through the difference between the businesses they run in North America, which obviously we are also familiar with because we sold them those businesses, and how you run a business like that compared to how you run Thames, again that is why it would have been great if all of this had come out before because we could have had that discussion and brought him to a point of understanding how to manage his way out of that situation. 
75.	Having seen some of the Claimant’s management team give evidence I am clear that they were perfectly capable of understanding the issues which faced them; and I am equally clear that they would not have been prepared to continue rolling over the IPR balance for what (viewed prospectively) was an indefinite period without being indemnified against the risk of doing so. Significantly, there was no evidence from the Defendant that it would have been prepared to offer any indemnity. 
76.	The evidence of Mr Burden (the Defendant’s Finance Director), to the effect that he did not think there was ‘a practical likelihood’ of any IPR liability crystallising was unrealistic, viewing the matter prospectively. The IPR balance was at an unprecedentedly high level, there was no immediate or medium-term prospect of the situation improving (the Defendant’s FDS reports assumed that they would not) and there was no sign of a market intervention by the EU Commission. 
77.	If the Defendant had been more open with the Claimant’s management team, and if the Claimant’s management team had been willing to be told how to run the business which it had just bought, it might have been possible to bring them, in the words of Mr Gibber’s lofty expression, ‘to a point of understanding how to manage [their] way out of [the] situation’. However the Defendant had not told the Claimant about the position in which it found itself (for example, that the position for 2011 into 2012 was that there would be an ongoing deficit which could not be paid down out of Preference Sugar); and the Claimant’s management was entitled to form its own view of where the Claimant’s commercial interests lay. 
78.	Plainly, if the Claimant’s action was reasonable, it is less likely it would have succumbed to contrary arguments and the less (if relevant) the material prejudice to the Defendant. In my view, in acting as it did, the Claimant acted reasonably in avoiding a liability to pay duty. It is clear that a cost would have been incurred whatever option were chosen, and there is no evidence that adopting an alternative option would have cost less than the amount claimed.
79.	As Mr Fernandez (the Co-President of ASH) said in evidence:
If you did the analysis, you are going to find that it took almost four years before you might have the ability to have resolved it at about the same level that we did; and if you would have factored in all the cost of gotten (sic) there, I don’t think you would have come out ahead. So in hindsight I think our decision was proven to be absolutely on the money.
80.	I should add that I accept there are indications in the evidence that the Claimant did not fully appreciate that the IPR liability might be rolled forward and that there is a lack of documentation about consideration of this possibility. However, I reject the submission that the Claimant’s management was unaware of this option. As the Defendant pointed out on more than one occasion during the trial, the Claimant had taken over the European sugar business of Tate & Lyle Plc, with all the staff who had previously managed the Defendant’s IPR liability; and it was clear from the oral evidence of Mr Fernandez and the written evidence of Mr Bamberger that option (3) was considered before being rejected for good reason. 
81.	Nor do I accept that the Claimant failed to have sufficient regard to the general observations of its advisors, Credit Suisse (in May 2010) and KPMG (in June 2010), about conditions of short supply being likely to last only a year or two. Predictions (however expert) about the price and availability of commodities, dependent on the fortuities of nature, are fallible. 
82.	The Defendant also relied on an answer given by Mr Fernandez in the course of cross-examination that ‘at some point in the future things could get better and you could solve the problem.’ This was very plainly the attitude of the Defendant; but it is not an approach which the Claimant was bound to follow, and is inconsistent with a hedging policy such as the one adopted by the Defendant. At the time of Closing it was uncertain what the EU Commission might do to alleviate the shortage in Preference Sugar supplies, when it might do it, or what effect it might have, as Mr Bennett (the Defendant’s Finance Manager) accepted. In the event, when it eventually intervened on 26 November 2010 the evidence of Mr Fernandez was that the effect of the Commission’s intervention on the supply of Preference Sugar was very limited.  
83.	For these reasons I have concluded that the Claimant is entitled to recover its losses of €24,918,811 on the basis that such losses were incurred reasonably within the meaning of clause 8.1.2(ii) of the SBSA.
The IPR Claim: Assumed Liability or Residual Warranty
84.	In the light of these conclusions, I can deal with the Claimant’s alternative basis of claim more shortly.
The contractual provisions of the SBSA relevant to the Claimant’s Assumed Liability Claim
85.	The Claimant’s alternative basis of claim is founded on the allegation that the Defendant was in breach of clauses 5.1.1 and 5.1.2, and two warranties in paragraph 15 of Schedule 11 of the SBSA.
86.	Clause 5 of the SBSA was headed ‘Pre-Closing’ and Clause 5.1 was entitled ‘The Relevant Seller’s Obligation in Relation to the Conduct of Business.’ Clause 5.1.1 required the Defendant to procure that between the date of the SBSA and Closing the business was carried on as a going concern in the ordinary course as it was carried on prior to the date of the SBSA, save insofar as agreed in writing with the Claimant. Paragraphs 15.1 and 15.6 of Schedule 11 to the SBSA required the Defendant to carry on the business in the ordinary course as carried on prior to the Accounts Date (31 March 2010), save insofar as agreed in writing with the Claimant. 
87.	Clause 5.1.2 provided:
Without prejudice to the generality of Clause 5.1.1., and save as disclosed in the Disclosure Letter, each of the Relevant Sellers shall procure that, between the date of [the SBSA] and Closing, the Business Sellers and the relevant Group Companies shall not, in respect of any Group Businesses and/or Group Companies being sold by them pursuant to this Agreement, without the prior written consent of the Principal Purchaser, such consent not to be unreasonably withheld or delayed:
(i) discontinue or cease to operate all or a material part of the business of the Group or do anything that will, or could reasonably be expected to, materially and adversely affect the value of the Group as a going concern; 
(ii) …
(iii) enter into any agreement, contract, arrangement transaction or undertaking or incur any commitment involving any expenditure in excess of £500,000 per item and £5,000,000 in aggregate … 
(iv) enter into or amend any agreement, contract, arrangement transaction or undertaking or incur any commitment relating to Raw Sugar Supply; 
(v) enter into or amend any agreement, contract, arrangement transaction or undertaking or incur any material commitment relating to the sale of refined sugar (other than spot sales);
(vi) enter into or amend any agreement, contract, arrangement transaction or undertaking or incur any commitment which is not capable of being terminated without compensation at any time with 12 months’ notice or less or which is not in the ordinary course of business or which involves or may involve total annual expenditure in excess of £500,000 …
(vii) acquire or dispose, or agree to acquire or dispose of, any asset or of stocks involving consideration, expenditure or Liabilities in excess of £2,000,000 … other than in the ordinary course of business;
…
88.	The Claimant submitted (in effect) that at Closing the Defendant was running its sugar business in a manner that was different to its ordinary course of business before 30 June 2010. The Defendant’s ordinary use of IPR before that date was for the purpose of its export business, specifically, importing non-EU goods, processing them and re-exporting them on the world market. Prior to March 2010 IPR had been used to supply EU customers on particular occasions where there was a short-term supply problem, for example, the late arrival of a shipment. After March 2010 the Defendant faced an unprecedented and exceptional supply problem which required it to import and process significantly larger volumes of world sugar under the IPR regime in order to supply its domestic market, using IPR authorisation to debond World Sugar to meet its EU sales commitments, without having enough Preference Sugar to satisfy its re-export obligations. It told HMRC that it intended to use it in this way because it involved a change of use and it needed an extension of the throughput period from 6 to 12 months for the purpose.
89.	In my judgment this argument fails. Neither the quantity nor the commercial purpose took it outside the ordinary course of the Defendant’s business, and the change of use (if such it was) predated 30 June 2010. The Defendant had always used the IPR regime to deal with Preference Sugar shortages. In his witness statement Mr Bennett gave examples of occasions when the IPR balance had increased significantly in a matter of months: for example, increasing between May and November 2009 from 8,000 mt to over 63,000 mt. This reflected fluctuations in markets that were a customary feature of the sugar industry. 
90.	The Claimant argued that the material difference in the operation of the business was that the Defendant could no longer be certain of obtaining Preference Sugar to make up for the World Sugar being sold in the EU. It had an exposed position, in that it did not have enough Preference Sugar at Closing to meet its re-export obligations arising from sales in the EU and any increase in the IPR balance of 130,331 mt; and that, even if it had enough Preference Sugar to meet its actual sales, it did not have enough to meet expected or anticipated EU sales. 
91.	So far as its actual sales were concerned, the argument was debated before the Reporting Accountants who dispositively rejected it; and I do not accept that the Claimant is entitled to challenge this conclusion.
92.	Schedule 10 of the SBSA set out details relating to the Closing Statement; and paragraphs 3.3 onwards set out the procedure for referring disputes about it to the Reporting Accountants. Paragraph 3.8 provided as follows:
The Reporting Accountants shall act as experts and not as arbitrators and their determination of any matter falling within their jurisdiction shall be final and binding on the Relevant Sellers and Relevant Purchasers save in the event of manifest error (when the relevant part of their determination shall be void and the matter shall be remitted to the Reporting Accountants for correction). In particular, their determination shall be deemed to be incorporated into the Draft Closing Statement.
93.	 At §4.59 of their report the Reporting Accountants set out why they considered that ‘it was not probable that at Closing an outflow of resources embodying economic benefits would have been incurred in respect of the IPR liability.’
94.	At §4.58 they had concluded:
As a matter of fact, the Sugars Business acquired sufficient Pref(erence) Sugar not only to keep the IPR balance within its authorised limits but also service approximately 100,000 tonnes of new EU sales commitments. It is reasonable to assume that such a level of sales would not have been contracted for if the Sugars Business did not have reasonable expectations of acquiring Pref(erence) Sugar at a commercially acceptable price to meet those commitments, the SLS swap obligation and its IPR obligations.
95.	In my judgment the Defendant is right in its contention that the amount of Preference Sugar that it had acquired by Closing, as against its actual sales commitments, was a fundamental and necessary part of the reasoning behind the determination in §4.59.
96.	So far as expected or anticipated sales are concerned, I accept the Defendant’s evidence and submissions that there were no relevant binding legal supply obligations. As Mr Gibber put it in his evidence:
… in our industry you very rarely commit more than a calendar year pricing, and generally your fixed delivery volumes are quite short-term. So Coca Cola don’t give you a fixed tonnage that they are going to buy from you; they wait to see what the weather’s like and how many cans of drink they sell. So there is a lot of flexibility in all of our contracts.  Within the European market, particularly in the UK, there is plenty of other sources of supply. So it is not at all unusual for a supplier to go to a customer and say, ‘Sorry, I have no volume’. The customer will fill that volume elsewhere. Or there have been occasions where we have bought that volume from another supplier to ensure continuity of supply to the customer.
97.	I should add that, in any event, I do not accept that for the Defendant to have adopted an exposed (or, as the Claimant characterised it, a ‘naked’) position in relation to Preference Sugar was out of the ordinary course of business. The evidence of Mr Bennett was that the Defendant had always used the IPR regime to cover shortfalls in Preference Sugar by supplying refined World Sugar to EU customers; and the letter of 16 March 2010 to HMRC made clear that it would require the longer throughput period for this purpose. The Defendant did not change the way in which it operated its business between 30 June and 30 September 2010, it adapted its operations in the light of unusual trading conditions from March 2010.
98.	Further, in point of fact, the substantial increase in the IPR balance from between the end of June and Closing was due to the delayed arrival of a shipment of approximately 69,000 mt of expected Preference Sugar. This was not a change in the way the Defendant operated the business, on the contrary Preferential Sugar had previously been used to supply EU customers where there had been short term supply problems. 
99.	The Claimant also relies on various further breaches of clause 5.1.2 which do not depend on the contention that the Defendant changed the way in which it ordinarily conducted its business, relying on sub-clauses 5.1.2 (i), (iii), (iv) and (v). I consider that it is sufficient for present purposes to summarise my reasons for rejecting these arguments by reference to §§106-128 of the Defendant’s Closing Submissions; and, in particular the focus on the lack of material evidence adduced by the Claimant to support this claim.
Conclusion on the IPR claim
100.	It follows that I find that the Claimant’s IPR claim succeeds on the basis that it constituted a contractually excluded liability.
(2) The Futures Claim

The contractual position and the issue

101.	Clause 3.7.1 of the SBSA provided:
The Principal Seller maintains hedging books (‘Hedging Books’) for the Group that include (i) futures positions required to manage the price risk inherent in supplying raw sugar to the Group pursuant to Intercontinental Exchange (ICE) No 11 Sugar futures contracts [#11 futures], (ii) future positions required to manage the price risk inherent in selling refined sugar by the Group to its customers pursuant to NYSE LIFFE Number 407 white sugar futures contracts [#5 futures] … It is the intent of the parties that the economic benefit or loss of the above referenced futures contracts to the extent such futures contracts relate directly to hedging the risk of the business conducted by the Group (‘the Futures Contracts’) be transferred to the Principal Purchaser at Closing.
102.	Clause 3.7.3 of the SBSA was in the following terms:
To the extent the Futures Contracts are capable of being transferred on an ‘against acceptance’ (‘AA’) basis under the rules of the applicable exchanges, at Closing, the Principal Seller shall cause such contracts to be so transferred to the Purchaser and the Purchase Price shall be (i) reduced by the amount of any cash gain received by the Principal Seller on such transfer as a result of an extinguishment of margin payables, and (ii) increased by the amount of any cash loss incurred by the Principal Seller on such transfer as a result of an extinguishment of margin receivables. Prior to Closing, the Purchaser shall have in place the accounts necessary to receive these contracts. 
103.	At Closing, the Defendant’s physical sugar contracts and the corresponding futures positions were transferred to the Claimant. The effect of the contractual provisions was that the Claimant was to take the Defendant’s place in relation to both the physical and futures contracts. The procedure which was followed in relation to futures contracts was an ‘against actual’ (‘AA’) process, by which the Defendant closed out its futures positions and the Claimant took out identical futures positions to replace them.
104.	By clause 3.7.3 of the SBSA, the parties agreed that the Purchase Price would be reduced or increased depending on whether the Defendant had a cash gain or a cash loss with its brokers at the time of extinguishing margin receivables. In the event, there was a cash loss of US$15,823,868 in variation margin which meant, in effect, that the Claimant had to pay the Defendant this sum. 
105.	The Claimant’s case is that some of the futures contracts ‘transferred’ to it (the ‘Disputed Futures’) were not (on proper analysis) Futures Contracts within the meaning of clause 3.7.1 because they did not ‘relate directly to hedging the risk of the business conducted by the Group.’ 
106.	It further submits that the Disputed Futures were not hedges of priced physical positions, since the Defendant’s World Sugar Physical Book contained a series of entries which were no more than book entries relating to internal transactions between WMS and Thames. Since Thames had been selling World Sugar into the EU, these entries were no longer representative of the physical sugar owned by the Defendant. Nor, from the viewpoint of the Defendant, were there priced contracts to purchase physical sugar. What had happened was that, while Thames had sold World Sugar into the EU, the Defendant had not adjusted the World Sugar Physical Book to reflect that fact. Consequently it had a long physical position on the Physical Book that was, in effect, no more than ‘a stroke of the pen’. Against this, the Defendant had taken real futures positions. Those futures contracts were not hedges, because they did not correspond with real priced physical positions.
107.	The Claimant contends that if the Disputed Futures had not been taken into account, the true margin position between the Defendant and its brokers would have been such that, rather than the Purchase Price being increased by US$15,823,868 (as occurred), it would have been reduced by US$10,214,186. It therefore claims that it paid the sum of these amounts (US$26,038,054) under a mistake, alternatively as damages for breach of an implied term.
The evidence
108.	The Claimant contended that only two factual issues arose: first, whether the Defendant made adjustments to its Physical Book to reflect the use by Thames of World Sugar to meet its EU commitments; and secondly, on the assumption that Thames sold to WMS sugar that it did not own and had not yet purchased on a priced basis, whether the Defendant had a priced physical position in relation to that sale.
109.	The Defendant pointed to, what it described as ‘the oddity’ of the Claimant’s entire case being based on the evidence of Mr Widmer (the Claimant’s Senior Vice-President, Finance) who, some considerable time after the Closing,  conducted an investigation into the Defendant’s hedging arrangements, but who was not employed either by the Claimant or the Defendant during the relevant time. The Defendant contrasted the Claimant’s reliance on Mr Widmer (whose evidence did not purport to be expert evidence), with its failure to call a number of individuals, previously the Defendant’s employees and now employed by the Claimant or its associated companies, who were  directly involved at the time in the futures operations. 
110.	The first part of the criticism is to a large extent justified. Mr Widmer’s evidence was opinion evidence for which no permission had been sought or obtained; and the Court would have been more assisted by independent evidence by experts who would have been aware of their obligations to the Court and whose reports would have set out the areas of agreement and disagreement. There was the further difficulty that this area of the case (like the IPR claim) had to be considered while navigating through the many trial bundles, whose preparation had received less attention than the Court was entitled to expect. The further advantage of having expert reports would have been that it would have directed attention to what were the material documents.
111.	My confidence in Mr Widmer’s analysis was initially undermined by his insistence that the approximately 130,000 mt of sugar, which on his approach should have been stripped out of the recorded physical transactions between WMS and Thames as being ‘fictitious’, correlated in some way to the approximately 130,000 mt of the IPR balance at Closing. In the event it became clear that the similarity in the figures was coincidental.
112.	Nevertheless, and subject to a point identified below, I am not prepared to disregard Mr Widmer’s evidence or treat it as inadmissible. The parties were able to address the point; and Mr Mill and Ms Powell (for the Claimant) and Mr Rabinowitz (for the Defendant) deployed their formidable forensic skills in elucidating some of the complexities of the issue in oral argument. However where witnesses disagreed, I accept Mr Rabinowitz’s submission that the evidence of those with direct knowledge of what was occurring at the time (Mr Gibbs and Mr Hicks) should be preferred. The former was the Management Accountant for WMS and Tate & Lyles Plc’s Molasses Division; and the latter was the Group Financial Controller at Tate & Lyle Plc at the time of the sale of the business.
113.	Messrs Gibbs and Hicks explained the usual course of the Defendant’s business from the point of purchase of raw World Sugar from the World Market to the point of selling refined white sugar to the World Market, and why particular steps were taken to hedge the Defendant’s risks. 
114.	The relevant price risk, and the need to hedge, was identified as arising in relation to the purchase and sale of sugar on the World Market, since there was no futures market for Preference Sugar. The Defendant’s usual practice was as follows: (1) raw sugar was purchased by WMS from the World Market, (2) the raw sugar was transferred to Thames for refining and, when Thames had forecast that it would be in a position to make delivery to WMS, (3) the refined sugar was transferred to WMS with the intention of it being sold into the World Market. 
115.	If, however, Thames needed a quantity of refined white sugar which it had sold to WMS (and had not forecasted such need at the time of sale) in order to sell it to EU customers, (4) part of the refined sugar that had been sold by Thames to WMS would be sold back to Thames, for (5) sale by Thames to the EU market and (6) the rest of the refined sugar would be sold by WMS to the World Market. 
116.	In the event that refined sugar had been sold back to Thames by WMS for sale to EU customers, the Defendant would be left with an obligation under the IPR regime to re-export that same quantity of sugar onto the World Market within the throughput period. If the Business decided to pay down, rather than to ‘roll’, this IPR balance, (7) Thames would need to purchase the same quantity of raw Preferential Sugar, refine it, and (8) sell an equivalent quantity of refined sugar to WMS, (9) for onward sale by WMS onto the World Market. 
117.	Each step in the process was addressed in the evidence by using a worked example, starting with 2,000 mt of raw sugar being purchased by the Defendant from the World Market. I have set out this worked example as an annex to this judgment. In relation to each step, the witnesses explained why the futures contracts taken out related directly to the Defendant’s hedging risk, and this part of the evidence was not challenged.
118.	As noted above, one of the criticisms of the Defendant’s approach to hedging was that the internal sales between WMS and Thames were improperly recorded and were treated as if they were transactions between separate companies. The argument developed into two particular matters of complaint. 
119.	First, there was a complaint about the recording of sales of refined sugar by Thames to WMS where Thames had already sold the sugar into the EU and did not have enough refined sugar or priced preferential sugar supplies with which to make up the amounts. Mr Widmer characterised these recorded sales from Thames to WMS as essentially ‘fictitious’. The second complaint was that Mr Gibbs and Mr Hicks were in error when they described how, in a situation where Thames had transferred refined sugar to WMS and then required refined sugar to supply its own EU customers, WMS would sell refined sugar back to Thames and take out a long future to reduce the short futures position.
120.	The Claimant’s argument was that WMS erroneously considered that it was long on refined sugar, and that consequently its matching short future contract was not required. In my judgment this complaint fails to take any (or any proper) account of the way in which the Defendant conducted its trading. First, sales of refined sugar from Thames to WMS were only priced at the time that the delivery date was certain: from that moment WMS was in a long position. Secondly, Thames and WMS had different accounting systems to deal with what were different businesses. WMS, as a trading business took account of future profits or losses by ‘mark to market’ valuations, using what was known as the ITAS system. Thames, as a manufacturing business, used a different accounting system for recording future profits or losses when a delivery was made and a price for it had been established, known as the SAP system. It followed that a transaction might be recorded on WMS’s system and not on Thames’s system.
121.	There was a further criticism that, when WMS sold refined sugar back to Thames (for use in Thames’s onward sales) and took out a long future in respect of the sale, the contract was not recorded in the ITAS system. This aspect of the Defendant’s business and the way in which the Defendant recorded the relevant transactions was also explained by Messrs Gibbs and Hicks. When Thames required refined sugar to sell into the EU, after it was sold on to WMS, the latter would sell the sugar back to Thames and take out a corresponding long future in respect of the sale which was recorded in the ITAS system. In the light of this evidence I do not accept the Claimant’s contention that the long futures taken in respect of sales of refined sugar sold by WMS to Thames were not recorded in ITAS.
122.	As noted above, Mr Widmer’s evidence was that not all the sales of refined sugar by WMS to Thames were on-sold into the EU, some of these being sales into the World Market. Although a considerable amount of time was spent on this point, with screenshots designed to support Mr Widmer’s evidence, it became apparent at this point (if not before) that advancing a case based on a witness’s non expert opinion was unsatisfactory. Instead of the opinion evidence becoming the subject of discussion between experts, and points of agreement and disagreement being identified, the case was left on the basis of a conflict of evidence between Mr Widmer and Mr Burden, who had carried out his own detailed analysis of the screenshots on which Mr Widmer’s views were based. Although I would not generally take a strict view of matters not being put in cross-examination, in these circumstances, I am not prepared to resolve this point adversely to the Defendant. To the extent that there is a difference between the evidence of Mr Widmer and Mr Burden, I accept the latter’s evidence.
123.	At its heart, the Claimant’s case amounted to the contention that the Defendant was recording, and hedging against, sugar transactions between WMS and Thames which were not genuine transactions or where the hedges were unnecessary. Futures contracts were taken in order to hedge against risks which did not exist. If this were right, it would plainly have involved both a cost to the Defendant (commission) and the use of its employees’ time in engaging in what was, on the Claimant’s case, a futile and unnecessary series of transactions. It involves the proposition that the Defendant and its employees did not know what they were doing; and that was indeed the effect of Mr Widmer’s evidence. 
124.	The contractual issue is whether the Disputed Futures related directly to hedging the risks of the business which was conducted by the Defendant. The Defendant plainly thought that its future contracts were appropriate and necessary hedges of the risks to which its business was exposed; and, although the position was complicated (involving as it did different entities within the business) I am not satisfied that they were wrong.  
125.	It follows that I do not accept that the Claimant has established (as a matter of fact) that the futures contracts that were transferred from the Defendant to the Claimant were not directly related to hedging the risks of the Defendant’s  Group. On balance I consider that the futures contracts in dispute were Futures Contracts within the meaning of clause 3.7.1. 
126.	It is in the light of these conclusions that I consider the legal issues.
The Law
127.	The Claimant’s claim was advanced on two bases: as a claim in restitution and as a claim based on the breach of an implied term of the SBSA.
(a) Restitution 
128.	In Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 at 227A-B Lord Steyn indicated that four questions must be asked in considering a claim for restitution: (1) has the defendant benefited, in the sense of being enriched; (2) was the enrichment at the claimant's expense, (3) was the enrichment unjust (for example, as a result of a payment under a mistake), and (4) are there any defences available to the defendant (for example, a change of position)? In order for the claim to succeed, the first three questions must be answered affirmatively and the fourth question negatively. 
129.	As noted above, the Claimant’s claim is advanced in two parts: a claim for US$15.8m and a claim for US$10.2m.
130.	It is therefore necessary to consider these two aspects.
131.	The Defendant submitted that, even if the Claimant were able to establish that the Disputed Futures were not Futures Contracts within clause 3.7.1, and that the US$15.8 million should not have been paid by it to the Defendant, its restitution claim must still fail. Mr Rabinowitz submitted that the US$15.8m was paid by his client to its brokers in respect of the variation margin in good faith. It followed that the Defendant was not unjustly enriched and that it was, in any event, entitled to rely on its change of position by way of defence. 
132.	So far as the claim for US$10.2m was concerned, he submitted that the Claimant would have to show that the Defendant has been enriched by this amount. In fact, it was not. All that the Defendant received from the Claimant was the agreed Purchase Price. It was always intended that any payment in respect of the closing of the futures positions should leave the Defendant in a neutral position. It had not, in any sense, been enriched by the sum of US$10.2m. The Claimant might argue that it was worse off but that was not a relevant consideration in relation to the restitution claim where it is necessary to establish that there had been enrichment of the defendant.
133.	In response, Mr Mill submitted that the position of the Defendant immediately before Closing was that it was due to receive the purchase price agreed under the SBSA and was also indebted to its brokers. It received a benefit and was enriched by the Claimant’s payment of US$15.8m which enabled it to discharge this obligation. It was a classic case of a defendant who owed an obligation to a creditor which was discharged by a claimant and being enriched at the claimant’s expense, see Goff & Jones, The Law of Restitution, 8th Ed, at §5-41. The enrichment was unjust because it was made on the basis of a mistake: that the Disputed Futures were Futures Contracts for the purposes of clause 3.7.1 of the SBSA. 
134.	In Test Claimants in the FII Group Litigation v. HMRC [2014] EWHC 4302 (Ch) at [243] Henderson J noted that the parties to the litigation were content, as was he, to take as correct the formulation in section 23(1) of Burrows, A Restatement of the English Law of Unjust Enrichment (2012) as a correct statement of the law.
The defendant has a defence to the extent that -
(a) the defendant's position has changed as a consequence of, or in anticipatory reliance on, obtaining the benefit, and
(b) the change is such that the defendant would be worse off by making restitution than if the defendant had not obtained, or relied in anticipation on obtaining, the benefit.
135.	On this basis, a defendant’s position will have changed as a consequence of obtaining a benefit if it has (1) incurred expenditure or suffered a loss, (2) which is causally linked to the benefit. As Henderson J went on to note at [343] (again drawing support from the Restatement), although the relevant test for ‘causally relevant loss’ has not yet been laid down in the cases, the appropriate starting point is the ‘but for’ test accepted by Walker LJ in Scottish Equitable Plc v. Derby [2001] EWCA Civ 369, with whom the other members of the Court of Appeal agreed.
136.	This so-called ‘wide’ or ‘wider’ formulation of the change of position defence is to be contrasted with the ‘narrow’ or ‘narrower’ formulation, which only permits the change of position defence where there is strict reliance by the defendant on having received the payment before acting.  
137.	I accept that it is the wider and not the narrower formulation that represents English law. Thus, so long as there has been a ‘disenrichment’ of the defendant (following its enrichment), then, provided that the ‘disenrichment’ did not come about in bad faith, the defence will be available. Such an approach is supported by the judgments in Scottish Equitable plc v. Derby (see above), Commerzbank AG v. Price-Jones [2003] EWCA Civ 1663, Mummery LJ at [43] and Sedley LJ at [54], and Goff & Jones (above) at §§27-25 to 27-28.
138.	By the terms of clause 3.7.3 of the SBSA the Purchase Price was to be adjusted depending on whether there were cash gains received or cash losses incurred on the transfer of the futures contract as a result of ‘extinguishment’ of margins payable. The effect of the bargain was that if the Defendant owed margin to its brokers, this amount would be paid on top of the Purchase Price to fund the payment to the brokers; and, since the money was to be paid on to the brokers, the Defendant would be left with the Purchase Price. If, on the other hand the Defendant’s brokers owed it monies in respect of margin, that would operate to reduce the Purchase Price, since the Defendant would be receiving an equivalent amount from the brokers. 
139.	In my judgment Mr Rabinowitz is correct to characterise this part of the SBSA as a bargain by which the Defendant would end up receiving neither more nor less than the Purchase Price, and that it is this feature which is the answer to the claim for unjust enrichment (whether the US$15.8m paid or the US$10.2m unpaid) as a matter of law. As he expressed it in argument, either the Defendant was enriched and then ‘disenriched’ by paying the money on to the brokers, or was not enriched at all, since it ended up with the Purchase Price, neither more nor less.
140.	In order to implement the ‘AA’ adjustment the Defendant contacted its brokers, informing ASH that they were doing so, in order that they would know that the futures contracts that were to be transferred to the Claimant were being allocated and processed correctly. At Closing, the Defendant’s margin position with its brokers was such that it owed US$15.8m to its brokers. There is no issue that this was agreed by the Claimant at the time and that this was indeed the debit balance owed to the brokers. The Defendant dealt with this obligation by putting in place off-setting futures to close out its existing futures, and the sum was added to the Purchase Price in accordance with clause 3.7.3. The process was completed on 1 October 2010.  On 4 October 2010, the Defendant requested that the US$15.8m be paid in accordance with clause 3.7.3 on the basis that this was outstanding variation margin payable to its brokers as at Closing. On 7 October 2010, the Claimant paid this sum; and over the course of the next 15 months or so, the Defendant paid out this sum to its brokers treating it as a sum that the parties had contractually agreed would be paid under the ‘AA’ process and as part of the mechanics of clause 3.7. 
141.	In these circumstances I accept the Defendant’s submission that it changed its position in reliance on the US$15.8m payment made after Closing. 
142.	While the Claimant is entitled to say that the Defendant was under a legal obligation to pay the margin to its brokers, this is not an answer to the wider formulation of the change of position defence (see above); and, even if reliance were a necessary element of the defence, the Defendant is entitled to say that it paid the margin because the Claimant had undertaken a reimbursement obligation which would leave the Defendant with the Purchase Price. 
143.	The second element of the claim (for US$10.2m) is calculated on the basis that this was a sum which the Defendant did not in fact owe to its brokers due to the mistaken basis on which the amount owed was calculated. The Defendant submitted that the fact that the Claimant had suffered a loss in respect of this payment did not mean that the Defendant had been enriched, relying on a passage from Goff & Jones (above) at 4-001.
The law of unjust enrichment is concerned with transfers of value between claimants and defendants, and a claim in unjust enrichment is ‘not a claim for compensation for loss, but for recovery of a benefit unjustly gained [by a defendant] … at the expense of the claimant’. The question whether the defendant has been enriched is therefore ‘centre stage’. It is not enough for a claimant to show that he has suffered a loss, since ‘a person cannot be unjustly enriched if he has not been enriched at all … and the fact that a payment may have been made, e.g. by mistake, is not by itself sufficient to justify a restitutionary remedy’. The claimant must also show that the defendant has made a corresponding gain, and proving the defendant's enrichment is therefore ‘not merely material to success, but the whole essence of the action’. 
The passages in quotation marks refer to passages from judgments cited in footnotes.
144.	It seems to me to be clear that the payment of US$10.2m to the Defendant’s brokers did not, on any view of the matter, enrich the Defendant or result in a benefit which was unjustly gained. The Defendant’s position, following payment to the brokers, remained neutral. 
(b) The Implied Term Claim
145.	The Claimant puts its claim to recover the payments made in respect of the Disputed Futures on the alternative basis that it was a loss caused by a breach of the SBSA by the Defendant. It also claims a further US$11.294,248 in damages which it alleges were sustained post-Closing.
146.	The Claimant’s starting point was the obligation in clause 3.7.3, by which the Defendant was to ‘cause [the Futures Contracts] to be transferred to [the Claimant]’, with the Purchase Price being increased or reduced ‘on such transfer’ as a result of an ‘extinguishment’ of margin payable or receivable. It was therefore understood at the time, and part of the relevant factual background against which the clause was to be interpreted, that the Defendant was obliged to make an assessment and to ensure that it was only legitimate Future Contracts that were transferred. 
147.	The agreed process for the transfer of Futures Contracts was that the Defendant produced the list of open trades that were to be transferred. These were to be reconciled to ITAS and brokers’ statements, showing the number of lots, the original price and the market price. A summary of trades would be produced by the Defendant; and its Trading Desk would mark up the list of open trades which had been produced. The Defendant’s Treasury would reconcile the AA schedule with the brokers’ statements; and the Defendant would then produce a statement summarising those trades and the resulting profit or loss. 
148.	It was Mr Tate’s responsibility to take ‘the necessary steps to unwind the internal crosses’ between the Defendant’s various hedging books; and it is common ground that this was a complicated process, which it had not been possible to complete before Mr Gibbs’s return from holiday. It was this delay that put back the Closing by a month. 
149.	In these circumstances, Mr Mill argued, a reasonable person would understand clause 3.7.3 of the SBSA to mean that the Defendant would cause Futures Contracts, and only Futures Contracts, to be transferred to the Claimant. Whether the SBSA needed to have a term implied into it to that effect, or whether that was the proper construction of clause 3.7.3 read against the relevant background did not matter, see for example, Attorney-General of Belize and others v. Belize Telecom Ltd and another [2009] 1 WLR 1988 per Lord Hoffmann at [18]). 
150.	Mr Rabinowitz submitted that there was no proper basis for the implication of such a term whose effect would be that, in going through what was agreed to be a complex and difficult exercise (in which the Claimant, at least to some extent, participated), the Defendant would make no mistakes in identifying the nature and number of contracts involved. The commercial effect of such a term would be that the Defendant had agreed to accept responsibility for any mistake it might make (however honest and reasonable) even though it would not itself benefit from the exercise. 
151.	While this is not the occasion to set out an exhaustive analysis of the circumstances in which terms will be implied into a commercial contract (to which a whole chapter is devoted in Chitty on Contracts 31st Ed.), I approach this issue by reference to the cases cited by the parties on the following basis. First, if a contract does not expressly provide for what is to happen when a specific event occurs, the usual inference is that the parties did not intend anything to happen. If they intended otherwise, the contract would have said so, see Attorney-General of Belize (above) Lord Hoffmann at [17]. Secondly, the implication of a term into a contract is not an addition to the contract. It elucidates what the contract was intended to mean. It is an exercise in the construction of the contract as whole, see Attorney-General of Belize (above) Lord Hoffmann at [18]-[19]. Thirdly, where a party seeks to imply a term into the contract, the question is whether such a provision would spell out in express words what the contract, read against the relevant background, would be reasonably understood to mean, see Attorney-General of Belize (above) Lord Hoffmann at [21]. Fourthly, on classic principles, it is not sufficient for the term to be reasonable it must be necessary, see most recently, Starlight Shipping Co v. Allianz Marine and Aviation Versicherungs AG and others, (‘The Alexandros T’) [2014] EWHC 3068 (Comm), Flaux J at [59]-[60], referring to the judgment of Sir Anthony Clarke MR in Mediterranean Salvage & Towage v. Seamar Trading and Commerce (‘The Reborn’) at [15].
152.	Adopting this approach, it seems to me that, while it would be right to imply a term that the Defendant would act in good faith and honestly in carrying out the process envisaged in clauses 3.7.1 and 3.7.3, there is no proper basis for the implication of the very much more onerous term for which the Claimant argues. Such an implied term does not spell expressly what the contract would be reasonably understood to mean, and is not necessary. Its commercial effect is to impose on the Defendant the financial responsibility for even an honest and reasonable mistake in relation to a complex process which did not confer any benefit on the Defendant, and in respect of which the Claimant was able to bring to bear at least some, albeit limited, oversight. 
Conclusion on the Futures Claim
153.	It follows that I find that the Claimant’s Futures Claim fails on both the facts and the law.
(3) The Biomass Claim
154.	Clause 3.5 of the SBSA provided:
If the current performance testing by The McBurney Corporation (‘McBurney’) on the Biomass Plant results in the issue of a performance certificate showing an efficiency level of less than 95% of the efficiency specification as set out in the agreement for design, engineering, supply of the wheat fibre fired Boiler System dated 9 January 2007 between the Principal Seller trading as Tate & Lyle Sugars Europe and McBurney, the amount payable for the Group Businesses shall be reduced by £1 million and, if such certificate is not issued until after Closing, the Relevant Seller shall, promptly upon receipt of such certificate, pay to the Principal Purchaser £1 million as an adjustment to the Purchase Price…
155.	The facts relating to this claim are not in issue. 
156.	Prior to Closing, there were significant operational problems with the Defendant’s Biomass Plant. Paragraph 4.7 of the Disclosure Letter specifically contemplated that further capital expenditure would be required to complete the commissioning process, and that even then the Biomass Plant might be incapable of reaching the specified efficiency levels. During the week of 26 January 2011, a performance test of the Biomass Plant was attempted by McBurney. This Performance Test was to be carried out in accordance with a Performance Test Protocol dated 16 June 2010. Paragraph 3.2 of the Performance Test Protocol provided (a) that the test period would be a period of 24 hours of steady operation, and (b) that before the start of the test, the boilers would be run for a period of one hour at full load to allow stable operating conditions to be established. The Biomass Plant was not capable of undergoing the Performance Test, because it was not capable of meeting the preliminary requirement of operating for a period of one hour to enable stable operating conditions to be established. Consequently, the attempted Performance Test resulted in complete failure and no test report or performance certificate showing efficiency levels could be produced. 
157.	The Defendant did not deny that, had a certificate been issued, it would inevitably have shown an efficiency level of less than 95%; but maintained that the Claimant was not entitled to a reduction in the purchase price pursuant to clause 3.5 of the SBSA, because it did not have a certificate stating that the Biomass Plant had an efficiency level of less than 95%. It argued that the production of a performance certificate was a condition precedent to its liability under clause 3.5 of the SBSA. 
158.	In my judgment the Defendant’s case lacks commercial reality. It is clear from the way in which Clause 3.5 was drafted that both parties assumed that it would at least be possible for a certificate to be produced. The focus of the clause was on the efficiency level of the plant following the issue of the performance certificate. 
159.	The only sensible elucidation of the intention of the contract is that if the Biomass Plant were performing so badly that it was not even capable of undergoing a performance test, in particular when it was obvious that the plant was incapable of reaching the required efficiency levels, then the amount payable was to be reduced by £1m. It is necessary and reasonable to spell this out from the express words used, against the relevant background, and it is the only way of making business common sense of the express term. 
160.	As Lord Hoffmann put it in Attorney-General of Belize (above) at [18]:
In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.
161.	It follows that the Claimant succeeds with its Biomass claim.

Conclusion

162.	I have therefore concluded that:
(1)	the Claimant is entitled to judgment in respect of the IPR claim;
(2)	the Claimant’s Futures Claim fails and the Defendant is entitled to judgment; and 
(3)	the Claimant is entitled to a form of judgment in respect of the Biomass claim.

Annex
Step 1:  The (external) purchase of 2,000 MT of raw sugar by WMS from the World Market. At this point, the Defendant is exposed to World Market price risk once the external purchase of 2,000 mt from the World market is priced. WMS takes out a short futures contract at this stage to manage this price risk.
Step 2:  The (internal) sale of 2,000 mt of raw sugar from WMS to Thames for refining (priced by reference to World market prices). When the raw sugar is transferred to Thames for refining, the Defendant is still exposed to World Market price risk. However, due to the uncertainties regarding the timing of future sales of refined sugar onto the World Market, the risk is unpredictable and the Defendant chooses not to hedge against it. Thus, WMS takes out an offsetting hedge to extinguish the short position taken out at the time of Step 1.
Step 3:  The (internal) purchase of 2,000 mt of refined white sugar by WMS from Thames (which was priced by reference to World market prices). At this point, a corresponding quantity of refined sugar is returned to WMS by Thames in the expectation that it will be sold onto the World Market by WMS. WMS takes out a short futures contract in relation to the purchase of refined white sugar from Thames, once priced, to reflect the fact that the Defendant now has a reasonably certain expectation that the full quantity of refined sugar will shortly be sold onto the World Market.
Step 4:  The (internal) sale of 500 mt of refined white sugar by WMS to Thames (which was priced by reference to World market prices) with the intention it will be sold into the EU. With this transaction, the position changes because Thames requires part of the refined sugar (500 mt) for sale into the EU market. The Defendant knows, as a result, that it will not be subject to World Market price risk in respect of that sale of the 500 mt, although it will remain subject to World Market price risk in relation to the remaining 1,500 mt of refined sugar that is not to be sold into the EU market. Thus, WMS takes out a long futures position to reduce the short futures position taken out at the time of Step 3. This reflects the Defendant’s reduced anticipated exposure to World Market price risk (of 1,500 mt).
Step 5:  The (external) sale of 1,500 mt of refined white sugar by WMS to the World Market. The Defendant’s exposure to movements in World Market prices (in relation to refined sugar) ends with the pricing of the sale into the World Market. Thus, WMS takes out a long futures position to completely extinguish the remaining short futures position (originally taken out at Step 3, and reduced at Step 4).
Step 6:  The (external) sale of 500 mt of refined white sugar by Thames to the EU market. Price risk within the EU market is limited and cannot be hedged against as there is no futures market for Preferential Sugar. Thus, no hedge is taken out at Step 6.
Step 7:  The (external) purchase of 500 mt of Preferential Sugar by Thames. No World Market price risk would arise in relation to the purchase of Preferential Sugar at Step 7 and, thus, no hedge would be taken out.
Step 8:  The (internal) sale of 500 mt of refined white sugar by Thames to WMS (by reference to World Market price). Step 8 in this scenario is equivalent to Step 3. WMS would take out a short futures contract in respect of the 500 mt, once priced, to reflect the fact that the Defendant now has a reasonably certain expectation that that 500 mt will shortly be sold onto the World Market.
Step 9:  The (external) sale of 500 mt of refined white sugar by WMS to the World Market. Step 9 in this scenario is equivalent to Step 5 above. Upon the pricing of the sale of this 500 mt into the World Market, the Defendant’s exposure to movements in World Market prices ends. Thus, WMS takes out a long futures position to close out the short futures position it took at Step 8.
These steps can be seen in diagram form;