Dear All,

 

The UK Supreme Court has considered contract damages and anticipatory breach today in Bunge SA v Nidera BV [2015] UKSC 43 https://www.supremecourt.uk/cases/docs/uksc-2014-0019-judgment.pdf. It concerned a standard form contract from Grain and Feed Trade Association. Following a Russian embargo on exports of wheat, which was to run during the contractual shipping period, the sellers told the buyers that they considered the contract cancelled under a provision of the contract. The buyers disagreed that the sellers were entitled to cancel at that stage and treated the cancellation as a repudiation. Through the course of the arbitration, the sellers now accepted that they had been in breach, so the only issue for the Supreme Court was damages. It is unanimously held that the buyers were only entitled to nominal damages of US$5: “In the present case, the sellers jumped the gun. They repudiated the contract by anticipating that the Russian export ban would prevent shipment at a time when this was not yet clear. But fortunately for them their assumption was in the event proved to have been correct. The ban would have prevented shipment when the time came. The buyers did nothing in consequence of the termination, since they chose not to go into the market to replace the goods. They therefore lost nothing, and the arbitrators should not have felt inhibited from saying so.”

 

There are also some general observations about The Golden Victory (Lord Toulson expresses some doubt about some of Lords Bingham’s dissenting reasoning there), which is held not to be limited to instalment contracts but can apply in a single sale case, and this area of the law more broadly. Lord Sumption robustly defends the case and the ‘compensatory principle:

 

“23. The principle upheld in The Golden Victory has come in for a certain amount of academic criticism and judicial doubt. To my mind both the criticism and the doubt are unjustified. The most comprehensive and influential critic has been Professor Treitel. His views were set out in their fullest form in a case note on the decision of the Court of Appeal, which had reached the same conclusion as the majority of the Appellate Committee: see “Assessment of Damages for Wrongful Repudiation”, (2007) 123 LQR 9. Professor Treitel’s case note was cited to the Appellate Committee but evidently did not move them. His main criticisms were, first, that the decision failed to distinguish between the different supervening events (successful mitigation by the defaulting party, inability of the innocent party to perform, cancellation under an express provision) which may serve to reduce or extinguish the loss; secondly, that it took no account of the collateral motives that might have moved the party who had repudiated the contract to cancel it lawfully at a later stage if it had continued; and, thirdly, that it attached insufficient weight to the commercial value of certainty. I am no more convinced by these criticisms than the Appellate Committee was in The Golden Victory. The principle which the Committee applied was neither new nor heterodox. There is no principled reason why, in order to determine the value of the contractual performance which has been lost by the repudiation, one should not consider what would have happened if the repudiation had not occurred. On the contrary, this seems to be fundamental to any assessment of damages designed to compensate the injured party for the consequences of the breach. If the contract had not been repudiated, it would have been lawfully cancellable. If it was lawfully cancellable, the charterer would have been entitled to avail himself of that right regardless of his motive. The only question is whether he would in fact have done so, a question which in practice would probably have been determined by his financial interest. Commercial certainty is undoubtedly important, although its significance will inevitably vary from one contract to another. But it can rarely be thought to justify an award of substantial damages to someone who has not suffered any. As Lord Mance pointed out in the Court of Appeal in The Golden Victory [2006] 1 WLR 533, para 24, the degree of uncertainty involved in that case was no greater than the uncertainty inherent in the contract itself. The parties’ obligations were always defeasible in the uncertain event of war, just as their obligations under the contract presently in issue were always defeasible in the uncertain event of an export embargo.”

 

(It might finally be noted that the first instance judge in this case, who was endorsed by the Court of Appeal, but now overturned by the Supreme Court, was Hamblen J, who as Nicholas Hamblen QC was lead counsel for the unsuccessful appellants in The Golden Victory).

 

Best wishes,

James

 

 

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James Lee

Senior Lecturer in Private Law

Director of UG Admissions and Scholarships

The Dickson Poon School of Law
King's College London
Strand
London WC2R 2LS

 

E-mail: james.lee@kcl.ac.uk

 

Tel: +44 (0)20 7848 2363

 

Profile: http://www.kcl.ac.uk/law/people/academic/j-lee.aspx

 

Forthcoming: Jamie Glister and James Lee (eds), Hanbury & Martin: Modern Equity (20^th edition), Sweet & Maxwell, August 2015 https://www.sweetandmaxwell.co.uk/downloads/academic_catalogue.pdf