CTI Group Inc. v Transclear SA (The Mary Nour)
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE FIELD,Mr Justice Field |
| Judgment Date | 14 September 2007 |
| Neutral Citation | [2007] EWHC 2070 (Comm) |
| Docket Number | Case No: 2006 Folio 1389 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 14 September 2007 |
[2007] EWHC 2070 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION
COMMERCIAL COURT
IN AN ARBITRATION CLAIM BETWEEN:
Mr Justice Field
Case No: 2006 Folio 1389
(Instructed by Hill Dickinson Llp) for the Claimant/Buyers
Michael Nolan (Instructed by Salans) for the Defendant/Sellers
Hearing dates: 23 rd July 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an appeal by leave of Simon J from a partial final award dated 1 st December 2006 made by a tribunal consisting of three arbitrators.
There are two issues. The first is whether the tribunal erred in law in deciding that two f.o.b. contracts for the sale of 27,000 metric tonnes of cement (plus/minus 10%) destined for Mexico from (respectively) Indonesia and Taiwan were frustrated by the intervention of Cemex, a company with a monopoly in the supply of cement in Mexico, with the result that no supplier of cement in Asia would provide the supply on which the fulfilment of the two contracts depended. The second issue is whether the tribunal erred in holding in the alternative that the contracts were subject to an implied term that if suppliers refused to supply cement because of the buyers' intended use of or dealings with it or because of its intended destination, both parties would be discharged from any liability or obligation under the contracts.
The factual background
The sellers under the two contracts were Transclear SA, a company incorporated in Switzerland which specialises in the worldwide marketing of cement. The buyers were CTI Group Inc, a company specialising in cement trading worldwide. The intermediate brokers were a Spanish company, Tradeland Commodities (“Tradeland”).
In early 2004, the buyers embarked on a strategy designed to break the cartel operated in the Mexican cement market by Cemex. The plan was to acquire a large quantity of cement and ship it in a vessel that could be used as a floating silo that would be moored off the Mexico coast and from which cement could be supplied into the Mexican market. The cement was to be bagged onboard the vessel and then shipped to the mainland.
The vessel, the “Mary Nour”, was owned by a company in the CTI group. In early 2004 she was completing a routine dry-docking in Guangzhou, China. She left the shipyard on 7 th May 2004, the day on which the sellers and the buyers concluded the first of the f.o.b. contracts in question. The cement was to be shipped in one lot by the buyers, “laycan Padang 15/18 May … price USD 28 pmt FOB Stowed/trimmed Padang, Sumatra, Indonesia.”
Both parties knew that Cemex might try to disrupt the buyers' strategy and with this in mind agreed that the certificate of origin and the Sucofindo inspection certificate would state no destination and all the other documents would show the destination of the cargo to be Honduras, the Master being instructed to declare and sign accordingly.
The sellers' suppliers were PT Semen Padang (“PTS”) who were to deliver the cement in accordance with the delivery terms of the contract between the sellers and the buyers. PTS had proved to be reliable suppliers of cement in the past.
The tribunal found that although the suppliers and the sellers (the latter acting by their Managing Director, Mr Paulovits) had an oral agreement as to quality, quantity, price, and the laycan for a spot cargo, “it was unlikely …. that Mr Paulovits would have been able to prove that a legally binding contract under English law had been concluded with PT Semen Padang. On the other hand….arrangements had been made for the supply of the necessary parcel of cargo, which would have been effective but for [the intervention of Cemex]”.
On 13 th May 2004, the sellers were informed that PTS would not provide the cargo. PTS's parent company was 25% owned by Cemex and would not allow the transaction to proceed. On 15 th May 2004, having failed to find a substitute Indonesian supplier, the sellers informed the buyers that no cargo could be provided in Indonesia and gave the reasons why.
On 17 th May 2004 the parties entered into the second f.o.b. contract on similar terms to the first, including the declared destination, save that the price was to be US$ 32.00 pmt and shipment was to be from a port in Taiwan during a different loading window. The second contract was in substitution for the first but was concluded without prejudice to the buyers' rights with respect to the sellers's failure to provide a cargo in Indonesia.
The sellers's intended suppliers for the second contract were China Rebar Ltd. However, on 19 th May 2004, the sellers were informed by the local broker that China Rebar Ltd had been put under pressure by another Taiwanese company which had a major contract with Cemex for the supply of cement into the USA and as a consequence China Rebar Ltd would not be supplying the cargo. The agreement between China Rebar Ltd and the sellers was an informal arrangement of the same sort as that concluded with PTS.
The sellers had no other sources of cement in the Far East. None of the majors would supply cement destined for Mexico which they regarded as the province of Cemex and the sellers were sure that no other small factory was willing or able to provide the cargo. Accordingly, on 19 th May 2004, the sellers gave the buyers formal notice that no cargo could be provided in Taiwan.
On 21 st May 2004 the buyers concluded a further substitute contract, this time with Russian sellers and at a higher price. Delivery was made under this contract but the Mary Nour had to proceed to the Black Sea via the Suez Canal to receive the cargo and then on to Mexico instead of proceeding straight from Asia to Mexico via the Cape of Good Hope. By the time the vessel arrived off Mexico, Cemex was fully alive to the situation and prevented any of the cargo from being unloaded. The buyers kept the Mary Nour off Mexico for a year but then gave up their attempt to break the Cemex cartel and shipped the cement to Doha and Qatar where it was sold.
In the subsequent arbitration, the buyers claimed that the sellers were in breach of the first, alternatively the second contract, and sought as damages: (i) the difference in the contract sale price and the actual price paid: (ii) the additional expenses incurred in getting the cargo to Mexico compared with what it would have cost if delivery had been made under one of the two contracts; and (iii) the cost of bags which had become unusable because of the printing on them which stated that the contents originated from Indonesia.
The buyers' defences to the claim were that the contracts had become frustrated because performance had become commercially impossible and in any event the contracts contained an implied term discharging the parties in the events that had happened.
It was common ground that the contracts were governed by English law.
The tribunal's reasoning and findings on the frustration issue
The tribunal found (para.22) that by 19 th May 2004 “it had become impossible for the parties' contract to be performed in accordance with its terms, particularly those relating to the geographical source and loading of the vessel, in that there was simply no way in which cargo of the contractual description could be provided FOB for the “Mary Nour”, whether in Indonesia or Taiwan.”
In reaching the conclusion that the contracts were frustrated the tribunal applied Lord Radcliffe's well-known definition of frustration:
…frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of performance because the circumstances in which performance is called for would render it a thing radically different from that which was promised by the contract. 1
The tribunal observed that the f.o.b. sale had the “highly unusual feature” of being inextricably linked to the “project” to break the Cemex cartel in Mexico by setting up an alternative source of supply moored off the Mexico coast and stated:
Again, it seems to us inconceivable that the parties should not implicitly have agreed that the contract should be terminated if provision of a cargo for this purpose turned out to be impossible, as was the case. (Para 38)
The tribunal went on to conclude that performance of the substance of the contract, which they defined as being the provision of a cargo of bulk cement to be shipped from Asia to Mexico on The Mary Nour, had become commercially impossible by 17 th May 2004 as a result of commercial pressure placed by Cemex on potential suppliers and the only alternative performance (shipment from the Mediterranean or the Black Sea) was fundamentally different from that contemplated by the parties (para. 39).
They distinguished Atisa SA v Aztec AG [1983] 2 Lloyds Rep 579, In re Thornett & Fehr and Yuills [1921] 1 KB 219 and Intertradex SA v Lesieur Tourteraux SARL [1978] 2 Lloyds Rep 509 and held that there was no general principle that a contract of sale can never be frustrated where performance is rendered impossible by the failure of a supplier to supply the contractual material. In the tribunal's view, in each case the first step was to determine whether on a true construction of the contract it can be concluded that the seller had agreed to assume the risk of non-performance
resulting from a failure by a third party supplier to supply the contract material (para 44).
...
To continue reading
Request your trial
-
CTI Group Inc. v Transclear SA (The Mary Nour)
...of supplier to provide goods not frustrating. This was an appeal by the appellant seller, transclear, against an order of field J ([2007] 2 Clc 518) Varying an arbitration award dismissing a claim by the respondent buyer, CTI, for damages for non-delivery of a cargo of cement. The case aros......
- R Onkarsingh Nagre v Secretary of State for the Home Department
-
Gold Group Properties Ltd v BDW Trading Ltd
...of Appeal cases concerned with frustration. These both demonstrate the relative rarity of a finding of frustration. Thus, in CTI Group Inc v Transclear SA [2008] EWCA Civ 856, the Court of Appeal rejected the claim for frustration, making it plain that, as numerous earlier authorities showe......
-
CTI Group Inc. v Transclear SA (The Mary Nour (No. 2))
...this application to have the tribunal award upheld on grounds other than those expressed in the award must be dismissed. 1 [2007] EWHC 2070 (Comm) 2 [1956] AC 14 ...