Bunge SA v Nidera BV
Bunge SA v Nidera BV
UK Supreme Court: Lords Neuberger, Mance, Clarke, Sumption and Toulson:  UKSC 43,  Bus LR 987: 1 July 2015
Simon Rainey QC and Mark Stiggelbout, instructed by Reed Smith for the Appellant, Bunge
Philip Edey QC and Leonora Sagan, instructed by Hill Dickinson for the Respondent, Nidera
INTERNATIONAL SALE OF GOODS: DAMAGES: SALE OF GRAIN BASED ON GAFTA FORM 49: EMBARGO ON EXPORTS: PREMATURE TERMINATION OF CONTRACT BY SELLERS BEFORE EMBARGO TOOK EFFECT: ASSESSMENT OF DAMAGES TO TAKE INTO ACCOUNT EFFECT OF EMBARGO: NO LOSS SUFFERED BY BUYERS
The Sellers prematurely cancelled a contract for the sale of grain (based on GAFTA Form 49) on the ground of a legislative embargo imposed by Russia before it came into effect. The Supreme Court unanimously held that the Buyers were only entitled to nominal damages. Clause 20 of the GAFTA Form 49 did not exclude the application of the principle in The “Golden Victory”  2 AC 353. In assessing damages, it was permissible to take into account contingencies subsequent to the date of breach which would have reduced the amount of damages payable. As such, the Buyers suffered no loss; the embargo would have prevented the Sellers from shipping the goods under the contract in any event.
This note has been contributed by Ken T.C. Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and barrister-at-law in Hong Kong.
On 10 June 2010, Nidera BV (the Buyers) entered into a contract with Bunge SA (the Sellers) to buy 25,000 metric tonnes (+/- 10% in buyer’s option) of Russian milling wheat crop 2010, FOB Novorossiysk. The shipment period was August 2010 and was subsequently narrowed to 23-30 August 2010. The contract incorporated GAFTA Form 49 (as in effect from 1 January 2006).
GAFTA Form 49 provides that:
“13. In case of prohibition of export or… any executive or legislative act done by… the government of the country of origin of the goods… any such restriction shall be deemed by both parties to·apply to this contract and to the extent of such total or partial restriction… this contract or any unfulfilled portion thereof shall be cancelled… …
20. In default of fulfilment of contract by either party, the following provisions shall apply:
(a) The party other than the defaulter shall… have the right… to sell or purchase… against the defaulter, and such sale or purchase shall establish the default price.
(b) If either party be dissatisfied with such default price or if the right at (a) above is not exercised and damages cannot be mutually agreed, then the assessment of damages shall be settled by arbitration.
(c) The damages payable shall be based on, but not limited to the difference between the contract price and either the default price established under (a) above or upon the actual or established value of the goods on the date of shipment on the date of default established under (b) above.
(d) In all cases the damages shall, in addition, include any proven additional expenses which would directly and naturally result… from the defaulter’s breach of contract…”
On 5 August 2010, Russia introduced a legislative embargo on exports of wheat from its territory between 15 August and 31 December 2010. On 9 August 2010, the Sellers notified the Buyers of the embargo and purported to declare the contract cancelled. The Buyers did not accept that the Sellers were entitled to cancel the contract at that stage, treated the purported cancellation as a repudiation and accepted the same on 11 August 2010. On the following day, the Sellers offered to reinstate the contract on the same terms. But the Buyers rejected the Sellers’ offer and commenced arbitration proceedings under the GAFTA rules for damages of US$3,062,500, being the difference between the contract and the market price on the date of repudiation.
GAFTA’s first tier arbitration tribunal held that the Sellers had repudiated the contract as their notice of cancellation was premature. Further, the Buyers had not suffered any damage because the contract would have been cancelled in any event when the time came for delivery.
The GAFTA Appeal Board overturned the decision of the first tier tribunal and awarded damages to the Buyers. It held that Clause 20(c) provided the formula for computing damages in cases where agreement was not reached under Clauses 20(a) and (b). It rejected the Seller’s argument based on the House of Lords decision in Golden Strait Corporation v Nippon Yusen Kubishika Kaisha (The “Golden Victory”)  2 AC 353 that at common law it was necessary to take account of events occurring after the breach which showed that the same loss would have been suffered even without the repudiation.
Both Hamblen J in the High Court and the Court of Appeal dismissed the Sellers’ appeal. The Sellers appealed to the Supreme Court.
The Supreme Court unanimously allowed the Sellers’ appeal. Lord Sumption and Lord Toulson delivered two separate judgments, both of which Lords Neuberger, Mance and Clarke agreed.
Lord Sumption noted that the fundamental principle of common law damages was the compensatory principle which required the injured party to be placed, so far as money could do so, in the same situation with respect to damages as if the contract had been performed (see Robinson v Harman (1848) 1 Exch 850). In a contract of sale where there was an available market, this was ordinarily achieved by comparing the contract price with the price that would have been agreed under a notional contract assumed to have been entered into in its place at market rate but otherwise on the same terms.
Where a contract came to an end due to an anticipatory breach, there were two questions which were not always sufficiently distinguished: (1) Where there was an available market, what was the date at which market price was to be determined for the purpose of assessing damages? (2) In what circumstances (if any) would it be relevant to take account of contingencies (other than a change in the market price) if subsequent events showed that they would have reduced the value of performance, even without the defaulter’s renunciation?
The prima facie answer to the first question was that where there was an available market for the goods, the market price was determined as at the contractual date of delivery, unless the buyer should have mitigated by going into the market and entering into a substitute contract at some earlier stage.
As for the second question, the House of Lords by a majority in The “Golden Victory” had held that the overriding principle was the compensatory principle. Irrespective of the date at which the market price was ascertained, it was necessary to take account of contingencies known at the date of the arbitrator’s assessment to have occurred, if their effect was that the contract would have been lawfully terminated at or before its contractual term. While the majority in The “Golden Victory” had valued the chartered service that would actually have been performed if the charterparty had not been wrongfully brought to a premature end, the minority had considered that one should value the charterparty by reference to the terms of a notional substitute fixture concluded as soon as possible after the termination of the original.
Despite academic criticism and judicial doubts that had been expressed on The “Golden Victory”, Lord Sumption was of the view that the majority in The “Golden Victory” was correct. There was no principled reason why, in order to determine the value of the contractual performance which had been lost by the repudiation, one should not consider what would have happened if repudiation had not occurred. If the contract had not been repudiated, it would have been lawfully cancellable. While commercial certainty was important, it could rarely be thought to justify an award of substantial damages to someone who had not suffered any. Sections 50 and 51 of the Sale of Goods Act 1979 (fn.1) were similar to the corresponding principles of the common law and were concerned with the value of the contract as an article of commerce in itself.
The GAFTA Appeal Board had erred in thinking that the principle in The “Golden Victory” was limited to instalment contracts; the underlying principle was not any different between a contract for a one-off sale and a contract for the supply of goods or services over a period of time.
Further, there was nothing in Clause 20 which excluded the application of the principle in The “Golden Victory”. The phrase “shall be based on” in Clause 20 showed that it was not a complete code which dealt with every aspect of assessment of damages: see Bem Dis A Turk S/A TR v International Agri Trade Co Ltd (The Selda)  1 Lloyd’s Rep 416 (HC),  1 Lloyd’s Rep 729 (CA). Clauses 20(a) to (c) only constituted a complete code for determining the market price or value of the goods that either were actually purchased by way of mitigation or might have been purchased under a notional substitute contract. An example of what was not covered thereunder was damages which were not calculated by reference to a notional substitute contract or based on any determination of the market price, such as expenses incurred by the buyer in the course of performance.
In the present case, although the Sellers jumped the gun, the embargo would have prevented shipment when the time came. As the Buyers had not gone into the market to replace the goods, they had lost nothing. Accordingly, they were only entitled to nominal damages.
This decision is significant in various respects:
(1) Despite judicial doubts and academic criticism of the majority decision in The “Golden Victory”  2 AC 353, the Supreme Court unanimously affirmed the principle laid down in that case. Given the paramount importance of the compensatory principle and that the innocent party is not entitled to be compensated for more than the loss he has suffered, the party in breach of a contract can reduce damages payable on the basis of events subsequent to breach. In the course of dealing with this specific issue, Lord Sumption also gave a detailed account of the effect of Clause 20(a)-(c) of GAFTA Form 49: see para.28.
(2) Even if a contract includes a liquidated damages clause or a formula for calculating the damages payable, it is a question of contractual interpretation whether they deal with all aspects of the assessment of damages and may thus be regarded as complete codes in that respect. It would seem to follow that, perhaps subject to restrictions in the Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contract Regulations 1999 (where applicable), parties can by appropriate wording exclude the principle in The “Golden Victory”.
Fn.1 Sections 50 and 51 of the Sale of Goods Act 1979
Section 50 Damages for non-acceptance
(1) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance.
(2)The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.
(3)Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted or (if no time was fixed for acceptance) at the time of the refusal to accept.
Section 51 Damages for non-delivery
(1) Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery.
(2)The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract.
(3)Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver.