C Czarnikow Ltd v Centrala Handlu Zagranicznego Rolimpex

JurisdictionEngland & Wales
JudgeTHE MASTER OF THE ROLLS
Judgment Date26 May 1977
Judgment citation (vLex)[1977] EWCA Civ J0526-1
Date26 May 1977
CourtCourt of Appeal (Civil Division)
C. Czarnikow Limited
Claimants
(Appellants)
and
Centrala Handlu Zagranicznbgo "Rolimpex"
Respondents

[1977] EWCA Civ J0526-1

Before:

The Master of the Rolls

(Lord Denning)

Lord Justice Geoffrey Lane and

Lord Justice Cumming-Bruce

In The Supreme Court of Judicature

Court of Appeal

On Appeal from the High Court Of Justice

Queen's Bench Division

Commercial Court

In the Matter of the Arbitration Act, 1950

And

In the Matter of an Arbitration

MR. A. EVANS, Q.C. and Mr. D. JOHNSON (instructed by Messrs. William A. Crump & Son, Solicitors, London) appeared on behalf of the Claimants (Appellants).

MR.M. HUSTILL, Q.C. and MR. A. LONGMORE (instructed by Messrs. Norton, Rose, Boterell & Roche, Solicitors, London) appeared on behalf of the Respondents.

THE MASTER OF THE ROLLS
1

In Poland sugar beet it grown on a large scale. It produces between 1 million and 2 million metric tons of sugar a year. It is harvested each year from mid September onwards. Most of the sugar is used for the domestic needs of Poland itself. But considerable quantities are exported to other countries. The Polish state itself controls the planning of each year's production. It has a National Economic Plan to which the state organisation are ed to conform. Early in 1974 it was planned that the total sugar production for the season 1974/ 4/1975 (from mid-September 1974 to early 1975) should be- 1, 55,000 metric tons. Nearly 2 percent of this total was allocated for the domestic market. That is, 1,500,000 metric tons. The remaining 16 per cent, that is, 335,000 metric tons, were allocated for export. In conformity with this plan, a State organisation called Rolimpex was authorised to enter into forward contracts For the of 200,000 metric tons. Accordingly, Rolimpex entered into contracts with several purchasers. One of them: was the famous English company of sugar merchants called Czarnikow. The contracts were made in the summer of 1974 for the supply of sugar in the forthcoming season.

2

THE FIRST CONTRACT

3

The first contract was contained in a letter of 24th May, 1974 from Czarnikow in London to Rolimpex in Warsaw, as amended by a letter of 13th August, 1974. It was for the purchase of 11,000 metric tons of Polish white Crystal sugar at a price of 3,064.5909 French fanes per 1,000 ilos, free on board and stored one safe Polish port, on these terms:

4

"DELIVERY

5

Delivery shall be made to vessel/s during October/November1974 as required by the Buyer.

6

"FORCE MAJEURE

7

The performance of this contract is subject to Force Majeure as defined in the Rules of the Refined Sugar Association.

8

"ARBITRATION

9

All disputes arising out of this contract shall be referred to the Council of The Refined Sugar Association in London for settlement in accordance with the Rules Relating to Arbitration.

10

"RULES

11

This contract is subject to the Rules of The Refined Sugar Association as Fully as if the name ly inserted herein…"

12

THE SECOND CONTACT

13

The second contract was contained in a letter 5th July, 1974 from Czarnikow to Rolimpex, as ame by a telex. of 2nd October, 1974. It was for the of 6,000 metric tons of Polish White Fine Grahulated Sugar divided into four parcels 1,000 tons for Abidjan for October shipment; 1,000 tons for Malta for October shipment; 2,000 tons for Switzerland in transit October/December, 1974; 2,000 tons for December shipment. It contained the self-same clauses as to force majeure, arbitration and rules as the first contract.

14

THE SUB-CONTRACTS

15

Czarnikow entered into sub-contracts for sale of the sugar to sub-purchasers. These sub-contracts were all subject to the same rules and the same force majeure clause as the head contracts.

16

THE LICENCLS

17

There were regulations in force which all a for export licensees to be obtained. Rolimpex applied for licensees toexport the quantities of sugar under and in accordance with the contracts. These were granted between May and August 1974.

18

THE CROP FAILURE

19

As it turned out, however, the beet crop that year fell far short of expectations. In the early autumn of 1974 there was very heavy rain and extensive flooding of the countryside where sugar beet is grown. The rainfall and flooding. not only made harvesting difficult, but it reduced the Sugar content of the beet. At the end of the harvest the prospects were very gloomy. It was apparent that the production would fall far short of expectations. It would not be sufficient to cover the domestic needs of Poland. The yield would be only 1,432,000 tons of sugar, whereas the domestic needs alone were 1,500,000 tons. If the entire production was used up for domestic needs, there would be nothing left for export. Yet limpax had committed itself by contract to export 200,000 tons

20

What was to be done? There were discussions in ministerial circles in Poland at a high level. On the one hand There was the Minister of good concerned with home affairs. He proposed that the whole of the year's production should be deleted to domestic needs: and that. there should be an immediate to on the export of sugar. In his view it was socially and politically unacceptable to put the people on short rations simply to support the export trade. On the other hand, the Minister for Foreign Trade took a different view. He pointed out that Rolimpex had entered into contracts to export 20,000 metric tons of sugar: and that they insisted on contracts out of the year's production, These contracts, he thought, should be fulfilled, even if it meant putting the people on short rations. It would be better, he Said, to buyextra sugar on the world market at the high price then ruling rather than default on the contracts for exports.

21

On the morning of 5th November, 1974 there was a meeting of the Council of Ministers. They resolved the difference by deciding that there should be an immediate ban imposed on the export of sugar. The Council passed a resolution to that effect. It was signed by the Prime Minister and it was passed to the Minister for Foreign Trade to carry into effect. He asked the Legislative Section to draft a decree to impose the ban. He told the Polish Customs that the ban was coming into effect so as to prohibit sugar being exported under contracts already signed.

22

On the afternoon of the same day - 5th November, 1974 the decree was signed by the Minister. It gave Force to the ban. It said: "(1) From 5th November, 1974 it is prohibited to release export deliveries of sugar specified by present contracts. (2) Customs Authorities shall immediately stop the deliveries of sugar prepared for export and notify disposers about the prohibition of sugar export. (5) The Rule is in force from the date of its signature".

23

That decree was signed by the Minister on the afternoon of 5th November, 1974, and from that moment onwards the export of sugar from Poland was illegal by Polish law. The decree was not made public at that time. It was place in a classification until Saturday, 16th November, 1974. But meanwhile all those closely adfected were told . They were told on the very day -5th November, 1974 - on which it was imposed. The very first people to be told word, of because, the Customs authorities at the port of where sugar was ready for shipment. The Customs told the agents, who in turn told the directors of Rolimpex. They in turn got in touch with the Ministry of foreign Trade, who confirmed that the ban had been imposed.

24

Then on 5th November, 1974 Nolimpex sent this telex to Czarnikow; "please be informed that due to unfavourable weather conditions and poor result of sugar campaign a ban on export deliveries of sugar has been imposed by the Government with effect from 5th November, 1974. This refers to all existing contracts". Similar ellexes were sent to other purchasers. Czarnikow replied saying that deliveries could not be stopped in this manner, but on 9th November, 1974 Rolimpex replied: "We regret very much to have to confirm that the decision of our Government we informed you about yesterday is a case of force majeare".

25

THE CONTRECT ON LIV

26

Owing to the ban, the, first contract was completely prevented from being fulfilled. Czarnikow had already chartered a vessel to load 11,000 tons of sugar at a Polish port. Rolimpex had nominated Gymea as the loading port. The vessel was expected to arrive at Cdynia on 15th November, 1974. Rolimpex had already made arrangements to get the 11,000 tons of sugar down to Gdynia. Some was already there. Some on rail, But when the ban came down on 5th November, 1974 everything was stopped. Czarnikow managed to cancel the charter. So the vessel did not go to Gdynia. The 11,000 tons were never shipped.

27

The second contract for 6,000 tons had, however, been partly fulfilled. During October 1974 the first two parcels of 1,000 tons each were duly shipped: and 697.3 tons out of the next 2,000 tons. Leaving 3302.7 tons still outstanding.

28

Rolimpex had made arrangements for it to be supplied. But it was prevented by the ban. So the 3303,7 tons were never shipped.

29

The ban remained in force from 5th November, 1974 till 1st July, 1975 when it was lifted.

30

THE CLAIMS

31

Czarnikow claimed damages from Rolimpex for non-delivery of the sugar under both contracts. But Rolimpex claimed to be exempt by reason of the "force majeure" clause in the contracts. It went to arbitration. The arbitrators found that Rolimpex were protected by the force majeure claused but they stated their Award in the form of a special case for the decision of the court. The judge upheld the decision of the arbitrators. Czarnikow appeal to this court.

32

Both contracts contained a "force majeure" clause: and a "licence" clause. I will set them out.

33

FORCE MAJEURE

34

The Rules contained a section headed "Porce Majeure" with these clauses 17, 1S, 19 and 20. The relevant clause...

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