Bunge S.A v Nidera B.v (formerly known as Nidera Handelscompagnie B.v)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hamblen |
| Judgment Date | 29 January 2013 |
| Neutral Citation | [2013] EWHC 84 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 29 January 2013 |
| Docket Number | Case No: 2012 FOLIO NO 974 |
[2013] EWHC 84 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building,
Fetter Lane,
London,
EC4A 1NL
Mr Justice Hamblen
Case No: 2012 FOLIO NO 974
Andrew Baker Q.C (instructed by Reed Smith) for the Claimant
Philip Edey Q.C (instructed by Hill Dickinson) for the Respondent
Hearing dates: Friday 18 January 2013
Introduction
This is an arbitration appeal which concerns the proper construction and application of the GAFTA Prohibition Clause and Default Clause.
By GAFTA Appeal Award No.4283 dated 22 June 2012 the GAFTA Board of Appeal upheld the Defendant Buyers' claim for substantial damages for the wrongful repudiation by the Claimant Sellers of a contract for the sale of 25,000 m.t. (± 10% in Buyers' option) of Russian milling wheat, 2010 crop, f.o.b. Novorossyisk. The contract, concluded on 10 June 2010 via brokers in Milan, incorporated the GAFTA 49 contract form, a standard set of f.o.b. contract terms designed for contracts "FOR THE DELIVERY OF GOODS FROM CENTRAL AND EASTERN EUROPE IN BULK OR BAGS".
The Sellers contend that the contract was automatically cancelled under the GAFTA Prohibition Clause on the announcement of an export ban by the Russian Government on 5 August 2010. The Board disagreed and found that the Sellers' claim for cancellation was a repudiation. This is the liability issue on the appeal.
The Board awarded the Buyers damages in accordance with the GAFTA Default Clause. The Sellers contend that only nominal damages should have been awarded as no loss was suffered at common law by reason of the principles set out in The Golden Victory [2007] 2 AC 353 and/or as a matter of mitigation. This is the damages issue on the appeal.
Leave to appeal under s.69 of the Arbitration Act 1996 was granted by Andrew Smith J. on 10 October 2012 on the following four questions of law:
(1) Is the application of the GAFTA Prohibition Clause limited to a case where it can be seen after the event that performance of the contract has in fact been prevented by the prohibition in question?
(2) Does the GAFTA Default Clause exclude common law principles for the assessment of damages for anticipatory repudiatory breach and in particular (i) the principle of mitigation and/or (ii) the compensation principle identified in The Golden Victory [2007] 2 AC 353?
(3) Is the "overriding compensatory principle" established by The Golden Victory limited to instalment contracts?
(4) Was the Board wrong in law to conclude that the Buyers' rejection of the Sellers' offer to reinstate the contract did not constitute a failure to mitigate on the ground that the Sellers did not offer to reinstate the contract on different and more favourable terms than contained in the original contract?
Question 1 — Liability
The Board found that on 5 August 2010, the contractual delivery period having been narrowed to 23–30 August 2010, the Buyers nominated a vessel to take delivery. However, by Russian Government Resolution No.599, published that same day by the Prime Minister, Vladimir Putin, the export of wheat from the territory of the Russian Federation between 15 August and 31 December 2010 was prohibited ("the export ban").
The Sellers contended and contend on appeal that under the GAFTA Prohibition Clause, the contract was thereby cancelled.
The Prohibition Clause provides that:
"PROHIBITION
In the case 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 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 therefore and, if required, Sellers must produce proof to justify the cancellation."
The GAFTA Board of Appeal found that (para.5.3):
"….we agree with Buyers, and also with the first tier Tribunal, that to enjoy the protection that the Prohibition Clause affords, it is necessary for the seller to show that the prohibition prevents the seller from performing. As of 11 August, when the contract came to an end by reason of acceptance by Buyers of what they said was Sellers' anticipatory repudiation, it could not be said, with certainty, that the export ban would prevent Sellers from performing. We accept that the ban was temporary, in the sense that it was of defined rather than indefinite duration but this does assist Sellers since it was always possible that before the delivery period under the Contract expired the export ban might be revoked or modified in some material way so as to permit performance. That this was a possibility is borne out by what has happened with export bans in the past. The US soybean meal embargo is a good example. Export bans are introduced by governments for domestic policy reasons and the wider international ramifications are not always fully thought through. In this case the initial ban was in fact varied, by extending it into 2011. The initial ban could have been curtailed later in August."
In the light of their finding that it was always possible that before the delivery period under the contract expired the export ban might be revoked or modified so as to permit performance, the Board concluded that the Prohibition Clause did not operate to cancel the contract and so the Sellers' claim of cancellation was repudiatory.
The Sellers argue that as soon as the prohibition of export was announced the contract was automatically cancelled. On its terms the prohibition applied to goods of the contractual description and to the entirety of the contractual shipment period. As such the contract was there and then cancelled. The clause is forward looking. It is unnecessary to prove or inquire into whether the prohibition in fact had any effect on the sellers' ability to perform the contract. It is deemed to do so under the clause.
The consequence of the Sellers' argument is that it would make no difference if the prohibition had been lifted before the shipment period and if it in fact had no impact on the sellers' ability to perform. The contract is cancelled regardless. There is no requirement to show any causal connection between the prohibition and the failure of performance.
The Buyers argue that it would be remarkable if the clause operated so as to cancel the contract in advance so as to excuse further performance, and indeed disentitle further performance, merely because there was a doubt as to whether the Sellers would be able to perform, which is the effect of the Board's findings. They submit that the GAFTA Prohibition Clause, in common with virtually all like clauses which have been considered in the authorities, does require proof of a causal connection.
Both parties have addressed the issue by reference to (1) the wording; (2) the authorities, and (3) commercial considerations.
The wording
The Sellers submit that:
(1) The export ban was a simple, outright, prohibition on export, for a defined, 4 1/2-month, period that included all of the contract delivery period. It was a "case of prohibition of export [etc.]" (lines 86–88) bringing the Prohibition Clause into play. It was (in the language of line 89) a "total … restriction" on export.
(2) That total restriction was "deemed by both parties to apply to this contract and … to prevent fulfilment whether by shipment or by any other means whatsoever".
(3) To the extent of that deemed prevention of fulfilment, the contract was cancelled (lines 89–90, "… and to that extent this contract or any unfulfilled portion thereof shall be cancelled"). Since this was a case of a total prohibition for the entirety of the contract delivery period, that put an end to any obligation of either party – there was nothing left un-cancelled.
(4) The deemed application of the export restriction to the parties' contract, the deemed prevention of fulfilment, to the extent of that restriction, and the ultimate operative phrase "shall be cancelled", all convey that the effect of the Prohibition Clause is immediate, prospective and final, occurring upon the imposition of the relevant prohibition (etc.).
(5) So too does the consequential obligation to "advise Buyers without delay with the reasons therefore and, if required, … produce proof to justify the cancellation" (lines 90–91). That is not the language of an ex post facto avoidance of liability for non-performance. It is the language of walking away, showing the Buyers (if required) why the Sellers are no longer obliged to perform. Its purpose must be to enable the Buyers to take early steps to minimise loss and disruption, e.g. finding an alternative source of supply, cancelling or rearranging their vessel.
The Buyers submit that this construction ignores the need to show that the prohibition (or other specified event) was one "restricting export". It will only do so if it in fact restricts export. On the Board's findings, at the material time (claimed cancellation), the prohibition was one which might or might not restrict export. It depended upon whether it stayed in place during the contractual shipment period and, on the Board's findings, it was always possible that it would not do so. For the prohibition to be one "restricting export" it is necessary to show that the ban in fact prevents performance in the sense of being in place for the duration of the time for performance; it is not...
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