Empresa Exportadora de Azucar v Industria Azucarera Nacional S.A. (Marble Islands, Playa Larga)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE STEPHENSON,LORD JUSTICE ACKNER
Judgment Date02 December 1982
Judgment citation (vLex)[1982] EWCA Civ J1202-1
Docket Number82/0468
Date02 December 1982

[1982] EWCA Civ J1202-1

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 MUSTILL)

Royal Courts of Justice

Before:

Lord Justice Stephenson

Lord Justice Ackner

and

Sir Sebag Shaw

(Not Present)

82/0468

In The Matter of The Arbitration Act 1950 and

In The Matter of An Arbitration

Between:
Empresa Exportadora De Azucar (Cubazucar)
Sellers (Appellants)
and
Industria Azucarera Nacional S.a. (Iansa)
Buyers (Respondents)

MR ANTHONY HALLGARTEN Q.C., MR S ISAACS and MR D LLOYD-JONES (instructed by Messrs William A Crump & Son, Solicitors, London EC3A 6AE) appeared on behalf of the Appellants

MR BERNARD RIX Q.C. and MR S MALES (instructed by Messrs Bischoff & Co., Solicitors, London EC1Y 4TJ) appeared on behalf of the Respondents

LORD JUSTICE STEPHENSON
1

I have asked Lord Justice Ackner to read the judgment of the court, which he has prepared. This judgment is being read as distinct from simply being handed down, because it deals with matters of great importance and public interest.

LORD JUSTICE ACKNER
2

In early 1973, Cuba and Chile (under the respective leadership of Dr Castro and Dr Allende) were on friendly terms, maintaining close diplomatic and commercial relations. Both governments were of a left-wing complexion and Chile was one of the few American States not party to a Resolution of the Organisation of American States in 1964, which had excluded commercial intercourse with Cuba, except such as might be based solely on humanitarian grounds. This Resolution had been renounced by Dr Allende in 1971 and a considerable body of trade between Cuba and Chile, including trade in sugar, had developed as a result.

3

At the time with which we are concerned, both Chile and Cuba were parties to the International Sugar Agreement 1968. Under Articl 30 of the ISA a contracting party entered into a commitment to supply sugar at a Supply Obligation Price whenever the free-market price of sugar rose above a certain level. The purpose of the ISA was to ensure continuous supplies of sugar from contracting exporting members to contracting importing members, at stabilised prices in a manner consistent with the traditional trading patterns between the members concerned. The contract, the subject matter of this dispute, was made pursuant to the rights conferred on Chile under Article 30 of the ISA. It would not have been made but for the friendly and close diplomatic and commercial relations then existing between Chile and Cuba.

4

In accordance with Rule 300–3 of the ISA, functions relating to the execution of the ISA were at all material times delegated by Cuba to the appellants, Empresa Exportadora de Azucar ("Cubazucar"), a state trading enterprise with a separate juridicial personality. It was common ground that Cubazucar was not a Department of the Cuban State. Its senior management was appointed by the Minister of Foreign Trade and it derived its working capital in the form of interest-free finance from the National Bank of Cuba ("NBC"), Cuba's central bank. Any profits return, in one form or another, to the Cuban State. At all material times Cubazucar acted as the instrumentality through which the State of Cuba conducted its export trade in Cuban sugar. It purchased its sugar from provincial sugar manufacturers, state trading enterprises operating under the aegis of the Ministry of Sugar.

5

Each year a national plan for the use, allocation and sale of Cuban sugar is drawn up through the National Planning Board and enacted into law. This plan determines how much sugar is to be allocated for home consumption and how much for export. It also determines allocations among export markets in those cases where there are existing commitments, and any balance is free to be sold on the free market.

6

The respondent, Industria Azucarera Nacional S.A. ("Iansa"), is a Chilean private company, the majority of whose shares are held by a Chilean State trading organisation. On 28th February 1973, Iansa entered into a contract in writing with Cubazucar whereby Iansa agreed to buy, and Cubazucar to sell, 128,395 metric tonnes of bagged Cuban raw sugar, 5% more or less, of the 1973 sugar crop, cost and freight (free out) to a Chilean port. Shipments under the contract were to be effected between January and October 1973. We will refer in some detail hereafter to certain provisions of that contract.

7

For a while all went well, but on 11th September 1973 a coup d'etat occurred in Chile and Dr Allende's left-wing government was overthrown and replaced by a new military government of which President Pinochet was made the Head. As at 11th September, the position so far as shipments under the contract were concerned was as follows:

(i) 79,756.919 metric tonnes (not including any cargo ex "Playa Larga") had already been delivered to Iansa.

(ii) 10,476.511 metric tonnes were shipped on board "Playa Larga". On 11th September 1973 the "Playa Larga" was at anchor in the harbour at Valparaiso having already discharged 2,569.305 metric tonnes, awaiting instructions from the port authorities to return to berth to complete discharging. A quantity of 7,907.206 metric tonnes remained on board the vessel.

(iii) Accordingly, as at 11th September 1973 a total quantity of 82,326.224 metric tonnes out of a total basic contract quantity of 128,395.000 metric tonnes had been physically delivered to Iansa.

(iv) 10,890.379 metric tonnes were shipped on board the "Marble Islands" between 11th and 27th August 1973. On 11th September the vessel was at sea en route for Chile.

8

During the morning of 11th September the following decisions were made at a high level in the Cuban government:

(i) To withdraw the "Playa Larga" from Valparaiso, thereby preventing her completing the discharging of the remainder of her cargo, notwithstanding that this had been paid for by Iansa.

(ii) To divert the "Marble Islands" from her intended port of discharge, so that the sugar on board should not be delivered to Iansa and yet to make an immediate claim for payment under the Letter of Credit opened in relation to this cargo.

(iii) To cancel the "Aegis Fame" which was about to start loading for discharge in Chile.

9

These decisions were implemented in the following manner.

10

The "Playa Larqa". Although shooting took place in Santiago on 11th September, the situation at Valparaiso remained calm, the new government having established control early that morning without being challenged. The Master of the "Playa Larga" was informed by the Maritime Administration that she should remain at her anchorage until further order, but that she would be returning shortly to her berth to complete her discharge. However, in the evening, in defiance of the order not to leave her anchorage, and contrary to Chilean law which required port clearance before the departure of the ship, and ignoring repeated radio warnings to stop, the "Playa Larga" weighed anchor and sailed from the port. She was pursued by a helicopter and by a destroyer which attempted to bring the vessel back to port by firing warning shots. The pursuit was designed to prevent the loss of the cargo remaining on board. She however persisted in her course and the destroyer returned to port, permitting her to proceed on her way. By reason of the shelling, the Number 1 Hold was flooded and 199.624 metric tonnes of sugar in bulk was so affected as to be a total loss. Further, in order to maintain stability, a quantity had to be jettisoned.

11

Before turning to the "Marble Islands" it is convenient to describe the progress of the coup in the next couple of days. During the llth/12th September those responsible for the coup consolidated their position. By late on 12th September 1973 any resistance based on the position of Dr Allende could be discounted with the news of his death. The Ambassador of Cuba in Santiago left Chile late on the evening of 12th September. Shortly before he left he was handed a note from the Chilean Ministry of Foreign Affairs stating as follows:-

"I bring to the notice of your Excellency my Government's decision to terminate diplomatic and consular relations with the Government of the Republic of Cuba".

12

Although there were some reports of military units remaining loyal to the former government of Chile, by about 13th September it was reasonably clear that a new government of a very right-wing complexion had taken over de facto control of Chile.

13

The "Marble Islands". The vessel flew the Somali flag and was owned by Blue Seas Shipping Company Limited. At the material time she was under demise charter to Empressa Navigacion Mambisa, the Cuban State undertaking which operated Cuba's merchant marine fleet, who were therefore in possession of her and operated her as if they were the owners. On 8th July 1973, Cubazucar sub-chartered the vessel from Mambisa for a voyage from Cuba to Chile.

14

It appears that during June or July 1973, the "Marble Islands" was "nominated" by Cubazucar to Iansa under the contract, although the contract of sale contains no provision for such a nomination. Thereafter, Iansa nominated Puerto Monte and Talcahuamo as discharging ports. Again, the contract did not expressly provide for such a nomination.

15

During August 1973 the "Marble Islands" loaded a cargo of 10,890 metric tonnes of sugar in Cuba, completing on 27th August 1973.

16

Meanwhile, Iansa had requested the Central Bank of Chile (the "Chilean Bank") to open a letter of credit in respect of the "Marble Islands" cargo, as contemplated by the following provision of the sale contract:

"PAYMENT: The Purchaser will open, at its own expense, and at least 15 days prior to the...

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