Bunge S.A (Claimant/Appellant) v Nidera B.v
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moore-Bick,Lord Justice Floyd,Lord Justice Christopher Clarke |
| Judgment Date | 12 December 2013 |
| Neutral Citation | [2013] EWCA Civ 1628 |
| Docket Number | Case No: A3/2013/0400 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 December 2013 |
[2013] EWCA Civ 1628
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
Mr. Justice Hamblen
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Moore-Bick
Lord Justice Floyd
and
Lord Justice Christopher Clarke
Case No: A3/2013/0400
Mr. Andrew Baker Q.C. (instructed by Reed Smith LLP) for the appellant
Mr. Philip Edey Q.C. (instructed by Hill Dickinson LLP) for the respondent
This is an appeal from the order of Hamblen J. upholding an award made by the Board of Appeal of the Grain and Feed Trade Association ("GAFTA"). It concerns the effect of the Prohibition clause in the standard form of contract published by GAFTA for delivery on f.o.b. terms of goods from Central and Eastern Europe in bulk or bags, generally known as Gafta 49.
By a contract made on 10 th June 2010 incorporating the terms of Gafta 49 the appellants, Bunge S.A., agreed to sell the respondents, Nidera B.V., 25,000 metric tonnes (+/- 10% in buyer's option) Russian milling wheat f.o.b. Novorossyisk for delivery in August 2010. The shipment period was subsequently narrowed under the terms of the contract to 23 rd–30 th August 2010. It is convenient to refer to Bunge as "the sellers" and Nidera as "the buyers".
Clause 13 of Gafta 49 provides as follows:
" PROHIBITION— In the case of prohibition of export, blockade or hostilities or in case of any executive or legislative act done by or on behalf of the government of the country of origin of the goods, or of the country from which the goods are to be shipped, restricting export, whether partially or otherwise, any such restriction shall be deemed by both parties to apply to this contract and to the extent of such total or partial restriction to prevent fulfilment whether by shipment or by any other means whatsoever and to that extent this contract or any unfulfilled portion thereof shall be cancelled. Sellers shall advise Buyers without delay with the reasons therefor and, if required, Sellers must produce proof to justify the cancellation."
On 5 th August 2010 the buyers nominated the 'Royal' to lift the goods, but on the same day the Russian government announced the passing of Resolution 599 imposing what was described as a temporary prohibition on the export from Russian territory of various kinds of agricultural products, including milling wheat, between 15 th August and 31 st December 2010. As a result, on 9 th August 2010 the sellers wrote to the buyers informing them of the export ban. They concluded by saying:
"In accordance with Gafta 49, clause 13, sellers hereby advise buyers, and declare the contract in reference as cancelled."
On 11 th August 2010 the buyers responded by treating the sellers' conduct as a repudiation of the contract, which they accepted. On the following day the sellers offered to reinstate the contract on the original terms, but the buyers declined to do so.
In due course the buyers gave notice of arbitration in respect of a claim for damages in the sum of US$3,062,500 representing the difference between the contract price and the market price on 11 th August 2010. The claim was made pursuant to the terms of clause 20 of Gafta 49, the Default clause, which provides as follows:
" Default- In default of fulfilment of contract by either party, the following provisions shall apply:
(a) The party other than the defaulter shall, at their discretion have the right, after serving notice on the defaulter, to sell or purchase, as the case may be, against the defaulter, and such sale or purchase shall establish the default price.
(b) If either party be dissatisfied with such default price or if the right at (a) is not exercised and damages cannot be mutually agreed, then the assessment of damages shall be settled by arbitration.
(c) The damages payable shall be based on, but not limited to, the difference between the contract price and either the default price established under (a) above or the actual or estimated value of the goods on the date of default established under (b) above.
(d) In all cases the damages shall, in addition, include any proven additional expenses which would directly and naturally result in the ordinary course of events from the defaulter's breach of contract, but shall in no case include loss of profit on any sub-contracts made by the party defaulted against or others unless the arbitrator(s) or board of appeal, having regard to special circumstances, shall in his/their sole and absolute discretion think fit.
(e) Damages, if any, shall be computed on the quantity called for, but if no such quantity has been declared then on the mean contract quantity and any option available to either party shall be deemed to have been exercised accordingly in favour of the mean contract quantity."
The dispute raised two main questions: (i) whether the prospective effect of Resolution 599 resulted in the automatic cancellation of the contract when it was announced on 5 th August; and (ii) if not, whether the buyers were entitled to recover damages by reference to the difference between the contract price and the market price on the date the contract was terminated. The second question breaks down into four further questions: (a) whether the Default clause applies in the case of a refusal to perform of the kind that occurred in this case; (b) if so, whether it is conclusive of the measure of damages that applies in this case; (c) if not, whether the buyers were entitled to recover substantial damages at common law having regard to the decision of the House of Lords in Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The 'Golden Victory') [2007] UKHL 12, [2007] 2 AC 353; (d) if so, whether by refusing the sellers' offer to reinstate the contract the buyers failed to mitigate their loss.
The Board of Appeal found as a fact that export embargoes of the kind introduced by Resolution 599 are often modified or withdrawn soon after their introduction and that in order for the contract to be cancelled Resolution 599 must have prevented the sellers from shipping the goods when the time came to do so. They were not, therefore, entitled to treat the contract as cancelled on 11 th August 2010 and their message constituted a repudiation of the contract which the buyers accepted on that date. The Board also held that the Default clause applied in such a case and that the buyers were entitled to recover damages calculated by reference to the difference between the contract price and the market price on the date of default. That made it unnecessary for it to determine either the effect of the decision in The 'Golden Victory' or the question of mitigation. The Board did, however, express doubts about the application of the decision in The 'Golden Victory' to a case such as the present. It also rejected the submission that the buyers had failed to mitigate, holding that the parties' obligations were governed by the Default clause and making findings of fact which in any event made it impossible for the sellers to establish that the buyers had failed to act reasonably.
On 10 th October 2012 Andrew Smith J. gave leave to appeal and in due course Hamblen J. upheld the award on both grounds. He expressed some doubt about the applicability of The 'Golden Victory' to a contract for the sale of a single parcel of goods of the kind with which this case is concerned, but did not need to decide the point. This is the sellers' appeal against his decision.
Was the contract cancelled on 5 th August?
Mr. Baker Q.C. on behalf of the sellers based his submissions on the language of the clause, on such support as he could obtain from various observations to be found in the decided cases and on general commercial considerations. Recognising that the words "restricting export" in the fifth line of the citation above presented a potential difficulty, his first submission was that they do not govern the opening group of events (prohibition of export, blockade and hostilities), but only the second group (executive and legislative acts), so that the clause is to be understood as if it read "In case of prohibition of export blockade or hostilities … any such restriction shall be deemed to apply to this contract etc …" This submission depends on reading the words "or in case of" in the second line of the citation as disjunctive so as to create two quite separate categories of event, but however one might read those words in another context, I am unable to accept that that is how they are to be read in this clause. The expression "any such restriction", which is clearly intended to apply in all situations, naturally refers back to the earlier words "restricting export". That strongly suggests that that phrase is also intended to apply in all situations, a conclusion which is further supported by the awkward syntax produced by the seller's proposed reading, which lacks any explicit link between the event and the contract. Although it may be said that the link is implicit in the case of a prohibition of export, its absence is rather more startling in the context of blockade or hostilities. I think that the clause necessarily assumes that the event in question will have had some effect on the contract, but on the seller's reading the link is unexpressed, despite the presence of words capable of performing that function. In my view, therefore, the words "restricting export" must be read as governing the events identified in the opening words as well as the executive or...
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