Empresa Exportadora de Azucar (Cubazucar) v Industria Azucarera Nacional SA (IANSA) [England, Court of Appeal, Civil Division.]
| Jurisdiction | England & Wales |
| Judgment Date | 02 December 1982 |
| Date | 02 December 1982 |
| Court | Court of Appeal (Civil Division) |
(Stephenson and Ackner L.JJ. and Sir Sebag Shaw)
Foreign sovereign Act of foreign State Principle of English law Scope and extent Whether applicable to commercial acts Whether nature or purpose of act decisive Whether defence of act of State capable of waiver Act of State not applicable to acts of foreign State performed outside its territory Relationship of English doctrine of act of State to United States doctrine Relationship of act of State doctrine to sovereign immunity
Foreign legislation Penal and discriminatory Recognition by English courts Public policy Conduct of foreign relations Role of the courts and the Executive
Contract Sale of sugar Seller a Cuban State enterprise Separate character Relations between Republic of Chile and Republic of Cuba Effect of coup d'tat in Chile Effect of Cuban legislation requiring suspension of contract shipments Frustration Whether State enterprise entitled to rely upon State's actions as frustrating events The law of England
Summary: The facts: The facts are set out in the judgment of the High Court (above, p. 242), Cubazucar appealed, inter alia, on the ground of act of State, against Mustill J.'s judgment that IANSA was entitled to damages in respect of the undelivered balance of the Playa Larga cargo and to restitution of the price paid for the Marble Islands cargo. IANSA cross-appealed against Mustill J.'s decision that they were not entitled to damages for the non-delivery of the Marble Islands cargo and Cubazucar's failure to ship the balance of the sugar due under the contract.
Held:The appeal and the cross-appeal were dismissed.
(1) The Court of Appeal dismissed IANSA's cross-appeal in respect of the unshipped balance on the grounds that:
(a) The contract had been frustrated by the events of 1113 September. The contract had only been concluded because of the close diplomatic and commercial relations between the Government of Cuba and the former government of Chile. The abrupt severance of those relations rendered further performance impossible.
(b) Law No. 1256 of the Republic of Cuba rendered further performance of the contract by Cubazucar illegal.
(i) Although Law No. 1256 was discriminatory and had a confiscatory element, an English court would only decline to apply such a law to a contract where the law was so oppressive as to be repugnant to English public policy, which would not be the case with all discriminatory legislation. An English court should be slow to refuse to give effect to the legislation of a foreign State in any sphere in which that State had jurisdiction since to refuse to give effect to such a law might embarrass the Executive in its conduct of foreign relations.
(ii) Rule 406 of the Arbitration Rules of the International Sugar Association did not affect this issue.
(iii) Although Cubazucar had a close relationship with the Republic of Cuba, it was an entity distinct from the Cuban State and was not precluded from relying upon the acts of the Cuban State as frustrating events.
(2) English law recognized the concept of act of foreign State but that doctrine did not assist Cubazucar in the present case:
(a) the act of State doctrine, like the doctrine of sovereign immunity, did not apply to the commercial acts of a foreign State. Although the decision to withdraw the Playa Larga, divert the Marble Islands and claim payment in respect of the Marble Islands cargo were taken at a high governmental level, there was, nevertheless, nothing in the arbitrators findings of fact to suggest that they were acta iure imperii rather than acta iure gestionis.
(b) the defence of act of State was capable of waiver and, by failing to raise it during the arbitration proceedings, Cubazucar had waived the defence.
(c) the act of State doctrine was limited to action taken by a foreign State within its own territory. Although the plan in the present case had been made in the Republic of Cuba, it was carried into effect elsewhere.
(d) the arbitrators and the Court were not called upon to sit in judgment upon the acts of the Cuban Government since IANSA's claim did not impugn the validity of any of those acts (except for Law 1256). Even if it had done so, the acts in question were the commercial acts of inducing a breach of contract. Whatever may have been the purpose of such an action, the nature of the act was commercial and it was the nature of the act which was decisive.
(3) The other grounds of appeal and cross-appeal were rejected.1
The following is the text of the relevant parts of the judgment of the Court of Appeal, delivered by Ackner L.J.:
[After stating the facts set out above at p. 242, Ackner L.J. discussed a number of arguments concerning the English law of contract, then proceeded to consider IANSA's claim in respect of the unshipped balance:]
Cubazucar failed to deliver any part of the unshipped balance of 48,068.78 metric tonnes of sugar. Both the arbitrators and the commercial
judge accepted their defence, which was that the contract was frustrated, cither on 13 September or on 27 September 1973, when Law No 1256 was enacted.(1) Frustration on 13 September 1973. The note from the Chilean Ministry of Foreign Affairs which was handed to the Cuban Ambassador in Santiago shortly before he left Chile on the evening of 12 September 1973, and which we have quoted at an early stage in this judgment, terminated diplomatic and consular relations with the Government of the Republic of Cuba. The arbitrators found that although this note did not expressly purport to terminate commercial relations between the two countries,
It was common ground before Mr Justice Mustill, and before us, that the arbitrators were not concluding that there was in practice no way in which the contract could be performed on either side after 13 September. They were using the word possibility to mean likelihood or chance. In effect, their conclusion was that the contract was just not going to be performed, in the changed state of the relations between the two countries. They said that they were fortified in their conclusion that the contract was frustrated in consequence of the coup and that by 13 September when it was reasonably clear to all concerned that the coup had succeeded, by the fact that no document was produced by IANSA nor did any witness come forward on behalf of IANSA to suggest that they regarded the contract as subsisting beyond the coup.
The learned judge accepted that there was no supervening impossibility or supervening illegality of performance as at 13 September. Further, there was no radical change in the content of the obligation, such as occurred in Jackson v. The Union Marine Insurance Co,, Ltd., (1873) L.R.C.P. 572. He accepted that it was not a case where performance remained possible, but was rendered pointless by an unexpected turn of events such as in Krell v. HenryELR [1903] 2 K.B. 740. The situation did not correspond exactly with any of those discussed in the reported cases on frustration. He considered the problem to be a new one which should be approached in the manner prescribed in British Movietone News Ltd. v. London and District Cinemas LtdELR. [1952] A.C. 166, and Davis Contractors v. Fareham UDCELR. [1956] A.C. 696, by construing the contract in the light of the circumstances which existed when it was made, and then deciding whether the obligation so construed continued to bind in the new state of affairs. Adopting this approach, he concluded that the contract could not be read as continuing to impose on Cubazucar an obligation to ship sugar to their Chilean buyers in the conditions prevailing in Cuba on or after 13 September 1973, and that accordingly the contract was frustrated on that date.
Mr. Rix accepts that the question is one of construction. One must consider the terms of the contract, in the light of the circumstances existing when it was made, in order to discover whether the parties must have made their bargain on the footing that a particular state of things would continue to exist. Was this contract, he asked, to be construed as a contract by Cuba to supply sugar to a friendly Marxist State or merely a contract to sell Cuban sugar to Chile?
We have already referred to the arbitrators' finding that the contract would not have been made but for the friendly and close diplomatic and commercial relations which then existed between Chile and Cuba, Chile being one of the few American States not party to a Resolution of the Organization of American States in 1964, which had excluded commercial intercourse with Cuba. We do not think the importance of this finding is detracted from by the fact that from 11...
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