Woodhouse A.C. Israel Cocoa Ltd S.A. v Nigerian Produce Marketing Company Ltd
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE PHILLIMORE,LORD JUSTICE CAIRNS,MASTER OF THE ROLLS |
| Judgment Date | 24 November 1970 |
| Judgment citation (vLex) | [1970] EWCA Civ J1124-4 |
| Date | 24 November 1970 |
| Court | Court of Appeal (Civil Division) |
The Master of The Rolls
Lord Justice Phillimore, and
Lord Justice Cairns
In The Supreme Court of Judicature
Court of Appeal
(Appeal from Mr. Justice Roskill, Queen's Bench Division, 23rd February, 1970.)
MR. R. A. MacCRINDLE, and MR. A. EVANS (instructed by Coward Chance & Co., Solicitors of London) appeared on behalf of the Claimants/Respondents.
MR. M. KERR, Q.C. and MR. T. BINGHAM (instructed by Freshfields, Solicitors of London) appeared on behalf of the Respondents/ Appellants.
1. Introduction
This is an important; case. It concerns the effect of devaluation on contracts in the cocoa trade. The cotton trade is also interested. The amount involved is some £6,000,000.
At the heart of the case lies the difference between the money of account and the money of payment. It is this; The money of account is the currency in which an obligation is measured. It tells the debtor how much he has to pay. The money of payment is the currency in which the obligation is to be discharged. It tells the debtor by what means he is to pay. Take an example: Suppose an English merchant buys 20 tons of cocoa-beans from a Nigerian supplier for delivery in three months' time at the price of 5 Nigerian pounds a ton payable in pounds sterling in London. Then the money of account is Nigerian pounds. But the money of payment is sterling. Assume that, at the making of the contract, the exchange rate is one Nigerian pound for one pound sterling - 'pound for pound'. Then, so long as the exchange rate remains steady, no one worries. The buyer pays £100 sterling in London. It is transferred to Lagos where the seller receives 100 Nigerian pounds. But suppose that, before the time for payment, sterling is devalued by 14% whilst the Nigerian pound stands firm. The Nigerian seller is entitled to have the pricemeasured in Nigerian pounds. He is entitled to have currency worth 100 Nigerian pounds: because the Nigerian pound is the money of account. But the money of payment is sterling. So the buyer must provide enough sterling to make up 100 Nigerian pounds. To do this, after devaluation, we will have to provide £116: 5s: 0d. in pounds sterling. So the buyer in England, looking at it as he will in sterling, has to pay much more for his 20 tons of cocoa- beans than he had anticipated. He will have to pay £116: 5s: 0d., instead of £100. He will have to pass the increase on to his customers. But the seller in Nigeria, looking at it as he will in Nigerian pounds, will receive the same amount as he had anticipated. He will receive 100 Nigerian pounds Just the same: and he will beable to pay his growers accordingly. But, now suppose that in the contract for purchase the price had been, not 5 Nigerian pounds, but 5 pounds sterling a ton, so that the money of account was sterling. After devaluation, the buyer in England would be able to discharge his obligation by paying £100 sterling: but the Nigerian seller would suffer. For, when he transferred the £100 sterling to Nigeria, it would only be worth 86 Nigerian pounds. So, instead of getting 100 Nigerian pounds as he bad anticipated, be would only get 36: and he would not have enough to pay his growers. So you see how vital it is to decide, in any contract, what is the money of account and what is the money of payment.
2. THE FACTS
Now for the facts of this case. Up till 1963 the English merchants bought cocoa-beans from Nigerian suppliers at a price expressed in sterling, payable in London. So the money of account at that time was sterling. But in 1963 the Nigerian authorities, for reasons of national policy, insisted that contracts for cocoa should be payable in Nigerian pounds in Lagos. I will give extracts from a typical contract. All the contracts in this case are in this form: -
15th July, 1965
"To: Woodhouse, Drake & Carey Ltd., 51, Eastcheap, LONDON, E. C. 3.
We have this day sold to you About 200 (two hundred) tons of Nigerian Cocoa Beans.
Price A t 92/6d. (Ninety-two shillings and six pence) NIG, per CWT, shipping weight
Terms Cost, freight and insurance to LIVERPOOL
Shipment to be shipped during December 1965/February 1966.
Payment Payment to be made by cash in LAGOS for 100 per cent, of the invoice amount against presentation and in exchange for shipping documents.
Arbitration any dispute arising out of this contract shall be settled by Arbitration in London.
NIGERIAN PRODUCE MARKETING CO. LTD."
A typical invoice ran as follows "200 tons at N£92.10. per ton £18, 500: 0: 0.
C. I. F. LIVERPOOL Payment 100% Cash against Documents in Lagos."
Under contracts in that form, it is plain that the money of account was Nigerian pounds. And the money of payment was also Nigerian pounds.
In 1966 the English buyers were afraid that sterling might be devalued. If that happened, they would stand to lose a great deal: because they were making forward contracts for shipment and payment in six months' time. The English buyers tried to cover themselves by buying Nigerian pounds forward. But this was not possible. 'There was a spot market for Nigerian pounds but not a forward market. So they tried to get the Nigerian sellers to vary the contracts. On 16th August, 1966, the Cocoa Association of London Ltd. asked the Nigerian Produce Marketing Co. Ltd. to "consider reverting to your erstwhile practice of selling your produce (cocoa) for payment in sterling".
The Nigerian Company did not give any answer for some time. Eventually, on 5rd August, 1967, the Nigerian sellers wrote to the English buyers giving them an option to pay either in pounds sterling or in Nigerian pounds. The letter said:-
It has been decided that for transactions concluded from 1st September, 1967, payment may be made in pound sterling in London or in £ Nigerian in Lagos.
It has been further decided that for payments in respect of transactions already concluded in Nigerian, payment may be made in pound sterling provided the transfer charges are borne by the buyer concerned will those buyers who wish to make future contracts in pound sterling, please let us know by return of post."
The English buyers on 29th August, 1967 wrote agreeing. But on the same day the Nigerian sellers withdrew the option, saying: -
"Owing to circumstances beyond our control, we have had to withdraw the option of payment in sterling which was to take effect from 1st September, 1967."
On 20th September, 1967, the English buyers wrote, saying: -
"It is noted that you state circumstances outside your control caused you to withdraw. I am requested to ask if you can arrange to accept payment against documents in sterling in Lagos as a temporary alternative."
The Nigerian sellers replied on 30th September, 1967, with this letter which is crucial: -
"I write to confirm that payment can be made in Sterling and in Lagos, with the following provisos: -
(i) That the buyer will be responsible for the transfer charge;
(ii) that documents be made available in Lagos. If you are agreeable to those conditions, you are at liberty to make payment in Sterling not only with contracts already entered into, but also with future contracts."
The English buyers agreed: and thenceforward until 18th November, 1967, the English buyers paid for the cocoa shipments in sterling, cash against documents. On 18th November, 1967, sterling was devalued by 14%: but the Nigerian pound was not devalued. The question then arose as to future payments. There were a large number of contracts outstanding, already made and awaiting fulfillment. All of these contracts were in the form I have set out. They specified the price in Nigerian pounds. Shipment was to take place in the weeks following devaluation, and payment was to be made against documents - all after devaluation in respect of contracts made before devaluation.
The English buyers claimed that, in consequence of the letter of 50th September, 1967, they could pay as if the price bad been expressed in sterling instead of Nigerian pounds: whereas, the Nigerian sellers claimed that the English buyers had to provide enough sterling to provide the contract number ofNigerian pounds. The issues are well stated" by the messages which passed between the parties.
On 22nd November, 1967, the English buyers sent this telex: -
"The Board of the Cocoa Association of London presumes that you may now wish to revise for new business the arrangements made with our members in your letter 30th September, 1967 whereby payment can be made in sterling in Lagos on the basis of one pound sterling for one Nigerian pound provided the buyer pays the Transfer Charge which arrangements our members will be carrying out for all contracts concluded with Nigerian Produce marketing Co. up to 18th November, 1967."
On 23rd November, 1967, the Nigerian sellers sent this cable:-
"We acknowledge receipt of your message dated 22nd November, 1967. We sympathies with members of your Association and others who have been adversely affected by the British Government decision to devalue the pound sterling. We have to advise you, however, that the assumption of your Board with regard to the insinuation that the basis of payment is one pound sterling for one Nigerian pound is incorrect. We wish to point out that our contracts with buyers are denominated in Nigerian pounds and we agreed and still agree that payments can be made in pound sterling. You will appreciate, however, that we are not in a position to renegotiate the contract price and all buyers must be aware that enough pound sterling must be provided to pay for the contract value, when...
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