Sale of Goods
Cases
Soufflet Negoce SA v Bunge SA
[2010] EWCA Civ 1102
Lord Justice Longmore:
Introduction
If, in a typical Free On Board (“FOB”) contract, the buyer presents a vessel at the loading port which is not ready to take the cargo because the holds need to be cleaned, is the seller obliged to begin loading? No doubt if the buyer agrees the holds need to be cleaned, an accommodation will usually be reached. But if the buyer asserts that the holds do not need cleaning while the seller insists that they do, there will be an impasse and there is then a risk that the cargo will not be delivered during the delivery period in the contract. If, in such a situation, the goods are never shipped, can the buyer sue the seller for damages for non-delivery? A panel of arbitrators has said “No”; the GAFTA Board of Appeal has said “Yes”. David Steel J has agreed with the Board of Appeal but has given permission to appeal to this court.
Facts
On 19th September 2006, in a written “contract confirmation”, Soufflet Negoce S.A. (“the Sellers”) agreed to sell and Bunge S.A. (“the Buyers”) agreed to buy 15,000 metric tons of Ukrainian Feed Barley, “free from alive insects and foreign smell” for a price of US$135.00 per metric ton FOB stowed/trimmed Nikotera, Ukraine. It was further agreed that weight, quality and condition were to be “final” at load port as per surveyor’s certificates “Sellers’ option and costs”. Delivery was to be:-
“Between 9th – 22nd October 2006 at Buyers’ call both dates included (No Extention).”
Under the heading “Shipping Terms” it was agreed that the Sellers were to load the cargo at the rate of 5000 metric tons per weather working day of 24 consecutive hours Saturdays, Sundays and holidays excepted even if used. There were then provisions for laytime which expressly required the valid tender of a Notice of Readiness and it was further said “All other terms and conditions as per relevant C/P”. If the Sellers took more than 3 days to load the cargo, they would have to pay demurrage to the Buyers while if the Sellers took less than 3 days to load cargo they would earn dispatch “as per Charter Party rates”. All other terms and conditions, not inconsistent with these terms were to be “as per GAFTA 49”, a standard form of contract for delivery of goods from Eastern Europe in bulk or bags on FOB terms.
The references to “relevant C/P” and “Charter Party” rates show that the Buyers would have to charter a vessel (or buy space in an already chartered vessel) from a shipowner in order to perform the contract. Under that contract the Buyers would become liable for demurrage if loading exceeded the time stipulated in the charterparty but they would be able to recover such demurrage from the Sellers under the sale contract. Laytime would, of course, only begin under the charterparty when the shipowners served a valid “Notice of Readiness” for which purpose the holds would have to be clean and ready to receive the cargo of feed barley.
GAFTA 49 has its own standard “Period of Delivery” clause (clause 6) leaving a gap for that period (here agreed to be 9th – 22nd October 2006). There is then a provision for the Buyers to give not less than [x] days notice of the “name and probable readiness date of the vessel” (but no number of days was stipulated in the contract). It was then provided as follows:-
“The Sellers shall have the goods ready to be delivered to the Buyers at any time within the contract period of delivery.
Buyers have the right to substitute the nominated vessel, but in any event the original delivery period and any extension shall not be affected thereby. Provided the vessel is presented at the loading port in readiness to load within the delivery period, Sellers shall if necessary complete loading after the delivery period, and carrying charges shall not apply.”
The reference to carrying charges is a reference to clause 8 (Extension of Delivery) under which the Buyers can require an additional period for delivery of 21 days but, if so, the Sellers are to “carry the goods for the Buyers’ account”. That is, of course, irrelevant in the present case since the contract confirmation had stipulated that there was to be “no extention” (sic).
On 10th October, the Buyers nominated the vessel “LADY HIND” with an ETA Nikotera of 18th October. They then chartered that vessel from her owners on 12th October. The shipowners gave an ETA of 18th/19th October with a laydays/cancelling date spread of 0800 hours 7th October/2400 hours 22nd October. The shipowners served a notice of readiness on the Buyers/Charterers at 0520 hours on 22nd October 2006. It would thus be necessary (if the contract was to be performed) for the Buyers to invoke that part of clause 6 of GAFTA 49 which would oblige the Sellers to complete loading after the delivery period had expired.
On the same day the Buyers’ surveyors issued a certificate of cleanliness for the ship while the Sellers’ surveyors issued a certificate which included the following
“Remarks – hoppers partly covered with coal powder (traces) at holds No. 1, 2, 3 and 4 ….
Conclusion – Based on the above mentioned inspection we find cargo holds and hatches not suitable to receive and carry the above mentioned cargo.”
On the same day the Regional State Grain inspectorate also stated that the ship and holds were found to be not suitable for loading grain in bulk.
At 10.10 hours on 23rd October the master advised that the vessel’s holds were ready for re-inspection at 11.00. By that time the Sellers had at 09.24 hours declared the Buyers in default.
“due to the fact M/V LADY HIND was not presented ready to load at Nikotera, Ukraine.”
In due course the first-tier arbitration panel held that the vessel’s holds were not ready to receive cargo on 22nd October. The Board of Appeal made no express finding about this in view of their decision as to the meaning of clause 6 of GAFTA 49. The Sellers accept that, if their appeal succeeds, the award will have to be remitted to the Board for them to deal with this issue. On the assumption that the holds were not ready to receive cargo (which is the hypothesis on which this appeal is proceeding) it is perhaps slightly surprising that Board of Appeal has decided that the Buyers can nevertheless sue the Sellers for non-delivery of the goods. Why, one asks, should the Sellers be obliged to load the barley into unclean holds? The answer given to this question by the Board of Appeal was (para 26) that it was the Buyers’ responsibility to provide a vessel for shipment within the time agreed at the place agreed for shipment.
“So long as it was physically and legally possible for Sellers to load, on the nominated ship, the agreed goods at the agreed place within the agreed time, then Buyers would have discharged that responsibility and Sellers were under a duty to load – loading which, by Sellers’ own admission, never happened.”
The Board further referred to what they called “the fundamental commercial dynamic of the sale” namely that risk of loss or damage passed from the Sellers to the Buyers on the loading of the goods onto the vessel chartered by the Buyers. If the goods were damaged by shipment into unclean holds, the shipment was the Buyers’ decision and at their risk.
The reference by the Board to it being “physically and legally possible for Sellers to load” is probably a reference to the standard position under an FOB contract at common law in the absence of any relevant express terms. As set out in the 8th edition (2010) of Benjamin’s Sale of Goods paras 20-046 to 20-047 the FOB buyer is bound to give instructions with regard to the shipment of goods and those instructions must be “effective” instructions
“in the sense that it must be possible and lawful for the seller to comply with them.”
The authority for this proposition is Agricultores Federados Argentinos v Ampro S.A. [1965] 2 Lloyds Rep 157 and has thus stood as the law for 45 years or so.
The Argument
Mr David Owen QC for the Sellers did not seek to quarrel with the common law position as set out in Benjamin but submitted that this case was different by reason of first the express term in relation to the period of delivery in GAFTA Form 49 (which was replicated in many other GAFTA Forms e.g. Form 64 for FOB grain in bulk and Form 119 for other feeding stuffs) and secondly the express terms of the typed confirmation note PT 31006.
The main purpose of the Period of Delivery clause in the GAFTA forms is, of course, to define the time within which delivery is to be made. If the parties agree a delivery period between 9th – 22nd October (as they did in the present case) that, without more, would mean that the barley would all have to be loaded by 22nd October and the Buyers would have to ensure that the vessel arrived at the port in sufficient time for that to be achieved. The printed form of GAFTA 49 provides for two ways in which this strict position can be qualified. One is set out in clause 8 and enables the Buyers to claim an extension of the delivery period of not more than 21 days in which case the
“Sellers shall carry the goods for Buyers’ account … unless the vessel presents in readiness to load within the contractual delivery period.”
In the present case, however, the parties agreed that there would be no extension to the shipping period. The second possible qualification is set out in the Period of Delivery clause itself.
“Provided the vessel is presented at the loading port in readiness to load within the delivery period, Sellers shall if necessary complete loading after the delivery period, and carrying charges shall not apply.”
The concept of the vessel presenting “in readiness to load within the delivery period” is thus common to both clauses and the question is whether that concept carries with it the requirement that the vessel must be in a position in which a Notice of Readiness can be (or perhaps has been) given.
As is well-known in a charterparty context a ship must in fact be ready to load (or discharge as the case may be) before it can be said to be at charterers’ disposal. One of the most important consequences of being in the appropriate state of readiness is that laytime begins to count and, once laytime has expired, demurrage begins to accrue. A fairly elaborate set of rules governs the question whether the ship is, in fact, ready namely (unless otherwise agreed) the vessel must have been an “arrived” ship, she must have been granted free pratique (unless the granting of free pratique is a formality), she must have been cleared by Customs and the holds must be in a state in which they can receive cargo. The third edition of Mr Julian Cooke’s book on Voyage Charters takes 17 paragraphs (15.22 – 15.38) to set out the law on the topic and the question is whether all this fairly elaborate law is intended to be incorporated into GAFTA FOB sale contracts by using the concept of the vessel presenting “in readiness to load”.
In my view much clearer words would be necessary if all this shipping law is to be transported into an FOB sale contract. The phrase “in readiness to load” does not expressly say that a Notice of Readiness must have been (or at least be capable of being) given. If that was the intention the form would have said so and not left it to implication.
It is noteworthy that in one respect the parties to this contract have expressly specified the circumstance in which a Notice of Readiness must be given and that is for the purpose of commencement of laytime under the sale contract. I have already said that, in a shipping context, the Notice of Readiness (“N.O.R.”) is relevant to the commencement of laytime and that, once laytime has expired, charterers will have to pay demurrage to the shipowners. In an FOB contract, the Buyers have to charter the ship and potentially render themselves liable for demurrage; but it is of course the Sellers who in practical terms have to put the goods on board the vessel; if therefore Buyers are liable for demurrage because the Sellers have taken too long to load the vessel, they will wish to make the Sellers responsible for indemnifying them in respect of that demurrage liability. Ideally the Buyers will wish to have terms in the sale contract which are identical (or at least similar) to the terms of the charterparty in respect of that laytime and demurrage. That is what Bunge as the Buyers have effectively achieved because the typed confirmation note expressly says that, as between them and the Sellers:-
“Laytime start counting at 8.00 a.m. the next working day if N.O.R is validly tendered during official working hours or between 8.00 a.m. and 5.00 p.m. local time from Monday to Friday whichever applicable. …. All other terms and conditions as per relevant C/P.”
The express reference here to the tender of a valid Notice of Readiness does mean that the laytime allowed by the charterparty will not, as between Buyers and Sellers, start before such a notice is given and will start at 8.00 a.m. on the following day once it is given. For this purpose the rules about the validity of a notice of readiness have been expressly incorporated into the contract so that the Sellers will not be liable to the Buyers for any demurrage incurred unless a Notice of Readiness has actually been tendered and validly tendered. But it does not to my mind follow that, merely because the technical rules relating to Notices of Readiness have been incorporated into the sale contract for the purpose of calculating laytime and demurrage, those technical rules have been incorporated for all purposes by the use of the phrase “in readiness to load” in the printed form of GAFTA 49.
Mr Owen submitted that if the printed form did not make it clear that a valid Notice of Readiness had to be served (or at least, could be served) by the shipowners on the charterers within the delivery period, it had left the matter open by the use of the phrase “in readiness to load” and that the typed confirmation note made the matter clear by its use of the concept of a formal N.O.R. in the laytime provisions of the sale contract. But, in my view, the true position is precisely the opposite. By making clear that a valid N.O.R. is required to operate the laytime and demurrage provisions of the contract, the parties are by implication saying that a valid N.O.R. is not required for other purposes (e.g. for determining whether the vessel has arrived during the period of delivery). All that has to happen within the delivery period is that the vessel must be presented in readiness to load at some time between 00.01 hours on 9th and 24.00 hours on 22nd October. The fact that the holds may have needed some cleaning on arrival does not mean that the Sellers can throw up the sale contract on the basis that no vessel has arrived during the period fixed for delivery.
For my part I am satisfied that the legal position is as I have set it out, whether one looks only at the printed form No. 49 of GAFTA or that form in conjunction with the Confirmation Note. I would be troubled if it were not the correct legal position in the light of the Board of Appeal’s assessment of what they have called “the fundamental commercial dynamic in this shipment sale”. As business men the Board is in a much better position to assess that “dynamic” than this court. But it is obviously correct that if the Buyers assumed the risk of loading the cargo into unclean holds the state of the holds was not a matter in which the Sellers had any real legitimate interest. Mr Owen sought to say that the Sellers might be exposed to claims in tort from third parties or, alternatively that their commercial reputation might be at risk but it is difficult to see that either of those situations could in practice arise, particularly when it is common form in sales of this kind to have a clause saying that Quality and Condition are to be final as per certificates issued at loading port by a GAFTA approved surveyor. If the state of cleanliness of the holds were to be a legitimate concern of the Sellers, it would probably be necessary to have some provision entitling the Sellers to inspect the holds in addition to whatever rights the Buyers might have under the charter but no such provision appears in this contract. In my view there is no need for it.
Lastly Mr Owen relied on a dictum of Lord Ackner in Compagnie Commerciale Sucres et Denrees v Czarnikow Ltd (The Naxos) [1990] 1 WLR 1337 to the effect that an FOB Seller has to have cargo available to load without delay “as soon as the vessel is ready to load the cargo in question” (see 1345 G). But Lord Ackner was there encapsulating the sellers’ obligation to make delivery not the buyers’ obligation in relation to the degree to which the vessel must be ready to load. His use of the phrase “ready to load” does not, to my mind, intend to import the requirement that an N.O.R. has been or can be served any more than the phrase in “readiness to load” imports such a requirement in the printed GAFTA form 49. Lord Ackner was not considering the point that has arisen in this case.
For these reasons I agree with the judgment of David Steel J and would dismiss this appeal.
Lord Justice Wilson:
I agree with both judgments.
Lord Justice Toulson:
I also agree.
David Steel J gave permission to appeal because GAFTA 49 is a form in common use and its construction is a matter of general interest for traders in the grain market.
It is well established that an FOB buyer is obliged to give instructions for the shipment of the goods with which it is possible and lawful for the seller to comply.
I agree with the GAFTA Board of Appeal and with the judge that the phrase in GAFTA 49 “Provided that the vessel is presented at the loading port in readiness to load within the delivery period” requires no more than that the vessel should be ready in the sense of it being lawful and possible for the loading to take place – which I take to mean possible in a normal fashion, ie without abnormal hindrance. The vessel might be on voyage charter, time charter or for that matter in the buyer’s ownership, but that does not affect the meaning of the words in question.
I have begun with GAFTA 49 rather than the wording of the contract confirmation because it is the standard form which is of general interest. But the question arises in the present case whether the language of the “Shipping Terms” in the contract confirmation had the effect that the seller’s obligation to load was conditional on the buyer giving a Notice of Readiness conforming with the requirements of a Notice of Readiness under the charterparty. The contract of sale did not say so, and I do not consider that it is necessary to construe it as if it did in order for it to make sense. As the Board of Appeal observed, it was not on the face of things a matter for concern on the part of the seller whether the holds were clean, when the weight, quality and condition were to be final at the load port as per certificates issued by a GAFTA approved surveyor to be chosen by the seller.
I agree with Longmore LJ (para 15) that it does not follow that, because the provisions of the charterparty with the associated technical rules relating to Notices of Readiness have been incorporated into the sale contract for the purpose of calculating laytime, demurrage or despatch, the buyer could not contractually require the seller to begin loading when the vessel was ready to load within the meaning of GAFTA 49.
As the Board of Appeal said, the dispute before the Board was not one for demurrage, but was a simple claim under the contract for failure to load by the shipment date. I agree with Longmore LJ that under the terms of the contract the seller would not be liable for demurrage unless a Notice of Readiness complying with the requirements of a Notice of Readiness under the charterparty had been validly tendered, but that is a separate matter. I have considered what would be the position if, conversely, the seller loaded at a rate which would have prima facie entitled it to claim despatch. Would it then be open to the buyer to deny the claim on the ground that there had been no valid Notice of Readiness, even though it had called on the seller to load, and is this therefore a reason for accepting the seller’s case on the construction of the sale contract? The point was not advanced in argument, but my answer to the first part of that question (as at present advised) would be no and my answer to the second part is no. I would not consider it to be open to the buyer both to assert that the vessel was ready for loading but also to deny that an effective notice had been served for the purpose of entitling the sellers to claim despatch, because that cannot have been the parties’ intention; and I do not see this point as providing a good argument for regarding the contract as limiting the buyer’s right to require the loading of the vessel when the operation was legal and possible.
For those reasons and those given by Longmore LJ, I agree that the appeal should be dismissed.
PT Putrabali Adyamulia v Société Est Epices
[2003] EWHC 3089
Havelock Allan QC
The claim in both arbitrations was a claim by the sellers for the price of the goods or for damages for the buyers’ failure to pay the price. The arbitrators were unable to agree and the umpire made awards upholding the claim and directing that the buyers should settle the price against presentation of the shipping documents. The umpire’s awards were published on 30th October 2000. The buyers appealed, and the Board of Appeal reversed the umpire’s decision in both cases. The Board expressed its conclusion in both appeal awards in the following terms :
“4. FINDINGS
Under a C&F contract Buyers can only accept liability when the goods are loaded on board the ship. The contract called for shipment without mention of any specific origin. The Shipment and Classification clause in IGPA contract no. 5 states that:
Clause 6
“shipment must be by a first class ship(s) classed not lower than 100 A1 in the Lloyd’s Register or equivalent classification in any register which is a member of the International Association of Classification Societies”
The declaration was made in advance of the goods being loaded onto the ocean vessel giving the name of an unpowered barge, contrary to the terms of the contract. The declaration was thus defective. Buyers were entitled to object to the declaration within 3 days of tender, but were unable to do so, as they were unaware that the declaration was flawed. Buyers could not have objected to the declaration until they knew of the ship’s classification. …
THE BOARD OF APPEAL HEREBY OVERTURNS THE ARBITRATION AWARD … AND FINDS THAT the Buyers were not in breach of contract for non-payment.”
Early in May 2001 the sellers issued applications for permission to appeal against the awards. For some reason the applications were not heard until 4th February 2002. They were heard together on that date by Tomlinson J. In the intervening period the Commercial Court had heard and determined another appeal against an award of the IGPA Board of Appeal, which concerned two other consignments of pepper on board INTAN 6. In P.T. Putrabali v Fratelli de Lorenzi SNC (15/10/01, unreported) Moore-Bick J. had allowed an appeal by the sellers against an award in materially identical terms to the subject awards. The facts were the same, save that the goods had been sold C&F Trieste. The decision in that case was no doubt a powerful factor in persuading Tomlinson J. to grant permission to appeal. He found that in the present cases the statutory criteria were met, but added the following rider to his Order granting permission to appeal:
“Both sides, to a greater or lesser extent, appear to wish to rely on facts not found by the Board of Appeal. That may or may not prove necessary or appropriate, but it might be prudent to consider to what extent it is possible to agree any further facts over and above those expressly found by the Board, particularly where such can be proved or deduced from documents and/or are not controversial. I am not suggesting that an order under section 70(4) requiring further reasons will inevitably be necessary before the Court can properly consider the appeal but in the light of full argument of the issues such an order is an obvious possibility and I am merely concerned to try to avoid costs and delay if that is at all possible.”
In the case of SEE, Tomlinson J. also said: “Should the Counterclaim become a live issue it seems likely that a remission under section 69(7) is inevitable”.
These observations reflected the fact that both the sellers and the buyers appreciated that the IGPA Board had not made the basis of its conclusion as explicit as it might have done. The Board had not stated expressly why shipment on a vessel which was an unpowered barge was contrary to the terms of the contract or why the naming of that vessel in the declaration of shipment rendered the declaration ineffective. The parties had filed a number of statements with the Court which addressed the background to the dispute. In particular the buyers had exhibited to their statements copies of the written submissions and documentary evidence which had been placed before the Board. These contained facts and matters not found in the awards. In addition the submissions made by SEE included a counterclaim not mentioned in award No. 013. I shall return to that counterclaim later.
The sellers identified two questions of law when they applied for permission to appeal. Before turning to those questions, it is convenient to set out the relevant provisions of IGPA contract no. 5. They are to be found in clauses 6, 10 and 11:
“6. SHIPMENT AND CLASSIFICATION: By first class ship(s) classed not lower than 100 A1 in the Lloyd’s Register or equivalent classification in any register which is a member of the International Association of Classification Societies. The goods of the contract description to be shipped on ships which will proceed directly or indirectly on a geographical normal commercially acceptable route from the port of shipment to the port/s of destination. “Overseas ship”; “ocean-going ship”, or similar words, shall mean a ship employed in carrying the contract goods on a sea-voyage from the port, place or country of shipment to the destination named in the contract direct or indirect with liberty to call and/or tranship at other ports. …
Where in any contract for goods sold for shipment it is expressly stipulated that shipment must be made on an ocean-going ship or ships, as defined above, a shipment shall be deemed not to have been made unless and until the contract goods are shipped on board the overseas ship. …
10. DECLARATION OF SHIPMENT: Notice giving name of ship and/or ships and/or ocean going ship/s, leading marks and other means of identification and/or bills of lading, date and numbers including container numbers where relevant shall be advised by shippers at time of shipment and by intermediate parties with due despatch. The time for making a declaration under this contract shall expire 72 hours before arrival of ship at port of discharge unless duration of voyage is less than seven days. …
A declaration or tender shall be deemed to be a good declaration or tender under a contract (but without prejudice to any question arising on points other than those concerning the declaration or tender) unless objection is made in writing by the Buyers to his Sellers concerned within three business days following the receipt of such declaration or tender, such objection to be passed on by intermediaries with due despatch. A declaration once made shall not be withdrawn, amended or replaced by another declaration or tender, except by mutual agreement.
11. LOSS OF SHIP: Should the ship or ships and the goods thereon which apply to this contract be lost, whether before or after declaration, Sellers shall tender complete set of shipping documents to Buyers as soon as fairly practicable after the loss is ascertained and Buyers shall pay cash in exchange for such documents, in order, within 14 days after presentation. …”
The questions of law raised in the arbitration claim forms are as follows:
“(1) Where a sale contract incorporates the Declaration of Shipment clause of the IGPA Form 5 … how should a seller’s compliance with this clause be determined? In particular;
(a) whether the Declaration of Shipment clause properly construed means that a notice of declaration is invalid if the notice of declaration does not specify the classification of the ship?
(b) whether a notice of declaration given in respect of shipment on board an “ocean going” and/or “unpowered” barge is a valid notice for the purposes of the Declaration of Shipment clause?
(c) whether failure by the buyers to object in writing within 3 business days following receipt of any notice of declaration made pursuant to the Declaration of Shipment clause precludes them from treating the notice of declaration as invalid?
(d) whether failure by the buyers to object in writing within 3 business days following receipt of any notice of declaration made pursuant to the Declaration of Shipment clause precludes them from treating the notice of declaration as invalid for the purposes of the Loss of Ship clause (clause 10)?
(2) Where a sale contract incorporates the Loss of Ship clause of the IGPA Form 5 … what is the meaning and the effect of the Loss of Ship clause where the ship and/or the goods are lost before or after a valid declaration by a seller?”
Mr Ashcroft, for the sellers (who appeared for the sellers in the Lorenzi case also) submits that the answer to the first question of law is “No” in the case of 1(a) and “Yes” in the case of 1(b), 1(c) and 1 (d). He says that the answer to question 2 is that the buyers are obliged to pay for the documents once they have received a declaration of shipment which is valid or deemed to be valid under clause 6, but only if the documents conform to the declaration of shipment and are otherwise in order i.e. in compliance with the terms of the contract. He relies heavily on the judgment in the Lorenzi case. Since the facts of the present appeals are indistinguishable from those in the Lorenzi case, it is worth quoting the judgment of Moore-Bick J. at some length. Having set out the relevant terms of IGPA contract no. 5 and the salient facts (namely that the goods were lost on INTAN 6 following a declaration of shipment similar to the declarations given in the present case), Moore-Bick J. recited the conclusion of the Board of Appeal. This was in exactly the same terms as the conclusion recited in paragraph 3 of this judgment. He then continued:-
“It is clear from this paragraph in the award that the Board’s decision effectively rested on two grounds: first, that the declaration itself did not comply with the contract; secondly, that the buyers were not prevented from objecting to it even though they had failed to do so within the time allowed by clause 10 because they did not know of the ship’s classification within the three day period there prescribed. The board appears therefore to have treated the sellers as being in default for failing to make a contractual declaration of shipment and no doubt that reflected the way in which the case was argued before them.
Mr Ashcroft, who has appeared on the appeal on behalf of the sellers, submitted that the Board of Appeal was wrong on both counts. As to the declaration of shipment itself, he has submitted, first, that it was not premature because the contract did not require shipment for these purposes to be shipment on an ocean going vessel.Accordingly, the sellers were entitled to give a declaration of shipment in respect of the first vessel on to which the goods were loaded. Secondly, he submitted that the declaration of shipment did not have to state the classification of the vessel and therefore to the extent that the Board proceeded on the basis that a declaration naming a vessel which was not classed in accordance with the requirements of the contract was defective, its decision was wrong.
In The Vladimir Ilich [1975] 1 Lloyd’s Rep. 322 Donaldson J. pointed out that where a contract for the sale of unascertained goods calls for a notice of appropriation the notice is a matter of contract, not of performance. In other words by giving a notice of appropriation the seller is identifying the ship on which the goods he will deliver are being or will be carried. What matters therefore is whether the notice is given in the right form at the right time. If, as in that case, the notice names a non-existent vessel the seller will find himself unable to perform his contract when the time comes, but that does not make the notice itself bad.
The declaration of shipment required by clause 10 IGPA form No. 5 is a statement of a similar kind. It is intended to identify the vessel on which the goods which the seller intends to appropriate to the contract have been shipped. It is not in itself a matter of performance.; that comes later. But it informs the buyer of the manner in which the seller intends in due course to perform and commits the seller to tender performance in that way. As such I agree with Mr Ashcroft that all that is necessary for the declaration of shipment to be effective so as to comply with the requirements of the contract is that it be given in the right form at the right time.
It follows that the fact, if it be the case, that the ship named in the declaration of shipment is not an ocean going vessel does not affect the validity of the declaration itself. But quite apart from that, the reference to “ships and/or ocean going ships” in clause 10 makes it clear that the ship identified in the declaration of shipment may or may not be an ocean going vessel. This reflects the provision in clause 6 that where it is expressly stipulated in the contract that the shipment must be made on an ocean going vessel, the shipment shall be deemed not to have been made until the goods have been shipped on an ocean going vessel. In other cases, as here, shipment on a non-ocean going vessel will satisfy the requirements of the contract.
There is nothing in clause 10 of the contract form which requires the seller to include in his declaration of shipment a statement as to the vessel’s class. The omission of any such reference cannot therefore render the declaration invalid. Moreover, the effect of the last paragraph of clause 10 is to render a declaration of shipment effective unless the buyer objects to it within the limited period provided. The clause does not make any exceptions to that and none in my view can properly be implied. Certainty in matters of this kind is of real importance because traders need to know whether notices of this kind are effective and can be relied upon. It is a consideration not confined to commodity traders. In the shipping context one of the best known examples is the Centrocon arbitration clause under which claims are deemed to be waived and absolutely barred unless made within three months of discharge. Such a clause has been held to deprive the charterer of the right to make a claim against the ship owner after the expiry of the three month period even though he may not have been aware of his right to make such a claim before the period expired.
It appears from the way in which the Board of Appeal has summarised the parties’ submissions in paragraphs 2 and 3 of its award that the buyers did not rely on any grounds in support of their refusal to pay for the documents other than the seller’s failure to make a valid declaration of shipment. Whether they could have done so or not is not a matter with which I am concerned.
For the reasons I have given I have reached the conclusion that the Board of Appeal was wrong to hold that the declaration of shipment in this case was defective and was also wrong to reach the conclusion that the buyers, having failed to make any objection within the three days provided by the contract, were nonetheless entitled to treat the declaration as flawed. In those circumstances the conclusion of the Board of Appeal cannot stand and the appeal must be allowed.”
I entirely agree with that reasoning. The contracts here contained no express stipulation that the goods should be shipped on an ocean-going ship. So, on the face of it, there was nothing in the contract to preclude the sellers from shipping the goods on INTAN 6 and giving notice of that fact under clause 6. In all other respects the declarations were regular in point of form and ought not to have been treated as invalid.
Nevertheless Mr Edey, on behalf of the buyers, says that the Board’s conclusion was right. He points out that in the Lorenzi case the buyers did not appear and were not represented on the appeal to the Commercial Court. Moore-Bick J reached his decision without the benefit of adversarial argument. Whilst Mr Edey accepts that the contract did not require that the vessel’s classification should be stated in the declaration of shipment, he submits that if INTAN 6 was not a contractual ship, no shipment took place when the goods were loaded onto her. Accordingly the declarations of shipment given in this case were premature. Even if one adopts the approach in The Vladimir Ilich, the declarations had to be correct as to form and timing. In the present case Mr Edey says that they were given too soon. Secondly, he challenges the view that the declarations should be deemed valid even where the buyers were unaware that the declarations were flawed until after the 3 day period for objections had elapsed. If all that is wrong and the declarations were valid or are to be deemed valid, Mr Edey’s final submission is that, in order for the sellers to succeed on the appeals they must show not only that the Board’s reasoning was wrong but that the Board’s conclusion was wrong also. The Board’s conclusion was that the buyers were not in breach of contract for non-payment. If the Board was wrong to arrive at that conclusion on the ground that the declarations of shipment were invalid, the conclusion is justified on an alternative ground, namely, that the buyers were entitled to reject the shipping documents because they showed that the goods had been shipped on a non-contractual ship.
The basis of all of these arguments is that the Board of Appeal has correctly found that INTAN 6 was not a contractual ship. This is not stated in terms in the awards and there was some debate as to how far a court can go in drawing inferences from express findings made in an arbitral award. I do not think that there is latitude to draw any inference which appears reasonable. After all, there may be more than one reasonable inference. The Court can only infer those matters which it is plain and obvious that the tribunal has accepted when one reads the express findings. In other words, it is only legitimate to infer matters which proceed by necessary implication from the express findings, or matters where the inference is inescapable because there is no other rational explanation to support the express findings in the award. To go any further would be speculation.
Applying that test, I think that in the present case it is a proper inference from the findings in the awards that the IGPA Board of Appeal considered that INTAN 6 was not a contractual ship. It is possible to discern two bases for that view: (1) that INTAN 6 was an unpowered barge, and (2) that her classification did not meet the requirements of clause 6. There was in fact nothing in the contracts to preclude the sellers from shipping the goods on a vessel which was unpowered and/or which was a barge. INTAN 6 was not uncontractual merely by virtue of her physical characteristics. But if her class was lower than 100 A1 in Lloyd’s Register or its equivalent, she was not a first class ship as defined in clause 6. I can see no rational explanation for the Board having recited the opening words of that clause in its findings or for having held that “the Buyers could not have objected to the declaration until they knew of the ship’s classification” unless the Board was of the second view.
Since I am prepared to infer that the Board accepted that INTAN 6 was not a first class ship, the buyers do not require the awards to be remitted for that fact to be found. This is just as well because I would not have been inclined to order a remission. True, the Court now has an express statutory power of its own motion to remit an award for further findings if it considers that the award does not set out the tribunal’s reasons in sufficient detail to enable the court properly to consider an appeal (s. 70(4)(b) of the 1996 Arbitration Act). But it would be possible to determine these appeals without knowing whether the Board considered that INTAN 6 was not a first class ship. Moreover the awards were published two years ago. It is undesirable to order a remission after such an interval of time, unless it is quite unavoidable. Here it is only the buyers who need the finding. In those circumstances they could and should have issued a precautionary cross-application under section 68(2)(h) of the 1996 Act to have the award remitted for further reasons as soon as the sellers’ applications for permission to appeal were served. It is incumbent on a party seeking to defend an appeal on grounds which may not be adequately expressed in the award to take that step. That was the view of this Court under the Arbitration Act 1979 (see Cefetra B.V. v Alfred C. Toepfer International G..m.b.H. [1994] 1 Lloyd’s Rep. 93 and Transcatalana de Commercio S.A. v Incobrasa Industrial E Commercial Brasileira S.A. [1995] 1 Lloyd’s Rep. 215), and I do not see why the practice should be any different under the 1996 Act. Although, tactically, it may be attractive for a respondent to an application for permission to appeal to adopt the stance that the award is good in its present form and therefore permission to appeal should be refused, a respondent is bound to consider whether the award is adequately expressed for his purposes in the event that permission to appeal is given. In the present case the buyers took their stand on the awards, notwithstanding the warning from Tomlinson J. as to whether the findings were adequate and notwithstanding that they had failed to persuade the sellers to agree to additional findings about the classification status of INTAN 6. They took a risk. If I had thought they needed a remission on the question of breach, I would not have granted it.
However it does not follow from the fact that INTAN 6 was not a first class ship that the declarations of shipment were defective. Mr Edey’s submission to the contrary rests on the proposition that “shipment” in clause 6 means “shipment on a contractual vessel”. For this he relies on two cases. The first is Bergerco U.S.A. v Vegoil Ltd [1984] 1 Lloyd’s Rep. 440. That case concerned a C&F sale under which, in return for the buyers agreeing an extension of shipment, it was expressly stipulated that the ship should sail direct from the port of loading to the port of discharge. In fact she deviated to other ports in the course of the voyage. By the time the buyers found out, their bank had already paid for the shipping documents. But the vessel was delayed in berthing at the discharge port and, before she berthed, the buyers rejected the goods. Hobhouse J. upheld their right to do so. He said this of the agreement that the ship should be a direct ship:
“… the term is more correctly described as a stipulation than a promise. The promise is to ship the goods. The term restricts the ways in which the seller can contractually perform that promise. It is in an all or nothing situation. Either the ship is a contractual ship, in which case the shipment discharges the promise, or the ship is non-contractual, in which case the shipment is nugatory unless and until the buyer with knowledge of the relevant facts chooses to accept it.”
Mr Edey contends that a nugatory shipment is no shipment at all and for that reason no shipment took place when the goods were loaded on INTAN 6. I cannot accept that argument. It was not necessary for the decision in the Bergerco case for Hobhouse J. to go so far as to say that shipment on a non-contractual ship was “nugatory”. It was enough for him to hold that it was not contractual. Furthermore the issue in that case was not whether the notice of appropriation was valid or whether the buyers could have rejected the documents. The issue was whether they were justified in rejecting the goods. Once it was held that the stipulation as to direct shipment was in the nature of a condition of the contract of sale, it followed that the goods could be rejected.
Mr Edey’s second authority is the decision of Lord Russell of Killowen CJ in Ashmore & Son. v C.S. Cox & Co. [1899] 1 QB 436. In that case the contract of sale provided for the goods to be shipped “from a port or ports in the Philippine Islands, by sailer or sailers, direct or indirect to London, between May 1 and July 1898, both inclusive”. On 27th October 1898 the sellers made a declaration of shipment which stated that the goods had been shipped “Per Dulwich (ss.), London. Bill of lading, dated Manila, 15/9/98”. It was held to be a bad declaration. One ground of the decision was that shipment by a sailer rather than by a steamship was a condition precedent. So a declaration of shipment on a steamship was not contractual. That conclusion can readily be supported by the fact that the declaration expressly identified the Dulwich as being a steamship rather than a sailing ship. In consequence the declaration was bad in form as well as in substance. But it does not appear from the judgment of Lord Russell that he attached any particular significance to the fact that the acronym “(ss.)” had been included in the declaration of shipment. Nor does it appear from the brief summary of the arguments that this point was focused upon. Accordingly Mr Edey cites the case as authority for the proposition that a notice of appropriation or a declaration of shipment which on its face complies with the requirements of the contract is nevertheless liable to be rejected if the underlying facts reveal that the shipment in question is not contractual. I disagree. Since the declaration of shipment in the Ashmore case did not in fact comply with the requirements of the contract, and it was not argued by counsel that it did, I do not think that the judgment of Lord Russell can be interpreted as supporting so wide a proposition. If it were authority for such a proposition, it would be inconsistent with the approach of Donaldson J. in The Vladimir Ilich. Although Ashmore v Cox was not cited in The Vladimir Ilich, the judgment of Donaldson J. has stood unchallenged for nearly 30 years as providing the correct test of the validity of a notice of appropriation under a CIF contract. I would therefore confine the ratio decidendi of Ashmore v Cox to the narrower ground, which is that the declaration of shipment in that case was bad because it expressly identified the Dulwich as being a steamship rather than a sailer. This is consonant with the modern view that the validity of a notice of appropriation is to be judged by its form and timing and not by the substance of the performance which it purports to represent.
I can also see no justification for distinguishing The Vladimir Ilich from the present cases on the basis (as Mr Edey also argued) that the sale in that case was a sale on CIF terms whilst the sales here were on C&F terms. In my judgment the importance of certainty dictates that the validity of a notice of appropriation or a declaration shipment should be assessed on the same basis, whether it is the seller or the buyer who is insuring the goods.
I therefore reject Mr Edey’s submission that “shipment” in clause 6 of IGPA contract No. 5 means “shipment on a contractual vessel”. The word “shipment” in clause 6 is not a term of art. It simply means “loading on board a vessel”. A declaration of shipment which states that the goods have been shipped on board a particular vessel is a validdeclaration if it does not indicate by its express terms that either, the vessel by reason of her characteristics, or the voyage by reason of the manner in which it is being performed, is not contractual. It follows that the Board of Appeal was wrong to conclude in the present case that the declarations of shipment were defective. They were validdeclarations.
That being the case, it is strictly unnecessary for me to consider the “deemed validity” point. But for the reasons given by Moore-Bick J. in P.T. Putrabali v Fratelli de Lorenzi SNC, I consider that the Board was wrong here as well. The fact that the buyers may not have been aware that INTAN 6 was not a first class ship until more than 3 days had elapsed from the date of receipt of the declarations of shipment does not affect the operation of clause 10. Certainty again dictates that the clause should operate so that, in the absence of an objection to the declaration within the stipulated period for whatever reason, the seller is entitled to treat the declaration as a good declaration. The fact that the potentially harsh effect of a similar construction of the Centrocon arbitration clause may be mitigated by the granting of an extension of time under section 12 of the 1996 Act (and formerly section 27 of the 1950 Act) does not invalidate the Centrocon clause analogy. The existence of the statutory power to extend time was not a factor which persuaded the Court in either The Himmerland [1965] 2 Lloyd’s Rep. 353 or The Stephanos [1989] 1 Lloyd’s Rep. 506 that it was right to construe the Centrocon clause as barring even claims which could not have been advanced within the prescribed period. The Court arrived at that conclusion because of the overriding importance of certainty. Certainty is just as vital in the operation of clause 10 of IGPA contract no. 5. Moreover the final paragraph of clause 10 provides that a declaration, once given, cannot be amended or replaced save by mutual agreement. Thus the seller gets only one chance to make a valid declaration. The buyer can object to the declaration at any time without risk of it being alleged that, by his conduct since he received it, he is estopped from doing so (cf. Heisler v Anglo-Dal [1954] 1 WLR 1273). So it is fitting that the period for raising objections should be limited and that the limitation should be strictly applied in all circumstances.
I turn therefore to Mr Edey’s final argument, which is that if the buyers’ refusal to pay the contract price cannot be justified on the ground that the declarations of shipment were invalid, it can be justified on the ground that they were entitled to reject the documents. An immediate objection raised by Mr Ashcroft is that this point is not open to EWJ because EWJ, unlike SEE, did not file a statement in response to the application for permission to appeal which identified this ground as an alternative ground, not expressed or not fully expressed in the award, why the award should be upheld. Under the rules, such a statement must be served not later than two days before the hearing of the application for permission to appeal (CPR 62PD12.3(3)). The statement performs the function of the respondent’s notice which is still required in appeals under the Arbitration Act 1979 (see the Practice Direction at [1985] 1 WLR 959 and CPR 62.15(8)).
In Acada Chemicals Ltd v Empresa Nacional Pesquera S.A. [1994] 1 Lloyd’s Rep. 428, Colman J. emphasized the importance of adhering to the requirement for the service of a notice or statement of additional grounds. Having referred to the provision which contained that requirement in the then current edition of the rules, he said:
“The purpose of this provision is to enable a respondent to an application for leave to appeal to submit on that application that leave should be refused because the award has not been shown to be wrong, but by reason of grounds other than those expressed in the award. The requirement that the notice be served not less than two clear days before the hearing of the application is to enable the applicant to know in advance what arguments the respondent proposes to raise on the application for leave. What is quite clear is that the provision contemplates that any additional grounds must be raised on the hearing of the application for leave to appeal so that in reaching his decision on that application the Judge can look at all the arguments for and against upholding the award. For this reason the defendants’ notice of additional grounds is expressly made part of the procedure leading up to the application for leave to appeal as distinct from the procedure leading up to the hearing of the substantive appeal. For these reasons, once the application for leave to appeal has been heard and determined in favour of the applicant, it is too late for a defendant to serve a notice of further reasons. The rules include no such provision and, for the reasons I have given, it is not difficult to see why.
That being so, the attempt by the defendants in the present appeal to serve a notice of additional grounds in the period between the granting of leave to appeal and the hearing of the appeal was out of time and ineffective and there can be no question of extending the time for such service to cure the delay.”
Although there is no provision in CPR Part 62 expressly permitting an extension of time for service of a respondent’s statement of additional grounds, I do not understand Colman J. to have been suggesting that the court has no jurisdiction to grant an extension. The time limit is one created by the rules rather than by the Act and there is therefore power under Part 3 rule 5 to extend time in an appropriate case. However the decision in the Acada Chemicals case suggests that appropriate cases are likely to be rare. In this instance EWJ’s difficulties are compounded by the fact that not only have they been represented by a very experienced City firm of solicitors since shortly after the seller’s application for permission to appeal was served, but also those solicitors have served no less than four statements in response to the application and in none of them has the additional ground been raised. So far as EWJ are concerned, the additional ground was formulated for the first time in Mr Edey’s skeleton argument. This makes it very difficult indeed to be indulgent to them. It is only in the unusual circumstances of these conjoined appeals, and because I have reached the firm conclusion that the additional ground for upholding the awards is not well-founded, that I am prepared, exceptionally, to allow Mr Edey’s final argument to be advanced on behalf of EWJ as well as SEE.
In my judgment, the argument is not well-founded because I take it to be the law that, aside from cases of fraud, the buyer under a CIF or C&F sale can only reject the shipping documents in two circumstances: (1) where, by their express terms, they do not conform to the requirements of the contract in a respect which is more than minimal, and (2) where, even if they appear to conform to the requirements of the contract, they are not genuine in the sense that they contain false information about an aspect of the performance of the contract which would normally be disclosed in the documents and which is of more than minimal importance e.g. the date of shipment. (see Benjamin’s Sale of Goods, 5th ed, paras. 19-074 to 19-075 and 19-142). In general the buyer is bound to pay for documents if, on their face, they conform to the terms of the contract. Lord Diplock so held in Gill & Duffus S.A. v Berger & Co. Inc. [1984] AC 382.
In the present case, the only dispute as to the conformity of the documents with the contracts is that INTAN 6 was named in the bills of lading as the first carrying vessel.According to Mr Edey that is sufficient to establish that the documents were not contractual on their face. He submits that any statement in the documents, which, if true, means that the goods were not contractually shipped, is a statement which renders the documents liable to be rejected. I am confident that that is not the test. It is far too wide and Mr Edey was unable to cite any case in support of it. The test is whether the documents contain a statement or statements which, without further investigation, demonstrate that the contract has not been honoured in one or more respects of more than minimal importance. This must be apparent from the terms of the documents themselves, without inquiry into the physical performance of the contract. Of the four cases to which Mr Edey referred in support of his argument, two can be explained on this basis. Thus in Marshall, Knott & Barker Ltd vArcos Ltd (1932) 44 LL.L.Rep. 384 the documents were not contractual because the bills of lading expressly incorporated the charterparty and the terms of the charterparty qualified the delivery obligation in the contract of sale. The sale was a CIF sale for shipment to “Grimsby, Alexandra Dock, buyers’ quay”. But the charterparty did not oblige the vessel to reach the buyers’ quay. She was obliged only to deliver at that quay “or as near thereunto as she may safely get”. In Soon Hua Seng Co. Ltd. v Glencore Grain Ltd. [1996] 1 Lloyd’s Rep. 398, the sale was a sale C & F liner terms Rotterdam. That meant that the goods were to be landed at Rotterdam, free of expense to the buyers. The bills of lading did not comply with the contract because they expressly incorporated the voyage charterparty. The charterparty was for the carriage of the cargo on FIOT terms.
Mr Edey’s other two cases are Bergerco U.S.A. v Vegoil Ltd (supra) and T.W. Ranson Ltd v Manufacture d’Engrais et de Produits Industriels, Antwerp (1922) 13 Ll.L.Rep. 205. In Bergerco v Vegoil the question of entitlement to reject the documents did not arise because the buyers’ bank had already paid for the documents by the time it was discovered that the vessel had not sailed direct to the port of discharge. The case is therefore no authority for Mr Edey’s argument. If, however, the point had arisen, Hobhouse J. would in my view have been bound to hold that the buyers were wrong to reject the documents unless the documents themselves revealed that the vessel was going to deviate and/or had deviated. The decision in Ranson appears to rest on a different point. In that case the buyers’ claim against the sellers was for damage to part of a cargo which had been sold on CIF terms. The goods had been shipped on board a sailing ship rather than a steamer. The law report does not contain details of the umpire’s award and does not clarify whether this fact was apparent from the face of the documents. However, in the course of his judgment, Greer J. said this:
“In my judgment, sufficient facts are found by the umpire to justify the conclusion – indeed, to force the conclusion – that a bill of lading on a sailing ship was not the usual bill of lading in this trade, and that therefore a bill of lading making a contract for the carriage of goods in a sailing vessel was not a due performance of this contract, and might have been rejected. But it has been accepted, and the buyers are entitled to the alternative remedy for breach of the contract in sending goods upon a sailing ship.”
If it was apparent from the face of the bill of lading that the vessel was a sailing ship, the view that the buyers were entitled to reject the documents would be entirely consistent with the principles I have already expressed. But if it was not apparent, Greer J.’s observation may still be supported on the broader ground that it was a usage of the particular trade that shipment should be made by steamer. There is a strong case for saying that, in the absence of express agreement, a bill of lading which is not usual or customary in the trade, is not a valid tender under a CIF or C&F sale, whether or not the defect is clear from the document itself. Either way, I do not consider that the decision in Ranson is of much assistance to the buyers in the present case.
The result is that the conclusion of the Board of Appeal is not supported by the findings in the awards. It cannot stand and the awards must be set aside. The formal answers to the first question of law are: (1)(a) No, (1)(b) Yes, (1)(c) Yes and (1)(d) Yes. As for the second question, it was ultimately common ground that under the Loss of Ship clause (clause 11) of IGPA contract No. 5, the giving of a valid declaration of shipment, or one deemed valid, was a condition precedent to any right of the sellers to be paid for the documents. Once a valid declaration has been given, clause 11 confers on the sellers a right to be paid on tender of a complete set of shipping documents, provided the documents are “in order”.
In the Lorenzi case, Moore-Bick J. accepted that the logical consequence of this conclusion was that the sellers were entitled to an order that they be paid the purchase price. But that is not the consequence here. I have been told of the steps which the sellers took following publication of the umpire’s awards. Although the umpire awarded that the buyers should pay the price of the goods against re-presentation of the documents, the sellers began proceedings in Singapore in January 2001 against the owners of INTAN 6, the owners of the tug which was towing her when she sank and the contractual carriers under the bills of lading. In November 2002, which was after Tomlinson J. had granted permission to appeal, the sellers compromised the Singapore action. They compromised the claims against all of the defendants, including the contractual carriers under the bills. I am told that the amount paid to the sellers as a term of the compromise was roughly equivalent to 15% of the value of their claims. As part of the compromise, the sellers warranted that they were the owners of the cargo and/or lawful holders of the bills of lading at the time it was lost.
When documents presented under a CIF or C&F sale are rejected by the buyer, the seller has a choice. He can maintain the presentation of the documents, and if the buyer persists in refusing to pay for them, her can sue for the price. If the goods have reached their destination in the interim, the seller can land and store them, ostensibly for the buyers’ account, and claim the costs incurred in doing so. Alternatively the seller can treat the rejection of the documents as bringing the contract to an end. He can then deal with the documents and the goods as he pleases, if necessary by selling them elsewhere. In that event his remedy against the buyer lies in an action for damages for failure to pay the price. The measure of the damages will usually be represented by the difference between the price payable and any value which the seller has been able to realise by his dealing with the documents or the goods. In the present case it is clear to me that the sellers elected to adopt the second course when they commenced the action in Singapore or, at latest, when they compromised that action. Accordingly, I do not think that it is now open to them to claim the price of the goods. The bills of lading which they have to offer in return for the price are bills which no longer confer any contractual rights against the carrier. The sellers can now only claim damages for the buyers’ wrongful refusal to pay the price. Those damages must be assessed by the Board of Appeal and the awards will have to be remitted to the Board for that purpose. In making its assessment the Board will need evidence of the terms of the settlement of the Singapore action and will have to consider what, if any, credit should be given for the sum recovered under that settlement.
However there is an issue as to whether the scope of the remission should not be wider. If, as I have held, the Board concluded that INTAN 6 was not a contractual ship, the buyers are entitled to claim damages for that fact. SEE advanced a counterclaim in the arbitration on this basis. The claim was in one sense purely defensive in that the quantum of the loss counterclaimed was the amount of the contract price, plus the IGPA’s fees of the arbitration. But an additional sum of £6,000 was counterclaimed for legal costs. The Board did not deal with the counterclaim no doubt because it considered that it did not arise in view of its conclusion that SEE were not in breach for non-payment. But, technically, the counterclaim for legal costs did arise, and, on the conclusion I have reached as to the validity of the declaration of shipment and of the documents tendered, the whole counterclaim requires to be considered afresh. It is suggested that it gives rise to a substantial issue of causation. Did the breach in shipping the goods on a vessel which was not a first class ship cause the loss of the goods? I am in no doubt that this issue, indeed the counterclaim as a whole, is a matter which the Board should reconsider on the remission of award No. 013.
Yet there is a further question which potentially affects the remission of both awards. It is whether both buyers have a defence to the claim for the price because, even if they were obliged to pay for the documents, they could have rejected the goods. The right to reject the goods would depend on whether the provision in clause 6 of IGPA contract No. 5 that shipment should be made by first class ships has the status of a condition or an innominate term and, if the latter, whether the breach on this occasion was of such gravity as to justify rejection (see Bergerco v Vegoil at 444-445). Mr Edey concedes that these are matters on which findings are required from the Board of Appeal. Even if the status of the term is ultimately a question of law, the view of a trade tribunal on that question is likely to be of value. Ought the court to allow this question to be argued on the remission? Mr Ashcroft says that the court should be slow to remit an award for a point to be argued which was not argued before. He makes the usual complaint about second bites at cherries and objects to any course which would impugn the finality of arbitration. In general, his approach is correct. But each case must depend on the particular facts. In these arbitrations the broad submission made by both buyers, at first instance and on appeal, was that they were not liable to pay the price because the goods were not shipped on a first class ship. This proposition was capable of being translated into a number of legal arguments: but neither of the buyers explored its full implications in their written submissions to the Board of Appeal, whilst the Board, having upheld the challenge to the validity of the declarations of shipment, did not feel the need to do so. The consequence is that the tribunal has not got to grips with the critical issues which arise in both appeals. In the circumstances it would in my judgment be artificial and unjust not to order that on the remission which is now inevitable, the Board of Appeal should permit the buyers to raise any arguments which may be available to them as to why they are not liable to pay damages for the non-payment of the price.
The awards will therefore be set aside and the appeals will be remitted to the Board of Appeal with a direction that the Board shall assess the measure of the damages due from the buyers to the sellers for the non-payment of the price, and shall determine SEE’s counterclaim, after giving the parties an opportunity to present such further arguments as may be relevant in the light of this judgment.
Fleming & Wendeln GmbH & Co v Sanofi Sa/ag
[2003] EWHC 561 [2003] 2 Lloyd’s Rep 473, [2003] EWHC 561 (Comm), [2003] 2 LLR 473 Cresswell J
Analysis and Conclusions
The remedies of the buyer by way of damages for non-delivery are considered in Benjamin’s Sale of Goods, 6th edition, at paragraph 17-001 and following. As to the time for taking the market price, paragraph 17-007 (relevant time for the market price) refers to section 51(3) of the Sale of Goods Act 1979. Section 51(3) specifies the time at which the market price is to be taken in assessing damages as “the time or times when [the goods] ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver.” The seller’s anticipatory repudiation is considered at paragraph 17-012 and following. Paragraph 17-015 states:-
“Seller’s anticipatory repudiation not accepted. If the buyer…does not accept the seller’s anticipatory repudiation, it is treated as a “nullity” and the contract continues to bind both parties: the buyer will then await the date fixed for delivery, and the seller will commit a breach of contract only if he then fails to deliver. …The “duty” on the buyer to mitigate his loss by taking reasonable steps arises only upon the seller’s breach: thus, in the case of an unaccepted anticipatory repudiation by the seller, the buyer is bound to seek substitute goods in an available market immediately when the breach actually occurs, but not earlier, and his damages are assessed with reference to the market price at the date of the breach.”
In The Selda [1998] 1 Lloyd’s Rep. 416 Clarke J said (at page 420) in relation to clause 28(c) of GAFTA form 100 (in identical terms to clause 28(c) in GAFTA No. 78 (effective 1.1.95)):-
“It lays down a scheme, which is in some respects different from the position at common law, but which is primarily concerned with the case in which the claim is put as the difference between the contract price and the default price or market price…”.
It is of course open to the parties to a contract to make express provision as to what is to happen in the event of a default in terms other than those which would apply (in the absence of express agreement) under ordinary common law principles.
I turn to consider some relevant authorities.
In Phoebus D. Kyprianou Coy v Wm. H. Pim Jnr. & Co Ltd [1977] 2 Lloyd’s Rep. 570 (judgment delivered on 30.6.77) Kerr J considered GAFTA 79A clause 17 (as set out in part at page 572 of the judgment). He held that the sellers were entitled to damages in the ordinary way i.e. based on the difference between the contract prices and the appropriate market price because clause 17(a) contained no option in the sense of an irrevocable election but merely a choice of remedies. While the buyers were in breach before the end of each shipment period they were not entitled to have damages assessed by reference to such earlier dates because (i) the breaches were not breaches of condition and even if they were the sellers were entitled to treat the contract as subsisting; and (ii) the sellers were entitled to wait until the end of each shipment period when the buyers were certainly and irretrievably in default and have damages assessed by reference to that date.
At page 579 Kerr J said:-
“This brings me to the next issue: what are the appropriate dates for ascertaining the market prices? The Board of Appeal has in each case taken the last day of the respective shipment periods, Mar. 15, Mar. 31 and Apr. 15. I have already mentioned the market prices which they found for those dates, on which they based their awards of damages. They ask that the case be remitted to them in the event of the Court being of the opinion that these are not the right dates.
The buyers challenge these dates on two grounds. First, they say that they were under an obligation to spread the shipments evenly over the shipment periods. They contend that this became a requirement of all the contracts by reason of the sellers’ telex of Mar. 12, which I have quoted. But this is clearly untenable, since this telex could not vary the contracts unilaterally. They then point out, correctly, that this was an express term of the third and largest contract, and that this also provided that there was to be a minimum of five days’ spread between each shipment. They also rely on a finding that at Lowestoft no ships larger than 1900 tons could load, that it would take three days to load each of them, and that only one ship could be loaded at any time. The buyers accordingly contend that, at any rate in relation to the third contract, they were already in default on dates earlier than the final shipment date, and that the damages should be assessed on the basis of such earlier defaults by deciding by what dates the buyers should reasonably have lifted what quantities.
In my judgment this argument is wholly fallacious, quite apart from the fact that it comes ill from the party in default. Under the third contract the buyers were no doubt already in breach substantially before the end of the shipment period by having failed to lift parts of the contract quantity as required. But it by no means follows that the buyers are entitled to have the damages assessed by reference to such earlier dates, whatever these might be and whatever might be considered reasonable part shipments for each of them. There are at least two reasons, apart from the difficulty of computing the damages with any precision on this basis. First, I do not think that these breaches were breaches of condition. Even if they were, it was open to the sellers to keep the contract alive, as they did. Secondly, the argument fails to take account of the reasoning, which underlies the conventional measure of damages for non-acceptance or non-delivery, i.e. the difference between the contract and market prices. This reasoning is that on a certain date there is a clear default, with the result that the innocent party can resort to the market to sell the unaccepted goods or to buy the undelivered goods. It is on this date that the market price becomes the appropriate basis for the damages to be awarded. But the date of default must be certain. In the present case, however, the sellers could never safely resort to the market until the end of the respective shipment periods. They could not safely treat the buyers as having repudiated their obligations before these dates. There were no fixed quantities to be lifted on or before fixed dates. It would have been tantamount to buying litigation if the sellers had taken it upon themselves, in effect, to seek to prescribe to the buyers the quantities, which they should have lifted by certain dates. The sellers were certainly under no obligation to take this risk. They were entitled to wait until the end of the shipment period, when the buyers were certainly and irretrievably in default, and to have the damages assessed on that date. I do not accept the buyers’ submission that this approach conflicts with ss. 50(3) and 51(3) of the Sale of Goods Act, 1893. These provide that in the case of an available market the measure of damages is prima facie to be ascertained by the difference between the contract price and the market price “at the time or times when the goods ought to have been accepted” or “ought to have been delivered”. If the contract is properly kept alive by the innocent party until the end of the period allowed for delivery or acceptance, as in the present case, then it does no violence to these words to apply them at the end of the period.”
The buyers appealed to the Court of Appeal, but their appeal was summarily dismissed (see Lusograin v Bunge [1986] 2 Lloyd’s Rep. 654 at 660).
The decision of Mr Justice Kerr at first instance in Kyprianou v Pim was drawn to the attention of the Court of Appeal in Toprak v Finagrain.
In Toprak v Finagrain supra the sellers sold to the buyers a quantity of wheat C & F named Turkish ports. Shipment was to start on 10.5.75 and to be continued through June and July in various shipments. The contract incorporated the provisions of GAFTA 27 and 30 and provided that the letter of credit should be opened by 31.3.75 at latest. The import licence was to be guaranteed by the buyer. Clause 28 of GAFTA 27 is set out below. There was no evidence that the buyers had taken any steps to obtain any foreign currency until 12.3.75, when the buyers applied for such allocation to the Ministry of Finance. On 26.3.75 the buyers wrote to the Ministry of Finance explaining the need to import the quantities contracted for. In early April 1975 inquiries about the absence of the letter of credit were made of the buyers, and the sellers were assured that the letter of credit would be opened shortly. On 11.4.75 the Ministry of Finance instructed the buyers to arrange for the importation of a smaller quantity at the current price on FOB terms as the price of wheat had fallen heavily since the contract date of 1.11.74. The sellers rejected the buyers’ request and on 23.4.75 sent a telex to the buyers stating “…the letter of credit must be opened immediately. We are unable to consider the transformation from C & F to FOB…” No letter of credit was opened and on 30.4.75 the sellers sent the buyers a telex message “As… no letter of credit has been opened…we hereby treat you in default under the contract…”.
The dispute was referred to arbitration. The buyers argued that they had a defence to the claim since at all times in 1974 and 1975 it would have been illegal for the buyers to have procured the opening of a letter of credit to pay a foreign seller of wheat in foreign currency without first obtaining exchange control permission from the Ministry of Finance. The arbitrators found in favour of the sellers. The buyers appealed to the Board of Appeal. The Board found in favour of the sellers but stated their award in the form of a special case.
Robert Goff J delivered judgment on 4.11.77. At page 108 he set out clause 28 (the default clause) in GAFTA form 27 which was as follows:-
“In Default of fulfilment of contract by either party, the other, at his discretion, shall, after giving notice in writing, have the right to sell or purchase, as the case may be, against the defaulter, who shall make good the loss, if any, on such sale or purchase. If the party liable to pay shall be dissatisfied with the price of such sale or purchase, or if the above right is not exercised, the damages, if any, payable by the party in default shall be settled by arbitration and such damages in the absence of special circumstances shall not exceed the difference between the contract price and the market price (or its equivalent as found by the Arbitrators or the Court of Appeal) on the day of default, and nothing contained in or implied under this contract shall entitle the Buyer to any damages in respect of any loss of profit suffered or liability incurred by him upon any subcontract. Where, however, any special circumstances, in the opinion of the Arbitrators or Court of Appeal, exist, the latter may, in their or its sole and absolute discretion, award to the Buyer such sum in respect of loss of profit so suffered or liability so incurred as they or it shall think fit. In the event of default in shipment or delivery, any damages shall be computed upon the mean contract quantity.”
Robert Goff J continued at page 108:-
“The clause provides, therefore, that (in the absence of special circumstances) the damages shall not exceed the difference between the contract price and the market price “on the day of default”. The buyers’ submission was that these words meant, quite simply, the day on which they failed to perform the obligation which entitled the sellers to determine the contract, and that was, of course, Mar. 31. In answer to this simple submission, the sellers advanced a number of arguments. They submitted first that, having regard to the opening words of the clause, “In Default of fulfilment” here must mean a default in fulfilment of the contract; and that there is no default in fulfilment of the contract until there is an acceptance of the repudiation, because until that point of time the contract is still open. I cannot accept that argument; the words “in default of fulfilment of contract” mean precisely what they say – a failure to carry out the contract on the due date. The sellers then submitted that there were two breaches by the buyers in this case – first, on Mar. 31, a failure to open the letter of credit, and second, on Apr. 30, an anticipatory (and possibly an actual) breach of the buyers’ obligation to secure an import licence; and that they could treat the buyers as in default on the second ground, in which event the date of default was Apr. 30. I do not however think that it is open to the sellers to pick and choose in this way for present purposes. In many cases, one default by a contracting party is followed inevitably by a number of others; and the innocent party cannot, I think, simply obtain the benefit of a later date by pointing to a later default which has occurred before the acceptance of the repudiation.
In truth, the clause is in this respect perfectly clear, and means just what the buyers submit it does mean. Of course, the subsequent actions of the parties may have some effect upon their respective rights. If, for example, there is an agreed postponement of the contractual date for performance, then there may be a variation of the contract resulting in a new date for performance, in which event there can be no default until that date has passed; a similar result may be achieved if, though there is no variation to the contract, there has been a representation by the innocent party that he will not exercise his strict legal right to performance on the contractual date, and the circumstances are such that it would be inequitable for him thereafter to treat that date as the date of default for the purposes of assessing damages under the clause. But here one has to be careful. If the contractual date for performance comes and goes, the innocent party may not immediately treat the other party as in default. He has an election whether to do so or not; he may, for a variety of reasons, decide to wait for a time, and while he waits the contract remains open to performance. But the mere fact that he waits, and does not treat the other party as in default until a later date, does not mean that, for the purposes of the clause, the “date of default” is changed; that date remains the day when the time for performance came and went without due performance.
There is however another possibility which I must refer to. After the date of default has occurred, the party in default may request the innocent party to stay his hand, and in response to that request the innocent party, possibly convinced by some assurance from the party in default that performance may yet take place, may wait for a time; then he may, losing patience, subsequently treat the contract as at an end. Between the two dates – the date of default and the date of termination of the contract – the market may have moved, and may have moved adversely to the innocent party. In such circumstances, where the contract contains a clause such as the present, is the innocent party only entitled to damages on the adverse basis of the market price of the date of default? The answer, I think, is no. In Benjamin on Sale of Goods, 13th ed., par. 640 at p. 450 the law is stated as follows:
Where the time fixed for acceptance has been postponed at the buyer’s request and he ultimately fails to accept in the extended period, the point in time at which breach takes place is deferred and the damages will be calculated at the market price of the last day to which the contract was extended and the date was fixed, or the date when the plaintiff refused to grant further indulgence, or at a reasonable period after his last grant of indulgence.
See also par. 561 at p. 406 of the same edition, and the authorities there cited.
In such circumstances, there is no variation of the terms of the contract, nor is there any waiver or estoppel; but the innocent party has forborne to act at the request of the party in default, and it is a general principle of English law that, where one party acts at the request of another party, then, in the absence of circumstances indicating a contrary intention, the party who so acted is entitled to be indemnified by the party who requested him so to act against the consequences of so doing. It is for this reason that the innocent party, in the example posed by Benjamin, is entitled to recover any further damages flowing from delay in treating the party in default. (I add in parenthesis that I doubt whether Benjamin is right in saying that the delay in treating a party as in default, as a result of his request, has the effect of postponing the date of the breach; but that is immaterial for the purposes of the present case.)
The sellers sought to invoke this principle in the present case. It was submitted that they had indeed postponed at the request of the buyers the date when they had treated the buyers as in default and accordingly, the market having weakened in the meanwhile, they were entitled to have the damages assessed on the basis of the market on Apr. 30. Now before they can invoke this principle, the sellers have to show that they acted at the request of the buyers. In the present case, the relevant facts as found by the Board of Appeal are to be found in pars. 30-35 (inclusive), and in par. 51, of the special case. I read the finding of fact in par. 51 as meaning that the sellers treated the contract as remaining open for performance because of the assurances given by the buyers that the letter of credit would shortly be opened. The sellers submitted that, in the circumstances of the present case, such assurances involved a request by the buyers to the sellers to stay their hand and not treat them as in default; this submission I accept, because that was clearly the purpose of the assurances. True, the sellers may have thought it to be in their interest to stay their hand, but the fact remains that, on the finding in par. 51 of the special case, they did in fact respond to the buyers’ implied request to do so. It follows, in my judgment, that, having regard to the findings of fact, the sellers are entitled to have the damages fixed by reference to the market price on the date until which, in the words of Benjamin, they granted indulgence to the buyers, viz. Apr. 30, 1975.
The buyers appealed to the Court of Appeal (the hearing took place in January 1979). The appeal was dismissed. At page 115 Lord Denning MR said:-
“The first point is this. What is the day of default? The letter of credit had to be issued by Mar. 31, 1975. The Board of Appeal seem to me to have taken that date as being the day of default on which the damages were to be assessed. But in truth the parties, by their conduct, led each other to believe that the time would be extended during which the buyers could provide the letters of credit: and the sellers would supply the goods accordingly. There are two or three sentences in the award which are important in this regard. Paragraph 31 says:
In early April 1975 enquiries about the absence of the letter of credit were made of the Buyers by and through the Sellers’ representatives in Turkey, and assurances were given that the letter of credit would shortly be opened.
In other words, the state enterprise wanted the letter of credit to go forward. The buyers also sent a telex to the sellers on Apr. 18, 1975, in which they said:
. . . We await the decision of the concerned authorities for opening a letter of credit as per our agreement dated November 1st 1974. We are closely following this matter and will later advise you of the result.
In view of that the sellers were holding their hand. They asked for the letter of credit to be opened immediately: but, as it did not come, they sent a telex on Apr. 30 in which they said:
. . . no letter of credit has been opened kindly note that we hereby treat you as in default under the contract between us dated 1 Nov. 74 stop we hold you responsible.
Then, in par. 51, the Board of Appeal said:
Between the 31st March 1975 and the 30th April 1975, because of the communications transmitted from the Buyers as aforesaid the sellers treated the contract as remaining open for performance. In particular, they took no steps to cancel the charterparty before they declared the Buyers in default on the 30th April 1975.
As I have said, the Board of Appeal took the date as Mar. 31: but it seems to me – and here I would agree with the Judge – that it was extended by the conduct of the parties. On the one hand the buyers led the sellers to believe the matter was being kept open and they were hoping to provide the letter of credit if only they could get permission. Equally the sellers were hoping to fulfil the contract. They held their hands, and did not close the contract or terminate it at that time. The Judge found that there was an implied request by the buyers to the sellers to keep the matter open. I would be quite prepared to put it that way if need be. But it seems to me that it is not necessary to go into it or into the technicalities about an implied request. There is no doubt that the conduct of the buyers led the sellers to believe that the contract was still open for performance and that they were hoping all the time to get the letter of credit issued. On that conduct on their part, it seems to me there is ample ground to infer that there was an extension of time until such time as the sellers – as they did – determined the contract.”
In Lusograin v Bunge [1986] 2 Lloyd’s Rep. 654, the buyers agreed to buy from the sellers a quantity of Argentine bread wheat FOB, delivery to take place as to 25,000 tonnes in March 1983. The March instalment was extended so as to allow shipment up to May 30. The contract incorporated the provisions of the Centro Exportadores contract, GAFTA 64 and GAFTA 125. The carrying charges clause in the Centro form and the GAFTA 64 default clause 23 are set out at pages 656 and 657 of the judgment. On 11.5.83 the buyers gave a fourth nomination. As they were only entitled to declare up to three vessels the fourth nomination was cancelled and the buyers on 13.5.83 declared themselves in default for the balance of the contractual quantity. The first tier arbitrators and on appeal the Board of Appeal of GAFTA held that in accordance with the Centro terms the date of default was May 31 1983. Staughton J held that the buyers were in breach of their antecedent obligation to give at least 15 days notice of readiness of the ship or ships to load after May 13, but not necessarily of their main obligations to provide a ship or up to three ships at the ports nominated by the sellers, arrange for the goods to be received on board and to pay for them. The carrying charges clause of the Centro terms was applicable and the date of default was the day after the last day for performance of the buyers’ main obligations, taking into account the 60 day extension. At page 661 Staughton J referred to the decisions of Robert Goff J and the Court of Appeal in Toprak v Finagrain and said:-
“There can be no doubt that the Court of Appeal endorsed the conclusion of Mr Justice Robert Goff that April 30 was the correct date and his reasons for reaching that conclusion. They did not expressly approve the passage in his judgment (which may be said to be obiter) in which he held that March 31 would have been the correct date but for the request by Toprak for forbearance. But I think that that passage must have had their implicit approval, albeit again perhaps obiter.”
At page 662 Staughton J continued:-
“The Kyprianou case was cited to the Court of Appeal, but, to judge from what Lord Denning M.R. said at p. 115, only in connection with another point. It does not appear to have been relied on in relation to the date for assessment of damages, although Mr. Justice Kerr had there held that damages should be measured at the end of the shipment period and the Court of Appeal had said that this judgment was wholly unassailable. But nobody was contending for the end of the shipment period in the Toprak case; the argument was as to whether the default clause in a GAFTA contract pointed to the last day for opening a letter of credit or whether the measurement of damages was postponed until Finagrain sent their telex treating the contract as at an end.
Clearly it would be right for me to look for guidance first in the Toprak case, since that was concerned with an express provision of the contract as to default, as this case is. But in my judgment the facts there were significantly different. Toprak were c. & f. buyers who had contracted to provide a letter of credit by a given date: that obligation was their main duty under the contract. Once they had performed it, Finagrain could ship the goods and obtain payment by tendering documents to the bank, without any assistance from the buyers. There was nothing left for Toprak to do except obtain an import licence, and it is not clear to me how an import licence would be any concern of the c. & f. sellers. So Toprak had by Mar. 31 failed to perform their main if not their only obligation under the contract. It followed that default occurred on that date.
By contrast in the present case the buyers were in breach of an antecedent obligation after May 13, but not necessarily of their main obligation. Consequently I consider myself entitled to hold that the carrying charges clause of the Centro terms provides, as to my mind it plainly does provide, that the date of default is the day after the last day for performance of the buyers’ main obligations, taking into account the 60 day extension.”
It is important to note in considering this decision that the carrying charge clause provided that the sellers might wait, if they chose, until the end of the extended period at May 31.
In Concordia Trading B.V. v Richco International Ltd [1991] 1 Lloyd’s Rep. 475, under a FOB contract the sellers sold to the buyers a quantity of Argentine soya beans. The contract incorporated the provisions of GAFTA 64 (General Contract FOB Terms for Grain in Bulk) which included clause 24 default (set out in part at page 480 of the judgment). The contract was part of a string. The sellers failed to present documents. In the event the documents were tendered to the end buyer and receiver of the cargo and were accepted and paid for on 28.9.87. On 29.9.87 the vessel had carried the goods to Odessa and discharge began. The buyers claimed damages in respect of the sellers’ default in not tendering documents, contending that the date of default was 29.9.87. The sellers argued (i) that the date of their (undisputed) default in failing to tender the documents to the buyers took place on or shortly after 5 August when the documents would normally have become available to the buyers and (ii) that on 5 August the market price of the goods (or the documents representing the goods) was substantially lower than the contract price and the buyers were only entitled to nominal damages. The dispute was referred to arbitration. The Board of Appeal accepted the buyers’ contention that the sellers’ default took place on 29 September. In their award they stated that the sellers were not in default until the day it was no longer possible for them to purchase the documents for the goods in order to fulfil the contract, which was 28 September. The basis for the award was that as the contract was silent as to the time for performance of the sellers’ obligation to tender the documents to the buyers, this was by legal implication a reasonable time, and such time continued until it became impossible for the sellers to obtain the documents. The sellers appealed, the question of law for decision being whether the Board were wrong in law in holding that the date of default was 29 September, and if so by reference to what criteria should the date of default be established? Evans J held that there was on the FOB seller who was obliged by his contract to obtain and tender the shipping documents, a duty to perform that obligation forthwith i.e. with all reasonable despatch, subject to there being no express provision or time limit to the contrary in the contract. The sellers’ duty to send forward the documents forthwith remained the same as in the general case even though a string, circle or insolvency was involved. Since the sellers’ obligation was to tender the shipping documents forthwith and they were in breach of contract if they failed to do so, it seemed likely that that duty should have been performed on or shortly after 5 August, but that was for the Board of Appeal to decide. At page 481 Evans J said:-
“…the question raised is the “date of default” for the purposes of the present contract. In Toprak Mansulleri Ofisi v Finagrain Compagnie Commerciale Agricole et Financière S.A., [1979] 2 Lloyd’s Rep. 98 Mr Justice Robert Goff (as he then was) held at p. 109 that the same words “in default of fulfilment of contract” in cl. 28 of GAFTA 27 –
…meant, quite simply, the day on which [the buyers] failed to perform the obligation which entitled the sellers to determine the contract…
and his decision was upheld by the Court of Appeal. In Toepfer v Lenersan Poortman N.V. [1980] 1 Lloyd’s Rep. 143 the Court of Appeal held that the seller’s obligation under a c.i.f. contract to tender the documents in time for the buyers to pay for them by the due date, which was expressly stated in the contract, was a condition, and that the buyer was entitled to reject the documents when they were presented late. Lord Justice Brandon, (at p. 147) expressly reserved the question whether “in default of fulfilment of this contract” was equivalent to “in event of a breach of this contract going to the root of it”, a point which had not been raised in the Court below.”
I analyse the position in the present case as follows.
(1) The Buyers contend for 1 April 1998 as the date of default. The Sellers seek to support the finding in the Award that the date of default was 1 March 1998. The chronology was as follows:-
14/2/98 Date by which, under primary contract terms, Sellers were obliged to nominate loading places and silos for (March delivery) balance of contract (15 days before start of delivery period). Date of default found in Original Award
1/3/98 Date up to which, in light of parties’ conduct, Buyers bound to treat Sellers as entitled to nominate loading places and silos. Date of default found in (second Appeal) Award
26/3/98 Buyers ask Sellers to make a price proposal for the unfixed balance, amounting to 12,250-22,250 mt. There was no reply
27/3/98 Deadline imposed by Buyers on 26/3 for declaration of loading places. Date by reference to which in (second Appeal) Award Board said contract price should be assessed if date of default was 1/4/98
31/3/98 Last date for any delivery under the contract
1/4/98 Date of default contended for by Buyers
6/4/98 Buyers telex through brokers, holding Sellers in default and stating that they will buy in against them
7/4/98 Buyers purchase substitute goods – 2,026 mt shipment 7/30 April at $320/mt FCA any Russian railway station.
(2) This case is concerned with the terms of the contract of 15.10.97 and in particular with the true construction of the special provisions contained in clause 28 default GAFTA No. 78 (effective 1.1.95) in so far as they apply to the contract.
(3) Clause 28 is a standard form clause which has been changed in certain respects over the years no doubt to reflect the commercial concerns, problems, needs and experience of the Grain and Feed Trade.
(4) The material terms of clause 28 are similar to the terms of the clause considered by Robert Goff J and the Court of Appeal in Toprak v Finagrain. The material terms of clause 28 are identical to the terms of the clause considered by Evans J in Concordia v Richco. Clause 28(c) provided that the damages should be based on the difference between the contract price and the actual or estimated value of the goods (i.e. the market price) “on the date of default”. These words meant the day on which the Sellers failed to perform the obligation, which entitled the Buyers to determine the contract (in the present case the obligation to declare loading places and silos, a main obligation fundamental to performance of the contract). “In default of fulfilment of contract” meant a failure to carry out the contract on the due date. The commercial purpose of clause 28(c) was to provide certainty as to the relevant date (not to allow picking and choosing of dates). In the present case, as the Board pointed out at paragraph 7:54 of the Award, the contract was fluid as to the actual quantities that would be delivered, the origin of the goods, the price of the goods and the point or points of delivery. The trigger that would crystallise these matters was the declaration of loading places and silos by Sellers because such declaration would fix the loading places, fix the origin of the goods, provide the essential and indispensable ingredient for the fixing of the price and start the process whereby ultimately it would become apparent whether goods would be delivered to Buyers at all (depending on whether a price could be agreed or not).
(5) In the present case on 14 February the Sellers were certainly and irretrievably in default, with the result that the innocent party (the Buyers) could resort to the market to buy the undelivered goods.
(6) As to why the date of default became 1 March instead of 14 February, the Board in the Award held as follows. Throughout January and February, Mr Köhntopp on behalf of Buyers pressurised Mr Gammel to persuade Sellers to price more seeds. These requests carried with them an implied request for a declaration of loading places to be made. By making the requests, Buyers represented that they would not exercise their strict legal right to performance on the contractual date. It would be inequitable to allow Buyers to treat the contractual date for performance (14 February) as the date of default for the purposes of assessing damages under the default clause. According to Mr Gammel’s statement, these requests were made in January and February. There was no mention of them continuing thereafter. Accordingly the date of default for the purpose of assessing damages was 1 March rather than 14 February (as found in the Original Award). This made no difference to the finding that no damages flowed from the Sellers’ breach. If there was a postponement of the date for declaring loading places as a result of Buyers’ requests, then it followed that there was a corresponding postponement of the date for fixing the price (which could not have taken place without a declaration being made). The date for fixing the contract price and the date of default continued to coincide, although both dates fell on 1 March rather than 14 February. It followed that no damages arose. In finding that the date of default for the purpose of assessing damages was 1 March rather than 14 February, the Board founded on the principles set out by Goff J in Toprak v Finagrain and in particular the statement “a similar result may be achieved if, though there is no variation to the contract, there has been a representation by the innocent party that he will not exercise his strict legal right to performance on the contractual date, and the circumstances are such that it would be inequitable for him thereafter to treat that date as the date of default for the purposes of assessing damages under the clause”.
(7) Clause 28(f) has no application in the present case. This was not a case where the Sellers declared default “after expiry of the contract period”.
(8) The Sellers’ duty to declare loading places and silos was a main obligation under the contract. The contract in the present case was in most unusual terms and markedly different from the terms of contracts frequently encountered in international trade (including for example the terms of the various contracts considered in the authorities referred to above). This was not a case where:-
i) a quantity was agreed;
ii) the origin of the goods was agreed;
iii) the price of the goods was agreed;
iv) the point of delivery was agreed.
As the Board explained the trigger that would crystallise these matters was the declaration of loading places and silos by Sellers because such declaration would fix the loading places, fix the origin of the goods, provide the essential and indispensable ingredient for the fixing of the price and start the process whereby ultimately it would become apparent whether goods would be delivered to Buyers at all (depending on whether a price could be agreed or not). On 14 February the Sellers were certainly and irretrievably in default. For the reasons set out in (6) above the date of default became 1 March.
(9) I would answer question (1) by saying that for the reasons set out above the Board were right to conclude that the date of default was 1 March 1998.
In the light of my conclusions as to the first question of law, the second question of law does not arise.
The section 67 application
The Buyers submitted that the purpose of the remission was to clarify whether the Board had intended to make or had made the findings, which the Sellers were contending that they had made, and which the Sellers recognised that the Board needed to make for their conclusion to be supportable in law. According to the Buyers the limited purpose of the remission was stressed in the consent order by the use of the word “only” in paragraph 2. The Buyers argued that by the terms of the consent order, the Board were not entitled to provide any additional justification for their original views, but were instead restricted to addressing in any supplemental reasons only the specific questions posed. The Buyers submitted that the Board exceeded its jurisdiction and contended that the appropriate way forward would be to address the first question of law solely by reference to the reasons given in the Original Award, together with the answers given to the only questions remitted to them.
Section 67(1) of the 1996 Act provides that a party to arbitral proceedings may apply to the court (a) challenging any award of the arbitral tribunal as to its substantive jurisdiction or (b) for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction.
I reject the Buyers’ submissions under this head. In my view it is important to have regard to both paragraphs 1 and 2 of the consent order and not to confine attention to paragraph 2. On its true construction the consent order provided for remission in sufficiently wide terms to justify the (second Appeal) Award. I do not consider that the Award was in excess of jurisdiction.
Agrimex Ltd v Tradigrain SA & Ors
[2003] EWHC 3451 (Comm)
Smith J
The vessel anchored at Illychevsh on 11th March 1999 at 02.30 hours and tendered notice of readiness stating that the vessel was “in all respects ready to load her cargo … in accordance with the terms and conditions of the charterparty.” However, on 10th March 1999 the port had been reported to be congested, and on 12th March 1999 the buyer’s agent advised that the loading berth was occupied. On 26th March 1999 the vessel left anchorage at 11.20 hours and berthed at the grain loading terminal at 12.55 hours. Later that day, after an inspection, the holds were rejected for loading grain due to rust on the hatch covers. Rust was removed and on 27th March 2003 her holds were passed fit to load wheat and loading began the same day.
The Tribunal found that, when the vessel tendered notice of readiness on 11th March 1999, her holds were not in a fit condition to load the cargo, and that she required cleaning of her cargo spaces and hatch covers before she was in a fit state to load the contractual cargo; and that she was fit to load the cargo once the remedial cleaning works had been carried out, that is to say from 1000 hours on 27th March 1999.
Tradigrain made a demurrage claim in an invoice of 15th June 1999 in the sum of US $312.445.73. Agrimex disputed the calculation of demurrage. One issue was whether the notice of readiness of 11th March 1999 was valid and effective under the contracts of sale, and the Tribunal upheld Tradigrain’s contention that it was. The appeal challenges that finding.
There can be no dispute that prima facie a valid notice of readiness can only be tendered by a vessel if she is physically ready in all respects to load her cargo: The Tres Flores, [1973] 2 Lloyd’s Law Reports 247. The question is whether the wording of the sales contracts displaces that prima facie rule, and so is one of interpretation of the sale contracts and specifically what terms from the charterparty were imported into them.
Here again the ambit of the difference between the parties is limited. I shall identify the common ground. First, the references to a charterparty in the sale contract are to be taken to be references to the charterparty of 26th February 1999. Secondly, the charterparty provided that the vessel might tender notice of readiness if she was in berth and in all respects ready to load, in which case, if on subsequent inspection the holds were rejected, the holds had to be cleaned and a fresh notice of readiness tendered before laytime started to run; or if, because a berth was not available, the vessel was not in berth but at a usual waiting place or anchorage and the Master warranted that she was in all respects she was ready. In the latter case laytime started, and if on subsequent inspection the holds were rejected, laytime was interrupted while the holds were cleaned, but no fresh notice of readiness was then required. Thirdly, on 11th March 1999 the loading berth was not available. Fourthly, on 11th March 1999 the Master warranted that the vessel was in all respects ready and tendered notice of readiness from a usual waiting place or anchorage. Fifthly, and consequently, under the charterparty and as between the Owners and the Charterers a valid and effective notice of readiness was served on 11th March 1999.
The issue is whether the words of the charterparty permitting the tender of a notice of readiness in some circumstances when the vessel was not in berth were incorporated to the sale contracts, so that a notice of readiness tendered in such circumstances would start laytime under the terms of those contracts. Tradigrain’s case is that they were; Agrimex say that they were not. The question is a nice one and the arguments advanced by the parties can really be stated quite shortly.
Mr Lawrence Akka, who represents Agrimex, says that first it would be inconsistent with the terms of the contracts to import the relevant words from the charterparty because the sales contracts, in terms, require the service of a valid notice of readiness and that connotes, in ordinary commercial and legal usage, that the vessel must be ready to receive cargo at the time that it is tendered. Secondly, he says that, properly interpreted, the contracts of sale should not be understood to incorporate from the charterparty more than the rate of demurrage and despatch, or at least should be not interpreted to include the words upon which Tradigrain rely. He says that the parties are not to be taken to have intended that the terms which they agreed should be vulnerable to so important a change through a charterparty made some seven months later.
Mr Akka cites The Northern Progress [1996] 2 Lloyd’s Law Reports at 319, in which Rix J considered the impact upon a sale contract which provided “All terms conditions and exceptions as per charterparty”, of the terms of a charterparty entered into subsequently to the sales contract. Having observed that contracting parties are free to incorporate terms of another contract not yet made (a point not in dispute in this case), he said that the danger of one party entering into terms over which the other had no control would “be in any event limited by the well-known doctrines such as the requirement that any terms to be incorporated must be capable of being read sensibly and consistently in the context of the parent contract.” Later in his judgment he cited the statement in the 19th edition of Strutton on Charter Parties (in the 20th edition at page 75), which was made in the context of incorporation of terms from charterparties into bills of lading, that:
“Where the intention is doubtful, the court will not hold that the term is incorporated.”
Against this Mr Charkham submits the starting point for interpreting the relevant provisions of the sale contracts is to recognise that in commercial terms the intention of the parties evinced in the provision that demurrage would be “as per charterparty” was that the liability of Agrimex for demurrage should reflect and correspond with the liability of Tradigrain under the charterparty unless there are irreconcilable differences between the charterparty and the sale contracts. Moreover, he says, the parties are to be taken to have intended that the same notice of readiness should be valid and effective under the terms of both the sales contracts and the charterparty unless they stated otherwise.
While recognising that general considerations of this kind must bow to the interpretation of the words of the particular contract I consider that there is force in these points. Moreover, this is not a case in which it has been or could be suggested that the provisions which the sellers argue were incorporated into the contracts of sale were unreasonable or unusual ones. They were from a continental grain charterparty in Synacomex 90 form which was entered into without significant variations from the standard form.
Of course, as Mr Akka observes, it would have been possible for the parties to the sale contracts to have provided for the sellers’ liability for demurrage in terms of an indemnity, but that does not gainsay that in general terms it is to be expected there will be some degree of correspondence between the buyers’ liability under the sale contracts and the sellers’ liability under the charterparty. Further, the consequence of Agrimex’s position is that, although the Master had served a valid notice of readiness under the charterparty, he might be required by the charterers and buyers to serve a second notice of readiness, which would be unnecessary and of no consequence in terms of the charterparty, because otherwise there would be no notice of readiness that had any effect under the contracts of sale and laytime would not begin to run as against the buyers. This is not an impossible consequence, but I would not readily accept to be one that the parties contemplated in the absence of a clear indication the contracts of sale that they did so. I find support for this view in the case of Gill & Duffus SA v Rionda Futures Limited [1994] 2 Lloyd’s Law Reports 67, to which I shall refer later in this judgment. In the case of these contracts, far from suggesting in their express terms that a notice of readiness validly tendered under the charterparty might be ineffective under the sale contracts, they provide in the case of the contract of 9th July 1998, “calculation to be done as per notice of readiness [NOR] and statement of facts [SOF], both signed by master…” And in the case of the contract of 16th July 1998, “calculation to be according to the statement of facts and valid NOR signed by the Master …”
I next refer to OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd’s Law Reports 160, in which Colman J considered a sales contract that contained a provision, “Demurrage: As per charterparty …”. The sellers were claiming demurrage from the buyers. One issue was whether a time bar in the relevant charterparties, which were on Asbatankvoy form, were incorporated into the contract of sales and, unsurprisingly, Colman J held that they were not. However, the buyers also contended that none of the laytime or demurrage provisions were incorporated from the charterparty into the sale contract. Of this contention Colman J said at page 164:
“One can therefore confidently conclude that, at the very least, the sales contract incorporated the provisions in the charterparties specifying the rate of demurrage and those clauses going to the calculation of laytime, such as the notice of readiness clause from Part II of the standard Asbatankvoy form (save insofar as it was inconsistent with the provision in the sale contract that the buyers would be entitled to six hours free time after notice of readiness), cl 11 – calculation of laytime – from the OK Petroleum AB’s charterparty terms and conditions, including those of the excepted perils at (a)(i) to (v) and (b) insofar as they had not been deleted, as some of them had been under the Chemical Venture charter, the hours for loading and discharging clause from Part II, as well as the demurrage clause and the safe berthing-shifting clause, to the extent not incompatible with cl 11.1 would further hold that all the provisions in those clauses which cut down what would otherwise be the charterer’s liability for demurrage would be incorporated into the sale contracts for the benefit of the buyers. For example, under cl 11 of the OK Petroleum AB’s terms and conditions the circumstances in which time is not to count could not be relied upon as fully by the buyers under the sale contract as by the charterers under the charterparty.”
Turning to Mr Akka’s first argument of inconsistency, I do not consider there to be any inconsistency or tension between the relevant provision of the charterparty and the terms of the sale contracts. Specifically, it does not seem to me to assist Agrimex that sale contracts refer to valid notices of readiness. The argument is circular. It is not in point that the notice of readiness of 11th March 1999 would not have been valid but for the terms of the charterparty. The validity of the notice is to be governed by the terms of the sale contracts, and hence by the terms of the charterparty in so far as they are imported into the sale contracts.
Mr Charkham advanced a further argument in relation to the sale contract of 9th July 1998, that because it refers to the notice of readiness being validly tendered rather than a valid notice of readiness being tendered, the requirement of validity goes only to what might be called the mechanics of tendering, such as whether it was tendered during the permitted hours and at the permitted place. I cannot accept this argument. If a notice of readiness is tendered in impermissible circumstances so that it is ineffective, it is an equally natural use of language to say that it was not a valid notice or to say that the notice was not validly tendered. However, I do not consider that Tradigrain need rely upon this argument.
I come to Mr Akka’s second point, that properly interpreted in its context the contracts of sales did not incorporate the relevant provision of the charterparty. Here Agrimex referred to the decision of Clarke J in Gill and Duffus SA v Rionda Futures Limited, (loc cit), an authority which is not referred to in the judgment in OK Petroleum AB v Vitol and The Northern Progress. It is apparent that it was not drawn to the attention of Rix J because he said (loc cit at page 327) that counsel found only one case, the OK Petroleum case, in which the problem of incorporation of specific contract had been specifically considered, and this problem was in fact considered by Clarke J at loc cit, page 73. I infer also that the Gilland Duffus case was not cited to Colman J either because, had it been, he would surely have mentioned it in his careful judgment.
One question that arose in the Gill and Duffus case was about the meaning and effect of the following provision of a contract of sale:
“Discharge: 750 (seven hundred and fifty) metric tons basis 5 hatches per weather working day of 24 consecutive hours. Thursday afternoon, Friday and holidays excepted unless used. Time to count 24 hours after tender of notice of readiness whether vessel in port or not, at berth or not, whether granted in free pratique or not, whether customs cleared or not. Master allowed to tender his notice by radio. All other terms and conditions as per Sugar Charter Party 1969 (revised 1977). Despatch and demurrage at discharge to be for buyer’s account. Demurrage as per C/P half despatch. Lighterage, if any, is for buyer’s account and risk. Demurrage to be settled as incurred by buyers every 15 days. Buyers to guarantee minimum 30ft draft at discharge port.”
It was argued in that case that this provided for the buyers to indemnify the sellers in respect of demurrage. The argument was rejected by Clarke J who said, at page 77:
“this is not a case like Suzuki & Co v Companhia Mercantile Internacionale (1921) 9 Lloyd’s List Report 171 where the Court of Appeal held that the obligation to pay demurrage was merely an obligation to indemnify in circumstances where the only provision about demurrage was that it was to be ‘as per charterparty or freight agreement’. Here the expression ‘demurrage as per C/P half despatch’ does not stand alone, but appears in the contract after detailed provisions as to when notice of readiness could be given and as to the calculation of laytime. In its context that expression means in my judgment no more than to the rate of demurrage in the relevant charterparty should be the rate of demurrage for the purposes of the contract of sale.”
Clarke J also said that this provision was not like the one considered in Ets Soules et cie v Intertradex [1991] 1 Lloyd’s Law Reports 378, in which it was held that the stipulation as to the time of discharge as between seller and buyer was that time should run from the moment the seller placed the goods at the disposal of the buyer because:
“unlike the contract in that case the contract here makes express reference to a notice of readiness. It makes detailed provision to when the notice can be tendered and it further provides that ‘master allowed to tender his notice by radio’. It follows that the contract contemplates that it will be the master who will tender the notice. There is no suggestion that such a notice would be tendered by the sellers. In my judgment, the natural inference from those provisions is that it is for the master to tender the notice of readiness and that when he does so the vessel must be legally and physically ready to discharge as a vessel, and that she must at that time be at the disposal of the persons entitled to possession of the cargo under the bills of lading.”
It is to be observed that in his judgment Clarke J examined the possibility of a notice of readiness being valid for the purposes of the charterparty but not valid for the purposes of the contract of sale. The buyers had argued that they were not liable for demurrage because the sellers had not validly tendered the proper documents. Clarke J rejected the argument observing (at page 78) that it:
” … would or might involve the tender of more than one notice of readiness whereas the natural reading of the contract is that there would be only one notice of readiness which was to be given by the master who would be likely to be unaware of the position of the plaintiffs as sellers or indeed the position of any other seller further down the line.”
He said that:
“the more natural reading of the contract is that the master should give a notice of readiness which complies with the detailed provisions of the contract and is valid from the shipowners’ point of view, and that such notice is valid under the contract whether or not the documents were tendered before or after the vessel arrived because otherwise the master might have to give more than one notice, the first of which might be valid so far as the shipowners were concerned, but not as between sellers and buyers. The contract did not, in my judgment, contemplate such a state of affairs.”
Agrimex’s argument that the words “As per charterparty” in these contracts, following as they do the provisions about the tender of the notice of readiness and the calculation of the laytime, refer only to the rate certainly derives some support from Gill and Duffus. Clarke J so interprets the words “demurrage as C/P half despatch” in the contract that he was considering, and said that he was encouraged to do so by the fact that they appeared in the contract after “detailed provisions as to when notice of readiness could be given and as to the calculation of laytime”.
That said, as Clarke J observed, the question was one of the true construction of the contract before him, and while precedents may provide guidance, each particular contract must be construed according to its own terms. Moreover, the particular expression considered by Clarke J, and in particular the words, “half despatch” indicate that the parties intended only to refer to the rate of demurrage and despatch. In this case I do not consider that the expression “maximum 7,000/3,500” necessarily has a comparable connotation. Certainly that those words limit the effect of the words “as per charterparty” in that they limit the rate of demurrage and despatch which might be payable, but it by no means follows that the words are directed only to the rate of demurrage and despatch.
However, Agrimex have a further argument in support of their interpretation of the sale contracts. They submit that because the contracts contained explicit provisions for some matters governing when a notice of readiness might be served and effective so as to start laytime counting (such as “WIPON/WIBON/WIFCON/WECCON”), the inference is that the parties did not intend to incorporate the regime from the charterparty in respect of other matters of that kind. I cannot accept that argument. The effect and, as I infer, the purpose of those provisions were to limit the terms that the sellers might include in the charterparty if they wished the demurrage and despatch provisions in the sale contracts and the charterparty to correspond.
These being my observations the arguments presented and the authorities cited to me, I must interpret the particular sale contracts made between the parties. Taking first that of 16th July 1998, it seems to me that prima facie the parties are to be taken to have contemplated that a notice of readiness valid under the charterparty should be effective under that sale contract unless the parties stated the contrary, either expressly or by clear implication. I conclude that they did not do so and specifically that there is nothing in the words or context of the expression “As per charterparty” that limits its application to the rates of demurrage and despatch. I agree with what was said by Colman J in the OK Petroleum case, an authority that does not seem to me significantly undermined by the reasoning of the Gill and Duffus case or the fact that Gill v Duffus was not apparently cited to Colman J. I conclude that the words “As per charterparty” incorporate into the sale contract of 16th July 1998 the provision in the charterparty permitting the service of a notice of readiness when the loading berth was not available, and the provision about the position if a notice of readiness was served in such circumstances and the vessel was subsequently found to be unready.
The contract of 9th July 1998, but not that of 16th July 1998, contains the additional provision that “All other conditions as per relevant charterparty”. I regard these words as confirming my interpretation of the expression “As per charterparty” in the demurrage/despatch clause. Mr Akka argued that the word “other” means that no provisions relating to laytime other than those previously mentioned were to be incorporated into the sale contract. I do not agree that this is what “other” suggests. Rather it refers, in my judgment, to those particular matters that had already been referred to in the contract of sale and which were terms of it, whether or not there were corresponding provisions in the charterparty.
For these reasons I uphold the decision of the tribunal, and the appeal is dismissed.
Transfield Shipping Inc of Panama v Mercator Shipping Inc of Monrovia
[2006] EWHC 3030 (Comm) [2007] 1 Lloyd’s Rep 19, [2006] 2 CLC 1069, [2007] 1 All ER (Comm) 379
Clarke J
The authorities on late redelivery
In Watson Steamship Co v Merryweather & Co [1913] 18 Com Cas 294 the vessel was redelivered 20 days late: on November 20th instead of October 31st . The special case recorded that:
“6. A claim was made by the owners for damages for dislocation of business and other special damage, but there was no evidence before the umpire that such damages were within the contemplation of the parties at the time the said charterparty was entered into, and he therefore found that such damages were too remote.
7. The umpire directed and awarded that the charters should pay to the owners £100, being damages for 20 days detention of the Hugin calculated at the difference between the chartered rate and the current rate for the said period”.
The question at issue was whether there was a breach of contract in not redelivering the vessel by October 31st. Atkin, J, as he then was, held that there was such a breach and upheld the award. The special case does not make clear what the “dislocation of business” was; but whatever it was, the umpire was not able to find that it was something contemplated by the parties. I do not regard this case as anything more than an illustration of an award where, in the absence of any finding that the parties had anything more in contemplation, damages were awarded on the market versus charterparty rate basis,.
In Meyer v Sanderson [1913] 108 L.T. 428,429 Atkin J held that, where the vessel was kept illegitimately beyond the last redelivery date (she had been sent out on an extra voyage on that very date), the charterers had to “pay for the use of the steamer on that last voyage at the rate current at the time”. No question of loss of profit on a subsequent charter arose.
In The London Explorer [1972] AC 1 a vessel was chartered on terms that hire was “to continue until the hour of the day of her redelivery”. She was delivered about 3 months late because, although she had been sent on a legitimate last voyage, she met with strikes at her last two discharging ports. The owners succeeded in recovering hire at the charterparty rate even though the market rate during the overrun period was less than the charterparty rate. In the course of his speech Lord Morris said:
“Even though the time set out in a charterparty is not made of the essence so that continued use of the vessel after the stated time will not at once have the result that such continued use will be in breach of contract, it will be necessary that redelivery should be within a reasonable time. It might well be …that with a clause similar to clause 4 a charterer would be liable to pay hire at the contractual rate to the time of actual redelivery and in addition (if the current rate exceeded the contractual rate) to pay damages in respect of his failure to redeliver within a reasonable time”.
Again, no question arose of a claim in respect of loss of profits on a subsequent charter.
In The Dione [1975] I LLR 117 the charterers, who should have redelivered the vessel by 28th September, were held liable for the difference between the market and charterparty rate for the overrun period. Lord Denning observed that where the charterer had an obligation to redeliver by a stated date:
“If he does not do so – and the market rate has gone up – he will be bound to pay the extra. That is to say he will be bound to pay the charter rate up to the end of the stated period and the market rate thereafter, see Watson v Merryweather”.
Again, no question of loss of a subsequent fixture arose.
In The Johnny [1977] 2 LLR 1,2 Lord Denning said that in the case of an illegitimate last voyage, the measure of recovery, whether as damages or upon a quantum meruit, was as follows:
“In either case the amount would be assessed at the market rate then ruling for a time charter trip for a voyage at that time. That is for a time charter for the period of time occupied by such a voyage based on spot rates for the voyage charter but adjusted to a time charter basis. That would be obviously fair and just. The charterer by sending her on that last illegitimate voyage would have received the high market rate then prevailing and should pay damages based on that rate for that voyage”.
However, the majority of the Court concluded that, under the provisions of the amended Baltime form, the market rate should be assessed by reference to the market rate for 11-13 month charters (the period of the charterparty) as at the date of the commencement of the overrun period and then applied to that period alone. There was no claim for loss of a subsequent fixture.
In The Peonia [1991] I Lloyd’s Rep 100, a central question was whether, when the vessel was sent on a legitimate last voyage but, through no fault of the charterers, was then redelivered after the final terminal date, the owners were entitled in respect of the overrun period to hire at the market rate (if higher than the charterparty rate) or only at the charterparty rate. After a comprehensive review of the authorities Lord Justice Bingham (as he then was) held that the answer was the former. In relation to an illegitimate last voyage Lord Justice Bingham said that the owner:
“..was entitled to payment of hire at the charterparty rate until redelivery of the vessel and (provided he does not waive the charterer’s breach) to damages (being the difference between the charter rate and the market rate if the market rate is higher than the charter rate) for the period between the final terminal date and redelivery”.
Lord Justice Slade said that his view, which he expressly declared to be obiter, was that:
“The judgments of Lord Denning, M.R. and Lord Justice Browne in The Dione …are, in my opinion, on a proper analysis, authority binding this Court for the proposition that if charterers send a vessel on a legitimate last voyage and the vessel is thereafter delayed for any reason (other than the fault of the owners) so that it is redelivered after the final terminal date, the charterers will (in the absence of agreement to the contrary) be in breach of contract and accordingly, if the market rate has gone up, will be obliged to pay by way of damages the market rate for any excess period after the final termination date up to redelivery…”
The Peonia was not concerned with any claim in respect of a subsequent fixture; and neither Lord Justice Bingham nor Lord Justice Slade’s words can be taken as deciding that only the market/charterparty rate differential is recoverable as damages under the first limb of the rule in Hadley v Baxendale, or as deciding the measure of recovery on facts such as those found by the majority arbitrators.
In The Black Falcon [1991] I LLR 77 Steyn, J, as he then was, overturned an award that had not followed The Dione on damages. In a case involving an illegitimate last voyage, the arbitrators had awarded the market rate of hire from the date when the vessel would have been delivered if she had not undertaken her last (illegitimate) voyage rather than from the last date when she could have been delivered without a breach of charterparty.
Steyn, J said:
“In my judgement the arbitrators’ approach conflicts with the principle governing the calculation of damages which was enunciated in The Dione …A study of the judgments of the majority reveals that this case is authority for the proposition that in circumstances where the owners undertook the illegitimate last voyage without waiving their rights to claim damages, the charterers’ obligation is to pay the charter rate until the last permissible date for redelivery, and thereafter pay the market rate until the actual redelivery ….I am of course bound by this decision. But … I would have come to the same conclusion in the absence of authority.”
In The Gregos [1991] 2 LLR 40 the principal issue was whether or not the legitimacy of the last voyage fell to be established at the date when the order was given or at the time when the last voyage began. Evans, J, as he then was, held that it was the latter. In the course of his judgment he observed that “the charterer does commit a breach of contract by failing to redeliver at the end of the charter period and is liable in damages, if the market rate exceeds the charter rate, as well as for hire until redelivery takes place”. No question of a subsequent charter arose.
The Court of Appeal took a different view. The Court (Hirst, Russell and Simon Brown, L.JJ.) held that the legitimacy of the last voyage was to be tested at the date when the order was given. In the course of his judgement Lord Justice Hirst recorded the argument of Mr Bernard Rix, Q.C., as he then was:
“Furthermore, and central to Mr Rix’s argument, the owners would be compensated in damages in accordance with the normal common law measure of damages under the rule in Hadley v Baxendale for any period of overrun which would normally be based on market rates of hire under the first rule; but also, if the facts warranted, by additional damages (e.g. for the loss of a fixture) under the second rule”.
Later he recorded the argument of Mr Peter Gross, Q.C, as he then was:
“Mr Gross asserts that damages may be an inadequate remedy, since the owners are unlikely to be able to recover compensation for the loss of a subsequent fixture and are likely to be confined to recovering hire at the market rate (i.e. within the first rule in Hadley v Baxendale). But this is essentially a complaint against the well established common law rules on the measure of damages and indeed on the facts of individual cases the owners might well be able to bring themselves within the second rule in Hadley v Baxendale (e.g. if the owners explicitly warned the charterers at the time of the last voyage order then (sic) an overrun might imperil a subsequent fixture). “
The House of Lords decided that the correct date for assessment of the legitimacy of the order was the date on which the vessel completed discharge and was ready to proceed on her last voyage, by which time, on the facts of that case, it had become apparent that she could not complete that voyage and be redelivered in accordance with the charterparty. The order previously given then became invalid and the charterers’ persistence in requiring it to be obeyed was repudiatory.
In the course of his speech Lord Mustill observed:
“Finally, some of the legal consequences of late redelivery have been worked out. There remain a number of unanswered questions, with some of which your Lordships are now concerned.”
A later sentence of his speech reads:
“(On damages, see Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co.Ltd (The Peonia), [1991] 1 Lloyd’s Rep 100)”.
As is apparent from this citation of authority there are a number of statements from commercial judges of distinction (or submissions by those who were to become such) that the prima facie measure of damages for late redelivery under the first limb is the difference between the market and charterparty rates for the overrun period. Moreover the decision of the Court of Appeal in The Gregos proceeds upon an apparent acceptance of the argument of Counsel that it was under the second limb of the rule that loss of a subsequent fixture was recoverable, if it was recoverable at all.
But in none of these cases was the question of recoverability of loss of profit on a subsequent charter actually in issue; nor were there any findings of fact such as those made by the majority arbitrators. Whilst, therefore, these cases are authority for the proposition that, absent any such finding, the owners are entitled to recover the market/charterparty rate differential, they cannot, in my judgment, be regarded as deciding that, even with such a finding, recovery of loss of profit on a subsequent fixture cannot arise under the first limb or cannot be recovered at all.
The textbooks
Scrutton 20th Edition provides, in relation to a legitimate last voyage that:
“If, through no fault of either side, the voyage does not finish within the tolerance , hire continues payable at the charter rate until the end of the period of express or implied tolerance and, in the absence of an exonerating clause, damages representing the market rate for the period thereafter”
and, in relation to an illegitimate last voyage, states that:
“If the owner proceeds on the illegitimate voyage, hire will be payable at the charter rate up to the end of the tolerance period, and at the current market rate for the excess period thereafter”.
A footnote to the latter sentence reads:
“…Where these are not too remote, further damages (such as the loss of a substitute fixture) can be claimed: The Gregos [1993] 2 Lloyd’s Rep 335. (although the question of remoteness must be tested when the contract is concluded and not, as suggested in that case, at the time of the last voyage order).”
Wilford on Time Charters at paragraph 4.9 summarises The Peonia. Included in the summary of the case is the sentence:
“On a proper understanding of The London Explorer and The Dione ..charterers would be in breach, despite the legitimacy of their final voyage orders if they failed (otherwise than because of fault by owners) to redeliver by the end of the charter period and would be liable thereafter to pay the market rate if higher than the charter rate.”
The rule in Hadley v Baxendale
The rule is that the damages that a claimant may recover for breach of contract are:
…such as may fairly and reasonably be considered either (a) arising naturally i.e. according to the usual course of things from such breach of contract itself or (b) such as may reasonably be supposed to have been in the contemplation of the parties, at the time they made the contract as the probable result of it.”
In The Heron II [1969] 1 A.C. the House of Lords gave extensive consideration to the test of remoteness in contract. In his speech Lord Reid said that he regarded that part of the judgment in Hadley v Baxendale that followed the enunciation of the rule as throwing considerable light on the meaning that the court must have attached to the “rather vague expressions used in the rule itself”. His analysis of that meaning is instructive.
The claim was for damages on account of the late arrival of the vessel at Basrah where the charterers intended to sell the cargo of sugar promptly upon arrival. The claim was for the fall in the market price of the sugar during the period of delay. Lord Reid began by setting out the knowledge and intentions of the parties at the time of the making of the contract. The charterers intended to sell the sugar in the market on arrival but were not shown to have had in mind any particular date as the likely day of arrival or to have had any knowledge or expectation of how the market would move around the time when the vessel was likely to arrive. The owners did not know what the charterers intended to do with the sugar. But they did know that there was a market in sugar at Basrah and, if they had thought about it, must have realised that, at the least, it was “not unlikely” that the sugar would be sold in the market at its market price on arrival. They must be held to have known that in any ordinary market prices fluctuate daily; but they had no reason to appreciate that during the relevant period the market would go down rather than up – it was an even chance that it would go down.
Lord Reid characterised the question for decision as being whether a plaintiff can recover as damages for breach of contract a loss of a kind which a defendant ought to have realised when he made the contract was “not unlikely” by which he meant a degree of probability “considerably less than an even chance but nevertheless not very unusual and easily foreseeable”.
Lord Reid examined what Baron Alderson had said in Hadley v Baxendale when applying the rule. He was not, Lord Reid held, distinguishing between results which were foreseeable or unforeseeable but between results which were likely because they would happen in the great majority of cases and results which were unlikely because they would only happen in a small minority of cases. A result which would happen in the great majority of cases should fairly and reasonably be regarded as having been in the contemplation of the parties. But a result which, though foreseeable as a substantial possibility, would only happen in a small minority of cases should not be regarded as having been in the parties’ contemplation. Alderson B was – Lord Reid held – referring to such a result when he said:
“For such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances, nor were the special circumstances, which perhaps would have made it a reasonable and natural consequence of such breach of contract, communicated to or known by the defendants”
Lord Reid went on to observe that the line of reasoning in that and an earlier passage was that, because in the great majority of cases loss of profit would not in all probability have occurred, it could not reasonably be considered as having been fairly and reasonably contemplated by both parties for it would not have flowed naturally from the breach in the great majority of cases. A type of damage which was plainly foreseeable as a real possibility but which would occur only in a small minority of cases could not be regarded as arising in the usual course of things nor supposed to gave been in the contemplation of the parties.
The crucial question was whether, on the information available to the defendant when the contract was made :
“… he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.”.
I derive from Lord Reid’s speech the following propositions:
(a) The mere fact that a type of loss is foreseeable is not, of itself, sufficient to make it recoverable; someone may foresee a result that is very remote.
(b) A claimant is, however, entitled to recover damages in respect of a foreseeable result which either (i) will happen in the great majority of cases; or (ii) in respect of which, on the facts known or available to the defendant, the chances of its happening are considerably less than evens but the occurrence of which would not be very unusual.
(c) But a plaintiff is not entitled to recover in respect of an occurrence which, although foreseeable as a substantial possibility will only happen in a small minority of cases and whose occurrence would therefore be very unusual.
There is an obvious distinction between a result which will happen in the great majority of cases and one which will only happen in a minority of cases, but not so small a minority as to make the result very unusual. It is debatable whether or not a result in the latter category is to be regarded as one that may fairly and reasonably be considered as “arising naturally i.e. according to the usual course of things” or whether it can only be considered as one that “may reasonably be supposed to have been in the contemplation of both parties at the time that they made the contract as the probable result of the breach of it”.
Since the claimant recovers whichever limb of the rule he satisfies the distinction may not be important for practical purposes. But the wording of the rule, and its use as a formula for over 150 years, has led on occasion to a degree of rigidity in its practical application whereby it is divided into two mutually exclusive “limbs”. If the result in respect of which damages are sought is one that happens in the majority of cases, the case plainly falls within the first limb. That limb has also been said to relate to losses which everyone would know would arise in the ordinary course of things: see the fourth of Asquith, L.J.’s propositions in Victoria Laundry v Newman [1949] 2 KB 528. If the first limb is confined to losses which everyone would know will arise in the majority of cases, losses which everyone knows could happen but only in a substantial minority of cases would fall only within the second limb; as would losses which the parties (but not any ordinary person) know will happen in the majority of cases (or, if relevant under the first limb, a substantial minority of cases)[3].
The potential effect of such compartmentalisation is apparent in the present case. The Owners contend that their claim falls within the first limb since, on the majority arbitrators’ finding, the Charterers, as persons experienced in the shipping trade, must have realised that it was not unlikely that delayed redelivery would prejudice a subsequent fixture. They do not suggest that the loss for which they claim damages happens in the majority of cases. If, therefore, the first limb is confined either to what happens in the majority of cases or to consequences that would have been contemplated by anyone, whether experienced in the shipping trade or not, their claim lies under the second limb. The Charterers contend that, if the Owners are to recover at all, it must be under the second limb. The majority arbitrators have held that the case falls under the first, but not the second limb; although a result which arises naturally must necessarily be one that may reasonably be supposed to have been in the contemplation of the parties.
The modern approach
The modern approach is to treat the rule as a composite whole. Lord Reid made this clear in The Heron II when he said that he:
“did not think that it was intended that there were to be two rules or that two different standards or tests were to be applied”.
The judgment in Hadley v Baxendale was, in his view, directed to excluding, in the absence of special circumstances communicated to the defendants, recovery for loss which in the great majority of cases would not have occurred. Such losses could neither be considered as arising naturally i.e. in the usual course of things nor be supposed to have been in the contemplation of the parties. The corollary must necessarily be that loss which would occur in the majority of cases would arise naturally and would be such as may reasonably be supposed to have been within the contemplation of the parties as the probable result of the breach of it.
Given that Lord Reid did not think that Hadley v Baxendale intended to lay down two rules, or different standards or tests, it seems to me that he would also have treated losses which would not occur in the majority of cases but were not unlikely (in the sense in which he used those words), as being losses which arose naturally and such as ought reasonably to have been in the contemplation of the parties. The reference to losses ” arising naturally i.e. according to the usual course of things” does not have to mean that the loss in question usually results but rather that is not unlikely to occur and that its occurrence would not be very unusual. Lord Upjohn thought that there were two branches of one rule between which there was, however, no dichotomy for “they may run into each other and, indeed, be one”[4].
In The “Pegase” [1981] I Ll Rep 175 Goff, J., as he then was, said that the general result of The Heron II and Victoria Laundry v Newman [1949] 2 K.B. 528 was that:
“the principle in Hadley v Baxendale is now no longer stated in terms of two rules, but rather in terms of a single principle – though it is recognised that the application of the principle may depend on the degree of relevant knowledge held by the defendant at the time of the contract in the particular case”.
He also made it clear that there was no rule that excluded or restricted claims for loss of profits. All depends on the facts.
Moreover, in The Heron II the House of Lords departed from the Hadley v Baxendale formula in defining the remoteness test. As the head note records “the sole rule as to the measure of damages for any kind of breach of any kind of contract was that the aggrieved party was entitled to recover such part of the damages actually caused by the breach as the defaulting party should have contemplated would flow from the breach” . The claimant must show that the defaulting party should reasonably have contemplated that the result for which he seeks compensation was “not unlikely” (Lord Reid); or that such a result was “liable to be or at least …result was not unlikely to be” (Lord Morris); or that it was “liable to be” (Lord Hodson); or that there was a “serious possibility or real danger” (Lord Pearce and Lord Upjohn) that it would occur. Other judicial dicta cautioning against treating the rule as what in Kpohraror v Woolwich Building Society [1996] 4 AER 119 Evans, L.J.(as he had by then become) described as “a straightjacket” are to be found at McGregor on Damages,17th Ed, paragraphs 6-165 and 6-166.
Subsequent formulations of the test have been expressed in similar terms to those of Lord Reid. Thus in The Rio Claro [1987] 2 Lloyd’s Rep 173 Staughton J (as he then was) said that, for a loss arising from a breach of contract to be recoverable:
“It must be such as the contract breaker should reasonably have contemplated as not unlikely to result. To that direction must be added the point that the precise nature of the loss does not have to be in his contemplation, It is sufficient that he should have contemplated loss of the same type or kind as that which in fact occurred. There is no need to contemplate the precise concatenation of circumstances which brought it about”.
In addition it is clear that the test for remoteness does not require the claimant to show that contract breaker ought to have contemplated as being not unlikely the actual extent of the loss that occurred: Hill v Ashington Piggeries [1969] 3 All ER 1496, 1524; Parsons v Uttley Ingham & Co [1978] QB 791, 813. This is so even if the loss that occurs is much greater in size than anyone anticipated: e.g. Brown v KMR Services [1995] 2 Lloyd’s Rep 513,557.
Conclusion
In my judgment on the facts found by the majority arbitrators the Owners’ primary claim is not too remote. They have determined that, to the knowledge of the Charterers, it was recognised and accepted as a hazard of late redelivery that the vessel would miss her cancellation date for the next fixture; that this was not something that was very unusual but, on the contrary, the kind of result which the parties would have had in mind; that rapid variations in market rates in either direction were market knowledge; and that the kind of loss suffered by the Owners, namely the need, on account of delay in redelivery, to adjust the dates for the subsequent employment of the vessel with a reduction in the previously agreed rate of hire, was within the contemplation of the parties as a not unlikely result of the breach.
Insofar as it is necessary to do so, the Owners’ loss of profit can, in the light of the findings of the majority arbitrators, legitimately be treated as “arising naturally i.e. according to the usual course of things from such breach of contract itself”. In considering the first limb, the Court is not constrained to look at what people with not even a minimum knowledge of the shipping trade would contemplate. The court is entitled to look at the “general… facts …., known to both parties”: per Lord Upjohn in The Heron II at page 424; and “such knowledge and information as (the contract breaker), as reasonable men (sic), experienced in its trade, should have had and should have brought to bear in its contemplation”: per Davies LJ in Hill v Ashington Piggeries at page 1524 D[5].
Foreseeability
Mr Dominic Kendrick, Q.C., for the Charterers, submitted that the majority arbitrators must have treated foreseeability as the relevant test for remoteness. That this was so was apparent from their decision to include missing a dry docking or a sale of the vessel as “not unlikely” consequences of late delivery. The fact that they had used the phraseology of The Heron II “parrot fashion” could not disguise their legal error.
I do not regard the majority arbitrators’ conclusions as invalidated because they have used some of the language employed in The Heron II. On the contrary this seems to me an indication that they have asked themselves the relevant questions. It is, I think, debatable whether missing a dry docking or, even more, the sale of a vessel on account of late redelivery is to be regarded as a contingency within the contemplation of the parties or whether it is sufficiently unusual to be outside their contemplation. I cannot, however, regard the fact that the majority arbitrators have held, apparently by way of agreement with Counsel for the Charterers, that both of these events were “not unlikely” as indicating that they have applied a test of foreseeability alone. Nor do I reach that conclusion because in paragraph 18 the majority accepted Mr Croall’s submission that what mattered was that the type of loss claimed was foreseeable. In context the majority were plainly concerned with a result that was or ought to have been foreseen as not unlikely.
Assumption of responsibility
Mr Kendrick submitted that before the Charterers could be made liable it would be necessary to show that they assumed a responsibility for loss of profit on a subsequent charter. In support of this contention he relied, first, on the passage in the speech of Lord Reid in The Heron II which I have cited in paragraph 44 above.
I do not regard Lord Reid as having there laid down some additional requirement other than that the type of loss for which compensation is sought must be within the reasonable contemplation of the contract breaker as a not unlikely consequence of the breach in question. If it is, then it is “proper” to make him responsible for the loss.
In British Columbia, etc. Saw Mills Co. Ltd v Nettleship [1868] L.R. 3 C.P. 499, 509 Willes J said:
“…the mere fact of knowledge cannot increase the liability. The knowledge must be brought home to the party sought to be charged under such circumstances that he must know that the person he contracts with reasonably believes that he accepts the contract with the special condition attached to it ….Knowledge on the part of the carrier is only important if it forms part of the contract. It may be that the knowledge is acquired casually from a stranger, the person to whom the goods belong not knowing or caring whether he had such knowledge or not”.
Mr Croall submits that this passage is addressing the second limb of the rule in Hadley v Baxendale as the current authors of Chitty on Contracts, 29th Ed Vol 1(paragraphs 26 -004 and 26- 005) and McGregor on Damages, paragraphs 6 – 175 and 175, treat it as doing.
It is not, however, necessary, if the claimant is to recover damages, for him to show that it was a term of the contract, express or implied, that the contract breaker should compensate the other party for the type of loss in issue. See Lord Upjohn in The Heron II at page 422:
“If parties enter into the contract with knowledge of some special circumstances, and it is reasonable to infer a particular loss as a result of those circumstances that is something which both must contemplate as a result of a breach. It is quite unnecessary that it should be a term of the contract”.
and Goff J in The Pegase at page 182 (“The decided cases appear to support the opinion so expressed by Lord Upjohn”.)
If the result for which compensation is sought is of a type that the parties, as persons experienced in the relevant market, would, if they thought about it, realise was a not unlikely consequence of the breach, the contract breaker must be taken to have accepted the risk of being liable to compensate the other party if that result occurs. That is the case here. On the findings of the majority the Charterers did not need to be told that if the vessel was nine days late, she might miss the cancelling date for her next fixture, as a result of which, if the market rate had fallen, a lower hire rate might have to be accepted if the fixture was not to be lost completely.
If the type of loss for which compensation is sought does not fall within that category e.g. because it would be very unusual, it will be necessary to show that the contract breaker became aware that the type of loss in question might result from the breach and that he did so in circumstances such that he accepted the risk of being liable for it, or must be taken to have done so because a reasonable person in his position would have understood that he was accepting this responsibility[6]. But, if the risk of a special type of loss is communicated to the contract breaker by or on behalf of his counterparty when the relevant contract is made and in the context of contractual negotiations, and he does not seek to exclude liability in respect of it, it is likely to be very difficult for him to contend that he has not accepted the risk.
The weight of authority
Mr Kendrick relied on the words of Hobhouse, LJ, as he then was, in The “Nukila” [1887] 2 Lloyd’s Rep 146:
“Turning to the authorities it must at the outset be recognised that, whether or not they are strictly binding on us, they must, insofar as they represent the existing authoritative statements of the law only be departed from if they are clearly wrong. This principle has been stated on a number of occasions in the field of commercial law where it is recognised that the parties enter into contracts on the basis of the law as it has been stated in the applicable authorities. For a Court, in deciding a dispute under a commercial contract, later to depart from those authorities risks a failure to give effect to a contractual intention of those parties as evidenced by their contract entered into on a certain understanding of the law. As Lord Dunedin said in Atlantic Shipping & Trading Co v Louis Dreyfus & Co., [1922] 10 Ll. Rep 703; [192]) 2 A.C. 250 at p 257:
“My Lords in these commercial cases it is I think of the highest importance that authorities should not be disturbed and if your lordships find that a certain doctrine has been laid down in former cases and presumably acted upon you will not be disposed to alter that doctrine unless you think it clearly wrong”
I do not accept that it has been authoritatively decided that, on facts such as those found by the majority arbitrators, there can be no recovery in respect of loss of profit on a subsequent fixture either under the first limb or at all[7]. I must, therefore, decide whether, on the facts found, and in the light of all relevant authorities, including those such as The Heron II that lay down general principles and the need to restate Hadley v Baxendale in terms of a single principle, the majority arbitrators have erred in law.
The significance of an available market
Mr Kendrick submitted that the majority arbitrators did not properly take account of the fact that there is an available market in which vessels such as “The Achilleas” are chartered out and chartered in. Where there is such a market the owners’ entitlement, in the absence of special circumstances, is, to the market/charterparty rate difference during the overrun period. Both in this context, and in the analogous case of the sale of goods, the law does not concern itself with contracts made between the claimant and third parties, whether the claimant is the owner of a vessel or a purchaser of goods. What a claimant chooses to do with his ship after redelivery, or his goods if and when they are delivered, is his own independent speculation which, ordinarily, can neither increase nor reduce his claim for loss of use or damages for late or non delivery.
In the light of those submissions I turn to consider whether the cases in this field point to a conclusion different to the one that I have reached.
Premature termination of a charterparty
In The Elena d’Amico [1980] I LLR 75 the owners wrongful repudiated a three year charterparty in March 1973, about 14 months after its inception. The charterers did not, however, go into the market and hire another substitute vessel for the balance of the charter period. They claimed, inter alia, damages for the loss of profits that they said they would have made between January and April 1974, during which period there was a substantial rise in market rates. Goff, J., as he then was, held that the normal measure of recovery, if there was an available market, was that damages should be assessed on the basis of the difference between the contract and the market rate for the balance of the charter period; but that a plaintiff could recover damages beyond the normal measure if those damages fell within “the principle in Hadley v Baxendale”. But he held that there was no causative link between the owners’ breach of contract and the charterers’ decision not to take advantage of the available market. The owners’ decision was independent of the wrongdoing that had taken place, and, for that reason, there was no warrant for departing from the prima facie measure. So the owners’ non recovery of damages for loss of profits was, as Mr Kendrick accepted, based on causation. But the same result, he submits, can and should be reached by applying the concept of remoteness. As is apparent from what I have already said, I do not accept that that is so.
Non delivery of goods
In The Elena d’Amico Goff J had relied in part on the analogous position in relation to damages for non-delivery under section 51 of the Sale of Goods Act 1893, now the Sale of Goods Act 1979, which provides that the measure of damages for non-delivery:
“(2) ….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 whey they ought to have been delivered or (if no time was fixed) at the time of refusal to deliver”.
In R & H Hall Ltd v W.H. Pim Junr. & Co. Ltd [1928] 30 LLR 159 Pim had contracted to sell a cargo of Australian wheat to Hall (at 51s 9d a quarter). Hall had agreed to sell such a cargo to Williams (at 56s 9d a quarter). Williams had agreed to sell such a cargo to Suzuki (at 59s 3d a quarter). Pim bought a cargo of wheat on board the “S.S. Indianic” at 60s a quarter. Pim later secured agreement with all concerned that the sales from Pim to Hall and from Hall to Williams and from Williams to Suzuki should be treated, in each case, as resales of the cargo the subject of the preceding purchase in the chain. Pim gave notice appropriating the Indianic cargo to its contract with Hall and that notice was passed down the chain. Pim sold the Indianic cargo to Rank at 59s 11 ½ a quarter. When the cargo arrived the market price was 53s 9d a quarter. Having sold the cargo to Rank Pim was unable to, and did not, deliver the documents covering the cargo to Hall. The Court of Appeal held that Hall’s damages were limited to the difference between the market (53s 9d) and the contract (51s 9d) price at the date of the breach. Hall claimed the difference between the price at which they had bought (51s 9d) and the price (56s 9d) under their sub-sale to Williams.
The House of Lords restored the decision of Rowlatt, J that Hall was entitled to recover the difference between the price at which it had bought and the price at which it had resold the cargo together with an indemnity for the damages and costs which Hall would have to pay to the buyers who had brought from them.
The House treated the question as one of the application of the rule in Hadley v Baxendale. Viscount Haldane regarded the case as one where the contract was not merely for the sale of corn in bulk but for the sale of the cargo of an individual ship, either specifically identified or to be identified, by which the seller contracted to put the buyer in a position to fulfil such sub-contract as he might make. For that reason it mattered not whether the buyer was likely to enter into a sub-contract. He reached this conclusion on the terms of the contract alone without reference to what took place between the parties after the contract was made. Condition 1 of the contract had provided for notice of appropriation to be given by Pim, “and by each other seller”; the arbitration clause referred to intermediate buyers and sellers and to “the last buyer”; and the strike clause referred to notices being “passed on in due course”.
Viscount Dunedin observed that it was well known to both parties that it was common practice to resell cargoes whilst afloat, that, apart from common knowledge, the contract itself showed this, and that the correspondence as to the actual appropriation of the vessel was additional proof, if proof were needed, of the familiarity of Pim with the practice of successive resales of cargo afloat. Pim knew as soon as it nominated a cargo that only delivery of that cargo could satisfy the contract, and it was sufficient to give rise to liability for loss of profit that there was an even chance of a sub sale taking place.
Lord Shaw took a view similar to that of Viscount Haldane (“My principal reason is that I think that the two parties had actually provided for the very case of sub-sales”). It was he who appears to have been the author of the proposition that a “not unlikely” result of the breach must be reckoned to be within the contemplation of the parties as to its breach. He deprecated an “ultra analysis” of Baron Alderson’s sentence into two portions “which are to be reckoned as necessarily and always two distinct and different cases” and said:
“These two things, arising naturally from or the probable result of the breach, need not be antithetically treated; they may run into each other and, indeed, be one. I think for instance, that in this case, where the string of sales was to the knowledge of the breaker of the contract within the very scope of the conditions of his bargain, it was fairly and reasonably to be expected, not only, to use the language of the judgment as “arising naturally i.e. according to the usual course of things, from such breach”, but also “such as may reasonably be supposed to have been in the contemplation of both parties, at the time that they made the contract, as the probable result of the breach of it”.
This passage, like that cited at paragraph 42 above, illustrates that what may be regarded as arising naturally from the breach, may itself be dependent on what is known to the parties at the time of the contract as a possible result of the breach.
Lord Phillimore thought the question to be one of contract. Notice or knowledge of an intended use would not do of itself. “But if the tribunal which tries the case comes to the conclusion that he contracted to sell or to carry on terms that he should be responsible for damage which might accrue from his failure to provide for any one of certain objects then he must be held liable”. The contract terms were such that the sellers “must be taken to have consented” to a state of affairs whereby the purchasers would sell on in a string of sales and “thereby to have made themselves liable to pay to the appellants their profit on resale”.
Lord Blanesburgh had no difficulty in holding that it must be taken to have been within the contemplation of the parties that in the event of default by the sellers in tendering documents “their liability to their buyers in damages would be in exact correspondence with what it would have been if the contract had been specific all through and if to the knowledge of the sellers the sub-contract had at the date of that contract then existed or been in contemplation”.
I do not regard either section 51(2) or the decision in Hall v Pim as ruling out the Owners’ claim to loss of profit. Hall v Pim was an application of Hadley v Baxendale. The case plainly decides that loss of profits on a sub sale can be recovered if the contract itself contemplates that the buyers will sub sell the very same cargo without possibility of substitution and, at the time of breach, the sub contract price exceeds the contract and sub contract price. Although some members of the House rested their decision on the fact that the terms of the contract themselves contemplated a sub sale of the self same cargo, I do not regard the case as authority for the proposition that it is only in such circumstances that recovery of a loss of profits on sub sales is sufficient. It would be sufficient to establish that at the time of the contract the parties would, quite apart from the terms of the contract, have contemplated that a sub – sale of the very same (non substitutable) cargo was not unlikely to be made. That phrase must now be interpreted in the sense in which Lord Reid used those words in the Heron II.
The buyers in Hall v Pim could not mitigate their loss, once notice of appropriation had been given, by buying in a replacement cargo. If they had been able to do so their claim to loss of profits would probably have been defeated on account of their failure to mitigate by doing so (as happened to the unsuccessful buyers in Williams Bros v Ed.T. Agius Ltd [1914] A.C. 510). In this respect the Owners were in an analogous position. Whilst it is true that there is a market rate for the chartering of vessels such as the “Achilleas”, the Owners could not charter in another vessel in order to fulfil the Cargill charter, in the absence of any clause in the Cargill charter entitling them to substitute another vessel.
Supply of defective goods
Section 53 of the Sale of Goods Act 1979 provides:
(1) Where there is a breach of warranty by the seller, or where the buyer elects (or is compelled) to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach entitled to reject the goods; but he may:
(d) set up against the seller the breach of warranty in diminution or extinction of the price, or
(e) maintain an action against the seller for damages for the breach of warranty.
(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty
(3) In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the warranty.
(4) The fact that the buyer has set up the breach of the warranty in diminution or extinction of the price does not prevent him from maintaining an action for the same breach of warranty if he has suffered further damage”.
In Bence Graphics International Ltd v Fasson U.K. Ltd [1998] QB 87 Bence sold to Fasson vinyl film to use for making decals bearing words, numbers or symbols used to identify sea-borne bulk containers. One of the terms of the contract was that the film should survive in good legible condition for at least five years. Fasson sold the decals to container manufacturers, mainly Sea Containers Ltd, who supplied the containers (usually on lease) marked with the decals to shipping lines. Some of the decals became illegible. Fasson brought an action for breach of warranty. The trial judge held that the prima facie measure of damages under section 53 (3) had not been displaced and awarded £564,328 damages based on the difference between the value of the goods (measured by the purchase price) at the time of delivery and the value they would have had if the warranty been fulfilled.
The majority of the Court of Appeal overruled the decision. It was in the contemplation of the parties when the warranty was given (a) that the goods sold would only be used in making a product which would be sold on to customers requiring five year durability; (b) that any defect in the film would not have been detected on delivery or in the process of manufacture; and (c) that, if there was a defect, the end users would claim damages against the container owners, who would claim against the manufacturers, who would claim against the plaintiffs . In such a case the damages should be based on the buyer’s liability to the subsequent or ultimate users. The judgment was reduced to £22,000, being the cost of unused and defective material returned to the plaintiffs. The defendants had compensated the plaintiffs for the only claim that had been made on them; and it was not established that there were any others sufficiently in prospect to give rise to any claim for damages or an indemnity.
In reaching this conclusion Otton, L.J., distinguished Slater v Hoyle & Smith Ltd [1920] 2 K.B. 11. In that case the buyer had bought cotton cloth from the seller in order to fulfil another contract which the buyer had already made with a sub-buyer. The seller delivered cloth which was not of the contractual quality but the buyer was able to perform the sub-contract by delivering the same cloth. The sub-buyers paid the full price. Nevertheless the normal measure of damages was applied namely the difference between the market price at the time and place of delivery of cloth of the contractual quality and the market price at the time and place of delivery of the cloth actually delivered. Otton L.J distinguished the case from the facts in Bence on the ground that in Slater (a) the sub-sale was of the same goods (after bleaching) and (b) the seller did not know of the contemplated sub-sale; whereas in Bence (i) the goods were substantially converted or processed by the buyer and (ii) the sellers were aware of the precise use to which the film was to be put when the contract was made. Noticeably he rejected the submission that a conclusion that required the sellers to indemnify the buyers in respect of their liability to sub –purchasers was too “nebulous” and held that such difficulties of calculation as might arise were irrelevant to the issue that the judge had to decide.
Auld, L.J., agreed and said this:
“As to section 53 (3) there is, in my view, a danger of giving it a primacy in the code of section 53 that it does not deserve. The starting point in a claim for breach of warranty of quality is not to determine whether one or other party has “displaced” the prima facie test in that subsection. The starting point is the Hadley v Baxendale principle reproduced in section 53 (2) applicable to a breach of any warranty, namely an estimation on the evidence of “the ….. loss directly and naturally resulting in the ordinary course of events from the breach of warranty”. The evidence may be such that the prima facie test in section 53 (3) never comes in to play at all.
The Hadley v Baxendale principle is recovery of true loss and no more (or less), namely to put the complaining party, so far as a money can do it, in the position he would have been if the contract had been performed. Where there is evidence showing the nature of the loss that the parties must be taken to have contemplated in the event of breach, it is not to be set aside by applying the prima facie test in section 53 (3) simply because calculation of such contemplated loss would be difficult. Equally, it should not be set aside in that way so as to produce a result where the claimant will clearly recover more than his true loss.”
……Put shortly, and drawing on the analysis of Scarman L.J. in H.Parsons (Livestock) Ltd v Uttley Ingham & Co. Ltd (1978) QB 791,807, the sort of question the judge should have asked is: “What would the parties have thought about the probable loss to the buyer in the event of a latent defect in film at the time of delivery later causing trouble?”
Auld L.J. regarded his observations as running contrary the judgement of the Court in Slater, which he though was not materially distinguishable from Bence on either of the two bases suggested by Otton, L.J. As to (a) he saw no distinction between bleaching unbleached cloth and incorporating the goods in a manufactured product for onward sale. As to (b) the seller in Slater did not know of the specific contracts but did know that the buyer could sell the 3,000 pieces of unbleached cloth on, either unprocessed or processed and must be taken to have contemplated that loss could result from such onward sales if the cloth was not of the required quality. He thought that Slater ought to be reconsidered as being potentially wrong on four different counts. In particular he regarded it as having disregarded the reasoning of the Privy Council in Wertheim v Chicoutini Pulp Co [1914] A.C. 301 as approved by Lords Dunedin and Atkinson in Williams Bros v Ed T.Agius Ltd [1914] A.C. 50 that where there has been delivery in a mercantile contract and it can be seen what they buyer has done with the goods, it is possible and proper to measure his actual loss by reference to that outcome. He also regarded Slater as having had too much regard to practicality at the expense of principle in relying on possible difficulties of establishing causation and assessment where the goods sold have been subjected to some process or where the terms of the contract and sub-contract may for that or some other reason be different. He held that Bence was eminently a case in which the parties would have contemplated that, in the event of a breach by the seller discovered only after the decals had been in use, the buyer might wish to pass on to it claims for damages from dissatisfied customers
Bence is a breach of warranty of quality case, but it is, in my judgment, of relevance by analogy to the present case in its recognition of the following (a) that the principle in Hadley v Baxendale is one of “recovery of true loss and no more (or less), namely to put the complaining party, so far as money can do it, in the position he would have been if the contract had been performed”; (b) that “the ….. loss directly and naturally resulting in the ordinary course of events from the breach of warranty” includes loss that the parties, in their state of knowledge, must be taken to have contemplated; (c) that the application of that test may mean that a difference in value test is inapplicable; (d) the importance of principle over practicality and (e) the potential significance of seeing what the buyer has done with the goods in determining the damages to which he is to be entitled.
In the present case the Owners’ true loss was the loss of profit that they incurred on the Cargill charter. In the light of the majority arbitrators’ finding such a loss was eminently one which the parties would have contemplated as a possibility if the vessel was redelivered late. There is in fact no practical difficulty in assessing the Owners’ loss; but, even if there was, that is not a ground for awarding damages on a different principle. It can be seen what arrangement the Owners had to come to with Cargill and it is proper to measure their loss by reference to that outcome.
Delayed delivery
In Louis Dreyfus Trading Ltd v Reliance Trading Ltd [2004] 2LLR 243 Louis Dreyfus (LD) sold to Reliance Trading (“Reliance”) 7,000 m.t. of sugar, C & FFO Banjul at $257.43 per m.t. Shipment was “per m.v. Dawn currently discharging at Banjul”. An associated company of Reliance had previously agreed to sell 5,000 m.t. of similar sugar to Boule & Co Ltd (“Boule”) at $290 per m.t., and it was to meet that company’s obligations that Reliance had purchased the sugar from LD. But LD had insisted that Reliance buy the entire 7,000 m.t. and Boule had, by an amendment to the contract to buy 5,000 m.t., agreed to purchase the additional 2,000 m.t. at a discounted price of $253 per m.t. It was known when the contract was made that the sugar was being purchased by Reliance for resale under the amended contract between Reliance or its associated company and Boule. On August 17th payment was made by Reliance to LD and by Boule to Reliance for 3,000 m.t. Discharge was delayed in circumstances for which LD were responsible and by the time the vessel was finally discharged the market price had dropped to $224 per m.t. Reliance said that they would only take the 4,000 m.t. if a reduced price was applied to the whole 7,000 m.t. LD treated Reliance as in default in regards to the 4,000 m.t.
Reliance sought damages on the basis of the difference between the contract price ($257.43) and the value of the good when they eventually became available ($224). LD said that Reliance had suffered no loss. They pointed out that Reliance was to receive from Boule $290 for 5,000 m.t. and $253 for the balance and that it was likely that Reliance had obtained payment for the 3,000 m.t. discharged at $290 per m.t. as a result of which Reliance had made a profit. The arbitrators awarded Reliance damages calculated in the manner that they had sought.
Andrew Smith J held that the profit or loss made by a buyer on a sub-sale was generally irrelevant to the assessment of damages for breach by a seller of a warranty of quality or failure to deliver; but that if the parties had a particular sub-sale within their contemplation when making their contract the buyer might be entitled to have that sub-sale brought into account to increase his damages or the seller might be entitled to have it brought into account in order to reduce the award against him. In a case where the parties had in their contemplation when the contract was made that the buyer was committed to deliver the same goods to a sub-buyer under a specific contract, principles of remoteness did not require that the sub-sale be disregarded in assessing they buyer’s damages. It was to be taken to have been within the parties’ reasonable contemplation as a serious possibility, or a consequence not unlikely to result from LD being in breach of their obligations, that the loss suffered by Reliance might depend on the impact of the sub-sale to Boule. The case was remitted to the arbitrators for reconsideration because it was apparent that they had not considered whether or not LD had rebutted the presumption that the damages should be assessed in accordance with section 53 (3) of the 1979 Act.
I do not regard that case as inconsistent with the conclusion that I have reached. There is a superficial tension between the general principle laid down in The Heron II (that damages are recoverable for loss that the parties must have contemplated as a not unlikely consequence of the breach) and the principle that where there is an available market the buyer’s damages for non delivery or delayed delivery are to be calculated by the difference between the contract price and the market price at the date when delivery should have taken place or the date when delayed delivery in fact took place. As Lord Devlin said in Kwei Tek Chao v British Traders and Shippers Ltd [1954] 2 Q.B. 459 “everyone who sells to a merchant knows that he bought for re-sale”. It must follow that, if the goods are not delivered and nothing else happens, a loss on a resale is not merely foreseeable, but not unlikely. The reason why such a loss is not recoverable, where there is an available market, is that the law’s working assumption is that a merchant (or, in more modern parlance, a businessman) will go into that market and buy replacement goods. That is what the law contemplates that the buyer, acting reasonably, will do. It treats the parties as having the same contemplation.
But there are, as Lord Devlin also observed, cases where something different must be contemplated and a different measure is applicable. The archetypical situation is where the buyer cannot go into the market because he had agreed to sell the very same goods as those he had agreed to purchase. If late delivery of goods under a sale contract is to be regarded as analogous to late redelivery under a charterparty, it has to be remembered that that which is to be redelivered will in all probability be the very thing that is thereafter to be delivered under a subsequent charter.
Damaged goods
In Obestain Inc v National Mineral Development Corporation Ltd [987] I LLR 465. “The Sanix Ace” sailed from Cigading in Indonesia with a cargo of 7,558 DIR pellets. She arrived at Visakhapatnam in India with a major part of her cargo wet damaged. Only 2,000 tons could be salved. The charterers had purchased the cargo from the shippers FOB and sold it to the end users on terms that risk (but not property) passed on shipment. The charterers obtained the full price from the end users. The owners contended that, in those circumstances, the charterers had suffered no loss. Hobhouse, J., (as he then was) roundly rejected this suggestion upon the basis that:
“the owner of goods is entitled to sue and recover damages in respect of loss or damage to those goods …In contract, although nominal damages can be awarded, the right to recover substantial damages can be proved by proving possession or ownership of the relevant goods. The carriers’ argument before me that the claimants had suffered no damage because they had subsequently been paid by the end users is misconceived. As soon as the goods are damaged the owner of the goods suffers loss. Formerly he was the owner of goods of full value and subsequently he is the owner of goods with only a reduced value. He has suffered a loss. Whether or not he is able to recover his loss from others is a separate question”.
In the course of his judgment he said this:
“Yet another aspect of the law with which the novel and erroneous proposition of the carriers before me comes into conflict is the established law about remoteness of damages and mitigation in relation to maritime contracts. As will be apparent from the article in Scrutton to which I have already referred[8] and the cases there cited, the provisions of contracts of sale and purchase to which the good owner is a party are, in the absence of special circumstances, res inter alios acta which are not to be taken into account in assessing the damages to be paid to the goods owner”
I do not regard that case as providing any significant assistance in relation to the measure of damages for delayed redelivery under a charterparty. A claim in respect of damage to property rests upon a different footing. Property in the goods carries with it the right to substantial damages. It is common ground that, in some circumstances, a claim for damages in respect of a subsequent charter can be recovered. The Sanix Ace is not, in my judgment of assistance in determining what those circumstances are.
General considerations
Mr Kendrick submitted that, if the majority arbitrators were right, the assessment of damages might become very complicated. Suppose that a subsequent charter was lost that would have earned the Owners a generous rate of hire whilst it lasted but with the result that, when the vessel was redelivered under that charter, she would have needed employment at a time when the market had slumped. In fact, because she missed her subsequent charter, she obtained a less profitable immediate charter, but one that would have had her employed at above market rates during the market doldrums. Should account be taken of the fact that the rate was above market for a period after redelivery under the subsequent charter?
I should have thought that the answer was “Yes”. I accept, also, that other factual situations may give rise to difficulties in assessing the owners’ loss. But I do not regard the fact that in some cases there may be such difficulties as meaning that the Owners should be confined to recovery of a loss that is markedly less than their true loss, not least because such difficulties may also arise in those, admittedly more limited circumstances, in which, in accordance with Mr Kendrick’s submissions, a claim would be possible.
It was also submitted that, as the minority arbitrator observed, if in this case there can be recovery of loss of profits under the first limb of the rule there is little room left for the application of the second limb. As to that, as I have already indicated, a strict delineation of the two limbs into two mutually exclusive categories is inappropriate, especially if it is used to support the proposition that a particular type of situation cannot fit into the first limb because, if it does, there is not much scope left for the application of the second. In any event there may be circumstances where the owners can only recover damages for loss of profit if at the time of the contract they had told the charterers (or they otherwise knew) that a particular charter was to be entered into on or shortly after its expiry. If, for instance, the rate under the subsequent charterparty was not a market rate, or its length was very unusual, or its terms were very special and compensation was sought because owners were deprived of the advantage of them, the owners might fail to recover if they had not informed the charterers of these features.
Finale
I have not come to the conclusion that I have reached with any sense of regret. As Lord Atkinson observed in Wertheim v Chicoutini Pulp:
“it is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed … That is a ruling principle. It is a just principle. The rule which prescribes as a measure of damages the difference in market prices at the respective times above mentioned is merely designed to apply this principle…”
To award damages in this case on the basis of the difference between the market and the charter rate for the overrun would compensate the Owners for only a fraction of the true loss caused by the breach. In compensating them for the whole of it the majority did not, in my judgement, err in law. I shall, accordingly, dismiss the appeal.
Note 1 The facts recorded in the first two sentences of this paragraph are not set out in the Award but there is no dispute about them. [Back]
Note 2 The facts in this sentence are not recorded in the Award; but there is no dispute about them. [Back]
Note 3 See Lord Pearce in The Heron II: “According to whether one categorises a fact as basic knowledge or special knowledge the case may come under the first part of the rule or the second. For that reason there is sometimes difference of opinion as to which is the part which governs a case and it may be that both parts govern it”. [Back]
Note 4 Citing Lord Shaw in R & Hall Ltd v W.H. Pim (Junior) & Co Ltd. See paragraph 76 below [Back]
Note 5 See also Scrutton, L.J., in The Arpad [1934] P 189,201: “… “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”. This brings in, in claims of contract, the contemplation of the parties, including the knowledge of one contracting party, either from actual communication, or from business knowledge, that the goods dealt with may probably be resold, so that failure to deliver them may probably prevent, if there is no market, the performance of a contract for resale and cause probable loss of profit”. [Back]
Note 6 See Goff, J, in The Pegase: “…the test appears to be: have the facts in question come to the defendant’s knowledge in such circumstances that a reasonable person in the shoes of the defendant would, if he had considered the matter at the time of the making of the contract, have contemplated that, in the event of a breach by him, such facts were to be taken into account when considering his responsibility for loss suffered by the plaintiff as a result of the breach”. [Back]
Note 7 I note also that before the arbitrators it was agreed that there was no authority precisely in point to support the owners’ claim but both parties submitted that such authority as there was supported their respective contentions. The minority arbitrator said that he regarded the well established view in the industry to be that if a vessel was redelivered late then, unless the charterer was put on notice of the subsequent fixture, the measure of damages was the market versus contract rate for the period of the overrun, although he had never had the point argued previously. Even if that was the industry view (on which the majority make no findings) its view of the measure of damages (a question of law) is not the same thing as its view of the possible consequences of breach (a question of fact). [Back]
Note 8 Now Article 195. [Back]