Bunge SA v Nidera BV

A contractual prohibition clause does not cancel a contract merely because an export restriction has been announced. The restriction must have a causal and practical effect on the seller’s ability to perform. Where an embargo may be modified or withdrawn during the shipment period, cancellation is premature. A default clause providing a conventional measure of damages for non-performance can apply to an accepted repudiation as well as to non-delivery or non-acceptance. If its terms clearly establish the measure, the clause governs the assessment of damages and provides the commercial certainty required by the trade.

Bunge agreed to sell Nidera Russian milling wheat under Gafta 49. After Russia announced an export prohibition, Bunge declared the contract cancelled before the shipment period began. Nidera treated that conduct as a repudiation and claimed damages under the Default clause. The GAFTA Board of Appeal found that the prohibition had not yet prevented performance, held that Bunge had repudiated the contract, and awarded market-based damages. Hamblen J upheld the award in [2013] EWHC 84 (Comm). The appeal concerned whether the Prohibition clause operated automatically on announcement of the prohibition and whether the Default clause governed damages following accepted repudiation.

1. Appeal dismissed. The Court of Appeal unanimously upheld the decision of Hamblen J and the GAFTA award.
2. The words restricting export in the Prohibition clause governed prohibition of export, blockade, hostilities and relevant executive or legislative acts. They described the practical effect of the event on the seller’s ability to perform, rather than merely the formal character of the government measure. The clause therefore required a causal link between the event and the inability to perform.
3. Resolution 599 had been announced before it took effect and could have been modified or withdrawn during the shipment period. It had not therefore prevented performance when Bunge declared the contract cancelled. Bunge’s declaration was a repudiation, which Nidera had accepted.
4. The Default clause applied to any failure to perform, including failure caused by an accepted wrongful repudiation. Its provisions established a conventional measure of damages based principally on the contract price and the default or market price. The clause reflected a natural commercial response, was readily applicable by traders and arbitrators, and was not a penalty.
5. Pancommerce S.A. v Veecheema B.V. [1983] 2 Lloyd’s Rep 304, Samuel Sanday & Co. v Cox McEuen & Co. (1922) 10 Ll. L.R. 409 & 459 and Agrokor A.G. v Tradigrain S.A. [2000] 1 Ll. Rep. 497 supported the requirement for an effective restriction affecting performance. Other authorities concerned materially different facts or issues. It was unnecessary to decide the effect of The Golden Victory [2007] UKHL 12, and mitigation did not arise for consideration.

1. Court of Appeal (Civil Division) dismissed the sellers’ appeal and upheld the judgment below.
2. High Court of Justice, Queen’s Bench Division (Commercial Court), Hamblen J, upheld the GAFTA Board of Appeal award in [2013] EWHC 84 (Comm) .
3. GAFTA Board of Appeal held that the contract had not been automatically cancelled and that the buyers were entitled to damages under the Default clause.