Bunge Corpn, New York v Tradax Export SA, Panama

Whether a contractual term is a condition, warranty or innominate term is determined by construing the contract in its commercial context. The gravity of an actual breach does not determine that initial classification.

In mercantile contracts, a time stipulation will ordinarily be a condition where certainty and the sequence of the parties’ obligations require precise compliance. No express use of the word condition is necessary. The necessary intention may arise by implication from the contract.

Where punctual notice enables the other party to perform an essential obligation, any failure to give the required notice may therefore justify termination and damages, irrespective of the breach’s practical consequences.

Bunge Corpn, New York v Tradax Export SA, Panama concerned a contract incorporating GAFTA form 119 for the sale of soyabean meal. The buyers were required to give at least 15 consecutive days’ notice of the probable readiness of their vessel. After the delivery period had been extended, they gave notice less than 15 days before its expiry. The sellers declared the buyers in default and claimed damages.

An umpire and the GAFTA Board of Appeal found for the sellers. Parker J reversed the Board. The Court of Appeal, in [1980] 1 Lloyd's Rep. 294, restored the finding of liability but reduced the damages from an amount based on the mean contractual quantity to one based on the minimum quantity which the buyers were obliged to take.

The principal issues were whether the notice obligation was a condition whose breach entitled the sellers to terminate, and whether clause 22 required damages to be calculated using the mean contractual quantity.

1. Disposition. The House unanimously dismissed both the buyers’ appeal and the sellers’ cross-appeal and affirmed the Court of Appeal’s order. Lord Roskill delivered the principal speech. Lord Wilberforce agreed entirely and added reasons of his own. Lords Fraser of Tullybelton, Scarman and Lowry agreed with the conclusions and reasoning supporting the orders.

2. Classification of contractual terms. Per Lord Roskill and Lord Wilberforce, whether a term is a condition must be decided by construing the contract in the light of its nature, purpose and surrounding circumstances. The classification can be made when the contract is concluded. It is not determined retrospectively by asking whether the breach which occurred deprived the innocent party of substantially the whole contractual benefit.

3. Scope of innominate terms. The House explained Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 Q.B. 26. The gravity-of-breach inquiry governs the remedy after a term has been found to be innominate. It does not provide a universal method for deciding whether a term is a condition. Parties may provide, through express words or necessary implication, that every breach of a particular obligation permits termination. They need not use the word condition.

4. The notice clause. Per Lord Roskill, the 15-day notice obligation was a condition. The sellers could not nominate the Gulf loading port or ensure that the goods would be available there until the notice was received. Commercial certainty was especially important because the transaction could form part of a string of contracts. Lord Wilberforce similarly considered that time clauses in mercantile contracts should usually be treated as conditions where the contract indicates that intention. The late notice therefore entitled the sellers to terminate and claim damages.

5. Quantum. Per Lord Roskill, the word default in clause 22 meant a contractual default by the sellers, rather than the mere absence of shipment following the buyers’ breach. The final sentence requiring damages to be computed on the mean contractual quantity did not apply. Toprak v Finagrain [1979] 2 Lloyd's Rep. 98 was correctly decided and applied. Damages were consequently assessed on the minimum quantity of 4,750 long tons, and the sellers’ cross-appeal failed.

1. House of Lords: In Bunge Corpn, New York v Tradax Export SA, Panama [1981] 1 WLR 711, the buyers’ appeal and the sellers’ cross-appeal were dismissed. The Court of Appeal’s order was affirmed.

2. Court of Appeal: In [1980] 1 Lloyd's Rep. 294, the court restored the GAFTA Board’s decision on liability but assessed damages by reference to the minimum quantity which the buyers were obliged to take. It granted leave to appeal.

3. High Court: Parker J reversed the GAFTA Board’s decision and upheld its alternative award.

4. GAFTA arbitration: The umpire awarded damages to the sellers based on the mean contractual quantity. The GAFTA Board of Appeal dismissed the buyers’ appeal and stated a special case for the court.