Sapporo Breweries Ltd v Lupofresh Ltd

Neutral Citation Number: [2012] EWHC 2013 (QB) IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION Case No: HQ11X00183 Royal Courts of Justice Strand, London, WC2A 2LL Date: 18/07/2012 Before : MR JUSTICE BEAN - - -- - - - -- - - - - - - - - - - - Between : SAPPORO BREWERIES LIMITED (a company incorporated under the laws of Japan) - and - LUPOFRESH LIMITED Claimant Defendant - - -- - - - -- - - - - - - - - - - - - - -- - - - -- - - - - - - - - - - - Mr Andrew Green QC (instructed by Baker & McKenzie LLP) for the Claimant. Mr Peter Knox QC and Mr Marcus Dignum (instructed by Roythornes) for the Defendant. Hearing dates: 22-25, 28 & 30 May 2012 - - -- - - - -- - - - - - - - - - - - Judgment Mr Justice Bean : The parties and their trading relationship The Claimant (“Sapporo”), a company incorporated under the laws of Japan, carries on business primarily manufacturing and selling branded beer on the domestic and international markets. At the material times it had a division known as the Agribusiness Division which, until around February 2009 (when the company closed down this part of the business as it was loss-making), sold beer hops to domestic and international customers. Sapporo had a 45% shareholding in a Chinese company called Xinjiang Sapporo Agriculture Science & Technology Development Co. Limited (“XS”), which was established in the 1980s in order to secure hops from Chinese hop farmers which Sapporo could then use for its own brewing purposes or for sale on the domestic and international markets. The other 55% of shares in XS are owned by Toyota (5%) and a consortium of Chinese farmers known as Fubei Farm (50%). Sapporo has 2 out of 6 seats on the board of XS, with Toyota having 1 seat, and Fubei Farm having 3 seats. Neither Sapporo nor XS controls Fubei Farm. XS is, in effect, controlled by Fubei Farm which has 3 out of the 6 board seats, and appoints the Chairman and President. Fubei Farm has close ties with the Chinese central government, and also with the Xinjiang provincial government. The Defendant (“Lupofresh”), a company incorporated under the laws of England and Wales, carries on business trading in beer hops. I heard oral evidence of fact from Mr Tatsu Ujiie, Ms Mika Harada and Mr Masataka Sato for Sapporo and Messrs Ian Ibbotson and Colin Hill for Lupofresh; Mr Hayashi, one of the principal figures on Sapporo’s side of the relationship, had unfortunately died before these proceedings were under way. In early 2005, Lupofresh and Sapporo began a trading relationship which resulted in those parties entering into contracts contained in 9 purchase orders, the first being dated 4 January 2005 (the 1st Purchase Order) and the last being dated 2 July 2008 (the 9th Purchase Order, on which Sapporo sues in this claim). Pursuant to these purchase orders, Lupofresh agreed to buy various quantities of Marco Polo hop pellets and/or Marco Polo hop extract from Sapporo. In each case the purchase orders were for 26,712kg alpha of Marco Polo hop extract (plus additional to fill container) for the price of $24 per kg alpha CIF UK port. Marco Polo hops, pellets & extract Marco Polo hops are a bitter hop grown only in China, in particular in Xinjiang, and are known for their high alpha acid content (containing up to 14% alpha acid). Alpha acid is the bittering agent used in beer production. The raw hops can be turned either into pellets, the hops being ground into powder and then turned into pellets to make storage and/or transportation easier, or into “extract” (the extracted form of alpha acid). A lesser quality of hop, an aroma hop, is also available: an example of this is a type of hop known as SA1. Marco Polo hops are harvested in August or September of the crop year, which means that it is difficult to predict how much raw hop and extract will be produced from that harvest. This can lead to problems in the case of forward contracts made in advance of the harvests. Most of the contracts made between Sapporo and Lupofresh were forward contracts. If the hop harvest is adversely affected by, for example, disease or pests, then production will be below expectation, and difficulties can be experienced in supplying forward contracts. As Lupofresh were aware, the Marco Polo hops whose pellets and/or extract were sold by Sapporo to Lupofresh pursuant to the contracts contained in the 1st to 9th Purchase Orders were grown by Fubei Farm. The supply chain for each contract was the same: Fubei Farm sold to XS; which sold to Sapporo; which in turn sold to Lupofresh. Fubei Farm, as the grower, controlled the supply chain (though it is not suggested that they were the only growers of Marco Polo hops). Lupofresh was also aware, throughout the trading relationship, that the extraction facility which was to be used to convert the Marco Polo hops into extract was known as the “Shanshan” facility in Shanghai. According to Sapporo, this was the only facility in China capable of extracting alpha on a commercial scale using the most efficient extraction method (known as the liquid CO2 supercritical method). Supply problems in relation to the crops In September 2005 Sapporo approached Lupofresh to say that it might be unable to fulfil the order for the 2005 crop (purchase order 05-068). Accordingly the parties agreed to add an extra year to the “contractual period” and executed a new purchase order which provided for the provision of 26,712kg alpha of hop extract from the 2008 crop at the same price and still CIF UK port (purchase order 08-019). Purchase Order 08-019, the 7th in the series, expressly stated that it “cancelled and replaced” purchase order 05-068. 12 There is no dispute between the parties in respect of the 2004, 2005 or 2006 crops. There were problems in relation to the 2007 and 2008 Marco Polo harvests. In particular: i) The 2007 Marco Polo hops harvest was adversely affected by diseases known as downy mildew and ostrina and by pests known as red mites: this meant that the 2007 hop harvest at Fubei Farm was substantially reduced. ii) The Shanshan extraction facility was closed down for a substantial period of time, making it impracticable for Sapporo to supply extract (as opposed to pellets). The original purchase orders for the 2007 and 2008 crop (the 4th and 7th Purchase Orders, respectively) required Sapporo to supply extract. iii) These supply problems were further compounded by the fact that, over the period of the harvesting and sale of the 2007 and 2008 crops, the price of hops on the international market rose dramatically. For example, the price of the alpha extract sold to Lupofresh from the 2007 crop pursuant to the 4th Purchase Order dated 16 February 2005 was to be US$24 per kg of alpha; whereas by early/mid-2008 (when the 2007 product was delivered), the spot market price was €600 per kg of alpha, an increase of about 30 times. The events leading up to the revised 2007 contract On 20 August 2007 Mr Ujiie emailed Mr Hill to report that XS expected a decrease in Marco Polo production because of bad weather and red mite; said that it would be difficult for Sapporo to increase the amount of supply to Lupofresh in the 2007 crop; and asked them to consider accepting a decreased amount. Sapporo added: “We had made request to the other customer of hop extract regarding 10% raise of price unconditionally. And we had got positive answer from them already. Please consider that our price raise 10% (2.4 USD) from contracted price unconditionally. I promise your that raising amount should be used for secure the raw hop for Lupofresh’s extract”. Mr Hill replied later that day agreeing to the 10% increase in price for the 2007 crop, and also agreeing to any shortfall in the crop being rolled forward to the following year’s contract. He said Lupofresh would be willing to pay $75 per kg alpha for amounts above the contracted quantity. Mr Ibbotson and Mr Hill flew to China to meet Mr Ujiie at Fubei Farm on 7 and 8 September 2007. A contemporaneous report by Mr Ujiie to Mr Hayashi notes that “they [Lupofresh] trust that Xinjiang Sapporo and Sapporo are supplying all their customers with the same ratio of the original volume”. He also records an agreement between XS and Sapporo that “the amount supplied to all customers, both Chinese and overseas, would be uniformly reduced”. Mr Ibbotson and Mr Hill went on to Sapporo’s head office in Japan for a further meeting on 11 September 2007. At this meeting, Lupofresh says, Sapporo made it plain that it would not deliver the agreed quantity (26,712 kg alpha for 2007) unless that quantity was reduced by 20%; and again represented that this was the reduction which Sapporo and XS would ask all their buyers of Marco Polo to accept. I find that the representation as to a proportionate reduction was indeed made in Japan on 11 September. As to quantity, however, Mr Ujiie’s notes suggest a less emphatic statement by Sapporo, and an inconclusive discussion: “1) Up until now, Lupofresh has cooperated with Sapporo beer. This year cooperation from Sapporo Beer would also be greatly appreciated and needed. The decline in collection is understandable. However, it would be great for Lupofresh to realize 100% safety. 2) As for Sapporo, it needs to promise to fairly distribute hops purchased by Xinjiang Sapporo accordingly to the conditions agreed upon in the contract. There is a concern that if anything hinders of interferes with the fairness due to some kind of incentive(s), then the quality supplied would decrease to Lupofresh. 3) Furthermore, as for Sapporo, it should be understood and recognised that there may be an increase or decrease by 10% of the quantity supplied since hops are an agricultural product. If the supply to Lupofresh decreases by 20%, then 10% should be cancelled and 10% should be supplied the following year. This should be recognised and accepted. 4) As for Lupofresh, obviously 100% supply is desired. Even though there is a decrease of 20% in collection, and Sapporo still provides 100% then the 20% portion at 54USD would be fine with Lupofresh. Replacement hops would also be fine and if special costs come up then discussion can take place.” Later in the month, Sapporo informed Lupofresh that because the alpha extraction plant at Shanshan had been closed down until mid-January 2008 at the earliest, it could supply from the 2007 crop only alpha in the form of hop pellets, not alpha extract. In an email of 22 October 2007, Mr Hill was asked to come to a meeting with XS in Urumqi, the provincial capital and principal city of Xinjiang, because XS was insisting on raising the price of its product and wanted to talk to Lupofresh. Mr Hill made the long journey to Urumqi and had meetings on 10 and 11 November 2007 with representatives of XS (including its chairman, a Mr Huang) and Sapporo. Mr Huang, it appears, announced a substantial increase in the prices charged by Fubei Farm. According to Mr Ujiie’s notes, “Sapporo proposed supply of 190 MT [metric tonnes] of MP [Marco Polo] on the condition of a price increase to 64 USD/kg alpha ex Fubei”. I find that Mr Hayashi made it plain that instead of alpha extract Lupofresh were only to receive 190 tonnes of Marco Polo hop pellets which was expected to yield 21,000 kilos of alpha (80% of the agreed 26,712 kilos), and only at the increased price of US $64 per kilo, with Lupofresh paying transport costs, to reflect the increased price which Sapporo was going to have to pay XS. Lupofresh’s case is that Mr Hill said at the meeting that he agreed to this only under duress and that his company would need to be compensated; and also that there was to be no repeat of this situation in relation to the 2008 crop. I accept Mr Hill’s evidence that he said these things, whether in Urumqi or in Japan. As he said repeatedly in his oral evidence, the deal was put to him on a “take it or leave it” basis. He consulted Mr Ibbotson by phone and then agreed. In reality they had no choice. Lupofresh had made onward sale contracts which they could only fulfil by purchase from Sapporo, or in the spot market at 20-30 times the contract price. He was in no position to obtain damages, still less an order for specific performance of the contract (in any jurisdiction: see below), before his company would face claims from buyers which were potentially ruinous in both financial and reputational terms. Mr Ujiie’s notes include the following, which I also accept: “Sapporo explained that a claim for damages from Lupofresh would have to end up with Xinjiang Sapporo, and that this would ultimately lead to the closure of XS and the inability to supply any hop products at all. Lupofresh understand this situation.” It appears to be common ground that various possibilities to assist Lupofresh were also discussed at the meeting, including the provision of (a) some SA1 hops to be supplied from the 2007 crop at a price of $18 a kilo, and (b) more SA1 hops to be supplied from the 2008 crop. Correspondence then followed from 15 November 2007 to 9 January 2008, in which the parties discussed the wording of the purchase order that was to be raised to replace the purchase order for the original 2007 crop contract. On 9 January 2008 this revised purchase order (“the 8th Purchase Order”) was executed by Sapporo and Lupofresh. It provided for the supply of 190 metric tonnes of Marco Polo hop pellets from the 2007 crop at a price of $64 per kilo alpha ex Fubei. The 8th Purchase Order expressly stated that it “superseded and replaced” the previous contract for the 2007 crop (purchase order 07-018). The hop pellets were delivered at Lupofresh’s expense to the agreed destination in Germany, where the alpha acid was extracted. This process was completed on 4 April 2008, with the production of 19,474 kilos of alpha acid (rather less than the 21,000 originally mentioned by Sapporo on 11 November 2007). Lupofresh paid for this by the end of April 2008. Events leading to the revised 2008 contract The spot price of alpha extract was still high in the first half of 2008. On 19 February 2008 Sapporo informed Lupofresh that its price for the 26,712 kilos of alpha from the 2008 crop for Marco Polo would be €49 per kilo of alpha (then US $72), again ex works Fubei, and again in the form of hop pellets: so Lupofresh would again have to bear the transport and extraction costs. Mr Ujiie wrote “I know these price [sic] are very far from our existing contract but we need this price for stable and certain supply”. Mr Hill replied by email of the same date reminding Sapporo that he had told them that a repeat of the 2007 situation would be unacceptable, and that the price proposed of €49, together with transport and extraction costs, would make the total about €100, some four times the agreed contract price. However, in the course of subsequent emails Mr Ujiie wrote that: i) Sapporo would start negotiations with XS and Fubei Farm to secure the contracted amount “if we can get your acceptance for our price in this timing” – and, by clear implication, not otherwise; the same email emphasised that “it is very important for you and us fixing price in early timing of 2008 for secure the amount” (22 February 2008); ii) Sapporo “needed” the price of €49 per kilo of alpha to secure the amount of hop pellets (11 April 2008). iii) Fubei “have many chance to sell Marco Polo to new customer with high price; this is completely violation to our contract but the contract do not have 100% valid in China, as you know.” Eventually Sapporo offered by email of 3 June 2008 to supply the 26,712 kilos of alpha in the form of hop pellets at €44/kg of alpha, on the same terms as to transport, insurance and extraction as in the revised 2007 contract. This offer was repeated by Mr Ujiie to Mr Hill at their meeting in Japan on 16 June 2008. On 10 July 2008 the 9th Purchase Order for the 2008 crop was executed by Sapporo and Lupofresh. It provided for the supply of Marco Polo hop pellets from the 2008 crop at a price of €44/kg per kilo alpha ex Fubei (purchase order 08-101). The document expressly stated that this purchase order “cancelled and replaced” Purchase Order 08-019 (which in turn replaced 05-068). In November 2008 Sapporo wrote to Lupofresh and asked Lupofresh to accept a 10% reduction in the amount of pellets to be supplied. Mr Hill of Lupofresh agreed to this reduction by email dated 20 November 2008. Following this agreed reduction, 24,040 kg alpha was to have been delivered. Prior to transportation of the hops it became clear that one container of the shipment would be left only partially filled by Lupofresh’s order. Accordingly, in order to avoid the wasted costs caused by transporting a small amount of hops in a largely empty container, Sapporo asked Lupofresh if it would agree to decrease the amount to be delivered further. Lupofresh did not respond to this request, but Sapporo sent an outline invoice reflecting these amended volumes (and the total price) to Mr Hill on 17 December 2008. He replied that he was “happy with the way the invoice is structured” by email dated 19 December 2008. In May 2009 the final container containing the 2008 crop of hop pellets was delivered to Lupofresh under the terms of the 9th purchase order. Payment of €1,016,248.20 was due to Sapporo 60 days after delivery (i.e. by 10 July 2009), but payment has never been made by Lupofresh. The Defendant admits that, subject to its counterclaims, that sum is due and owing. The basis of Lupofresh’s counterclaim is, as Mr Peter Knox QC put it on their behalf, is “this is a plain case of economic duress and wrongful intimidation by the Claimant, which forced the Defendant to surrender its rights under the forward contracts” and instead to enter the revised contracts under which it not only agreed to pay Claimant more than double the agreed price (resulting in increases of US $735.349 and US $1,183,163), but took on the entire burden of extracting the alpha extract from the hops and paying for the duty, shipping and insurance costs to transport them from China (resulting in extra costs of US $537,933 and $512,545.59 respectively). Further, it took reductions of about 30% and 25% in the extract to be supplied to it under these revised contracts, which shortfall caused it, at least in relation to the 2007 contract, substantial losses by reason of the extra cost it had to pay to make it good on the spot market (this further loss on the 2007 contract was US $4,630,384). Mr Knox relies on the undoubted fact that Sapporo has vastly greater capital resources than Lupofresh (1000 times the capital, he said: there was no evidence about this, but the exact ratio is immaterial). He submits that, as Sapporo knew and as I accept, Lupofresh was “desperate” to obtain any hop pellets or extract Sapporo would give it to supply to its own customers, because it could not obtain them from elsewhere save at exorbitant spot market prices. Mr Knox argues that Lupofresh therefore had “no choice” but to agree to the increased prices, and to take on the cost of C’s extraction and shipping burdens, in order to maintain its supplies and its reputation with its own customers; and that in English law this would found a claim for the tort of intimidation or economic duress. In the alternative, Lupofresh alleges that it was induced to enter into the 2007 revised contract by Sapporo’s representations as to its intention to supply to it a quantity of SA1 aroma hops in 2008 at a special price, when in fact it evidently did not intend to do this. It also added by a late re-re-amendment, for which I gave leave at the trial, to add a further claim in misrepresentation, to the effect that it was misled into believing that the reduction it was being asked to take (which at the time was thought to be 20%) in the 2007 crop supply was a reduction which Sapporo and XS were intending to apply to all their customers, when in fact this was not the case at all. For Sapporo, Andrew Green QC argues that the 8th and 9th Purchase Orders (relating to the 2007 and 2008 crops respectively) were entered into by Sapporo and Lupofresh as a result of consensual bilateral negotiation in difficult circumstances for which neither party was responsible; and (as they expressly acknowledged) replaced, cancelled and/or superseded the earlier contracts contained in the 4th and 7th Purchase Orders respectively -with the result that no sale or delivery obligations ever arose under those earlier contracts; and both parties’ obligations under those earlier contracts were entirely superseded by the obligations contained in the 8th and 9th Purchase Orders. As a result, he submits, Lupofresh’s counterclaims are without foundation, whether in English or Japanese law. Misrepresentation The late re-re-amendment made by Lupofresh to allege negligent misrepresentation read as follows:- “48A. Further or in the alternative, by email of 20 August 2007 Mr Tatsu [Ujiie], on behalf of the Claimant, asked the Defendant to decrease the amount to be delivered to it from the 2007 crop (whether by 15% or 20% was unclear) on the basis that (as he represented): (1) Xinjiang Sapporo expected a decrease in the production of Marco Polo hops in 2007 (i.e. as against 2006) by at least 15%, as a result of bad weather and red mite; (2)Based on harvest weight, he expected a decrease of over 20% in the alpha acid from those hops; and (3) The Claimant would “never do unfair or unjust management in this matter to [the Defendant]”. 48B. By reply email of 20 August 2007 timed 8.38 pm, Mr Hill on behalf of the Defendant said that if there was a shortfall in the 2007, it would agree to its share of that shortfall being supplied from the 2008 crop instead. 48C. By email of 23 August 2007 timed 2.21 pm, the Claimant represented to the Defendant that the position was “very severe” because it did not have enough products (i.e. Marco Polo hops) for the “strained market”. 48D. Further, at meetings both in China on 7 and 8 September 2007 and in Japan on 11 September 2007, Mr Hayashi and Mr Ujiie (for the Claimant) orally represented that: (1) The Marco Polo hop harvest (which had by now been collected or almost collected) was down by about 20% on last year; (2) The Claimant would apportion the shortfall fairly to all its customers, and so all its (and Xinjiang Sapporo’s) customers would be supplied in the same ratio of 80% of their orders, and so: (3) The Defendant would therefore receive only 80% of its order. 48E. Subsequently: (1) By email of 25 September 2007 timed 9.57 am, the Claimant gave to the Defendant a list of the amounts to be supplied under the 13 contracts it had entered into for the sale of Marco Polo from the 2007 crop, totalling 1,025,433.3 tonnes in hop weight (including (a) 222,600 tonnes for the Defendant, on the assumption that this was required to produce 26,712 kg of alpha acid, at an extraction rate of 12%, (b) 413,333.3 tonnes for another export customer, and (c) a total of 389,500 tonnes for domestic customers). (2) By email dated 9 October 2007 timed 1.56 am, the Claimant, in response to the Defendant’s email of 6 October 2007 expressing concern that it would be discriminated against by Xinjiang Sapporo in the division of the shortfall, reassured the Defendant that the best way to secure for it delivery of the 2007 crop would be “to decrease the amount to be distributed to all customers in the same ratio as we said in the last meeting at our office [i.e. in Japan on 11 September 2007]”. (3) By email dated 23 October 2007 timed 12.09 am, the Claimant represented to the Defendant that: (a) It had now secured for the Defendant 190 metric tonnes of Marco Polo hop pellets from the 2007 crop (i.e. in substitution for the alpha extract), with an average alpha acid of 11%; and (b) “This means we will delivery 21,542.7 alpha to you as a result of fair partition” (i.e. 20% less than the agreed 26,712 alpha acid). 48F. Further, at the said meeting on 10 November 2007 in Urumqi, Mr Hayashi, in order to justify the Defendant’s position, repeated that the 2007 crop yield of Marco Polo was just 80% the contracted amounts to be sold from it. 48G. Accordingly, by making the above representations to the Defendant, the Claimant represented to it that: (1) The 2007 Marco Polo hops which it could obtain from Fubei Farm (or any other farm which had agreed to supply Xinjiang Sapporo) (a) was 20% down from that in 2006, or at least (b) was 20% less than the contracted amounts. (The former was implicit in the non-correction of the estimate at paragraph 48A(2), the latter express in paragraph 48D(1), and reinforced by that in paragraph 48C.) (2) The Claimant (and Xinjiang Sapporo, insofar as it was the contracting party) were therefore in a position to supply to each of its customers only 80% of the contracted amounts set out in the said list sent to the Defendant on 21 September 2007, and had no spare stock for anyone else (see paragraphs 48D(2) and 48F). (3) The Claimant and Xinjiang Sapporo intended to treat the Defendant fairly and in the same way as other customers would be treated (see paragraphs 48A(3), 48D(2) and 48E(2). (4) The Defendant’s fair and proportionate share of the shortfall was 20% (see paragraphs 48D(3), 48E(3)(b)). 48H. In reliance on this representation, as intended or foreseen by the Claimant, the Defendant (a) agreed, alternatively agreed in principle, at the meetings on 10 and 11 November 2007 to accept only 190 metric tonnes of Marco Polo hop pellets (albeit under protest as set out above), and (b) confirmed this agreement (or reached this agreement) subsequently by the correspondence of 8 and 9 January 2008 exchanging signed versions of the Eighth Purchase Order. 48I In fact, the said representations were false and misleading, because at all material times from 7 September 2007 onwards: (1) (a) The Marco Polo harvest at Fubei Farm was down from 2006 not by 20%, but by only 4%, being 954,176 tonnes against 993,806 tonnes (as evidenced by Xinjiang Sapporo’s report on the same in its second executive board meeting minutes of 19 March 2008); and further (b) the shortfall on the total contracted amount of 1,025,433.3 tonnes was not 20%, but just 7% (the harvested amount being 954,174 tonnes – see the same board minutes). (2) The Claimant (and Xinjiang Sapporo, so far as it was a contracting party), were therefore in a position to supply to each of their customers 93% of their orders (not just 80%). (3) The Claimant and Xinjiang Sapporo did not intend to treat the Defendant fairly and in the same way as other customers, because: (a) They intended either (i) to supply their domestic customers in the said list with over 100% of the amounts contracted for, or at least (ii) to enter new contracts with other customers after 23 September 2007 so as to sell any remaining amount to them instead of apportioning it to the Defendant. This should be inferred because, according to the same board minutes, the total 2007 Marco Polo hops sold to the domestic market were not 398,500 tonnes (as in the list), but 414,500 tonnes. (b) Further, in relation to all customers, or at least their other export customer Johann Barth & Sohn (“JBS”), they did not intend to treat the Defendant fairly and in the same way as JBS] in relation to the shortfall, because: (i) At all material times from 11 September 2007 (if not earlier) they intended that any reduction in JBS’s supply, and, so far as can be ascertained, other customers’ supply, from the 2007 Marco Polo crop should be made good, at least in part, from the 2008 crop, whereas they had no such intention for the Defendant (hence, the Claimant’s note, initially redacted until 21 May 2012, in its 11 September 2007 Business Trip report noted that “the method of postponement and so forth will be discussed after the final amount of the harvest is known” – i.e. “postponement” rather than “reduction”); (ii) On or about 7 November 2007 or thereabouts, they agreed to make good XX would suffer from its 20% reduction from the 2007 crop of 83.3 tonnes (a) by the supply of 50,000 kilos of alpha from the 2008 crop (i.e., it would seem, a larger amount than the Claimant was already bound to provide for 2008), and (b) by making an investment of 8 million yuan in its Chinese subsidiaries (whereas they had no intention of offering any such compensation to the Defendant in relation to any increase in price in 2008). (See the Claimant’s Report on Business Trip to China dated 13 November 2007.) (iii) They agreed with XX on or about 6 November 2007 that it should pay only US $51 per kilo of alpha against the 2007 crop contract (as against the Defendant’s US $64)., and (c) The Defendant’s fair and proportionate share of any shortfall was not 20%, but just 7%; and in any event even if its fair share of any shortfall in the 2007 crop was 20%, it was entitled to have a fair amount of this made good out of the 2008 crop. 48J. Further, in making the said misrepresentations, the Claimant acted negligently and without reasonable care, because: (1) By 28 September 2007 at the latest, the harvesting of Marco Polo hops had finished, and the Claimant must have ascertained, as it was its business to know, whether from Xinjiang Sapporo or otherwise, the relevant figures for that harvest as against the previous harvest; alternatively by then it believed at least that the final weight was 937,000 tonnes with an alpha acid content of 13.4%, as evidenced by Mr Ujiie’s email to Mr Hill of that date (i.e. an amount which was in fact only 6% down on the previous harvest, not 20%, and 7.6% less than the contracted amounts). (2) Accordingly, the Claimant ought reasonably to have realised from this that the representations in paragraph 48(I)(1) (2) and (4) were false, and that the Defendant’s proportionate share of the shortfall was just 7% or at most 7.6%, not 20%. (3) Further, the Claimant must have known at all times what in fact its and Xinjiang Sapporo’s intentions were in relation to the domestic market and in relation to JBS [another overseas customer buying hops from Fubei through XS], and therefore it reasonably ought to have realised that its representation in paragraph 48(I)(3) that it intended to treat the Defendant fairly was misleading. 48K. As a result of this misrepresentation, the Defendant has suffered loss, and claims damages at common law and under the Misrepresentation Act 1967, as follows. (1) But for the said misrepresentations, it would have insisted on delivery of sufficient hop pellets to enable it at least to extract an extra 13% of the agreed 26,712 kg of alpha acid (i.e. on the basis of a truly proportionate reduction), i.e. 3,472.56 kg of alpha acid, at the price the Claimant was offering of US $64 a kilo of alpha acid = $222,243. (2) The Defendant would then have been saved in January 2008 the far higher market cost of buying in this shortfall at the then rate in the spot market, which by then was 3,472.56 x US 666 = $2,312,720. (3) Accordingly, the Defendant’s loss is $2,312,720 - $222,243 = $2,089,477.” The difficulty with this claim, whether in English or Japanese law, is that on the evidence before me, assuming every other point in Lupofresh’s favour, causation is not proved. Mr Ibbotson, an impressive witness whose honesty I entirely accept, gave these answers at the end of his oral evidence: “Q: Mr Ibbotson, had you known that in fact the reduction necessary for Sapporo and Xinjiang Sapporo to meet all contracted amounts was in fact 7 per cent as opposed to 20 per cent, what would you have done? A: Well, it would have given us a stronger negotiating position to try to get at least no more than 7 per cent reduction. You can only negotiate the best you can in these situations, but it is easier with a small reduction to negotiate. But it would have been absolutely unfair -- you know, we would have made the point to Sapporo, "It is absolutely unfair to reduce it by more than what everyone else was apparently being reduced". Q: Mr Ibbotson, suppose their response to that had been "Well, it is too bad, take it or leave it", then what? A: There is only so much one can do. I went to see them in September with Colin because you can't -- we're not necessarily -- we wouldn't claim to be experienced negotiators but we are used to talking to customers and suppliers and sorting things out. But at that meeting my recollection was that there were no negotiations. There was nothing. It was "take it [or] leave it". I remember saying to Colin and reporting to my fellow directors that I failed. I don't know what I was expecting; I was expecting to achieve something, but there was nothing there. There was nothing there. Q: So if you had said or instructed Mr Hill to say "Why can't you treat everybody equally and just reduce by 7 per cent if you have to reduce?" and you had encountered the same response which amounted to "Sorry, take it or leave it", what would you have done? A: We'd have tried to negotiate, obviously, better terms. The important thing was had we been forced to accept a 7 per cent reduction, it's better than 20 per cent, but we believed everyone was being treated the same and I think the usual way of dealing with this would be to make good the shortfall from the following crop year. You know, if the hops don't exist, they don't exist. That doesn't mean to say you can't sort out the contractual value. This is one of the first things that we tend to do with a customer. And if that means buying, you know, the shortfall, or an additional 10,000 kilos of alpha at $200, if that's the best we can do, it's fine. But it is fundamentally wrong to me to walk away from a contract and say "You can't have the 20 per cent". That's not something we would do. Okay, we had problems, but I have never said to anyone "I am not going to honour the contracts". Whether I will be able to do that I don't know, but we have an intention somehow to make good the problems we caused to people.” The tone of the emails sent by Mr Ujiie in 2007 and 2008 was restrained, courteous and often apologetic. He and his company were not hectoring bullies. But despite the apologetic tone it is clear that Sapporo were determined to use their far greater size and bargaining power to pass on some of the losses caused by Fubei’s anticipated failure to supply the full amount contracted, and by their unilateral price rises, to Lupofresh. Mr Ibbotson and Mr Hill, by contrast, were desperate for a deal at almost any price. I find that even if Mr Ibbotson had known the truth about the hop harvest – that the overall reduction was only 7%, and that the Chinese were giving preference to their domestic market – he would not have walked away from the negotiations. He would have protested that he was being badly treated, and perhaps tried to “insist” on a lesser reduction; but in the end he would have accepted what was on offer as the least bad option. The proper law The parties are not in agreement on which law applies to this case. So far as the law applicable to their contractual obligations is concerned, one must look at the Rome Convention of 1980, incorporated into English law by the Contracts (Applicable Law) Act 1990. Article 3 (1) of the Convention provides that:“A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract.” None of the purchase orders and no other document created by either party had any express choice of law clause. Nevertheless, Mr Knox relies on the following circumstances as showing a choice of English law. Firstly, the purchase orders were issued by Lupofresh on its standard headed notepaper and were written in English. Secondly, terms familiar in English law such as “cif UK port” or “ex Fubei” are used. Thirdly, the 1st to 7th Purchase Orders required that the alpha was to conform to US and EU food regulations. Fourthly, in an email of 3rd May 2006 Mr Ibbotson, in reply to an email from Sapporo suggesting that the terms of payment were fundamental, wrote that:- “In all my business dealings with customers and suppliers we have never regarded payment terms as material to affect the existence or validity of any contract. Such a view would be upheld by any court in England.” Fifthly, at a meeting at Lupofresh’s offices in Kent in December 2005 Mr Hayashi and Mr Ibbotson reached agreement on a variation of the existing contract. Mr Hayashi was accompanied by a colleague, Ms Mika Harada, who acted as translator. Mr Ibbotson states:- “For the avoidance of doubt and to cement the agreement, I asked Mika to explain to Hayashi that in England once agreement had been reached we shook hands on the deal which then became legally binding. Having explained this to Hayashi he and I ceremoniously shook hands across my desk. At that moment I knew the deal had been done.” I cannot accept any or even all of these amounting to circumstances which demonstrate “with reasonable certainty” a choice of English law. Neither the Convention, nor the Giuliano-Lagarde Report on which it was based, says anything about the language of the contractual documents being a significant factor. English was used because Mr Ibbotson, Mr Hill and (so far as I know) everyone else at Lupofresh could neither speak nor read Japanese. The use of terms such as “c.i.f” in the purchase orders does not demonstrate a choice of English law; such terms are universal in international maritime trade. As for the need to conform to US and EU regulations, all this tells us is that the hops were potentially for consumption somewhere in the European Union or the United States of America. The ceremonial handshake in Kent might indicate that Mr Ibbotson regarded this as an English contract (as I have no doubt he would have done, if he had thought about it), but it takes more than a handshake to constitute a choice of English law by both parties demonstrated with reasonable certainty. Mr Hayashi was simply being polite. (If the two men had bowed in accordance with Japanese custom that would not have constituted a choice of Japanese law either.) Finally, Mr Ibbotson’s email of 3rd May 2006 again only demonstrates that he assumed that if there were ever to be a dispute between his company and Sapporo it would go before an English court. It does not show that Sapporo were of like mind. It would, of course, have been open to either party to ask for an express choice of law clause to be included, but neither did. I am satisfied that there was no choice of law within the terms of Article 3 of the Rome Convention. It is therefore necessary to go on to Article 4. So far as material, this provides: “(1) To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country. (2) Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or in the case of a body corporate or unincorporated, its central administration. … (3) [inapplicable] (4) A contract for the carriage of goods shall not be subject to the presumption in paragraph 2…….. (5) Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3, and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.” Mr Knox accepts that “if there was no choice of English law, and Sapporo proves (which is not clear) that its principal place of business was Japan, then Lupofresh accepts that the presumption is that the proper law governing the original contracts was the law of Japan, as the characteristic performance of them was the act of selling the goods to Lupofresh.” However, he submits that this does not apply to the 8th and 9th Purchase Orders if on a proper construction of them Lupofresh not only released Sapporo from performance of its obligations under the original contracts, but also gave away its rights to compensation for Sapporo’s repudiatory breach of those original contracts. He argues that the characteristic, indeed only, “performance” under the 8th and 9th purchase orders was Lupofresh’s “complete surrender of its rights under the former contracts and an agreement to pay far more than under the original contracts in return for no real consideration”. He also argues that “the place of performance of Sapporo’s remaining sale obligations under the revised contracts was China, not Japan (the goods simply had to be made available ex Fubei), which is a further circumstance which tends to rebut any presumption arising from its place of business”. I cannot accept these submissions. The performance characteristic of all the purchase orders, including the last two, was the obtaining and handing over of hops (either in pellet or extract form) by Sapporo. Whether the handover took place at Fubei or at a UK port does not appear to me to be material; and it was up to Lupofresh what they or their agents did with the hops after that. Sapporo was therefore the party that had to effect the characteristic performance. There is no real dispute, although there is no formal evidence, that the central administration of Sapporo is in Japan. (None of the contracts is properly regarded as “a contract for the carriage of goods”: Mr Knox suggested this at one point but did not press the submission, and in my view it is unsustainable.) I therefore hold that the Article 4(2) presumption applies, and that the law applicable to all the contracts between Sapporo and Lupofresh is the law of Japan. Mr Knox went on to submit that even if Japanese law is the law applicable to the contracts, it is not necessarily the proper law of the tortious counterclaims that Lupofresh are making. The English statute applicable to torts occurring before 11th January 2009 is the Private International Law (Miscellaneous Provisions) Act 1995. Section 11 of this provides: “(1) The general rule is that the applicable law is the law of the country in which the events constituting the tort or delict in question occur. (2) Where elements of those events occur in different countries, the applicable law under the general rule is to be taken as being— (a) [inapplicable] (b) [inapplicable] (c) in any other case, the law of the country in which the most significant element or elements of those events occurred.” Section 12 of the 1995 Act sets out the test for determining when the general rule is to be displaced: “(1) If it appears, in all the circumstances, from a comparison of- (a) the significance of the factors which connect a tort or delict with the country whose law would be the applicable law under the general rule; and (b) the significance of any factors connecting the tort or delict with another country, that it is substantially more appropriate for the applicable law for determining the issues arising in the case, or any of those issues, to be the law of the other country, the general rule is displaced and the applicable law for determining those issues or that issue (as the case may be) is the law of that other country. (2) The factors that may be taken into account as connecting a tort or delict with a country for the purposes of this section include, in particular, factors relating to the parties, to any of the events which constitute the tort or delict in question or to any of the circumstances or consequences of those events.” There are no reported cases on sections 11 and 12 in the context of the tort of intimidation or economic duress. Mr Knox rightly submits that in English law the torts of negligent or fraudulent misrepresentation are committed where the misstatements in question are received and relied upon (see Ark Therapeutics plc v. True North Capital Limited [2006] 1 All ER (Comm) 138 at 151); and argues that England is therefore the country in which the events constituting the tort (s 11(1)), or at any rate the most significant elements of those events (s 11(2)(c)) occurred.. He submits that by parity of reasoning the same should also apply to Lupfresh’s claim in intimidation. This submission cannot prevail, whether in respect of intimidation or misrepresentation. As to the former, accepting Lupofresh’s factual claim for present purposes, the most significant element in both torts took place in China and Japan in November 2007. Neither party was arguing in favour of Chinese law: and in so far as s 11(2)(c ) of the 1995 Act might point to China, applying the displacement test in s 12 it is substantially more appropriate for the law of Japan to be applied to the tort or torts, since that is the applicable law of the contracts. Japanese law therefore applies to the claims in tort as well as in contract. It would be peculiar if it were otherwise. I therefore turn to consider Lupofresh’s potential counterclaims in Japanese law. Potential causes of action in Japanese law Sapporo adduced evidence from Professor Jan Masuda, and Lupofresh from Attorney Kiyomi Kikuchi. I had the benefit of written opinions from each of them and a Joint Opinion setting out their points of agreement and disagreement. Ms Kikuchi also added a supplementary opinion on the new misrepresentation claim. Each of them also gave oral evidence, in the case of Professor Masuda through an interpreter. I do not doubt his eminence, but the difficulties of communication were considerable, and in oral evidence he seemed unwilling to give a direct answer to any question from Mr Knox. Breach of contract Article 415 of the Civil Code provides: “If an obligor fails to perform consistent with the purpose of its obligation, the obligee shall be entitled to demand damages arising from such failure. The same shall apply in cases it has become impossible to perform due to reasons attributable to the obligor”. Professor Masuda and Attorney Kikuchi are agreed that failure of performance within the terms of this Article can occur in one of three ways: when performance was delayed, incomplete or impossible. They are also agreed that the concept of anticipatory breach does not exist in Japanese law. The latter finding defeats any potential claim by Lupofresh under Article 415, which is no doubt why it did not figure prominently in Mr Knox’s submissions. Sapporo obtained Lupofresh’s consent to replace the previous contracts relating to the 2007 crop before the time for delivery of that crop (usually February or thereabouts) had arrived. Duress giving rise to a right to rescind Article 96 of the Civil Code provides:- “Manifestation of intention which is induced by any fraud or duress may be rescinded.” It was not argued that this is a case of fraud. As to duress the Joint Opinion states:- “16. Contracts (including variations to contracts) brought about by duress may be rescinded by the person who has suffered the duress. There is no right to claim damages under Article 96. We agree on these matters. Where a contract was entered into as a result of duress, that contract may be ratified by the person holding the right of rescission. Upon such ratification, the contract will be valid notwithstanding that the contract was brought about by duress. We agree on this matter. We agree that in order to validly rescind a contract on the grounds of duress under Article 96(1) of the Civil Code the claimant must prove to the required standard of proof that: (a) the defendant intended to cause fear to the other party and to induce a manifestation or intent (i.e. a contract) based on that fear; (b) the existence of an act of illegitimate duress; and (c) the other party suffered fear from the duress and provided a manifestation of intent based on that fear and illegitimate duress. As regards the meaning of “fear”, there is no requirement of a complete loss of free will due to fear. What is required in a finding of duress is that the defendant has caused mind of fear or terror and that then such mind of fear or terror has induce manifestation of certain intention as intended by the defendant. That is, it is construed that it is required and sufficient (for finding duress) to, subject to mind of fear or terror the one got feared, find subjective causation whereby the mind of fear or terror has caused a manifestation of the intention [sic]. We agree on these matters. Duress is any act which causes fear in the other party through the notification or [this must be a misprint for “of”] harm that would occur in the future. The duress must also be illegitimate. In this context the meaning of the phrase illegitimate is judged based on the entirety of the actions of the parties taking into consideration the means and the purpose of the duress. If the duress lacks illegitimacy, a contract cannot be cancelled pursuant to Article 96(1) of the Civil Code. For example, the statement “if you don’t accept this offer I will not deal with you in the future” is an act of free trade, and in principle it is not considered to be illegitimate. We agree on these matters. Under the Japanese law, there is no judicial precedent upholding economic duress. While some academics have suggested the possibility of finding economic duress, this is not the majority academic opinion or prevailing view, and some academics expressly deny this. Even under circumstance where there is a threat not to perform a contract unless that contract was varied, under such circumstances illegitimacy will not be found absent a finding of other special circumstances, and the threat will still be thought to be within the scope of an act of free trade, and ultimately that claim would not satisfy the requirements of Article 96(1) and the defendant would not be permitted to rescind the contract in question. We agree on these matters. In judging the existence or nonexistence of duress under Article 96(1) of the Civil Code, the respective elements of duress noted above must be proven by the party asserting a right to rescind the contract, but Japanese courts would also in such cases take into account all of the facts of the case when considering whether a party acted under duress. We agree on these matters. Masuda is also of the following opinion. In order to show duress, the claimant must prove each of the elements of duress, therefore, it is quite difficult to prove since each element must be proven strictly. One factor of particular relevance to duress is that in the case of a contract between companies, the Japanese courts would lend weight to the fact that most businesses are on an equal footing and generally have equal bargaining power. The courts will also respect the freedom of companies to contract freely based on the fact that they are responsible for their own actions. The Japanese courts’ view on what amounts to duress may be different in a case in which the contracting parties were not so equal (e.g. in the case of a consumer and a large commercial organisation).” Professor Masuda’s conclusion (paragraph 54 of his Opinion of 9 March 2012) is that “to the extent that the defendant in the present case has claimed that the duress that it was placed under was a threat by the claimant (in these proceedings) not to perform a contract unless that contract was varied, that claim would not, in my respectful opinion, satisfy the requirements of Article 96 and the defendant would not be permitted under Japanese law to rescind the contract in question”. Attorney Kikuchi, after a helpful review of academic opinion on the subject, concludes (paragraph 45 of her Opinion of 28 March 2012): “In light of the above, I believe that, unless there are exceptional circumstances, economic duress tends to be denied in Japan. Accordingly, in situations where a claimant threatens to not perform contractual obligations unless the agreement is changed, it may be considered that this is still within the scope of freedom of trade, and it may be denied that such act qualifies as an act causing duress or the act is illegitimate. In this regard, I agree with the conclusion arrived at by Professor Masuda on paragraph 54 of his expert opinion with respect to this point that it may be difficult to succeed in rescinding the agreement under the provision of Article 96, Paragraph 1 of the Civil Code.” Mr Green relies on this, and on the fact noted in the experts’ joint advice that no Japanese court has ever upheld a claim of “economic duress”; Mr Knox, in contrast, points to the concluding sentence of paragraph 22 of the joint advice, and argues that the facts of the present case, with the gross inequality of bargaining power between the two companies, may amount to “special circumstances” for the purposes of Article 96. He points out that the experts have not said that the Japanese Supreme Court has rejected economic duress; rather, they have said that the court has never been asked to decide the issue. Mr Knox urges me to “determine the trajectory” of Japanese law and find duress in this case. If English law had applied the emerging doctrine of economic duress would in my view assist Lupofresh. In Kolmar Group AG v Traxpo Enterprises PVT Ltd [2010] 2 Lloyd’s Rep 653 Christopher Clarke J held that it applied when, while a ship was being loaded with the contracted cargo, the seller stated that only if the buyer was to pay more for the cargo would the entire cargo be loaded promptly. The buyer, facing the prospect of expensive port charges if the dispute became protracted, gave in. Mr Green seeks to distinguish that case on the grounds that the time for delivery had arrived. So it had: but while that was a factor in the judge’s finding of economic duress, it does not appear to me to have been essential to it. The pressure would have been much the same if it had been applied a day or two before loading was due to start. However, the advice of the two experts as to Japanese law on this topic is clear and in my judgment leaves no room for doubt. On the facts of the present case, Article 96 of the Japanese Civil Code does not, and did not, give Lupofresh the right to rescind its “manifestation of intention” on the grounds of duress. Infringement of rights or legally protected interests Article 96 is concerned with the right to rescind. In Japanese law as in English law, a party who does not have (or has lost) the right to rescind may nevertheless have a claim in damages. Article 709 of the Civil Code provides as follows:- “A person who has intentionally or negligently infringed a right of others, or legally protected interest of others, shall be liable to compensate any damages resulting in consequence.” Professor Masuda and Attorney Kikuchi jointly interpret this as follows:- “7. To succeed under Article 709 the claimant must prove that he holds a right or legal interest and that the defendant has infringed such a right or legal interest. This must be proved to a high standard of proof. We agree on this matter. 8. We have different opinions as to whether, as an element for finding tort, a separate limb of the test for succeeding in tort claim under Article 709 (separate from the infringement element) is that the act complained of must have been illegitimate. Kikuchi’s opinion differs from that of Masuda in concluding that while illegitimacy of the act is one element for determining an infringement of rights (interests), it is not necessarily a separate element from the infringement of rights, and Kikuchi opines that since illegitimacy is considered in determining a tortious act, the ultimate conclusion is the same as Masuda’s. Masuda believes that even an act damaging the claimant will not constitute a tort if the act was not illegitimate in terms of the nature of the damaged rights or interest and the manner of the damaging act, and in several recent cases, the Japanese Supreme Court has held that to succeed in a tort claim the claimant must prove that the act of the defendant was illegitimate. A researcher of the Supreme Court has stated in his commentary on a relevant Supreme Court case that the case shows that the illegitimacy of a tortious act is found by looking at the co- relationship between the infringed legal interest or right and the manner of infringement, and Masuda believes that a finding of illegitimacy of an act is required for a tort to succeed. Lower court rulings have also established illegitimacy of the act as an element. 9. The claimant must also prove that it has suffered actual damage in order to succeed with a claim under Article 709 of the Civil Code. Article 416 of the Civil Code applied by analogy to the assessment of damage under Article 709. Therefore, the claimant must prove that he has suffered damage that either: (a) ordinarily flows from the tort (see Civil Code Article 416, Paragraph 1); or (b) in special circumstances, if the defendant had foreseen or could have foreseen those circumstances (see Civil Code Article 416, Paragraph 2). We agree on this matter. 10. Finally, to succeed with a claim under Article 709 the claimant must prove the existence of factual and legal causation between the tort claimed and the damage suffered. Factual causation is construed simply as “if not that, then not this”. As regards legal causation, the claimant must prove that there was reasonable causal link between the tort committed by the defendant and the damage suffered by the claimant. The meaning of reasonable causation differs depending on whether ordinary damages or special damages are being sought under Article 416 of the Civil Code. Ordinary damages are damages normally incurred out of the relevant type of tort or incurred under social norms. Special damages are damages outside the scope of ordinary damages which are suffered due to special circumstances, such as a price rise of a property damaged by a tort committed by the defendant. Special damages are upheld only when the special circumstances were foreseen or foreseeable. We agree on these matters. Under Japanese law, if the elements of a tort are satisfied at the same time as a default under a contract, the claimant may bring a claim for damages suffered as a result of the tort and separate claim for damages suffered as a result of the breach of contract. A finding of liability in respect of the breach of contract will not automatically lead to a finding of liability for tort. We agree on this matter.” I do not think that anything turns on whether illegitimacy is viewed as a separate element of the tort or as an aspect of infringement of a right. The experts are agreed that to establish the tort the claimant must prove (a) infringement of a right or legally protected interest (b) intention or negligence (c) causation (d) an illegitimate act, and (e) damage. The argument concentrated on (a) and (d). Infringement of a right or legally protected interest Both experts told me that the right to receive goods under a contract of sale is a “right or legally protected interest” within Article 709. It was unclear to me, on reviewing the expert evidence, whether they considered that there can be an infringement of that right before the time for delivery has arrived. The fact that Japanese law does not recognise the concept of anticipatory breach of contract might not necessarily mean that indicating a few weeks in advance one’s inability to perform a contract is not a potential tortious infringement within Article 709. I therefore put this question in writing to the experts: under Article 709 of the Civil Code, can it be an infringement of the rights or legally protected interests of the buyer under a contract for the sale of goods for the seller to say, before the time for delivery of the goods has arrived, that he will not be able to deliver the goods unless the buyer agrees to pay an increased price and to accept a reduced quantity? Ms Kikuchi, in her supplementary report of 26 June 2012, states that this can be an infringement of the rights or protected interests of the buyer, if the seller’s refusal of delivery can be evaluated as illegitimate. Professor Masuda’s reply, dated 26 June 2012, is unequivocal on this issue. He considers that, just as Japanese law excludes the concept of anticipatory breach, so “a refusal to perform prior to the point in time when performance is due will not constitute a tort”. He does not cite any decisions of the Japanese courts or opinions of scholars to support this conclusion. As Mr Knox understandably observed in his written submissions on the supplementary reports, it is surprising that this apparent knock-out blow to Lupofresh’s whole case on Article 709 was not mentioned by Professor Masuda in his report for the trial, nor in the Joint Opinion, nor in his oral evidence, nor put to Attorney Kikuchi in cross-examination. I find it illogical that a tort which appears to have some similarity with the English tort of interference with contractual rights should depend, if those rights are under a contract of sale, on the date for delivery having arrived. Article 709 on its plain wording is not confined to torts committed by the existing parties to a contract. Thus if the seller is A and the buyer is B, the tort could be committed by C. Suppose that A has contracted to deliver goods to B on 31 July; and that on that very day C, intentionally and illegitimately, persuades A to deliver them to him instead. It would appear that on both experts’ view of Article 709 C has committed a tort in Japanese law. Yet in Professor Masuda’s opinion, if C’s acts take place and achieve their objective on 30 July, C would not be liable. I accept Attorney Kikuchi’s evidence on the issue of a right or legally protected interest. The next and crucial question is therefore whether Sapporo acted illegitimately. Illegitimacy under Article 709 Although Article 709 does not contain any express requirement that the conduct must be illegitimate, it is common ground that some such requirement is implicit. The experts’ original opinions and the Joint Opinion cited above did not throw much light on what constituted illegitimate conduct for these purposes. Professor Masuda wrote: “26. In some cases, courts have found that a separate limb of the test for succeeding under Article 709 (separate from the infringement element) is that the act complained of must have been illegitimate. Even an act damaging the claimant will not constitute a tort if the act was not illegitimate in terms of the nature of the damaged rights or interest and the manner of the damaging act. In several recent cases, the Japanese Supreme Court has held that to succeed in a tort claim the claimant must prove that the act of the defendant was illegitimate. A researcher of the Supreme Court has stated in his commentary on a relevant Supreme Court case that the case show that the illegitimacy of a tortious act is found by looking at the corelationship between the infringed legal interest or right and the manner of infringement. In my opinion I agree with the Supreme Court and the Supreme Court Researcher that in order for a tort to be established the act complained of must have been illegitimate.” The oral evidence did not take the matter much further. Ms Kikuchi twice stated that it all depended on what the judge thought of the facts in the light of his professional experience. In their supplementary reports of 26 June both experts, in addition to answering my supplementary question about whether infringement of a right or legally protected interest under Article 709 can occur before the time for delivery, volunteered further opinions on the subject of illegitimacy. In paragraph 5 of her supplementary report Ms Kikuchi returned to the “corelationship” theory in these terms: “even if the infringed right or interest is not so significant, if the illegitimacy element was huge or grave, then tort may be found”. Professor Masuda puts the same point in this way: in Japanese law “claim rights” such as those under a contract generally require less protection by comparison with property or intellectual property rights, and the requirements for finding an illegitimate infringement of such rights are thought to be stricter. “Whether the infringement of these rights and legal interests is protected under Article 709 is determined on a case-by-case assessment of whether or not it corresponds to an illegitimate infringement”. Attorney Kikuchi noted that in practice renegotiation of contracts before the time for performance has arrived is common, and therefore “the act of the seller to say, before the time for delivery of the goods has arrived, that he will not be able to deliver the goods unless the buyer agrees to pay an increased price would not be considered a significant harm to the right of the buyer under normal circumstances. Thus, in order for the tort to be found, I believe there must be a considerable degree of illegitimacy to completely satisfy [that aspect of the tort].” [emphasis added] So far there is no dispute. However, Attorney Kikuchi continued: “10. Factors which would probably be considered relevant or significant for the evaluation of illegitimacy of the seller’s act would include (i) the degree of increase of price and the reduction of quantity, (ii) the background reasons for the seller’s refusal to deliver, (iii) the seller’s knowledge and (iv) the nature of the contract and the market standard.” In addition, I think that the court would comprehensively consider other general factors such as the manner of the seller's re-negotiation or communication with the buyer; how close was the due performance date when he commenced the renegotiation; what and how much effort did the seller make to honour the terms of the existing contract before he started to renegotiate for the new terms; whether the seller had no practical alternative other than to refuse to comply with the existing terms and demand the new terms; and from the viewpoint of fairness, who should bear the risk of increased price from the end supplier of goods and whether it is truly fair for the seller to pass on the risk of increased cost to the buyer in this situation even under the principle of freedom of contract. (i) The degree of increase in price/reduction in quantity With regard to (i) above (the degree of increase in price/reduction in quantity), I think the court would consider, for example: (a) Whether the new price demanded by the seller was an increase of a few percentage of the original price or if it was far more - i.e. twice, 5 times, or 10 times the original price; and (b) Whether the reduction of quantity was within a margin of error and could be absorbed easily by the buyer, or the reduction was more than a few percentage and would cause serious damage to the buyer such as loss of customers or substantially increased cost in having to go into the market to buy the shortfall. (ii) Reasons for non-delivery With regard to (ii) above (reasons for non-delivery), the true or background reasons behind the seller's refusal to effect delivery - in other words, in what sense is the seller "not able to perform" his/her obligation to deliver -would be factors to be taken into account. For example, whether (a) the seller is not able to perform at the existing price and existing quantity because he himself has no choice because, for example, (in the case of a price increase) he cannot realistically stay in business unless he increases the price, or because (in the case of a shortfall) he cannot procure the goods at all, or at least only at an exorbitant price which he cannot afford to pay; or whether (b) the seller says he is not able to deliver at the existing price and in the agreed quantity, but in reality, he can do so, but just does not want to sustain the economical loss associated with having to deliver at the agreed price (for instance, in the case of a shortfall, he can supply the same or similar items from new resources but does not want to do so to protect his own or affiliate's interest, or, in the case of a price increase, he himself can in fact absorb the increased cost of supply from his resources and supply the goods to the buyer at the existing price). (iii) Knowledge of the seller With regard to (iii) above (knowledge of the seller), this would probably be another factor for the court to assess on the question of illegitimacy (as well as the deliberateness of any action he took). For instance, in an extreme case, if the seller was malicious and his/her purpose was based on malignant cause (i.e. with the specific or sole intention of hurting the buyer), this would probably be considered illegitimate. However, in less apparent cases, such as in this Case, various matters would be considered upon the evaluation of illegitimacy, such as whether he knew:    that he was obliged to observe the existing contract (and thus should pay efforts to comply with the terms provided therein); that the new terms would make the buyer sustain an enormous damage or losses; that there was (or was not) a practical alternative for the buyer but to accept the new terms from the seller (for example, because otherwise he would sustain enormous losses if nothing at all was delivered); or   that the buyer had (or did not have) an existing contract to on-sell the goods to its customers; or that the buyer would be able (or would not be able) to pass on to its customers, if any, the loss or the increased price of goods. (iv) The nature of the contract In addition, in order to assess the illegitimacy of the act by the seller, (iv) (the nature of the contract) would probably be another significant factor - such as whether (a) the nature of the contract is such that each party to the contract is supposed to accept any loss as well as any profit at the time of the performance in the future regardless of any change in circumstances, such as in commodity futures contract, because the purpose of such contract is, in the first place, to hedge the risk of a price fluctuation due to increase or decrease of the yield of commodity, and therefore, it would be considered abnormal to renegotiate in order to make substantial changes to the price and quantity at a time near the due delivery date under the existing contract; or whether (b) the contract is of a sort in which substantial changes to the terms due to drastic change in circumstances may be more acceptable subject to the parties' sincere negotiation. Furthermore, whether the refusal to comply with the terms of existing futures contract and demand for the new terms would be viewed as acceptable by the specific market in which the parties participated or viewed as abnormal or a deviation from market standard may also be taken into account. Mr Green criticises these as “lawyer-generated submissions”. Perhaps they are, though at least they are put as being details of factors which a judge would take into account, without attempting to decide the present case for me. By contrast, Professor Masuda now writes categorically that illegitimacy is not made out on the present facts. He wrote: “3.13 If the infringed right is profound and requires protection, illegitimacy will be upheld even if the manner and content of the infringing act is minor. However, if the infringed right or legal interest is weak and requires little protection, illegitimacy will not be upheld unless the manner and content of the infringing act is malicious (the latter case would require, for example, a malicious act such as violation of criminal statutes, a violation of control statutes or a violation of public order and morals). 3.14 These circumstances will be considered and illegitimacy will be determined based on social norms, conventional commercial wisdom, the principle of free competition etc., in accordance with circumstances such as the nature and type of the infringing act. There are a number of precedent rulings by the Supreme Court, High Court and others which clarity such a determination. 3.15 Turning now to the Matter for Examination, in the negotiation of the variation of a contract considerably prior to the contract performance deadline, even if one party said "I will not be able to deliver the goods unless you agree to an increase in price and reduction in amount supplied", this will not be found to be illegitimate as the manner and content of the act does not correspond to a violation of criminal statutes or control statutes, nor do they run contrary to public order and morals. This would be the case even if the contractual right in this case had been infringed as there is little need for the protection of such a right. Therefore, a considerably malicious act of infringement would be required for it to amount to illegitimacy. 3.16 Applying these principles to the facts of this case, 1 do not consider that there has been any such malicious act of infringement in this case. I consider that, in this case, because: the negotiation of a contractual variation is allowed under the principle of freedom of contract, both parties in this case were companies in the hops industry and held information on worldwide hop pricing and the like, and because the Claimant performed the agreement following the execution of the varied contract, the abovementioned statement in the contract negotiations cannot possibly be labelled as illegitimate. 3.17 I also believe that it is relevant that the revised contracts were entered into a considerable time before the date for performance of the contract and that negotiations were required to vary the contract based on circumstances such as the conditions of the market of the product which was the subject of the contract etc .. Taking such circumstances into account I am of the opinion that illegitimacy is further negated and, based on my experience as a judge, it cannot possibly be said that a tort would be upheld in a Japanese court in this case.” I have no doubt that these were lawyer-generated submissions too. More to the point, there was nothing in the Professor’s original Opinion, nor the joint Opinion, nor his oral evidence, to suggest that Article 709 required that an act infringing rights under a contract had to be “malicious”, corresponding to a violation of criminal statutes or a violation of control statutes (whatever they may be). He had referred in his oral evidence, as Ms Kikuchi had done in her original written Opinion, to public order and morality, although when I asked what its relevance was to the decision of a court he simply replied that “there’s a standard, and the public order and morals come as standard but not always; depending on the actions that inflicted are harmful, the different standard will be used”. Perhaps some of what he meant was lost in translation, but the answer was not enlightening. In his final submissions Mr Green relied on an answer given in oral evidence by Ms Kikuchi to a question about whether the facts alleged in the misrepresentation pleading (paragraphs 48A-K of the Re-Re-Amended Defence and Counterclaim), set out above, could constitute an infringement of Article 709: “It is difficult for me to answer. But I think these will not be enough. There needs to be more like, maybe, a scheme behind why Sapporo had made these misrepresentations, there was a malicious intent to induce – malicious plan to induce – this contractual agreement for 20% less between Sapporo and Lupofresh. In addition, maybe the way they had – the manner in which Sapporo made a representation and other factors, such as if they were not just negligent acts but any other wilful intent – malicious, wilful, intentional acts that Sapporo did conduct to induce agreement from Lupofresh.” I reject the Professor’s late suggestion that an infringing act must be of a criminal nature to amount to an infringement of contractual rights under Article 709; or that it must be malicious in the English tort law sense of an act primarily done to damage the victim rather than profit the tortfeasor. I am also not prepared to import a requirement of malice based on Ms Kikuchi’s rather diffuse answer to a question about the allegation of misrepresentation. But I nevertheless reject the submission that Lupofresh have established a “considerable degree of illegitimacy”, still less a “huge or grave” one, creating a cause of action under Article 709. I do so for the following reasons. The difficulty with the illegitimacy regime suggested in Attorney Kikuchi’s supplementary report is that I do not see how it would work in practice, as the present facts demonstrate. Sapporo, the stronger contractual party, exerted pressure on Lupofresh to pay a very substantially increased price when they (Sapporo) could quite well have absorbed the loss themselves. Lupofresh entered into the 8th and 9th Purchase Orders, which were stated to, and did, replace the previous contractual obligations. Although they could have refused to renegotiate and sued when the time came, in practice they had little choice given their obligations to their own customers. But, as I have held, this did not amount to duress under Japanese law; and accordingly they had no right to rescind the 8th and 9th Purchase Orders. Those orders were thus valid and binding Japanese law contracts and were performed in full. It is too late to rewrite the story now and award Lupofresh damages in tort for having been induced to replace the old contracts by the new ones. Professor Masuda wrote in his supplementary report that ordinarily “a finding of no illegitimacy of duress in the negotiation of a contract will lead to a finding of no illegitimacy under tort with regard to such negotiations”. He had not spelled this out in his original report, but its logic is obvious. As will be seen from earlier passages in this judgment, I regard Sapporo’s behaviour towards Lupofresh in late 2007 as exploitative. Nevertheless I am not persuaded that, as a hypothetical judge of the Japanese civil courts, I could properly say that this amounts to a “considerable degree of illegitimacy” infringing Lupofresh’s contractual rights and thus amounting to a breach of Article 709. Possession of goods in bad faith or through duress Article 190 requires a possessor of goods in bad faith to return them and pay compensation, and extends the rule to those who possess goods through “violence or duress”. The experts are agreed that, in contrast to Article 96, duress under this provision involves an act of non-peaceful acquisition of the property. Article 190 is thus of no relevance. Restricted fungible property A contract for the delivery of goods specified by area or brand, such as a contract for the delivery of Marco Polo hops, is a “restricted fungible claim” in Japanese law. The experts’ Joint Opinion advises that: “If the subject matter becomes unavailable after the conclusion of the contract the contract will be treated as impossible to perform. Whether the seller is then liable to pay damages depends on whether the impossibility was caused by him, if the default is not on grounds attributable to him, he is not liable. If performance of the obligation becomes impossible, there is no obligation on the seller to provide performance by acquiring the same type of goods from another source.” This provision might well have been the basis of a claim by Lupofresh if they had not agreed to vary the previous contracts. Since they did, it disappears from the picture. Misrepresentation I have already given my findings of fact about causation in the context of misrepresentation. Attorney Kikuchi was asked to state in a supplemental report whether the misrepresentations on which Lupofresh relied would constitute an infringement of Article 709 of the Civil Code. Her report makes it clear that, apart from any other requirement of the tort, “there…. needs to be a causal nexus between the Claimant’s act and the Defendant’s damages – in other words, if not for the negligent misrepresentation by the Claimant, the Defendant would not have agreed to the revised terms and not suffered damages.” This point is fatal to the misrepresentation claim. Conclusion I have great sympathy for Lupofresh: in particular I admire their commitment to their customers and the lengths to which they went to fulfil that commitment. But that cannot be the basis of my decision. With considerable regret I must dismiss their counterclaim.