Bunge SA v Nidera BV

Contract damages compensate the injured party for the value of the performance actually lost. Following an accepted anticipatory repudiation, a court may consider a non-price contingency which subsequent events show would lawfully have prevented performance or extinguished the loss. This principle applies to one-off sales as well as period or instalment contracts.

A contractual damages formula may depart from the common-law measure, but its scope depends on construction. A formula based on the contract price and the goods’ market value does not, without clear language, exclude other considerations affecting actual loss. A supervening export prohibition may therefore reduce damages to a nominal sum where the contract would never have been performed.

Bunge SA agreed to sell Nidera BV a cargo of Russian wheat under a contract incorporating GAFTA Form 49. Before the shipment period, Russia announced an export embargo. The sellers prematurely purported to cancel under the prohibition clause. The buyers accepted that act as a repudiation. The embargo nevertheless remained in force throughout the contractual shipment period.

The first-tier GAFTA tribunal found a repudiation but awarded no substantial damages because the contract would ultimately have been cancelled. The GAFTA Appeal Board instead awarded US$3,062,500 under the default clause. Hamblen J dismissed the sellers’ appeal in [2013] EWHC 84 (Comm); [2013] 1 Lloyd’s Rep 621. The Court of Appeal affirmed that decision in [2013] EWCA Civ 1628; [2014] 1 Lloyd’s Rep 404.

The Supreme Court had to decide whether the GAFTA default clause excluded the common-law compensatory principle and whether that principle applied to a one-off sale.

Lord Sumption delivered the leading judgment, with which Lord Neuberger, Lord Mance and Lord Clarke agreed. Lord Toulson gave separate reasons, also agreed by those three Justices.

1. The appeal was allowed unanimously. The Appeal Board’s award of substantial damages was varied by substituting nominal damages of US$5. The parties were directed to make written submissions about the Board’s costs award and the costs of the subsequent proceedings.

2. The fundamental common-law principle is compensation for the contractual performance actually lost. Under The Golden Victory [2007] UKHL 12; [2007] 2 AC 353, contingencies known by the date of assessment must be considered where they show that the contract would lawfully have ended or become incapable of performance. The contingency need not have been inevitable when the repudiation was accepted. The principle applies to one-off contracts as well as contracts involving successive performance. The contrary suggested distinction in Lord Scott’s dicta was explained as referring to the ordinary case of a readily replaceable sale.

3. The market-price measure and the effect of a non-price contingency are distinct questions. Sections 50 and 51 of the Sale of Goods Act 1979 provide a prima facie technique for valuing the goods or services that should have been delivered. They do not value the contract as an independently marketable asset. A market comparison is appropriate only where a true substitute contract is reasonably available and the comparison measures the financial disadvantage caused by the breach.

4. A damages clause may prescribe a fixed or mechanical measure which differs from the common law. There is no presumption that it must reproduce the common-law result. In the absence of clear words, however, it should not be construed as producing an arbitrary recovery unrelated to any reasonable approximation of loss. Whether such a clause is an exhaustive code is a question of construction.

5. GAFTA clause 20 was a complete code only for determining the relevant market price or value. The words requiring damages to be “based on” the difference between that value and the contract price did not require that difference to be awarded where no loss was suffered. The clause neither addressed nor excluded supervening non-price events. This construction was consistent with The Selda [1998] 1 Lloyd’s Rep 416 and Novasen SA v Alimenta SA [2013] 1 Lloyd’s Rep 647.

6. The export embargo would have prevented shipment and cancelled the contract even without the premature repudiation. The buyers purchased no substitute goods and consequently lost nothing. Lord Toulson added that the sellers’ immediate genuine offer to restore the original bargain also answered the claim under the compensatory principle, although mitigation was not argued before the Supreme Court.

1. United Kingdom Supreme Court: In [2015] UKSC 43, allowed the sellers’ appeal and varied the Appeal Board’s award by substituting nominal damages of US$5.
2. Court of Appeal: In [2013] EWCA Civ 1628; [2014] 1 Lloyd’s Rep 404, affirmed Hamblen J’s dismissal of the sellers’ appeal.
3. Commercial Court: Hamblen J dismissed the material challenges to the Appeal Board’s award in [2013] EWHC 84 (Comm); [2013] 1 Lloyd’s Rep 621.
4. GAFTA Appeal Board: Reversed the first-tier tribunal on damages and awarded the buyers US$3,062,500 under clause 20.
5. First-tier GAFTA tribunal: Held that the sellers had repudiated the contract prematurely but awarded no substantial damages because the embargo would ultimately have cancelled the contract.