Cargill International SA and Another v Bangladesh Sugar and Food Industries Corporation
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE STAUGHTON,LORD JUSTICE POTTER,LORD JUSTICE SWINTON THOMAS |
| Judgment Date | 19 November 1997 |
| Judgment citation (vLex) | [1997] EWCA Civ J1119-9 |
| Docket Number | QBCMF 96/1138/B |
| Court | Court of Appeal (Civil Division) |
| Date | 19 November 1997 |
[1997] EWCA Civ J1119-9
Lord Justice Staughton
Lord Justice Swinton Thomas
Lord Justice Potter
QBCMF 96/1138/B
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR JUSTICE MORISON)
Royal Courts of Justice
The Strand
London WC2
MR S MALES (Instructed by Messrs Middleton Potts, London EC1A 7LD) appeared on behalf of the Respondents
MR A HOSSAIN (Instructed by Messrs Beale & Company, London WC2A 8JD) appeared on behalf of the Appellant
Wednesday 19th November, 1997
Lord Justice Potter will give the first judgment.
This is an appeal by the Bangladesh Sugar and Food Industries Corporation (hereafter "BSFIC") who were, under a contract dated 16th June 1994, the buyers of a quantity of sugar from the respondents ("Cargill") under a contract of sale in connection with which Cargill as sellers provided BSFIC with a performance bond issued on its behalf by the Banque Indo Suez on 4th June 1994, in a sum equivalent to ten per cent of the total C & F value of the sugar to be supplied.
Disputes have arisen between the parties in respect alleged contractual breaches arising from of the late arrival and the age of the ship carrying the cargo. BSFIC claimed to be entitled to forfeit the bond in respect of Cargill's breaches of contract. Cargill in turn claimed that the breaches were in fact caused by the default of BSFIC. Cargill also claimed that, in any event, BSFIC suffered no loss because the market price of the sugar had fallen over the period between the date of contract and the date for delivery.
The disputes led to the commencement of litigation in various jurisdictions, which was eventually compromised by an agreement of the parties dated 12th April 1996, under which it was agreed inter alia that the matter was to be submitted for determination before the Commercial Court. The parties further agreed that the Court should determine two preliminary issues, on the assumption for the purpose of such determination that Cargill were indeed in breach of contract as alleged by BSFIC.
The two preliminary issues were ordered to be tried by Rix J on 2nd May 1996 in the following form:
"(1) Whether on the true construction of the contract of sale dated 16th June 1994 and on the assumption that the Plaintiffs were in breach of the contract in the respects alleged at paragraph 5 of the Defendant's Points of Defence (whether individually or cumulatively) the defendant was entitled to make a call for the full amount of the performance bond of Banque IndoSuez in any of the following events, namely the Plaintiff's breach (or breaches) of the contract
(a) caused no loss to the Defendants;
(b) caused some loss to the Defendants which was less than the amount of the performance bond;
(c) caused some loss to the defendants which was equal to or greater than the amount of the performance bond.
(2) Whether on a true construction of the contract and on the same assumption as in (1) above, and in the event of the Defendant having obtained payment under the performance bond as a result of any such call which it was entitled to make, the Defendant was entitled to retain:
(a) all of the monies received by it;
(b) only such amount as was equal to the amount of the loss suffered by it; or
(c) some other and if so what amount."
The breaches of contract alleged at paragraph 5 of the Points of Defence, which were to be assumed for the purpose of the preliminary issue, were breach of clause 6 (ii) of the contract of sale in shipping the sugar in an overage vessel without BSFIC's clearance and (2) breaches of clauses 5 and 16, in that the vessel only arrived at Chittagong on 21st September 1994.
In the judgment of Morison J, and by his order dated 7th June 1996, he gave the answer "Yes" to question (1) and "(b)" to question (2). He thus held that, on the assumption that Cargill was in breach of the contract, BSFIC was entitled to make a call for the full amount of the performance bond, even if Cargill's breach or breaches caused no loss to BSFIC. However, on the same assumption, and in the event of BSFIC having obtained payment under the performance bond as a result of any call, BSFIC was entitled to retain only such amount as was equal to the amount of the loss suffered by it.
For the purposes of the arguments raised before us on this appeal it is necessary to refer to three principal documents.
The first is the form of tender invitation issued by BSFIC to tenderers in respect of 12,500 metric tonnes, plus or minus five per cent of sugar as described. This required tenderers to furnish various documents under various headings. In particular, by clause 10, it required submission of two documents described as: "earnest Money/Bid bond" and "Performance Guarantee".
In that respect clause 10 provided:
"(a) The tenderer/bidder will furnish 1 per cent of the total quoted value as earnest Money/Bid bond in the form of Bank Draft/Bank Guarantee in favour of this Corporation as per format given at Annexure-A…
(c) The earnest money in respect of the tenderer/bidder whose offers have been accepted will be released to them only after they have furnished performance guarantee and signed the contract. The Corporation reserves the right to forfeit the earnest money if the tenderers/Bidders fail to sign the contract or to furnish Performance Guarantee for performance of the contract within the time stipulated and/or allowed for the purpose…
d) In the event of the acceptance of this tender by the Corporation, a Letter of Intent will be issued to the successful tenderer/bidder (hereinafter referred to as the Supplier) who shall provide, within 7 (seven) days from the date of the issue of the Letter of Intent, the Performance Guarantee in the form of a Bank Guarantee in the format given at annexure "B".…
The Performance Guarantee is liable to encashed/forfeited (i) if the successful bidder fails/refuses to sign the formal contract and (ii) if the full cargo in respect of both quality and quantity as per B/L and invoice is not received. But such encashment and forfeiture of the Performance Guarantee shall not limit the consignee to have the right to seek redress of full recovery of short receipt through other means."
Although the tender invitation, which was dated 5th May 1994, provided for signature by the tenderer and was in fact signed to indicate that Cargill as tenderer had understood and accepted the conditions as laid down, it also provided under the heading "Acceptance and Contract" that:
"Issuance of a Letter of Intent shall not mean a formal contract and will be completed in all aspects when the formal contract is signed."
Cargill's firm offer in response to the invitation to tender was dated 28th May 1994. It gave details of the tonnage offered, origin, payment, delivery, price, etcetera and ended "all other terms and conditions: as per tender". It was accepted on 30th May. Cargill then procured its bankers, Banque IndoSuez, to issue the second important document, namely the performance bond or "Performance Guarantee" as it was called in the tender invitation. It took the form of a banker's "Letter of Guarantee" dated 4th June 1994. It provided inter alia that:
"Whereas…(BSFIC)…has accepted the offer….(of Cargill)…for supply of 12,500 Metric Tons (Five Pct more/less at Seller's Option) of sugar to be supplied by Cargill…on the terms and conditions governing the purchase order and whereas the supplier has requested us through the Chase Manhattan Bank, London to issue a Guarantee for an amount of USD 526,273.15…only being 10 Pct of the C&F (C) value of the contract, in consideration of aforesaid we, Banque Indo Suez, Dhaka hereby undertake and guarantee due signing, acceptance and performance of the contract by the supplier and we unconditionally and absolutely bind ourselves
I) To make payment of USD 526,273.15…to the Corporation or as directed by the said Corporation in writing without any question whatsoever.
II)…The guarantee is unconditional and it is expressly understood that the sole judge for deciding whether the suppliers have performed the contract and fulfilled the terms and conditions of the contract will be the said Corporation."
On 16th June 1994 there was completed and dated the third important document: the contract of sale. Under its terms the respondents agreed to sell C & F (C) to the appellant 12,500 metric tonnes of sugar plus or minus five per cent at the seller's option. There was an express promise by the respondent to ensure the arrival of the sugar at Chittagong before 15th September 1994 "positively". There was also a stipulation in the contract that the cargo would be shipped in a vessel which was not more than 20 years old.
Clause 13 of the contract of sale provided as follows:
"13: Performance Bond.
The seller has already submitted a Performance Bond to the BUYER in the form of Bank Guarantee equivalent to 10 per cent of the total offered C & F (C) value of 12,500 m.tons plus or plus or minus 10 per cent of sugar. The Performance Bond is liable to be forfeited by the BUYER if the SELLER fails to fulfil any of the terms or conditions of the contract…and also if any loss/damage occurs to the BUYER due to any fault of the SELLER."
Clause 16 of the contract of sale provided as follows:
"16: Special clause.
i) The arrival period/time is the essence of the contract. Therefore the SELLER shall strictly adhere to the arrival period/time stipulated in this contract. If the SELLER...
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