CTI Group Inc. v Transclear SA (The Mary Nour)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moore-Bick,Lord Justice Rimer,Lord Justice Ward |
| Judgment Date | 22 July 2008 |
| Neutral Citation | [2008] EWCA Civ 856 |
| Docket Number | Case No: A3/2007/2522 |
| Court | Court of Appeal (Civil Division) |
| Date | 22 July 2008 |
[2008] EWCA Civ 856
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr. Justice Field
[2007] EWHC 2020 (Comm)
Lord Justice Ward
Lord Justice Moore-Bick and
Lord Justice Rimer
Case No: A3/2007/2522
Mr. Michael Nolan (instructed By Salans) For The Appellant
Mr. Julian Kenny (instructed By Hill Dickinson) For The Respondent
Hearing dates : 16th June 2008
This is an appeal against an order of Field J. varying an award made by an arbitration tribunal dismissing a claim by the respondent, CTI Group Inc. (“the buyers”), against the appellant, Transclear S.A. (“the sellers”), for damages for non-delivery of a cargo of cement. The dispute between the parties arose out of a contract made between the buyers and the sellers on 7 th May 2004 for the sale of 27,000 m.t. of Indonesian cement in bulk f.o.b. the 'Mary Nour' at Padang. The sellers were unable to provide a cargo for the vessel at Padang and on 17 th May the parties entered into a substitute contract for the sale of the same quantity of cement on substantially the same terms save that shipment was to be made in Taiwan. In the event, however, the sellers failed to provide a cargo for the vessel in Taiwan either, and as a result the buyers made a claim against them for damages in the sum of US$449,726.96 representing the loss incurred in obtaining a cargo from an alternative source in Russia.
The background to the contract, as the sellers were aware, lay in an attempt by the buyers to import substantial quantities of cement into Mexico in breach of a cartel then operated by a local company, Cemex. The plan was to use the 'Mary Nour' as a floating silo to bag and distribute into the Mexican market between 300,000 and 500,000 m.t. of cement a year. In April 2004 the vessel was about to complete a routine drydocking in Guangzhou and the buyers were therefore looking for a cargo of cement for the positioning voyage to Mexico.
The sellers intended to obtain the cargo from a supplier they had used on a number of previous occasions, PT Semen Padang, who had proved reliable. There was evidence before the arbitrators that spot contracts of this kind are normally concluded on the telephone with nothing being reduced to writing and that, although once agreement has been reached on terms the parties regard themselves as bound, either party may withdraw until a letter of credit has been opened. In the light of that evidence the tribunal found that it was unlikely that the sellers could show that they had entered into a legally binding contract with the supplier, but that by the date of the contract they had made arrangements for the shipment of a cargo that would have been effective had it not been for the intervention of Cemex. In paragraph 3 of the award the arbitrators record that it was common ground that the supplier at Padang had declined to provide a cargo because of pressure brought to bear on it by Cemex and that Cemex had also used its influence to persuade the supplier in Taiwan to withdraw its offer of a cargo.
In paragraphs 18–22 of the award the arbitrators made detailed findings about the circumstances which had led to the sellers' failing to ship a cargo in accordance with the contract. In view of the importance which Mr. Nolan attached to those findings I shall set them out in full. They are as follows:
“18. During the early part of the following week Mr. Paulovits [the sellers' managing director] pressed Mr. Laurenzi [sic] to “get the factory's confirmation of the order” but it quickly became clear that no such confirmation would be forthcoming. It was common ground that the explanation for this was that the parent organisation of the Padang factory, the Gresik Group, had become aware that the cargo was destined for Mexico and was unwilling to allow the transaction to proceed. There was no evidence as to how this interference with the contract had taken place but it was acknowledged by those concerned that Cemex is the holder of approximately 25% of the share capital of the Gresik Group, who were anxious not to offend Cemex.
19. Mr. Paulovits was made aware by 13 th May that the Padang factory would not provide the contractual cargo and on his arrival in Singapore on 15 th May he informed Mr. Mihyar [the buyers' managing director] in writing that he was “shocked” to be informed of the position but that it had to be considered final and irrevocable. He referred to the fact that he had contacted other independent producers in Indonesia but had been informed that there was no available material. He stated “This extraordinary development is completely beyond our control” but he suggested possibly procuring a replacement cargo from Black Sea, Russia. In his oral evidence Mr. Paulovits stated that this was the first and only occasion in his long career in the cement trading business in which he had been confronted with a situation in which a supplier had placed an embargo on the supply of a cargo to protect the position of an associated company in a particular market.
20 Faced with this situation Mr. Paulovits attempted to revive the Sumitomo offer to load in Taiwan. Having had discussions with Sumitomo on 17 th May, Mr. Paulovits (through his office in Switzerland) sent a message to Tradeland [the brokers] the same day confirming that cement was available from Taiwan for loading on “MARY NOUR”, the quantity being 27,000 mt plus or minus 10% in the Sellers' option at a price of US$32.00 per mt FOB trimmed. The message included the remark:-
“Destination must remain Honduras and Master must be instructed accordingly.”
Although the comments made in paragraph 16 above as to the informality of the contractual arrangements made for the original supply ex PT Semen Padang apply with equal force to the alternative arrangements made for a cargo ex-Taiwan, we shall refer to it for present purposes as “the substitute contract”.
21. Having (as he thought) obtained the alternative source of supply in his discussions with Mr. Jovi Chen of Sumitomo in Taiwan, Mr. Paulovits began his return journey to Switzerland but on his arrival at Singapore, on 19 th May, he received a phone call from Mr. Chen advising him that the Taiwanese supplier, China Rebar Ltd, had informed Mr. Chen that it was no longer in a position to supply the substitute cargo. The explanation from Mr. Chen was 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. Mr. Paulovits's evidence was that Mr. Chen had told him that there was absolutely nothing which he or Sumitomo could do to assist. He stated:-
“Transclear have no other sources of cement in the Far East, and no other existed. None of the “majors” would supply cement to Mexico, which they all regarded as the province of Cemex, and I am sure that no other small factory other than those we have already approached would be willing, or able. The far reaching influence of Cemex, an inherent risk throughout this transaction from CTI's trading intentions had proved fatal.”
22. By this time, as we find, 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.”
The arbitrators held that in those circumstances the contract had become impossible of performance. They expressed their conclusion in the following terms:
“39. The only conclusion which we could reach on the evidence was that there could be no doubt that performance of the substance of the contract – 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. Although (as one would expect) the precise means by which this commercial embargo on the project was effected was unclear, it seemed to be equally incontrovertible that it had resulted from pressure placed by Cemex on the potential suppliers once Cemex became aware that the contract had been concluded. From that perspective, it struck us that this was indeed a situation in which the contractual performance had become commercially impossible and the only alternative performance (involving a shipment from the Mediterranean or Black Sea area) was fundamentally different from that contemplated by the parties……”
The arbitrators considered a number of authorities dealing with the principles of frustration generally, including Davis Contractors Ltd v Fareham Urban District Council [1956] A.C. 696 and Ocean Tramp Tankers Corporation v V/O Sovfracht ('The Eugenia') [1964] 2 Q.B. 226 and also authorities considering the frustration of contracts of sale as a result of the inability of the ultimate supplier to make the goods available. They were not persuaded that the parties had foreseen, or must be taken to have foreseen, that any action Cemex might take to interfere with the supply of cargo would make it impossible to perform the contract on terms which bore any real commercial resemblance to those agreed. They therefore held that in what they described as “the altogether exceptional circumstances of the case” it would be positively unjust to hold the parties bound and that the contract was therefore frustrated.
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