Bunge SA v Nidera BV (formerly known as Nidera Handelscompagnie BV)
| Jurisdiction | England & Wales |
| Judge | Lord Sumption,Lord Neuberger,Lord Mance,Lord Clarke,Lord Toulson |
| Judgment Date | 01 July 2015 |
| Neutral Citation | [2015] UKSC 43 |
| Court | Supreme Court |
| Date | 01 July 2015 |
[2015] UKSC 43
Lord Neuberger, President
Lord Mance
Lord Clarke
Lord Sumption
Lord Toulson
Appellant
Simon Rainey QC Mark Stiggelbout
(Instructed by Reed Smith)
Respondent
Philip Edey QC Leonora Sagan
(Instructed by Hill Dickinson)
Heard on 27 and 28 April 2015
(with whom Lord Neuberger, Lord Mance and Lord Clarke agree)
Introduction
This appeal concerns the effect of the default clause in a standard form of contract which is widely used in the grain trade. On 10 June 2010 the respondents, Nidera BV, whom I shall call "the buyers", entered into a contract with the appellants, Bunge SA ("the sellers"), to buy 25,000 metric tonnes (+/- 10% in buyer's option) of Russian milling wheat crop 2010, FOB Novorossiysk. The shipment period was August 2010, but there were provisions for narrowing that period by notice. In the event it was narrowed to 23–30 August 2010. The contract incorporated GAFTA Form 49 (as in effect from 1 January 2006), which is the standard form of FOB sale contract of the Grain and Feed Trade Association, for goods delivered from central or Eastern Europe in bulk or bags.
Clauses 13 and 20 of GAFTA 49 are the main provisions relevant to the present dispute. They provided:
"13. PROHIBITION— In 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."
"20. 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) above 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 upon 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."
On 5 August 2010 Russia introduced a legislative embargo on exports of wheat from its territory, which was to run from 15 August to 31 December 2010. On 9 August 2010, the sellers notified the buyers of the embargo and purported to declare the contract cancelled. The buyers did not accept that the sellers were entitled to cancel the contract at that stage. They treated the purported cancellation as a repudiation, which they accepted on 11 August 2010. On the following day, the sellers offered to reinstate the contract on the same terms, but the buyers would not agree. Instead, they began arbitration proceedings under the GAFTA rules, in support of a claim for damages of US$3,062,500.
At the hearing of the arbitration, there was a measure of common ground about the basis for assessing damages. It was agreed (i) that clause 20 applied to anticipatory repudiation, (ii) that the buyers had not bought against the sellers pursuant to sub-clause (a); (iii) that the date of default for the purpose of clause 20(c) was 11 August 2010, when the sellers' repudiation was accepted, and (iv) that the difference between the contract and the market price at that date was US$3,062,500. The sellers' case was that they had been entitled to terminate the contract under clause 13 upon the announcement of the export ban, and that even if the termination was premature, the fact that shipment under the contract would have been subject to the ban when the time for shipment came meant that no loss had been suffered.
GAFTA's first tier arbitration tribunal issued its award on 1 November 2011. It held that the sellers had repudiated the contract because their notice of cancellation was premature. The embargo might have been lifted in time to permit shipment within the laycan period. It was therefore impossible to say, as at the date when the sellers cancelled, that shipment would necessarily be prevented by the embargo. But the tribunal declined to award substantial damages. They held, in agreement with the sellers, that none had been suffered because in fact the embargo was not lifted. It followed that the contract would have been cancelled in any event when the time came for delivery.
Both parties appealed to the GAFTA Appeal Board, which issued its own award on 22 June 2012. The Board agreed with the first tier tribunal that the sellers had repudiated the contract by cancelling too early. It accepted that if the contract had not been repudiated on 9 August 2010 it would have been cancelled because of the embargo. But it awarded damages of US$3,062,500, representing the difference between the contract and the market price on 11 August 2010, the date that the repudiation was accepted. In the Appeal Board's view, such an award was required by clause 20(c) of GAFTA 49.
The sellers' argument, as summarised in the Appeal Board's award, was that at common law it was necessary to take account of events occurring after the breach which showed that the same loss would have been suffered even without the repudiation. They relied on Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos) [1971] 1 QB 164, and Golden Strait Corporation v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 AC 535. The issues were (i) whether that was indeed the position at common law in the case of a contract of this kind; and (ii) if so, whether the common law principle had any application to a contract containing clause 20.
The Appeal Board doubted whether at common law subsequent events would be relevant to the assessment of damages under a contract for the sale of a single cargo, as opposed to a contract for delivery by instalments. But they considered that the issue on damages turned wholly on the effect of clause 20 as that clause was "commonly understood in the trade". They concluded that sub-clause (c) was intended to produce an "easily understood and readily applied" formula for computing damages in a case where agreement was not reached under sub-clauses (a) and (b). That formula might produce a figure more or less than the actual loss. Proceeding from the common ground that the default date for the purpose of sub-clause (c) was 11 August 2010 and from the parties' agreement on figures, they awarded the full amount of the buyers' claim.
This conclusion was also determinative, in the view of the Appeal Board, of the sellers' further argument that the buyers had failed to mitigate their loss by accepting the sellers offer to reinstate the contract on the same terms. As the Appeal Board saw it, the buyers acted reasonably in rejecting the offer, because at the time it was made they had a vested right to a large sum by way of damages and acceptance of the offer would have substituted a right to delivery that would probably have been defeated by the embargo.
On 10 October 2012, Andrew Smith J gave permission to appeal against the award under section 69 of the Arbitration Act 1996, limited to the following issues:
"2.1. 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?
2.2. 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?
2.3. Is the 'overriding compensatory principle' established by The Golden Victory limited to instalment contracts?
2.4. 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?"
Hamblen J, who heard the appeal in the Commercial Court, dismissed the appeal on issues 2.1, 2.2 and 2.4: [2013] EWHC 84 (Comm); [2013] 1 Lloyd's Rep 621. Since he agreed with the Appeal Board that clause 20 determined the measure of damages whether...
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