Novasen SA v Alimenta SA

Contractual default clauses may modify the common-law measure of damages, but clear words are required where a clause is said to confer recovery despite no loss. A clause limiting damages by reference to the market price on the day of default may operate as a ceiling rather than as a definition of recoverable loss. If the innocent party does not replace the lost bargain, subsequent events may remain relevant to the ordinary compensatory assessment of damages. On a section 69 appeal, a respondent cannot rely on a new point requiring factual findings which were neither sought nor made by the tribunal.

The Sellers appealed under section 69 of the Arbitration Act 1996 against a FOSFA Board of Appeal award in favour of the Buyers. The parties had contracted for the sale of crude groundnut oil. The Sellers repudiated the contract on 2 April 2008 after an export prohibition had been notified. The Board assessed damages by reference to the market price on that date.

The Sellers argued that the prohibition clause would have brought the contract to an end 30 days later, so that the Buyers would have suffered no substantial loss. The central issues were whether the default clause displaced the common-law principles concerning subsequent events, whether the prohibition clause applied, whether cancellation was automatic, and whether the Sellers would have exercised any right of cancellation.

1. Appeal allowed; award remitted. The Default Clause did not exclude the common-law compensatory principles merely because it stated that damages were limited to the difference between the contract price and the market price on the day of default.
2. Where the law would confer no entitlement to damages because no loss had been suffered, clear words were required to create a contractual entitlement to recover such a sum. That was particularly so for a standard trade clause and a remedy apparently contrary to the compensatory principle.
3. Where the buyer bought against the default, the seller had to reimburse the relevant price differential, subject to arbitration and the market-price limitation. Where the buyer did not buy against the default, the words “damages, if any” preserved the common-law measure. Those damages could be nominal if subsequent events showed that the lost contractual rights had no value.
4. The words “limited to” imposed a ceiling on damages and did not create a right to recover where no damage had been suffered.
5. The court recognised the deference ordinarily due to a specialist trade tribunal on standard trade terms, but that deference was reduced because the Board gave no reasoning for its construction.
6. The Buyers’ alternative argument under section 69 had not been pursued before the tribunals and required factual findings which were absent. The issue of automatic cancellation was left to the Board, as was the factual question whether the Sellers would have cancelled. The award was remitted to the Board of Appeal.

The FOSFA Board of Appeal had upheld a First Tier Award in favour of the Buyers. The High Court allowed the section 69 appeal and remitted the award to the Board of Appeal.