Tradigrain v State Trading Corporation of India [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Christopher Clarke J |
| Judgment Date | 19 October 2005 |
| Date | 19 October 2005 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Christopher Clarke J.
Stephen Males QC (instructed by Richards Butler) for the claimant.
Paul Downes (instructed by Ince & Co) for the defendant.
The following cases were referred to in the judgment:
A Tomlinson Hauliers Ltd v HepburnELR[1966] AC 451.
Cargill International SA v Bangladesh Sugar & Food Industries CorpUNK[1996] 2 Ll Rep 524; [1998] 1 WLR 461; [1998] CLC 399 (CA);
Comdel Commodities Ltd v Siporex Trade SAUNK[1997] 1 Ll Rep 424.
Deutsche Ruckversicherung AG v Walbrook Insurance Co[1994] CLC 415; [1995] 1 WLR 1017.
State Trading Corp of India Ltd v ED & F Man (Sugar) Ltd v State Bank of India[1981] Com LR 235.
TTI Team Telecom International Ltd v Hutchison 3G UK LtdUNK[2003] EWHC 762 (TCC); [2003] 1 All ER (Comm) 914.
Sale of goods Performance bond Indemnity Contract for sale of wheat Quality to be final in accordance with independent inspection certificates issued at loading Indian bank issued performance bond at seller's request for five per cent of contract value Bond backed by counter-guarantee from seller's bank -Contract subject to GAFTA arbitration Buyer claimed goods not of contractual quality and obtained payment under performance bond Seller and seller's bank declined to pay under counter-guarantee GAFTA tribunal held call on performance bond unlawful Seller entitled to immediate repayment of amount overpaid as a debt once it had been determined that buyer had called on bond in amount exceeding buyer's true loss.
This was an appeal by sellers, Tradigrain, against an appeal award of the GAFTA Board of Appeal.
In 1997 Tradigrain agreed to sell and the State Trading Corp of India (the 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 five per cent of the contract value. The contract was subject to GAFTA arbitration.
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 sellers' bank, SBC.
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 moneys of US$115,834.71. The sellers admitted liability for $100,669.55.
The buyers required SBI to pay them the full amount of the bond, $908,250, and SBI requested SBC to remit that amount to SBI under the counter-guarantee. The buyers obtained payment from SBI but the sellers obtained an injunction from the Swiss courts ordering SBC not to pay SBI under the counter-guarantee. As a result, neither SBC nor the sellers had paid SBI under the counter-guarantee. SBI had begun Indian proceedings against the sellers, the sellers' bank and the buyers.
The arbitrators decided that the contract provided for quality and weight to be final at loading and that buyers had no justification for invoking the bond and had no claim against sellers in respect of the quality of the wheat. They also held that the sellers should pay the buyers despatch in the sum of $100,669.55. The GAFTA Board of Appeal admitted a late appeal by the sellers to include a claim for the return of the moneys paid by SBI. The Board of Appeal found that the call by the buyers on SBI was wrongful and that the Buyers had obtained an overpayment to which they had no entitlement under the contract. However the Board (by a majority) found that the sellers were not entitled to the return of the overpayment since neither they, nor SBC, had paid it.
The sellers contended that the majority award was wrong in law and that the authorities established that, in such circumstances, the sellers were entitled to the return of the overpayment as a debt due to them. The buyers contended that the sellers' entitlement was, or should be, an entitlement to an indemnity in respect of loss occasioned by the wrongful call and retention.
Held, allowing the appeal:
1. There was an implied term in the contract of sale that the buyers would account to the sellers for any amount that had been paid under the bond to the extent that the amount paid exceeded the true amount of the buyers' loss. That amount was due to the sellers as a debt, whether or not the sellers had indemnified either the paying bank or the indemnifier of the paying bank. The Board of Appeal had fallen into error in reaching the contrary conclusion. (Cargill International SA v Bangladesh Sugar & Food Industries CorpUNK[1996] 2 Ll Rep 524andComdel Commodities Ltd v Siporex Trade SAUNK[1997] 1 Ll Rep 424applied.)
2. The court inclined to the view that the overpayment was due when the fact that it was an overpayment had been established either by agreement or judgment.
3. It was not necessary to determine the precise nature of the obligation owed by the sellers on receipt of the overpayment. Nor was it necessary to determine whether the sellers were bound to account to SBC who would account to SBI, or to SBI directly. The court inclined to the view that, in circumstances where SBC had not paid SBI, the sellers' obligation was to make payment to SBI, since the sellers requested SBI to issue the guarantee and payment to them would satisfy their implied obligation (or, if there was one, any express obligation) to indemnify them for the cost of so doing as well as any obligation to SBC (apart from in respect of costs).
Christopher Clarke J:
1. Tradigrain SA appeal, with the permission of Langley J, against Appeal Award No 4012 of 19th 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?
2. By a contract concluded on 4th February 1997 Tradigrain SA (Sellers) agreed to sell and the State Trading Corp 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 15th 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 25th 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 21st January 1998 the Buyers obtained from SBI payment of the rupee equivalent of that sum. On 26th 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 31st March 1998, and upheld on appeal by the Buyers to the Judiciary Supreme Court on 18th June 1998 and ultimately by the Swiss Federal Supreme Court on 17th 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 15th April 1999 the first tier arbitral Tribunal issued an award in which it accepted that it had jurisdiction. On 6th 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...
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