Tradigrain SA v State Trading Corporation of India

JurisdictionEngland & Wales
JudgeMR JUSTICE CHRISTOPHER CLARKE
Judgment Date19 October 2005
Neutral Citation[2005] EWHC 2206 (Comm)
Docket NumberCase No: 2004/1099
CourtQueen's Bench Division (Commercial Court)
Date19 October 2005
Between
Tradigrain
Claimant
and
State Trading Corporation of India
Defendant

[2005] EWHC 2206 (Comm)

Before

Mr Justice Christopher Clarke

Case No: 2004/1099

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Mr Stephen Males QC (instructed by Richards Butler) for the Claimant

Mr Paul Downes (instructed by Ince & Co) for the Defendant

Hearing date: 12 September 2005

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

MR JUSTICE CHRISTOPHER CLARKE MR JUSTICE CHRISTOPHER CLARKE
1

Tradigrain S.A. appeal, with the permission of Langley J, against Appeal Award No 4012 of 19 th November 2004 of the GAFTA Board of Appeal. The question of law at issue in this appeal is this:

"Where it has been determined that a buyer under a sale contract has called upon a performance bond provided by the seller in an amount exceeding the buyer's true loss, is the seller entitled to immediate repayment of the amount overpaid or does the seller's entitlement to repayment depend upon whether the seller can show that he, rather than an intermediate bank, has suffered an actual loss as a result of the buyer's call upon the performance bond?"

The findings of the Board of Appeal

2

By a contract concluded on 4 th February 1997 Tradigrain S.A. ("Sellers") agreed to sell and the State Trading Corporation of India ("Buyers") agreed to buy 100,000 mt +/- 5% of Argentine hard red wheat C & F JNPT Nhava Sheva in India. The contract provided for the quality of the wheat to be final in accordance with independent inspection certificates issued at loading. It also required the Sellers to put up a performance bond in the amount of 5% of the contract value. The contract was subject to GAFTA arbitration.

3

On 15 th February 1997, the State Bank of India ("SBI") issued at the request of the Sellers a performance bond in the sum of US $ 908,250 subject to Indian law and jurisdiction. That bond was backed by a counter guarantee from the Seller's bank, Swiss Bank Corporation ("SBC"), now named Union Bank of Switzerland ("UBS").

4

The goods were supplied in two shipments. The first shipment was on board the m.v. "Dynamic". The quality certificate issued at loading in respect of the goods loaded on that vessel showed that the percentage of damaged kernels slightly exceeded the contractual maximum of 3%. The parties dealt with that by agreeing a discount on the price. The second shipment was on board the m.v. "Trade Carrier". The goods shipped on that vessel were certified as being in accordance with the contract.

5

After the goods had been discharged in India the Buyers claimed that the goods were not of contractual quality and claimed against the Sellers US$ 680,920 in that respect. They also claimed despatch monies of (eventually) US$115,834.71. The Sellers admitted liability for $100,669.55.

6

On 25 th September 1997 the Buyers required SBI to pay them the full amount of the bond, i.e. $908,250 and SBI requested SBC to remit that amount to them under the counter guarantee. On 21 st January 1998 the Buyers obtained from SBI payment of the rupee equivalent of that sum. On 26 th September 1997, the Sellers obtained an ex parte injunction in the Court of First Instance of the Republic and Canton of Geneva ordering SBC not to pay SBI under the counter guarantee. That order was upheld at a contested hearing on 31 st March 1998, and upheld on appeal by the Buyers to the Judiciary Supreme Court on 18 th June 1998 and ultimately by the Swiss Federal Supreme Court on 17 th December 1998. As a result, neither SBC nor the Sellers has paid SBI under the counter guarantee.

7

In June 2000 SBI began proceedings before the Debts Recovery Tribunal in New Delhi against UBS, the Sellers and the Buyers, claming payment of the $908,250 paid to the Buyers under the bond. If the claim succeeds against UBS, UBS will claim against the Sellers. The Indian proceedings have not yet been resolved. I was told that the current position in India was that an order has been made for the final resolution of the matter, preferably by the end of September 2005.

8

On 15 th April 1999 the first tier arbitral Tribunal issued an award in which it accepted that it had jurisdiction. On 6 th November 2000, it issued an award on the substantive issues before it. Under that award it found, inter alia, that the Sellers' claim for arbitration had been made in time; that the contract provided for quality and weight to be final at loading; that Buyers had no justification for invoking the Bond; and that Buyers had no claim against Sellers in respect of the quality of the wheat. It also held that the Sellers should pay the Buyers despatch in the sum of $100,669.55.

9

The Sellers did not include a claim for the return of monies paid by SBI in the original arbitration. Two years, six months and twenty-three days out of time they sought to appeal the first tier award so as to secure that result (and also to claim an indemnity in respect of costs incurred in the Indian proceedings) and the Board of Appeal exercised its discretion to admit the Sellers' appeal.

10

The Board of Appeal found that the call by the Buyers on SBI for $908,250 was wrongful in that:

a. The quality claim as to $680,920 was invalid because (i) the contract provided for quality to be final as certified at loading and, (ii) even if the discharge quality was relevant, the evidence produced by the Buyers did not satisfy the Board that the quality on discharge was non- contractual;

b. There was, as the Buyers knew, no justification for calling the whole amount of the Bond. In respect of $126,660.45 (the difference between $908,250 and [a] the quality claim of $680,920 and [b] despatch of $100,669.55) there was no claim at all.

11

It also found that the retention by the Buyers of all save the figure for despatch of $100,669.55 was wrongful and a breach of the contract of sale. The Buyers had obtained $807,580.45 ("the overpayment") to which they had no entitlement under the contract.

12

By a majority of 3 to 2 the Board found that, although the Sellers were entitled to an indemnity in respect of such loss as they had suffered in consequence of the wrongful call, and were, thus, entitled to recover their legal costs of the Indian proceedings in the sum of $98,148, which the Board awarded to the Sellers (and which has not been paid), the Sellers had not yet suffered any other loss as a result of the wrongful claim or retention, although the position might change in future depending on what happened in, or as a result of, SBI's proceedings in India. The majority found that the Sellers were not, presently, entitled to the return of $807,580.45 since neither they, nor UBS, had yet paid it.

13

The Sellers contend that the majority award is wrong in law and that the authorities establish that, in circumstances such as the present, the Sellers are entitled to the return of the overpayment as a debt due to them. The Buyers contend that the Sellers' entitlement is, or should be, an entitlement to an indemnity in respect of loss occasioned by the wrongful call and retention.

The authorities

14

In Cargill International S.A. & Another v Bangladesh Sugar & Food Industries Corporation [1996] 2 Lloyd's Rep 524 Cargill had agreed to sell to the defendants a cargo of sugar and arranged for the Dhaka branch of Banque Indosuez to provide a letter of guarantee for $526,273.15. The contract contained a provision that the guarantee was liable to be forfeited by the buyer if the seller failed to fulfil any of the terms of the contract or if any loss or damage occurred to the buyer due to any default of the seller; and a further term that, if the seller failed to adhere to the arrival period/time, the buyer would be entitled to recover liquidated damages at 2% of the contract value of the undelivered goods for each month or part of a month during which delivery was in arrears or to terminate the contract and forfeit the bond. There was a dispute between the parties as to whether the vessel's late arrival at the discharge port and the fact that an overage vessel was used was due to the seller's or the buyer's default. The preliminary issues that the Court had to decide, on the assumption that the sellers were in breach of contract in one or both respects, and the answers eventually given were as follows:

"(1) Whether the defendant was entitled to make a call for the full amount of the performance bond if the breach or breaches of contract (a) caused no loss to the defendants; (b) caused some loss to the defendants which was less than the amount of the performance bond; (c) caused some loss to the defendant which was equal to or greater than the amount of the performance bond.

Yes, in all cases

(2) Whether, in the event of the defendant having obtained

payment under the performance bond as a result of any such call as it was entitled to make the defendant was entitled to retain (a) all of the moneys received by it; (b) only such amount as was equal to the amount of the loss suffered by it; or (c) some other, and if so what amount.

The answer is (b)."

15

It is not clear from the report of the case whether Banque Indosuez had received a counter guarantee from another bank. The letter of guarantee recited that Cargill had requested Banque Indosuez " through the Chase Manhattan Bank, London" to issue a guarantee, so there may well have been one. Banque Indosuez had not paid up under the guarantee. By an agreement between the parties the original guarantee was cancelled and a new guarantee was substituted upon the footing that the rights of the parties in relation thereto were to be governed by the terms of the original guarantee and the contract...

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