Bunge SA v Nidera BV [2015] UKSC 43

Sellers prematurely cancelled a wheat sale contract citing a Russian export ban that had not yet taken effect. Buyers accepted the repudiation and claimed substantial damages under GAFTA 49's default clause. The Supreme Court held that the compensatory principle in The Golden Victory applied, and as the ban would have prevented performance anyway, only nominal damages were recoverable.

Facts

On 10 June 2010, Bunge SA (the sellers) contracted to sell Nidera BV (the buyers) 25,000 metric tonnes of Russian milling wheat FOB Novorossiysk, with shipment in August 2010 (later narrowed to 23-30 August 2010). The contract incorporated GAFTA Form 49, including the prohibition clause (clause 13) and default clause (clause 20).

On 5 August 2010, the Russian government announced a legislative embargo on wheat exports, running from 15 August to 31 December 2010. On 9 August 2010, the sellers purported to cancel the contract under clause 13. The buyers treated this as a premature repudiation, accepting it on 11 August 2010. The sellers offered on 12 August to reinstate the contract on the same terms, but the buyers refused. The embargo was never lifted and was extended.

The buyers commenced GAFTA arbitration claiming US$3,062,500, being the difference between the contract price (US$160/MT) and the market price on 11 August 2010. The first-tier tribunal found the sellers had repudiated but awarded no substantial damages because the embargo would have prevented performance in any event. The GAFTA Appeal Board reversed, awarding the full claimed sum on the basis that clause 20(c) prescribed a formula. Hamblen J and the Court of Appeal upheld that award.

Issues

The issues, as framed by Andrew Smith J’s order granting permission to appeal, included:

• Whether the GAFTA default clause excluded common law principles for the assessment of damages for anticipatory repudiatory breach, in particular the compensatory principle identified in Golden Strait Corporation v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 AC 353.
• Whether the overriding compensatory principle established in The Golden Victory was limited to instalment contracts.

Arguments

Sellers

The sellers argued that, at common law, account had to be taken of events occurring after the breach which showed the same loss would have been suffered regardless of the repudiation, relying on The Mihalis Angelos [1971] 1 QB 164 and The Golden Victory. There was a strong presumption that an express damages clause was not intended to depart from the compensatory principle. Clause 20 used the words “based on”, not “fixed at”, and operated only on quantification, not on whether any loss had been sustained.

Buyers

The buyers argued that clause 20 constituted a complete code prescribing a formula for assessing damages, designed to produce certainty. The date of default was 11 August 2010, and the market price differential at that date conclusively determined damages. They further submitted that The Golden Victory was distinguishable as it concerned a period contract, not a single sale.

Judgment

The Supreme Court unanimously allowed the appeal, substituting nominal damages of US$5.

The Golden Victory and the compensatory principle

Lord Sumption (with whom Lord Neuberger, Lord Mance and Lord Clarke agreed) reaffirmed the compensatory principle as articulated in Robinson v Harman (1848) 1 Exch 850 and codified in sections 50 and 51 of the Sale of Goods Act 1979. He held that the majority decision in The Golden Victory was correct: where supervening events show that the contract would not have been performed in any event, those events must be taken into account in assessing damages. The relevant valuation concerns the contractual performance that would actually have been rendered, not the contract as a tradeable commercial asset.

Critically, the principle is not confined to instalment or period contracts. Lord Sumption rejected the suggestion that Lord Scott’s dicta in The Golden Victory created any distinction between one-off sales and period contracts in this respect. The Mihalis Angelos, a single voyage case, could not otherwise have been decided as it was.

Construction of clause 20

Lord Sumption held that whilst there is no presumption that a damages clause produces the same result as the common law, such clauses should not, absent clear words, operate arbitrarily to produce results unrelated to the parties’ reasonable expectations of true loss. Clause 20 is not a complete code for all aspects of damages assessment. Sub-clauses (a) to (c) provide a code for determining the market price or value of the goods, addressing the first of two distinct questions: at what date is the market price determined? They do not address the second question: whether supervening events extinguish the loss because the contract would not have been performed in any event.

The words “based on, but not limited to” did not exclude consideration of subsequent events that would have prevented performance. This conclusion was consistent with Bem Dis A Turk S/A TR v International Agri Trade Co Ltd (The Selda) [1998] 1 Lloyd’s Rep 416 and Novasen SA v Alimenta SA [2013] 1 Lloyd’s Rep 647.

Lord Toulson’s concurring judgment

Lord Toulson (with whom Lord Neuberger, Lord Mance and Lord Clarke also agreed) provided separate reasoning. He emphasised that the fundamental principle is restitutio in integrum, and that the available market rule is a method of giving effect to that principle, not an end in itself. The rule presupposes a true substitute contract; here, any hypothetical substitute would have been subject to the same export ban. He saw no logical basis for distinguishing single sale and period contracts, the relevant criterion being whether the contract is replaceable by a substitute at a readily ascertainable market price.

Implications

The decision confirms and extends the principle in The Golden Victory to one-off sales of goods, resolving the previously “open question” identified by Hamblen J. The compensatory principle is the overriding lodestar: where supervening events demonstrate that the contract would not have been performed in any event, this must be taken into account when assessing damages for anticipatory repudiation, regardless of whether the contract is a single sale or for performance over time.

Standard form damages clauses, including the widely used GAFTA 49 default clause, are not to be readily construed as complete codes excluding all common law principles. They typically address the mechanics of valuing the goods but do not necessarily exclude consideration of supervening events that eliminate loss. The decision provides important guidance for the grain trade and commodity markets where similar default clauses are commonplace.

The judgment also offers a nuanced treatment of the distinction between two questions in anticipatory breach cases: (i) the date at which market price is fixed, and (ii) the relevance of supervening contingencies which would have prevented performance regardless of price. The Court rejected arguments that commercial certainty justified awarding substantial damages where no loss had in fact been suffered, observing that the uncertainty inherent in the contract (here, the possibility of an export ban) was no different from the uncertainty addressed in The Golden Victory.

The decision is significant for practitioners advising on commodity sale contracts, charterparties, and anticipatory repudiation generally, as it clarifies that windfall damages will not be awarded where post-breach events demonstrate the contract was doomed to non-performance.

Verdict: The Supreme Court allowed the sellers’ appeal, varying the GAFTA Appeal Board’s award by excising the award of substantial damages (US$3,062,500) and substituting an award of nominal damages of US$5 in favour of the buyers.

Source: Bunge SA v Nidera BV [2015] UKSC 43