Bunge SA v Nidera BV

A contractual prohibition clause does not automatically cancel a sale contract merely because an export ban is announced. The party relying on it must establish that the prohibition in fact restricts export of the contractual goods during the contractual shipment period. A deeming provision removes the need to prove that the seller had goods available or could otherwise have performed, but does not remove the need for causal connection.

Where parties have agreed a clear contractual scheme for assessing default damages, that scheme governs the assessment, including arguments that no common-law loss was suffered or that mitigation principles require a different result. The court left open whether The Golden Victory approach applies to a one-off sale of goods with an available market.

The claimant sellers appealed under section 69 of the Arbitration Act 1996 against GAFTA Appeal Award No 4283. The award upheld the defendant buyers’ claim for damages following the sellers’ purported cancellation of a contract for Russian wheat after Russia announced an export ban.

The appeal concerned the construction of the GAFTA Prohibition Clause and the effect of the GAFTA Default Clause. The principal questions were whether the export ban had to be shown actually to prevent performance, whether common-law principles derived from The Golden Victory and mitigation limited the contractual damages scheme, and whether the buyers acted unreasonably in rejecting an offer to reinstate the contract.

1. Liability. The appeal on liability was dismissed. The GAFTA Prohibition Clause required proof of a prohibition restricting export. That meant showing that export of goods of the contractual description was in fact restricted during the contractual shipment period. A prohibition which might be revoked or modified before that period expired was insufficient.
2. The deeming words in the clause meant that the sellers did not have to prove that they had goods available, or that they could have performed but for the prohibition. They did not eliminate the requirement to establish a causal connection between the prohibition and the restriction of export. The reasoning in Sanday v Cox McEuen (1922) 10 Ll. L.R.459 and Pancommerce v Veecheema [1983] 2 Lloyd’s Rep.304 supported that construction.
3. Damages. The GAFTA Default Clause established the parties’ agreed scheme for assessing damages. The reference to arbitration of the assessment of damages included arguments that the innocent party had suffered no loss. The clause therefore governed notwithstanding the sellers’ reliance on The Golden Victory [2007] 2 AC 353 and mitigation principles.
4. The words that damages were to be “based on” the contract-price and default-price or value difference established the basic contractual measure. They did not make that measure provisional or permit it to be displaced by unspecified common-law principles. The reasoning in The Selda [1998] 1 Lloyd’s Rep. 416 and [1999] 1 Lloyd’s Rep. 729 concerned a different question.
5. It was unnecessary to decide whether The Golden Victory approach applied to a one-off sale of goods with an available market. The judge observed that this remained an open question. In any event, the Board had also found that the buyers’ conduct was reasonable, which was a finding of fact not open to challenge on the appeal.

The GAFTA Board of Appeal had reached the correct conclusion. The appeal was dismissed.

• High Court (Commercial Court): The court heard an appeal under section 69 of the Arbitration Act 1996 against GAFTA Appeal Award No 4283 and dismissed the appeal.
• GAFTA Board of Appeal: By Appeal Award No 4283 dated 22 June 2012, the Board upheld the buyers’ claim for substantial damages and rejected the sellers’ reliance on the Prohibition Clause.
• Andrew Smith J: Leave to appeal under section 69 was granted on 10 October 2012.