Cereal Investments Company (CIC) SA v Ed&f Man Sugar Ltd

Contractual shipment provisions must be construed by reference to their particular wording and factual matrix. A reference to a vessel presenting during a stated month does not necessarily require loading to be completed by the end of that month. Where the contract fixes no final shipment date, a buyer opening a letter of credit may make a reasonable estimate of the time required for shipment and may need to obtain relevant information. That commercial uncertainty differs from uncertainty which would deprive the seller of adequate payment assurance. An authority based on materially different wording, or on an issue that was not decided, does not compel the same construction.

CIC bought sugar from Man under an FOB stowed contract incorporating the Refined Sugar Association rules. The contract provided for one vessel presenting in October 2006, with shipment at the buyer’s option and ten days’ pre-advice of arrival. CIC opened a letter of credit requiring a bill of lading dated no later than 31 October. Man contended that the contract permitted a bill of lading dated in November if the vessel presented in October.

An RSA arbitration panel held that the letter of credit did not comply with the contract and rejected CIC’s claim. CIC appealed under section 69 of the Arbitration Act 1996. The preliminary issue was whether the contract required loading to be completed by 31 October 2006.

1. The appeal failed on the preliminary question. It was therefore unnecessary to decide the wider question concerning the final bill of lading and letter of credit expiry dates.

2. The relevant words were construed according to the particular terms and factual matrix of the contract. The phrase “One vessel only presenting October 2006” was grammatically and commercially distinct from “Shipment at Buyer’s Option, with 10 days pre-advise of vessel arrival”. The latter phrase determined when shipment would commence within October, following the buyer’s pre-advice.

3. The contract did not require loading to be completed by 31 October. The seller’s obligation was to stow the cargo within the period needed to load a vessel presenting in October. The absence of a fixed completion date did not make the contract unworkable.

4. A letter of credit will ordinarily require fixed dates for documentary purposes. Where the sale contract supplies no fixed deadline, the buyer must make a reasonable estimate of when shipment will be complete and may need to make inquiries. That was not equivalent to the uncertainty rejected in Ian Stach Ltd v Baker Bosley Ltd [1958] 2 QB 130, where the seller would lack assurance of payment when the shipping period began.

5. Compagnie Commerciale Sucres et Denrées v C. Czarnikow Ltd (“The Naxos”) [1990] 1 WLR 1337 did not bind the court to CIC’s construction. The wording was materially different, and the House of Lords had adopted the parties’ agreement on an aspect that was not necessary to its decision. The present clause therefore had to be construed independently.

• RSA arbitration panel: held that CIC’s letter of credit did not comply with the contract and that CIC’s claim failed.
• High Court (Commercial Court): permission to appeal under section 69 of the Arbitration Act 1996 was granted. The appeal failed on the preliminary construction issue, and the main appeal question was left undecided.