Novasen SA v Alimenta SA [2013] EWHC 345 (Comm)

Case No 2012 FOLIO 650

[2013] EWHC 345 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Venue Royal Courts of Justice, Rolls Building, Fetter Lane,

Date 27/02/2013

EC4A 1NL

Before

THE HON. MR JUSTICE POPPLEWELL

Between

NOVASEN S.A.Claimant

ALIMENTA S.A.Defendant

Mark Jones (instructed by Marine Law Solicitors) for Claimant

Lawrence Akka QC (instructed by Liberty Commodities Ltd) for Defendant

Hearing Hearing date: 19 February 2013

Judgment

The Hon. Mr Justice Popplewell :

[1]This is an arbitration appeal which raises issues concerning the construction and application of the FOSFA Prohibition and Default Clauses, and the relevance of subsequent events to the assessment of damages in accordance with the common law principles considered by the House of Lords in Golden Strait Corporation v Nippon Yusen Kubishka Kayisha (“The Golden Victory”)

[2007] 2 AC 353

[2]By Award number 1057 dated 29 March 2012 the FOSFA Board of Appeal upheld a First Tier Award in favour of the Defendant (“the Buyers”) against the Claimant (“the Sellers”). The claim arose pursuant to a contract by which the Sellers sold to the Buyers 2000 metric tonnes of crude groundnut oil in bulk of Senegal origin duty paid CIF Genoa for US$1,620 per metric tonne. The contract provided for shipment from Senegal during a shipment period of December 2007/10 January 2008.

[3]The contract incorporated the terms of FOSFA Contract 201, which included the following prohibition and default clauses:

“22. PROHIBITION: In the event, during the contract shipment period, of prohibition of export or any other executive or legislative act by or on behalf of the Government of the country of origin or of the territory where the port/s of shipment named herein is/are situate, or of blockade or hostilities, restricting export, whether partially or otherwise, any such restriction shall be deemed by both parties to apply to this contract and to the extent of such total or partial restriction to prevent fulfilment whether by shipment or by any other means whatsoever and to that extent this contract or any unfulfilled portion thereof shall be extended by 30 days. In the event of shipment within the extended period still proving impossible by reason of any of the causes in this clause, the contract or any unfulfilled part thereof shall be cancelled. Sellers invoking this clause shall advise Buyers with due dispatch. If required, Sellers must produce proof to justify their claim for extension or cancellation under this clause.” “25. DEFAULT: In default of fulfilment of this contract by either party, the other party at his discretion shall, after giving notice, have the right either to cancel the contract or the right to sell or purchase, as the case may be, against the defaulter who shall on demand 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 neither of the above rights is exercised, the damages, if any, shall, failing amicable settlement, be determined by arbitration. The damages awarded against the defaulter shall be limited to the difference between the contract price and the actual or estimated market price on the day of default. Damages to be computed on the mean contract quantity. If the arbitrators consider the circumstances of the default justify it they may, at their absolute discretion, award damages on a different quantity and/or award additional damages. Prior to the last day for making a declaration of shipment a Seller may notify his Buyer of his inability to ship but the date of such notice shall not become the default date without the agreement of the Buyer. If, for any other reason, either party fails to fulfil the contract and is declared to be in default by the other party and default is either agreed between the parties or subsequently found by arbitrators to have occurred, then the day of the default shall, failing amicable settlement, be decided by arbitration.”

[4]In the Award the Board made the following findings of fact:(1) It was common ground between the parties that the shipment period had been held open after 10 January 2008, with several discussions as to part shipments, until the end of March 2008, such that the contract was still open on 2 April 2008 (paragraph 7.1).

(2) On 2 April 2008 there was in force in Senegal a prohibition of export which fulfilled the requirements of the Prohibition Clause, and the prohibition was properly notified by the Sellers to the Buyers on 2 April 2008 in accordance with the clause so as to extend the shipment period for 30 days (paragraphs 7.3 and 7.6).

(3) However in the Sellers’ communication of 2 April 2008 they made a further statement which purported to be a termination of the contract (paragraph 7.7). This amounted to an anticipatory repudiation of the contract, which was accepted by the Buyers on the same day (paragraphs 7.9 and 7.10).

(4) The prohibition was still in force on 2 May 2008 when the 30 day extension provided for in the Prohibition Clause expired; the prohibition lasted until 6 June 2008 when the Senegalese Ministry of Trade permitted the Sellers to recommence exports (paragraphs 4.11 and 7.14).

[5]The Sellers contended that no loss was suffered by the Buyers because but for the Sellers’ breach of contract on 2 April 2008, resulting in termination on that date, the contract would in any event have come to an end without liability on the part of the Sellers upon the expiry of 30 days thereafter pursuant to the Prohibition Clause. The Sellers contended that the contract would automatically have come to an end on 2 May 2008 pursuant to the earlier notification given on 2 April 2008, without the need for the Sellers to have exercised any further right of cancellation by giving a further notice. The Board rejected this argument, and held that default damages were to be awarded at the difference between the contract price and the market price on 2 April 2008 (US$ 2,050 per metric tonne), calculated on the mean contract quantity. This resulted in an award in the Buyers’ favour of US$ 860,000 together with interest and costs.

[6]The Board’s reasons for rejecting the Sellers’ argument are contained in paragraphs 7.12 to 7.14 and 7.25 of the Award in the following terms:

“7.12 As commercial persons, familiar with FOSFA contracts and the default clauses, we have difficulties in grasping how the narrow issue of default damages can be “a legal issue” as both Parties have suggested. It is common ground between commercial persons dealing with FOSFA contracts that the default damages are the difference between the contract price and the market price at the date of default (with discretion for the tribunal to award additional damages, if the particular situation so requires). 7.13 The legal arguments have not been helpful in this respect and we will take this into account when we deal with allocation of costs. 7.14 Sellers have argued that as the Contract would have been automatically cancelled on 2 May 2008, no damages were due. We reject this argument as we have found that Sellers defaulted on 2 April 2008 and that is the only date that matters for the calculation of damages. Sellers, by terminating the Contract on 2 April 2008, deprived themselves from relying on the potential automatic cancellation of the Contract on 2 May 2008, under the provisions of the Prohibition Clause. 7.25 Buyers and Sellers claimed recovery and/or allocation of the costs of this Appeal, including legal costs. After having carefully considered this matter, we have concluded that the narrowed-down issue of determination of default damages based on a market price was a purely commercial matter, well within the competence of commercial persons and the addressing and evaluation of the commercial matters did not require legal guidance and/or advice. WE THEREFORE decline legal costs, declaring that both parties shall bear their own legal costs for this Appeal.”

[7]The Sellers appeal under section 69 of Arbitration Act 1996 with the permission of Mr

Justice Christopher Clarke on the following point of law:

“Should the Tribunal have taken account of matters occurring after 2 April 2008 (in particular those relating to the ongoing export prohibition and the operation of clause 22 which would have resulted in the termination of the Contract on 2 May 2008 without any liability on the part of the Sellers) when assessing whether or not the Buyers suffered a loss, and hence whether or not the Buyers were entitled to substantial damages?”

[8]The Sellers contend that the answer to this question is yes, and that the Tribunal should have awarded no more than nominal damages applying the principles set out by the majority of the House of Lords in The Golden Victory. The Buyers contend that the Tribunal was right to ignore subsequent events occurring after the date of default because the Default Clause is a contractual regimen which the parties have agreed in place of the common law principles reflected in The Golden Victory, and dictates that result. They contend in the alternative that the Award should be upheld on either or both of two grounds which were identified in a respondent’s notice:(1) The Prohibition Clause does not result in automatic termination after 30 days, but requires the exercise of the right of cancellation by giving a further notice upon expiry of the 30 days; the Sellers had failed to establish that had the contract remained alive, they would have exercised the right to cancel the contract pursuant to the Prohibition Clause when the time came for doing so; and/or

(2) The Sellers had in any event no right to cancel the contract pursuant to the Prohibition Clause because it was no longer applicable at the date of the Prohibition, or if it was, it did not permit termination by the Sellers.

[9]When giving permission to appeal, Mr Justice Christopher Clarke declined to rule on whether the respondent’s notice points should be permitted, leaving that issue to be decided by the court hearing the appeal. The Sellers contend that the Buyers should not be allowed to raise the second of the respondent’s notice points.

The Golden Victory

[10]It is convenient to address some aspects of The Golden Victory before turning to the issues on this appeal. In that case charterers repudiated a long term time charter when it had a little under four years left to run. Fifteen months later the Second Gulf War started, which would have resulted in the charterers exercising their right to cancel the charter had it still been in force. Owners claimed damages at the difference between the charterparty and market rate for the full unexpired term of the charter, arguing that damages fell to be assessed at the date of breach and that the subsequent contingency of war, which at the time of breach was (as the arbitrator found) no more than a possibility, could not affect the assessment of damages at that date. This argument was unanimously rejected by the Court of Appeal (

[2006] 1 WLR 533

), in which Lord Mance gave the leading judgment, and by the majority in the House of Lords. The majority, comprising Lords Scott, Carswell and Brown, ruled that the general principle that damages should be assessed at the date of breach was subject to the overriding compensatory principle that the damages awarded should represent no more than the value of the contractual benefits of which the claimant had been deprived; and that where an event which would have resulted in termination of the contract had already happened by the time damages came to be assessed, the court or tribunal should have regard to what had actually occurred after breach. The owners’ damages were therefore limited to the period up to the outbreak of the Second Gulf War. The essence of the reasoning of the majority is reflected in paragraph [36] of Lord Scott’s speech:

“The same would, in my opinion, be true of any anticipatory breach the acceptance of which had terminated an executory contract. The contractual benefit for the loss of which the victim of the breach can seek compensation cannot escape the uncertainties of the future. If, at the time the assessment of damages takes place, there were nothing to suggest that the expected benefit of the executory contract would not, if the contract had remained on foot, have duly accrued, then the quantum of damages would be unaffected by uncertainties that would be no more than conceptual. If there were a real possibility that an event would happen terminating the contract, or in some way reducing the contractual benefit to which the damages claimant would, if the contract had remained on foot, have become entitled, then the quantum of damages might need, in order to reflect the extent of the chance that that possibility might materialise, to be reduced proportionately. The lodestar is that the damages should represent the value of the contractual benefits of which the claimant had been deprived by the breach of contract, no less but also no more. But if a terminating event had happened, speculation would not be needed, an estimate of the extent of the chance of such a happening would no longer be necessary and, in relation to the period during which the contract would have remained executory had it not been for the terminating event, it would be apparent that the earlier anticipatory breach of contract had deprived the victim of the breach of nothing.”

[11]For present purposes there are two aspects of the decision which deserve emphasis. The first is that the owners’ argument, accepted by the dissenting minority of Lords Bingham and Walker, placed emphasis on the commercial importance of certainty, finality, settlement, consistency and coherence which the breach date rule conferred on parties in the position of the owners. These considerations are recorded in the argument of counsel for the owners at 356D-357B and 358F-359E, and reflected in the strong dissent of Lord Bingham at [23]. These important commercial considerations were acknowledged by the majority, albeit that the majority regarded them as being required to yield to the compensatory principle in that case: see for example [38] and [63]. One important aspect of such considerations, indeed to my mind one of the foremost, is that the innocent party would wish to be able to make decisions about acceptance of the repudiation, and what steps to take in the market, secure in the knowledge that his entitlement to compensation would not depend upon uncertain future contingencies. In the context of a defaulting seller under a contract of sale of commodities where there is an available market, the buyer will have to decide whether to accept the breach and whether to go into the market to buy replacement goods. He may have sub-buyers or other non contractual supply considerations to take account of; he may have charterparty commitments or other transport considerations to take account of; he may have a host of commercial arrangements which depend upon the decisions. One of the commercial certainties which is important to him is that he can make a decision to accept the repudiation, and go into the market to replace his lost bargain, in the knowledge that the financial position vis a vis the seller is crystallised at the breach date; and that the financial consequences can be easily calculated by reference to the market price/contract price differential. The financial consequences of his decision will not be varied or confounded by uncertain future events. I emphasise this aspect because, as I shall explain, this aspect of commercial certainty is specifically addressed in the FOSFA Default Clause.

[12]The second aspect of the decision which deserves emphasis is that the case was not one of sale of goods. It concerned the period element of the assessment of damages applicable to a long term time charter, in respect of which the rate of hire to be applied over the relevant period was accepted to be the market/contract differential at or close to the date of breach, irrespective of future market fluctuation. Although the statements of principle by the majority were expressed in wide terms, it might be open to question whether the same principles are applicable to a one off contract for the sale of commodities where there is an available market. In his recent decision in Bunge SA v Nidera SA,

[2013] EWHC 84 (Comm)

, Mr Justice Hamblen, who had been counsel for the unsuccessful owners in The Golden Victory, expressed the view that this remained an open question. In that case he held that the GAFTA Default Clause (which is in materially different terms to the FOSFA Default Clause) had the result of crystallising the assessment of damages at the date of breach in the way in which the minority in The Golden Victory would have held the common law to apply. Whether the same result would have been reached in the absence of the clause was therefore a question which did not need to be decided. Hamblen J said:

“54. ……….I would not accept that it is settled law that the The Golden Victory approach applies to a one off sale of goods contract such as this. The majority in The Golden Victory recognised that they were departing from the general rule that damages in respect of a marketable commodity fall to be assessed by reference to the available market price at the date of breach, but considered that the compensatory principle justified them so doing in the circumstances. However, The Golden Victory concerned a period contract and the departure from the general rule was only adopted in relation to the period element of the damages claimed, not the applicable hire rate. Further, as the Board observed, Lord Scott at paragraph 34 recognised that the assessment at the date of breach rule “is particularly apt” in sale of goods cases, as is reflected in the Sale of Goods Act. At paragraph 35 he drew a distinction between a one-off sale and “a contract for the supply of goods over some specified period”

. It is also to be noted that Benjamin treats The Golden Victory as being relevant to sale of goods cases because it’s “reasoning could apply to long term contracts for the sale of goods” – para19–170. 55. Although there are passages in the majority judgments in The Golden Victory which are put in very general terms, I would for my part regard it as very much an open question whether The Golden Victory approach would apply in a one-off sale of goods contract where there is an available market and damages fall to be assessed in accordance with the Sale of Goods Act. There is in such a case no difficulty about valuing what has been lost. The innocent party has been compensated for what he has lost at the time he loses it. Having had a mitigation opportunity which can be valued without difficulty by reference to the market there is no need or warrant to consider subsequent events. Fixing the damages by reference to market value promotes certainty and predictability and helps inform the innocent party’s decision whether or not to terminate. However, the matter was not fully argued and since it is not necessary to decide it on this appeal I do not propose to do so. ”

[13]Mr Akka QC, appearing for the Buyers, indicated that he did not adopt this argument before me, although he sought to reserve his position should the matter go further. Subject to that reservation, he accepted that unless the FOSFA Default Clause had the effect for which he contended, the principles articulated by the majority in The Golden Victory would apply in this case; and accordingly account would have to be taken of events after the date of default if they affected the value of the Buyers’ rights which were lost by the Sellers’ anticipatory breach in this case.

[14]It follows that the Buyers’ argument as to the effect of the Default Clause is that it confers a right to damages where none have been suffered, and where there would be no entitlement to such damages at law in the absence of the clause.

The Issues

[15]The following issues therefore arise:(1) Does the Default Clause exclude the application of the common law principles for the assessment of damages?

(2) If not, was the Prohibition Clause applicable (respondent’s notice point (2))?

(3) If so, would the operation of the Prohibition Clause have resulted in automatic termination on 2 May 2008 without the need for the Sellers to give a further notice exercising a right of cancellation?

(4) If not, would the Sellers have exercised their right of cancellation? Issue 1: Does the Default Clause exclude the application of the common law principles for the assessment of damages?

[16]On behalf of the Sellers, Mr Jones submitted that any departure from the common law principles would require clear words. In this respect he relied upon The Selda

[1998] 1 Lloyds Rep 416

[1999] 1 Lloyds Rep 729

. In that case, the sellers had had to cancel a charterparty as a result of the buyers’ breach, and sought to recover the cost of doing so. The buyers argued that the effect of the GAFTA default clause was to preclude such recovery. In rejecting the buyers’ argument, Mr Justice Clarke at page 419 accepted a submission that while the parties to a contract are free to agree that an innocent party should not be entitled to recover damages to which he would otherwise be entitled at common law, they must do so in clear terms He relied on the dictum of Lord Diplock in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] A.C. 689 at 717-718 :

“it is, of course, open to the parties to a contract for the sale of goods or for work or labour, or both, to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law……But in construing such a contract one starts with the assumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption.”

In the Court of Appeal Lord Justice Hirst, who gave the leading judgment, cited the same passage at page 733 as applicable to the issue in that case.

[17]The issue before me is the converse of that which was there being considered, which was whether a right to damages or other remedy conferred by law was excluded by contract; whereas in this case the question is whether the contract confers a right to damages where no such right would arise at law. Nevertheless in my view similar principles should apply. The parties should be taken to have contracted against the background that their remedies will, in the absence of specific contrary agreement, be regulated by the system of law chosen to govern their contractual relations. If no remedy, in the form of an entitlement to damages, is conferred by law, clear words will be required to confer a contractual entitlement to such remedy. That is especially so where(a) the contractual term is a standard clause drafted and adopted by a trade body and

(b) the contractual term is to confer a right of recovery in circumstances where no loss has in fact been suffered. Such a remedy is contrary to the compensatory principle governing the quantum of damages for breach of contract. The majority of the House of Lords in The Golden Victory decided that this compensatory principle should take precedence over considerations of certainty and finality in that case. If, as is not contested, those principles would apply equally to the contract and breach in this case, so that considerations of certainty and finality would not be sufficient to confer on the Buyers an entitlement at law to recover where with hindsight it can be seen that no loss has occurred, it would require, in my judgment, clear words if the parties wished to achieve the opposite result. Considerations of certainty and finality are undoubtedly matters which might lead parties to wish to do so. But the starting point, in commercial dealings as in the law, is that a party claiming damages for breach of contract should be entitled to recover no more that the loss occasioned by the breach.

[18]Mr Jones further submitted that if the clause is to be construed to have the effect the Buyers suggested, it would operate as a penalty; it would provide for an award of damages as a result of breach in circumstances where with hindsight it can be seen that no loss was suffered. Mr Jones rightly did not spend much time on the point and I reject it. In Imam-Sideque v BlueBay Asset Mangement (Services) Ltd

[2012] EWHC 3511

, I endeavoured to review the authorities and principles applicable to whether a contractual term amounts to a penalty. It is sufficient for present purposes to repeat the formulation in The Interpretation of Contracts by Sir Kim Lewison at paragraph 17.01 as a succinct statement of the principle:

“a penalty clause is a clause which, without commercial justification, provides for payment or forfeiture of a sum of money, or transfer of property by one party to the other, in the event of a breach of contract, the clause being designed to secure performance of the contract rather than to compensate the payee for the loss occasioned through the breach.”

The Default Clause, if construed in the way for which the Buyers contend, would not be designed to secure performance, nor have as its function deterrence (or in the old language now deprecated, be designed to operate “in terrorem”). It would clearly have a commercial justification.

[19]For ease of exposition I will number the parts of the clause:(1) In default of fulfilment of this contract by either party, the other party at his discretion shall, after giving notice, have the right either to cancel the contract or the right to sell or purchase, as the case may be, against the defaulter who shall on demand make good the loss, if any, on such sale or purchase.

(2) If the party liable to pay shall be dissatisfied with the price of such sale or purchase, or if neither of the above rights is exercised, the damages, if any, shall, failing amicable settlement, be determined by arbitration.

(3) The damages awarded against the defaulter shall be limited to the difference between the contract price and the actual or estimated market price on the day of default. Damages to be computed on the mean contract quantity. If the arbitrators consider the circumstances of the default justify it they may, at their absolute discretion, award damages on a different quantity and/or award additional damages.

(4) Prior to the last day for making a declaration of shipment a Seller may notify his Buyer of his inability to ship but the date of such notice shall not become the default date without the agreement of the Buyer. If, for any other reason, either party fails to fulfil the contract and is declared to be in default by the other party and default is either agreed between the parties or subsequently found by arbitrators to have occurred, then the day of the default shall, failing amicable settlement, be decided by arbitration.

[20]To my mind the language of the clause is clear. Where a seller defaults, the innocent buyer may go into the market to buy against the default. If he chooses to do so, part(1) of the clause imposes an obligation on the defaulting seller to reimburse the buyer, on demand, for the difference between the buyer’s repurchase price and the contract price. This obligation is tempered by parts

(2) and

(3) which provide that if the seller is dissatisfied with the repurchase price upon which the claim to reimbursement is made, he can refer the matter to arbitration wherein the damages will be limited to the differential with the market price if that is lower than the repurchase price actually obtained by the buyer. To this extent the clause modifies the common law position. It gives the buyer that entitlement to compensation irrespective of subsequent events and the effect which they might have had on the contract had it remained in force.

[21]However the buyer is not obliged to buy against the default, and if he chooses not to do so (“if neither of the above rights is exercised”) part (2) entitles him to recover in arbitration “damages if any”. This will be the common law measure.

[22]Part (3) places a monetary limit on the recoverable damages, subject to the arbitrator’s discretion to award more. The words “limited to” are words of limitation, not definition. This is not language which is apt to define the measure of damages; it places a ceiling upon them. It confers no right to recover “damages, if any” if no damage has been suffered.

[23]In this way the clause seems to me to strike a balance between the common law position and commercial considerations of certainty and finality. It achieves a greater measure of certainty than the common law affords, by providing that if the buyer chooses to go into the market to buy against the defaulting seller, he will be able to recover the price differential between contract and repurchase price, or between contract and market price if the latter is lower. To that extent it meets what I have ventured to suggest may be one of the most important of the considerations of certainty and finality which concern purchasers (or sellers in the converse situation). But if the buyer chooses not to buy against the default, and so not to put himself in a position of having an equivalent bargain to that which he has lost, his damages are those provided by law and in particular may be nominal if subsequent events demonstrate that the value of his lost rights was nil because the seller could have terminated the contract without liability. That might not be considered a surprising consequence of the commercial decision not to replace the lost bargain. In those circumstances the buyer is inevitably at the whim of future events to determine whether his financial position turns out more or less favourably than if he had replaced the lost bargain. The effect of subsequent events on his lost bargain might sensibly be seen as an acceptable uncertainty inherent in his decision not to replace the lost bargain, or at least one which from the seller’s point of view should not override the compensatory principle.

[24]Mr Akka QC on behalf of the Buyers submitted that I should attach great weight to the interpretation given to the Default Clause by the Board, being a trade tribunal with particular familiarity with the clause, its history and function. In Andre et Cie v Cook Industries Inc. [1986] 2 Lloyd's Rep. 200 Mr Justice Bingham was dealing with an award of the GAFTA Board of Appeal which concerned the interpretation of telex exchanges. At page 204 he said:

“I should be very slow to differ from a trade tribunal on the meaning reasonably to be given to telex exchanges of the sort in issue here. Ultimately, of course, the construction of any written instrument is a question of law on which the Court is entitled and bound to rule, but the significance of a meaning attributed by the reasonable non-lawyer varies widely from instrument to instrument and according to the circumstances of the case. Here, one is dealing with communications by trader to trader, in the context of an unexpected and fast moving situation. A trade tribunal brings to the task of interpretation certain insights denied (to a greater or lesser extent) to the Court: an informed appreciation of the commercial situation as it unfolded, seen through the eyes of a trader; an understanding of the hopes and fears and pressures which moved traders at the time; an awareness of the extent to which, at the time, the future course of events appeared obscure and unpredictable; a knowledge of the language which one trader habitually uses to another. So, in a case such as this the court's task is not one of pure construction and I should be reluctant to differ from the board unless it appeared that the board's construction was fairly and plainly untenable.”

[25]The approach to reviewing a decision of arbitrators with specialist expertise or experience was considered by Mr Justice Jackson in Kershaw Mechanical Services Ltd v Kendrick Construction Limited

[2006] EWHC 727

[2006] 4 All ER 79

at [51]-[57]. He reviewed a number of authorities and concluded at [55] that:

“Where the arbitrator's experience assists him in determining a question of law, such as the interpretation of contractual documents or correspondence passing between members of his own trade or industry, the court will accord some deference to the arbitrator's decision on that question. The court will only reverse that decision if it is satisfied that the arbitrator, despite the benefit of his relevant experience, has come to the wrong answer.”

[26]I would naturally be reluctant to differ from a trade tribunal such as the FOSFA Board of Appeal on a question of the interpretation of one of its standard clauses unless I were satisfied that despite the collective experience of the Board it were wrong. Nevertheless in this case the deference due to their views is somewhat tempered by the fact that the tribunal did not articulate any reasoning for their conclusion, either as to the wording of the clause, or as to the commercial considerations which might have influenced the effect which they found the clause to have. I readily accept that those involved in the commodity trades with which FOSFA is concerned might wish to achieve greater certainty by contracting out of some or all of the common law consequences of The Golden Victory, but I doubt whether such considerations are peculiar to those commodity trades (cf the dicta of Sir John Donaldson MR in Gill & Duffus SA v Societe pour L’Exploitation des Sucres SA

[1986] 1 Lloyds Rep 322

, 325). They were well rehearsed in The Golden Victory. How the FOSFA clause resolves the potential conflict between the compensatory principle and considerations of commercial certainty depends upon the language of the clause. I do not therefore find my conclusion affected by the deference which I naturally afford to the views of the parties’ chosen and specialist tribunal.

[27]It follows that the appeal succeeds on the question of law and that the Award should be set aside or remitted unless the result would inevitably be the same as a result of either of the respondents’ notice points.

Issue 2: Respondents’ Notice point (2): Was the Prohibition Clause applicable?

[28]The Buyers’ argument is as follows:(1) The original shipment period was December 2007/10 January 2008. The Board held, as was common ground, that the parties nevertheless held the contract open for performance after 10 January 2008, and that it was still open for performance on 2 April 2008.

(2) Given that there is no finding in the Award that the shipment period became fixed, the found facts are such that the Court must conclude that time remained at large, so that shipment had to be made within a reasonable time, or without a frustrating delay.

(3) On its proper interpretation, the Prohibition Clause cannot be invoked where there is no fixed shipment period. Its wording is inapposite, perhaps because the concept of shipment within a reasonable time is flexible enough to allow account to be given for any operative prohibition.

(4) Alternatively, if applicable and invoked, the Prohibition Clause would extend the shipment period to 30 days beyond what would otherwise have been a reasonable period. In circumstances where there was a prohibition on shipment, the reasonable period plus 30 days could not have expired in this case beyond 6 June 2008 when the prohibition was lifted.

(5) For that reason the Sellers’ attempt to limit damages by reliance upon a right to terminate afforded by the Prohibition Clause was incorrect.

[29]In my view this point is not open to the Buyers. It was not a point taken before the Board of Appeal or before the First Tier Tribunal. It is true that there is a reference in paragraph 28 of the Buyers’ Reply Submissions before the First Tier Tribunal to the prohibition not being in force during the contractually defined shipment period expiring on 10 January 2008, but this was quite insufficient to raise the point as now articulated, and the argument proceeded upon the basis that the subsequent prohibition, whilst the contract was still alive, triggered the application of the Prohibition Clause and that it extended the contract for 30 days under that clause: see for example paragraph 39 of the Buyers’ Reply Submissions. Not surprisingly therefore, the Board did not address the argument, nor make any findings as to the nature of the extended shipment period. As the Buyers’ formulation of the point itself recognises, the Award did not make the necessary findings of fact upon which the argument depends. It would be contrary to the scheme of s69 of the Act to allow a respondent to seek to uphold an award on a point of law which was not pursued before the chosen tribunal and in respect of which the tribunal was not asked to make, and has not made, the necessary findings of fact. An appellant is not entitled to raise such a point if he has not asked the tribunal to decide it; nor should a respondent be, at least if the result of it not having been raised before the tribunal is that the relevant findings of fact upon which it depends are absent.

Issue 3: Would the contract have been cancelled automatically by operation of the Prohibition Clause?

[30]The Sellers contended that the Prohibition Clause requires only one notice, being the notice of the prohibition or restriction having become operative so as to trigger the running of the 30 day extension; and that the contract then becomes automatically cancelled 30 days later if the prohibition or restriction remains in force, without the need for any further notice from the Sellers.

[31]It is not clear from the Award whether the Board accepted this argument. On the view the Board took of the Default Clause, it was unnecessary to decide it. The following paragraphs of the Award (with emphasis added) leave it unclear what view they took on the point: 7.3 We do however accept Sellers’ communication of 2 April 2008 to be a formal notification of prohibition of export and thus, according to the Prohibition Clause in the FOSFA Contract, the unshipped balance of the Contract should be cancelled on 2 May 2008 (but only if the prohibition still existed). 7.8 As stated in 7.3 above, the Prohibition Clause entitled Sellers to cancel the Contract on 2 May 2008 if the prohibition still existed, but this did not entitle Sellers to cancel the Contract on 2 April 2008. 7.14 Sellers have argued that as the Contract would have been automatically cancelled on 2 May 2008, no damages were due. We reject this argument as we have found that Sellers defaulted on 2 April 2008 and that is the only date that matters for the calculation of damages. Sellers, by terminating the Contract on 2 April 2008, deprived themselves from relying on the potential automatic cancellation of the Contract on 2 May 2008, under the provisions of the Prohibition Clause.”

[32]I would not readily accept the Sellers’ argument that the clause creates an automatic termination without the need for the Sellers to give notice of cancellation. The relevant part of the Prohibition Clause provides “Sellers invoking this clause shall advise Buyers with due despatch.” A seller invokes the clause if he claims to rely on it as giving rise to an extension; and he invokes it again if he seeks to rely upon it as giving rise to a cancellation at the expiry of the 30 days. The natural meaning of the words is that a notification is required at each of these two stages. This is reinforced by the following sentence:

“If required, Sellers must produce proof to justify their claim for extension or cancellation under this clause.”

This requires the seller to produce proof to justify a claim for extension and a claim for cancellation. The latter envisages a claim to cancellation, the notification of which is required promptly by the previous sentence.

[33]Were it otherwise, the seller could claim months or even years later that the contract had become automatically terminated at the end of 30 days without having promptly notified the buyers of that contention at the time. I would find this a surprising interpretation, and one which would be inimical to the commercial certainty which the buyer could reasonably expect. Whether a prohibition or restriction remains operative on a seller may often depend upon matters which are peculiarly within the seller’s knowledge, either because he or his agents have a presence on the ground in the country of shipment, or because the matters which impose the prohibition or restriction depend in part upon the characteristics of the seller’s status and business and the seller’s supply arrangements. The buyer needs to know promptly whether the seller is treating the contract as cancelled, in order to adjust his arrangements to meet the non receipt of the cargo, for example, by buying in against the non delivery in order to fulfil sub contracts.

[34]I hold back from expressing a final concluded view, however, because the question then becomes whether the Sellers would have given notice of cancellation, a question which, as I explain below, has not been decided by the Board and will require remission of the Award to that tribunal. Since the trade tribunal chosen by the parties has not expressed a concluded view on the construction of what is a standard FOSFA clause, I do not think it right for the Court to decide the issue when the Board will in any event have a further opportunity to do so.

Issue 4: Would the Sellers have exercised a right of cancellation?

[35]Although this issue was argued by the parties, the Board did not decide it because of its view of the relevance of the Default Clause. Each party sought to persuade me that the Board would have been bound to decide the issue in its favour. I remain unpersuaded in either direction. This is a question of fact upon which the Board has made no finding. The Award will have to be remitted to the parties’ chosen tribunal to make the necessary findings.

Conclusion

[36]The appeal is allowed. The Award is remitted to the Board of Appeal for further consideration in the light of this judgment.