Dunavant Enterprises Incorporated v Olympia Spinning & Weaving Mills Ltd

Contractual invoicing-back machinery incorporated into a trade contract may operate independently of contractual fault. Where the governing bylaw requires an unperformed contract to be closed by invoicing back, a separate exemption clause does not prevent the resulting market-price payment obligation. The clause may remain relevant to liabilities falling outside that machinery, such as some common-law damages claims.

A party relying on a force majeure or exemption clause must establish each requirement of the clause. Where delivery is said to have been prevented, the relevant standard ordinarily requires legal or physical impossibility, rather than commercial difficulty, inconvenience or unprofitability.

The claimant seller and defendant buyer entered into a raw-cotton contract incorporating the International Cotton Association’s Bylaws and Rules. The contract also contained a seller’s exemption clause concerning delay or failure to deliver caused by force majeure or other causes beyond the seller’s control.

The buyer was unable to arrange the required letter of credit. The parties agreed that the contract should be closed under Rules 225 and 226, producing a payment obligation from the seller to the buyer because the market had risen. The Association’s Technical Appeal Committee upheld the application of the invoicing-back machinery. The seller appealed, contending that the exemption clause excluded liability.

1. Appeal dismissed. The seller’s liability arose under the contractual close-out machinery and was not excluded by the exemption clause.
2. Bylaw 102 made the Association’s Bylaws incapable of amendment or exclusion, although the Rules could be varied by agreement. Bylaw 201 required an unperformed contract to be closed by invoicing back under the applicable Rules. Rules 225 and 226 supplied the closure and valuation machinery. The Bylaw therefore prevailed over the seller’s attempted reliance on the exemption clause.
3. The resulting obligation was to make the payment calculated under Rules 225 and 226, irrespective of which party was at fault or whether the failure to perform amounted to breach. The liability did not result from the seller’s failure to deliver within the exemption clause, but from the parties’ contractual agreement and the independent operation of the close-out provisions.
4. The exemption clause could still have relevance to liabilities outside the invoicing-back machinery, including some liability for delay or possible special damages. It had no impact where the contract was closed under Bylaw 201 and Rules 225 and 226.
5. In the alternative, the seller failed to establish the requirements of the clause. Delivery had not been prevented: shipment remained possible, although payment was uncertain. The court accepted the principles that a party relying on a force majeure clause must bring itself squarely within the clause and ordinarily show legal or physical impossibility, while taking reasonable steps to avoid or mitigate its operation.
6. The court did not decide the estoppel argument. The seller had not relied on the exemption clause before the appeal to the Technical Appeal Committee, and the appeal was dismissed.

The judgment concerned an arbitration appeal permitted by Teare J on 6 April 2011. The Association’s first-instance tribunal awarded the defendant US$456,352.20 plus interest and costs. The Technical Appeal Committee reduced the award to US$357,145.20 plus interest, with costs payable by the defendant. The High Court dismissed the seller’s appeal.