Cargill International SA v Bangladesh Sugar & Food Industries Corporation
| Jurisdiction | England & Wales |
| Judge | Staughton,Swinton Thomas,Potter L JJ |
| Judgment Date | 19 November 1997 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 November 1997 |
Court of Appeal (Civil Division).
Staughton, Swinton Thomas and Potter L JJ.
Stephen Males (instructed by Middleton Potts) for the respondents.
Ajmalul Hossain (instructed by Beale & Co) for the appellant.
The following cases were referred to in the judgments:
Charter Reinsurance Co Ltd v Fagan[1996] CLC 977; [1997] AC 313
Comdel Commodities Ltd v Siporex Trade SAUNK[1997] 1 Ll Rep 424
Harbottle (R D) (Mercantile) Ltd v National Westminster Bank LtdELR[1978] QB 146
Palm Shipping Inc v Kuwait Petroleum CorpUNK[1988] 1 Ll Rep 500
Robertson v FrenchENR(1803) 4 East 130; 102 ER 779
Wickman Machine Tool Sales Ltd v L Schuler AGELR[1974] AC 235
Workers Trust and Merchant Bank Ltd v Dojap Investments LtdELR[1993] AC 573
Contract Performance bond Sellers provided performance bond under C & F contract Whether buyers entitled to retain whole amount of bond if sellers in breach of contract Whether buyers only entitled to retain amount equal to loss.
This was an appeal by C & F buyers (BSFIC) from a decision of Morison J on preliminary issues that BSFIC, on the assumption that sellers (Cargill) were in breach of contract, were entitled to call for the full amount of a performance bond provided by Cargill but were only entitled to retain the amount of their loss.
The alleged contractual breaches by Cargill arose from 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.
Morison J held that it was implicit in the nature of a performance bond that in the absence of clear contractual words to a different effect there would be an accounting between the parties at some stage after the bond had been called, in the sense that their rights and obligations would be determined at some future date. If the amount of the bond was not sufficient to satisfy the beneficiary's claim for damages he could bring proceedings for his loss, giving credit for the amount received under the bond. Conversely if the amount received under the bond exceeded the true loss sustained, the party who provided the bond was entitled to recover the overpayment.
The judge's reasoning in that respect was not the subject of challenge on the appeal. BSFIC contended rather that by providing in cl. 13 and 16 of the sale contract that the bond should be forfeited by the buyer if the seller failed to fulfil the contractual conditions, the parties did intend to oust the usual implication as to any subsequent accounting between the parties.
Held, dismissing the appeal:
BSFIC could not keep the money from the performance bond except to the extent that they could establish loss from a breach of contract by Cargill. The parties did not, by use of the word forfeit in relation to the bond, negative any later obligation of the buyers to account, should the sum paid over exceed the damage actually suffered. The words forfeited and forfeit applied to the bond, not to the moneys paid under the bond, and simply referred to the exercise of the buyer's right to call for payment under the bond. That was consistent with the provision that the bond was liable to be forfeited by the buyer. The judge's decision that liable to be forfeited, in the context in which they appeared, meant liable to be called or encashed accorded more with reason, fairness and commercial good sense than did the meaning for which the buyers contended that where BSFIC had suffered no loss or relatively nominal loss the bond would be irrecoverably lost to the sellers.
Potter LJ: This is an appeal by the Bangladesh Sugar and Food Industries Corp (BSFIC) who were, under a contract dated 16 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 IndoSuez on 4 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 of alleged contractual breaches arising from 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 12 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 2 May 1996 in the following form:
(1) Whether on the true construction of the contract of sale dated 16 June 1994 and on the assumption that the plaintiffs were in breach of the contract in the respects alleged at para. 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 moneys 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 para. 5 of the points of defence, which were to be assumed for the purpose of the preliminary issue, were (1) breach of cl. 6(ii) of the contract of sale in shipping the sugar in an overage vessel without BSFIC's clearance, and (2) breaches of cl. 5 and 16, in that the vessel only arrived at Chittagong on 21 September 1994.
In the judgment of Morison J, and by his order dated 7 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 cl. 10, it required submission of two...
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