Novasen SA v Alimenta SA [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Popplewell J |
| Judgment Date | 27 February 2013 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 27 February 2013 |
Queen's Bench Division (Commercial Court)
Popplewell J.
Mark Jones (instructed by Marine Law Solicitors) for the claimant.
Lawrence Akka QC (instructed by Liberty Commodities Ltd) for the defendant.
The following cases were referred to in the judgment:
Andre et Cie SA v Cook Industries IncUNK [1986] 2 Ll Rep 200.
Bem Dis A Turk Ticaret S/A TR v International Agri Trade Co Ltd (The Selda)UNK [1998] 1 Ll Rep 416; [1999] CLC 813 (CA).
Bunge SA v Nidera BVUNK [2013] EWHC 84 (Comm); [2013] 1 CLC 325.
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) LtdELR [1974] AC 689.
Gill & Duffus SA v Societe pour L'Exploitation des Sucres SAUNK [1986] 1 Ll Rep 322.
Golden Strait Corp v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2005] 2 CLC 576; [2006] 1 WLR 533 (CA); [2007] 1 CLC 352; [2007] 2 AC 353 (HL).
Imam-Sadeque v Bluebay Asset Management (Services) LtdUNK [2012] EWHC 3511 (QB).
Kershaw Mechanical Services Ltd v Kendrick Construction LtdUNK [2006] EWHC 727 (TCC); [2006] 4 All ER 79.
Arbitration — Sale of goods — Contract — Termination — Damages — FOSFA Prohibition and Default Clauses — Sale of crude groundnut oil of Senegal origin CIF Genoa — Prohibition on export in force in Senegal — Sellers notified prohibition to buyers and purported to terminate contract — Buyers accepted sellers' conduct as anticipatory repudiation — Default damages awarded at difference between contract price and market price — Sellers contended that buyers suffered no loss because contract would in any event have come to an end without liability of sellers after 30 days pursuant to prohibition clause — Default clause did not exclude application of common law principles for assessment of damages — Award remitted for reconsideration — Whether prohibition clause required notice of cancellation as well as notice of prohibition — Whether sellers would have exercised right of cancellation.
This was an arbitration appeal which raised issues concerning the construction and application of the FOSFA Prohibition and Default Clauses, and the relevance of subsequent events to the assessment of damages in accordance with the common law principles considered by the House of Lords in Golden Strait Corp v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 1 CLC 352; [2007] 2 AC 353.
The FOSFA Board of Appeal upheld a first tier award in favour of the defendant buyers against the claimant sellers arising out of a sale of groundnut oil of Senegal origin CIF Genoa.
The contract incorporated the terms of FOSFA Contract 201, including its prohibition and default clauses. It was common ground between the parties that the shipment period was still open on 2 April 2008. On that date the sellers notified the buyers that there was in force in Senegal a prohibition of export which fulfilled the requirements of the prohibition clause, thereby extending the shipment period for 30 days. However, the sellers' communication also purported to be a termination of the contract. The buyers treated that as an anticipatory repudiation, which they accepted. The prohibition was still in force when the 30-day extension expired.
The sellers contended that no loss was suffered by the buyers because the contract would in any event have come to an end without liability on their part on expiry of the 30-day period, automatically without the need for the giving of further notice. The Board rejected that argument, and held that default damages were to be awarded at the difference between the contract price and the market price on 2 April 2008.
The sellers contended that the tribunal should have awarded no more than nominal damages applying The Golden Victory. They obtained permission to appeal on the question whether the tribunal should have taken account of matters occurring after 2 April 2008 (in particular the on-going export prohibition and the termination of the contract after 30 days without any liability on the part of the sellers) when assessing whether or not the buyers had suffered a loss, and hence whether or not they were entitled to substantial damages.
The buyers contended that the tribunal was right to ignore subsequent events occurring after the date of default because the default clause was a contractual regime which the parties had agreed in place of the common law principles reflected in The Golden Victory. They further contended in a respondent's notice that the prohibition clause did not result in automatic termination after 30 days, but required the exercise of the right of cancellation by giving a further notice; and that the prohibition clause did not apply in the circumstances because the shipment period was never fixed, alternatively it would have extended the shipment period to 30 days beyond what would otherwise have been a reasonable period.
Held, allowing the appeal and remitting the award to the Board of Appeal for further consideration:
1. The language of the default clause was clear. Where a seller defaulted, the innocent buyer could go into the market to buy against the default. If he chose to do so, the first part of the clause imposed an obligation on the defaulting seller to reimburse the buyer, on demand, for the difference between the buyer's repurchase price and the contract price. That obligation was tempered by the second and third parts which provided that if the seller was dissatisfied with the repurchase price upon which the claim to reimbursement was made, he could refer the matter to arbitration wherein the damages would be limited to the differential with the market price if that was lower than the repurchase price actually obtained by the buyer. To that extent the clause modified the common law position. It gave the buyer that entitlement to compensation irrespective of subsequent events and the effect which they might have had on the contract had it remained in force. However the buyer was not obliged to buy against the default, and if he chose not to do so he was entitled to recover damages, if any, in arbitration. That would be the common law measure. The third part placed a monetary limit on the recoverable damages, subject to the arbitrator's discretion to award more. The words “limited to” were words of limitation, not definition. The language did not define the measure of damages; it placed a ceiling upon them. It conferred no right to recover damages if no damage had been suffered.
2. Thus the default clause struck a balance between the common law position and commercial considerations of certainty and finality. It achieved a greater measure of certainty than the common law afforded, by providing that if the buyer chose to go into the market to buy against the defaulting seller, he would be able to recover the price differential between contract and repurchase price, or between contract and market price if the latter was lower. But if the buyer chose not to buy against the default, his damages were those provided by law and might be nominal if subsequent events demonstrated that the value of his lost rights was nil because the seller could have terminated the contract without liability.
3. The argument that the prohibition clause was not applicable was not open to the buyers, since it had not been raised before the first tier tribunal or Board of Appeal.
4. The court's provisional view was that notification had to be given by the seller if he claimed to rely on the prohibition clause as giving rise to an extension, and had to be given again if he sought to rely on it as giving rise to a cancellation at the expiry of the 30 days. The question then became whether the sellers would have given notice of cancellation, a question which had not been decided by the Board and required remission of the award to that tribunal.
Popplewell J:
1. This is an arbitration appeal which raises issues concerning the construction and application of the FOSFA Prohibition and Default Clauses, and the relevance of subsequent events to the assessment of damages in accordance with the common law principles considered by the House of Lords in Golden Strait Corp v Nippon Yusen Kubishika Kaisha (The Golden Victory)[2007] 1 CLC 352; [2007] 2 AC 353.
2. By award number 1057 dated 29 March 2012 the FOSFA Board of Appeal upheld a First Tier Award in favour of the defendant (“the buyers”) against the claimant (“the sellers”). The claim arose pursuant to a contract by which the sellers sold to the buyers 2000 metric tonnes of crude groundnut oil in bulk of Senegal origin duty paid CIF Genoa for US$1,620 per metric tonne. The contract provided for shipment from Senegal during a shipment period of December 2007/10 January 2008.
3. The contract incorporated the terms of FOSFA Contract 201, which included the following prohibition and default clauses:
“22. PROHIBITION: In the event, during the contract shipment period, of prohibition of export or any other executive or legislative act by or on behalf of the Government of the country of origin or of the territory where the port/s of shipment named herein is/are situate, or of blockade or hostilities, restricting export, whether partially or otherwise, any such restriction shall be deemed by both parties to apply to this contract and to the extent of such total or partial restriction to prevent fulfilment whether by shipment or by any other means whatsoever and to that extent this contract or any unfulfilled portion thereof shall be extended by 30 days.
In the event of shipment within the extended period still proving impossible by reason of any of the causes in this clause, the contract or any unfulfilled part thereof shall be cancelled. Sellers invoking this clause shall advise Buyers with due dispatch. If required, Sellers must produce proof to justify their claim for extension or cancellation under this clause.
25. DEFAULT: In default of fulfilment of this contract by either party, the...
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