Public Company Rise v Nibulon SA
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hamblen: |
| Judgment Date | 24 March 2015 |
| Neutral Citation | [2015] EWHC 684 (Comm) |
| Date | 24 March 2015 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2014-609 |
[2015] EWHC 684 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Justice Hamblen
Case No: 2014-609
Christopher Hancock QC and Christopher Newman (instructed by Clyde & Co LLP) for the Claimant
John Russell QC (instructed by Hill Dickinson) for the Defendant
Hearing dates: 6 March 2015
Introduction
The Claimants ("Sellers") appeal under section 69 of the Arbitration Act 1996 against an Award dated 23 April 2014 ("the Award") made in favour of the Defendants ("Buyers") by a GAFTA Board of Appeal consisting of Lord Hacking, Mr R. Barber, Mr J. Boerjan, Mr M. Gerrits and Mr B. Clements ("the Appeal Board").
This appeal is concerned with the construction of the GAFTA prohibition clause, its relationship with a clause of the relevant contracts which obliged the Sellers to obtain export licences, and its application in the light of the facts as found by the Appeal Board.
Background
The dispute between the parties arises out of three contracts ("the Three Contracts") relating to the sale and purchase of 158,000 metric tons of Ukrainian Feed Corn. The Three Contracts were on CPT terms (carriage paid) and were for delivery at the Buyers' Transhipment Terminal. They incorporated Incoterms 2000 ("Incoterms").
The Three Contracts were for 28,000 metric tons with delivery 20 September to 30 October 2010; 30,000 metric tons with delivery 1 October 2010 to 30 November 2010, and 100,000 metric tons with delivery 1 November to 31 December 2010.
In each contract:
(1) Clause 11.3 provided: "Seller is obliged to obtain at his own risk and expenses any export license or any other official document and to perform, where it is required, all customs formalities for export of the goods."
(2) Clause 12 provided: "General conditions: All other terms, conditions and rules, not in contradiction with the above contained in Form 78 of GAFTA of which the parties admit that they have knowledge and notice, apply to this transaction and the details above given shall be taken as having been written into such form in the appropriate places."
The prohibition clause in GAFTA78 is clause 17 which states:
"PROHIBITION — In case of prohibition of export, blockade or hostilities or in case of any executive or legislative act done by or on behalf of the government of the country of origin or of the territory where the station(s) or private siding(s) of loading named herein is/are situate, 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 cancelled. Sellers shall advise Buyers without delay with the reasons therefore and, if required, Sellers must produce proof to justify the cancellation."
The Ukrainian Government introduced Grain Export Quota Restrictions under a resolution dated 4 October 2010 which was put into the public domain on 19 October 2010. The Quota Restrictions were put in place because of a poor harvest and the need to preserve sufficient grain for consumption in the home market. They imposed a limit on the total quantity of grain which would be licensed for export in a stated period. By later resolutions, the period was subsequently extended and the amount of the quota was increased.
Despite their best endeavours the Sellers were not granted the relevant export licences and purported to cancel the Three Contracts pursuant to clause 17. The Buyers treated this as a repudiation and held the Sellers in default. The Appeal Board found for the Buyers and held that they were entitled to default damages in the sum of US$17,536,000.
The Award
In outline the Appeal Board made the following findings:
(1) The obligation on the Sellers to obtain export licences under clause 11.3 was an absolute obligation (see paragraphs 15.8 and 15.14 of the Award).
(2) Once the conclusion was reached that the Sellers were under an absolute obligation, clause 11.3 overrode clause 17 except in the situation of a total ban (see paragraph 15.15 of the Award).
(3) The only circumstance under which the Sellers could have been relieved of the absolute obligation under clause 11.3 was if there had been a total ban on the export of Ukrainian feed corn from Ukraine (see paragraphs 15.11 and 15.12 of the Award).
(4) There was no total ban, as "in the period of export restrictions up to 31 December 2010, grain up to the total quantity of 3,000,000 mts could be exported, under export licences, from Ukraine." (see paragraph 15.11 of the Award).
(5) The Sellers could not rely on clause 17 as they were not "prevented" but were merely "restricted" in making the shipments to the Buyers (see paragraph 15.19 of the Award).
(6) The Sellers were operating under extreme difficulties, and had it been necessary to decide whether the Sellers had discharged their duties of best endeavours to obtain an export licence, the Appeal Board would have unhesitatingly decided that they had (see paragraph 15.14 of the Award).
Permission to appeal
The Sellers were given permission to appeal in respect of the following 3 questions of law:
(1) Does clause 11.3 of the Three Contracts override clause 17 of GAFTA78 or does clause 17 operate as a qualification to clause 11.3?
(2) Does clause 17 of GAFTA78 only relieve sellers of an obligation to obtain an export licence in circumstances where there is a prohibition amounting to a "total ban"?
(3) Are sellers not able to rely upon clause 17 of GAFTA78 when they are not "prevented" but merely "restricted" from making shipments?
By a Respondent's Notice dated 26 June 2014 the Buyers contended that the decision of the Appeal Board can be upheld for two reasons not expressed (or fully expressed) in the Award, namely:
(1) The prohibition clause does not override or qualify clause 11.3 in any circumstances.
(2) There was no "prohibition of export…." so that the contract was not cancelled pursuant to the prohibition clause.
Question (1): Does clause 11.3 of the Three Contracts override clause 17 of GAFTA78 or does clause 17 operate as a qualification to clause 11.3?
The starting point is that clauses in a contract must be read together where possible and that there is no inconsistency unless that cannot sensibly be done.
As stated by Bingham LJ in Pagnan v Tradax [1987] 2 Lloyd's Rep. 342 at p350:
"…It is not enough if one term qualifies or modifies the effect of another; to be inconsistent a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses"
Pagnan v Tradax is directly in point since it too was concerned with whether a clause imposing an obligation on sellers to provide an export certificate ("sellers to provide for export certificate enabling buyers to obtain import licence…..") was inconsistent with the GAFTA prohibition clause so as to override it. The Court of Appeal concluded that there was no inconsistency as the GAFTA clause simply provided a qualification to the obligation to provide an export certificate, observing that:
"…it is a commonplace of documentary construction that an apparently wide and absolute provision is subject to limitation, modification or qualification by other provisions. It does not make the later provisions inconsistent or repugnant."
The Sellers submitted that the present case is on all fours with Pagnan v Tradax.
The Appeal Board stated that:
"15.8 In the view of the Appeal Board the central issue is what did Clause 11.3 of the Three Contracts state. As cited above it placed a plain obligation on the Appellant Sellers 'to obtain at [their]own risk and expense any export license…where it is required…' without any qualification. It seems, therefore, to the Appeal Board that this obligation on the Appellant Sellers was an identical obligation to the one falling on the sellers in Pagnan SpA v Tradax. Indeed it could be said that the obligation contained in these words in Clause 11.3 was rather stronger than the obligation contained in the words:
" Sellers to provide for export certificate enabling buyers to obtain import licence in E.E.C….."
which Lord Justice Bingham was construing in Pagnan SpA v Tradax.
….
15.11 In the view of the Appeal Board there was only one circumstance under which the Appellant Sellers could have been relieved of its absolute obligation under Clause 11.3 and that was if there had been a total ban on the export of Ukrainian feed corn from Ukraine. In that case all Three Contracts would have been under English law, 'frustrated', relieving both parties from their obligations under them. This was not the case under the Ukraine export quota restrictions. On the contrary, in the period of export restrictions up to 31 st December 2010, grain up to the total quantity of 3,000,000 mts could be exported, under export licences, from Ukraine.
15.12 Alternatively, in a situation of a total ban on the export of the goods, which are subject of the contract in question, the seller can invoke the provisions of Clause 17 to entitle him to cancel the contract. This is exactly what happened in Pagnan SpA v Tradax"
The Appeal Board laid great stress on the fact that the obligation to obtain an export licence was "absolute". However, all that means is that the use of best endeavours will not suffice. In Pagnan v Tradax, which the Appeal Board considered they were applying, Bingham LJ was describing the obligation as "absolute" in contradistinction to an obligation of best endeavours. As the Court of Appeal...
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