Bunge SA v Nidera BV

Factual and Procedural Background

This appeal arises from an order upholding an arbitration award by the Board of Appeal of the Grain and Feed Trade Association ("GAFTA"), concerning the interpretation and effect of the Prohibition clause in the GAFTA 49 standard contract form for the sale of goods on f.o.b. terms from Central and Eastern Europe.

On 10th June 2010, the sellers agreed to sell to the buyers 25,000 metric tonnes of Russian milling wheat for delivery in August 2010, with the shipment period later narrowed to 23rd-30th August 2010. On 5th August 2010, the buyers nominated a vessel to lift the goods, but on the same day the Russian government announced Resolution 599, imposing a temporary export prohibition of certain agricultural products, including milling wheat, effective 15th August to 31st December 2010.

On 9th August 2010, the sellers notified the buyers that the contract was cancelled under the Prohibition clause due to the export ban. The buyers treated this as repudiation and accepted it on 11th August 2010. The sellers then offered to reinstate the contract, which the buyers declined.

The buyers initiated arbitration claiming damages of US$3,062,500 for the difference between the contract price and the market price on 11th August 2010, relying on the Default clause in GAFTA 49. The arbitration raised issues regarding the automatic cancellation of the contract upon announcement of the export ban and the applicability and measure of damages under the Default clause.

The Board of Appeal found that the contract was not automatically cancelled on announcement, but repudiated by the sellers, and that the Default clause applied to govern damages. The High Court judge upheld the award, and the sellers appealed.

Legal Issues Presented

1. Whether the announcement of Resolution 599 on 5th August 2010 resulted in the automatic cancellation of the contract under the Prohibition clause.
2. If not, whether the buyers were entitled to recover damages based on the difference between the contract price and market price on the date of termination.
3. Sub-issues related to damages:
   1. Whether the Default clause applies to a refusal to perform arising from repudiation.
   2. Whether the Default clause conclusively determines the measure of damages.
   3. Whether common law damages principles, including those from The Golden Victory, apply.
   4. Whether the buyers failed to mitigate their loss by refusing the sellers' offer to reinstate the contract.

Arguments of the Parties

Appellant's Arguments

• The phrase "restricting export" in the Prohibition clause applies only to executive or legislative acts and does not govern the initial categories of prohibition of export, blockade, or hostilities.
• The contract was automatically cancelled upon announcement of Resolution 599, providing commercial certainty.
• The Default clause applies only to non-delivery or non-acceptance breaches, not to repudiation-induced defaults.
• The Default clause should be interpreted subject to common law compensatory damages principles, including the ruling in The Golden Victory, meaning no loss arose as the export ban prevented performance regardless.
• Relied on various authorities to support their interpretation of the Prohibition clause and the measure of damages.

Respondent's Arguments

• The words "restricting export" govern all events in the Prohibition clause, including prohibition of export, blockade, and hostilities, and describe the effect on contract performance rather than merely the nature of the event.
• The contract was not automatically cancelled on announcement of the export ban; cancellation requires the event to have prevented performance at the time of shipment.
• The Default clause applies broadly to any failure to perform, including repudiation, and sets a conventional, commercially certain measure of damages.
• Damages should be calculated based on the difference between contract and market price at the date of default, consistent with the Default clause.
• The buyers did not fail to mitigate losses, and the sellers’ repudiation was accepted appropriately.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Pancommerce S.A. v Veecheema B.V. [1983] 2 Lloyd's Rep 304	Interpretation of Prohibition clause requiring actual prevention of performance to cancel contract	Supported the view that the embargo must prevent performance before contract cancellation applies
Ross T. Smyth & Co. Ltd v W. N. Lindsay Ltd [1953] 1 W.L.R. 1280	Prohibition clause and timing of embargo effects	No clear guidance on automatic cancellation; case involved non-delivery rather than repudiation
Bremer Handelsgesellschaft m.b.H. v Vanden Avenne Izegem P.V.B.A. [1978] 2 Lloyd's Rep. 109	Effect of export prohibition as frustrating event cancelling contract portion affected	Distinguished as involving failure to deliver and not early cancellation; limited assistance
Ford & Sons (Oldham) Ltd v Henry Leetham & Sons Ltd (1915) 21 Com. Cas. 55	Prohibition clause satisfied if substantial sources of supply affected	Not applicable due to differing contract nature; no assistance to sellers' case
Samuel Sanday & Co. v Cox McEuen & Co. (1922) 10 Ll. L.R. 409 & 459	Prohibition clause requires effective prohibition preventing shipment	Supported buyers’ argument that automatic cancellation requires prevention of shipment
Agrokor A.G. v Tradigrain S.A. [2000] 1 Ll. Rep. 497	Requirement that prohibition restricts contract performance to invoke cancellation	Supported view that cancellation requires actual restriction of performance
Toprak Mahsulleri Ofisi v Finagrain Compagnie Commerciale Agricole et Financière S.A. [1979] 2 Ll. Rep. 98	Default clause applies to breach by repudiation as well as non-delivery	Precluded appellant from challenging Default clause application in this appeal
Bem Dis A Turk Ticaret S/A TR v International Agri Trade Co. Ltd (The 'Selda') [1998] 1 Ll. Rep. 416	Interpretation of Default clause and common law damages principles	Distinguished; concerned recoverability of losses, not measure of damages agreed by parties
Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The 'Golden Victory') [2007] UKHL 12; [2007] 2 AC 353	Common law principle that damages are compensatory and take into account subsequent events	Court expressed doubt about applicability but did not decide; unnecessary to determine given Default clause

Court's Reasoning and Analysis

The court carefully analyzed the wording of the Prohibition clause, concluding that the phrase "restricting export" applies to all events enumerated (prohibition of export, blockade, hostilities, and executive or legislative acts) and is intended to describe the practical effect of the event on the ability to perform the contract, not merely the nature of the event itself.

The court rejected the sellers' argument that the contract was automatically cancelled upon announcement of Resolution 599. Instead, it held that cancellation requires the event to have actually prevented or restricted shipment when the time for performance arrives. The Board of Appeal's factual finding that export bans are often modified or withdrawn and that cancellation requires prevention of shipment was endorsed.

Regarding the Default clause, the court found it applicable to any failure to perform, including repudiation. The clause provides a conventional, commercially certain measure of damages based on the difference between contract and market price at the date of default. The court rejected the argument that the clause should be read subject to common law compensatory principles limiting damages.

The court distinguished prior authorities cited by the sellers, noting differences in facts and contract terms, and emphasized commercial realities and certainty in trade. It also acknowledged the Board of Appeal's view that the Default clause is designed to be clear and readily applied by traders and arbitrators.

The court did not address the applicability of The Golden Victory decision or mitigation issues in detail, as these were unnecessary to resolve the appeal.

Holding and Implications

The court's final decision was to DISMISS THE APPEAL.

The direct consequence is that the contract was not automatically cancelled on announcement of the export ban; rather, the sellers repudiated the contract by treating it as cancelled prematurely. The Default clause governs the measure of damages, entitling the buyers to recover the difference between contract and market price at the date of repudiation.

No new precedent was established, and the court expressed no opinion on the applicability of the common law principle from The Golden Victory or on mitigation, as these issues were not necessary for the decision.