C Czarnikow Ltd v Centrala Handlu Zagranicznego Rolimpex

JurisdictionUK Non-devolved
JudgeLord Wilberforce,Viscount Dilhorne,Lord Salmon,Lord Fraser of Tullybelton,Lord Keith of Kinkel
Judgment Date06 July 1978
Judgment citation (vLex)[1978] UKHL J0706-1
Date06 July 1978
CourtHouse of Lords
C. Czarnikow Limited
(Appellants)
and
Centrala Handlu Zagranicznego "Rolimpex"
(Respondents)

[1978] UKHL J0706-1

Lord Wilberforce

Viscount Dilhorne

Lord Salmon

Lord Fraser of Tullybelton

Lord Keith of Kinkel

House of Lords

Upon Report from the Appellate Committee to whom was referred the Cause C. Czarnikow Limited against Centrala Handlu Zagranicznego "Rolimpex", That the Committee had heard Counsel as well on Thursday the 18th as on Monday the 22nd and Tuesday the 23rd days of May last upon the Petition and Appeal of C. Czarnikow Limited whose registered office is situate at 66 Mark Lane in the City of London praying that the matter of the Order set forth in the Schedule thereto, namely an Order of Her Majesty's Court of Appeal of the 26th day of May 1977 might be reviewed before Her Majesty the Queen in Her Court of Parliament and that the said Order might be reversed, varied or altered or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament might seem meet; as also upon the Case of Centrala Handlu Zagranicznego "Rolimpex" lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 26th day of May 1977 complained of in the said Appeal be, and the same is hereby, Affirmed and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay or cause to be paid to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments if not agreed between the parties.

Lord Wilberforce

My Lords,

1

This appeal arises out of two contracts for the purchase of sugar by the appellant from the respondent. Each contract was made subject to the rules of the Refined Sugar Association and expressly provided that the performance of the contract was subject to force majeure as defined in the Association's rules. There are two relevant rules. Rule 18(a) applies if the delivery in whole or in part within the delivery time should be prevented or delayed directly or indirectly by (inter alia) Government intervention and provides, as is usual, for an extension and ultimately for cancellation of the contract. Rule 21 deals with licences and is in the following terms:

"The Buyer shall be responsible for obtaining any necessary import licence and the Seller shall be responsible for obtaining any necessary export licence. The failure to obtain such licence/s shall not be sufficient grounds for a claim of force majeure if the regulations in force at the time when the contract was made, called for such licence/s to be obtained."

2

The contracts were made in May and July 1974 (subject to addenda of later dates) and were forward sales for delivery in November/December 1974. The seller thus assumed the risk of a rise in the price of sugar between the contract date and the date of delivery.

3

Since the seller failed to deliver any of the 11,000 m.t. provided for by the first contract and part of the tonnage provided for by the second contract, it would be liable to the buyer for substantial damages unless it could rely on force majeure.

4

The respondent (Seller) "Rolimpex" is a state trading organisation of the Polish State: it obtains sugar required for export from the Sugar Industry Enterprises represented by the Union of Sugar Industries in Poland. The relation between the latter body and Rolimpex is that Rolimpex sells as "commission merchant", i.e., it sells in its own name but only for a commission and on account of the Sugar Industry Enterprises concerned. The contracts now in question were no doubt intended to be satisfied from the 1974 sugar crop in Poland. It is found that the Polish National Economic Plan required a total sugar production of 1,835,000 m.t. for the season 1974/5. Of this, 1,500,000 m.t. was required for the domestic market and the balance was authorised for export. In May 1974 Rolimpex was authorised to contract for the export of 200,000 m.t.

5

In August 1974 there was heavy rain and flooding in the sugar beet producing areas: the result was that only 1,432,000 m.t. were produced�a shortfall even on the amount required for domestic consumption. On 5 November 1974 a resolution of the Council of Ministers was passed banning the export of sugar with effect from 5 November 1974 and cancelling export licences. This resolution was found not to have the force of law. However, later on 5 November 1974 the Minister of Foreign Trade and Shipping signed a decree providing:

"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.

3. The Rule is in force from the date of its signature."

6

This made the export of sugar illegal by Polish law.

7

It was found by the arbitrators that on 5 November 1974 there was a considerable quantity of sugar at the port of Gdynia and a further quantity on the way to Gdynia by rail. But for the ban, sugar would have been available for the performance by Rolimpex of both contracts. It was also found that both before and after 15 November 1974 (the date when the buyer was able to ship) there was Polish sugar of the contract quality available on the market. If there were insufficient quantities available, there was a market for the purchase and sale of other sugar of equivalent quality. In the condition of the market any purchaser would have accepted any sugar of equivalent quality in substitution for Polish sugar. The market value of the relevant quality of sugar on 15 November was however FF. 7,500 per m.t. as compared with FF. 3,064, the price fixed for one contract and about FF. 4,000 for the other.

8

The export ban remained in operation until 1 July 1975. Rolimpex declared force majeure on 6 November 1974, and, if it was entitled to do so, both contracts became void.

9

The seller referred the matter to the Council of the Refined Sugar Association in accordance with the Association's Rules. The Council appointed a panel of six arbitrators in respect of the dispute. They heard evidence over a hearing of 10 days. In their award the arbitrators found (inter alia) that sugar was available on the world market to meet the shortage in the Polish market but the Council of Ministers resolved not to purchase sugar on the world market because of the high price and the loss of foreign exchange that such a purchase would have entailed; that the ban was imposed to relieve the anticipated shortage in the domestic market; that its effect was to throw the losses caused by the partial failure of the Polish sugar crop on overseas traders and consumers, thus saving the Polish State having to bear any financial loss in replacing the sugar sold well in advance of the 1974/5 campaign. They added this unusual observation:

"(a) We very much regret that the Council of Ministers authorised the ban rather than permitting the purchase of sugar on the world market, so enabling Rolimpex to honour its contractual obligations."

10

A further group of findings contained the following:

"(b) The persons employed in Rolimpex did not induce the Council of Ministers to authorise the ban and did not influence its continuance or effect.

(c) Rolimpex is an organisation of the Polish State.

(d) Rolimpex is not so closely connected with the Government of Poland that it is precluded from relying on this ban (imposed for the reasons set out above) as 'Government intervention' within Rule 18(A) of the Rules of the Refined Sugar Association.

(e) Rolimpex is accordingly entitled to rely on Rule 18(A) as a defence to Czarnikow's claims."

11

The award having been stated in the form of a special case, the matter came before the court with two main questions for decision.

12

1. Was this a case of Government intervention within Rule 18(a)?

13

2. Was the case taken out of Rule 18(a) by the provisions of Rule 21 ?

14

There was also a question (of very considerable difficulty) as to the measure of damages.

15

Questions 1 and 2 were answered by Kerr J. in favour of the seller, i.e., Yes and No respectively. The Court of Appeal (Lord Denning M.R. and Cumming-Bruce L.J.) affirmed this decision. Geoffrey Lane L.J. dissented holding that Question 2 should be answered in the affirmative.

16

Consideration of Question 1 can conveniently start from the arbitrators' finding (b) above. It was the case of the buyer before the arbitrators that there was some kind of collusion or conspiracy between Rolimpex and the Government of Poland by which the Government was persuaded, in the interest of Rolimpex, to impose the ban. In order to deal with this, Rolimpex produced a quantity of evidence to show that there was no such collusion or conspiracy; on the contrary, when the possibility of a ban on exports was mentioned to the Director and General Manager of Rolimpex before 6 November 1974 he protested about it and the persons employed in Rolimpex were not consulted about the imposition of the ban and were not informed of the ban until after its imposition. The arbitrators found that Czarnikow had failed to prove its allegation that the ban was imposed after consultation between the persons employed in Rolimpex and the Ministry of Foreign Trade and Shipping. The ban was in fact requested by the Minister of Food and Agricultural Industries on the grounds that it was unacceptable to put the people of Poland on short rations and other alternatives were unacceptable. There being disagreement among the Ministers...

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