CTI Group Inc v Transclear SA

Following upon my earlier judgement (Footnote: ¹) holding that the two f.o.b. contracts at the centre of the buyers’ claim were not frustrated, the sellers, as respondents to the buyers appeal under s. 69 (1) to (3) of the Arbitration Act 1996 (“the Act”), now apply to have the tribunal’s award that there is nothing due from the sellers to the buyers upheld for reasons not expressed or not fully expressed in the award.

The contracts in question were sales of 27,000 mt of cement f.o.b. the Mary Nour. The sellers failed to deliver under either of the contracts within the stipulated loading windows because their contemplated suppliers declined to deliver the cargos. The suppliers adopted this course because they had learned that the cargo was destined for Mexico where the buyers intended to use it to break the cartel which a company called Cemex was operating in the Mexican cement market.

The first contract specified delivery in Padang, Indonesia. The second, that replaced the first without prejudice to a claim for non-delivery, specified delivery in Taiwan. By the time the sellers’ Taiwanese supplier pulled out, the buyers’ plans to break Cemex’s monopoly were known throughout Asia and the sellers found it impossible to find an alternative source of supply anywhere in these areas. This meant that the Mary Nour had to steam from SE Asia to Novorossiysk, Russia, where delivery was taken of an alternative cargo at a price which was $3.00 per mt more than the price under the contracts made with the sellers. The buyers claimed damages in the arbitration under six heads: (i) the difference between the original price and the price actually paid; (ii) the cost of the additional steaming time resulting from the fact that the substitute cargo had been loaded in Novorossiysk; (iii) additional bunkers consumed on the longer voyage; (iv) additional voyage disbursements, including Suez Canal tolls; (v) the difference between the estimated loading costs at Padang and the actual loading costs at Novorossiysk; and (vi) the costs thrown away of bags into which the bulk cargo was to be sold into Mexico, the markings on which stated that the contents were of Indonesian origin.

Section 51 of the Sale of Goods Act 1979 (“the SGA”) provides:

(1)

Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery.

(2)

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.

(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 when they ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver.

The sellers contended in the arbitration that even if the contracts were not frustrated, the buyers had suffered no loss because there was an available market for cement in Padang at the same price as the contract price. They further submitted that they had not undertaken to supply cement that was capable of being imported into Mexico and the losses claimed by the buyers were not losses directly and naturally resulting from a failure to supply cement f.o.b. Indonesia. Rather, they were all losses flowing from the buyers’ desire to obtain a cargo capable of being exported to Mexico and the need, in the events that happened, of shipping a cargo other than from Indonesia.

Although it was strictly unnecessary to do so, the tribunal dealt with these contentions in paragraph 60 of their Partial Final Award as follows:

In our view Counsel for the Buyers provided the complete answer to this objection [no recoverable damages had been suffered because there was an available market in Padang at the same price as the contract price] with his submission that the Sellers’ breach was not simply a failure to supply cement FOB Indonesia but was a failure to supply cement “FOB “the Mary Nour”” in Indonesia. As we have already noted, the identity of the carrying vessel was inextricably linked with the FOB sale contract. Given that it seemed to be clear beyond doubt that there was no available source of supply for the contractual cement cargo to be shipped on the “MARY NOUR” in Indonesia or elsewhere in Asia, it followed that had we concluded that the Sellers were in breach and were unable to excuse their breach by reference to the doctrine of frustration, they would in principle have been entitled to claim their recoverable losses.

Mr Nolan for the sellers contends that the tribunal should have held that the buyers had suffered no recoverable losses and that this court should so hold. In support of this contention he first submits that the sellers owed no duty to the buyers in respect of the kind of loss they seek to recover and therefore these losses are irrecoverable from the sellers. He referred to Lord Hoffmann’s speech in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 where at p. 212 Lord Hoffmann said:

A plaintiff who sues for breach of a duty imposed by the law (whether in contract or tort or under statute) must do more than prove that the defendant has failed to comply. He must show that the duty was owed to him and that it was a duty in respect of the kind of loss which he has suffered.

This submission raises a pure point of law. Do the buyers have to show that the sellers owed the duty contended for by Mr Nolan, and if so, was the duty owed or not?

In my opinion, Lord Hoffmann’s analysis in Banque Bruxelles Lambert SAv Eagle Star Insurance Co Ltd was directed to cases involving a duty of care, not to cases involving a duty of strict liability to deliver goods under a contract of sale. Lord Hoffmann did not, I am sure, intend to add to the requirements of section 51 of the SGA a requirement that the seller must owe a duty in respect of the kind of loss for which he seeks damages.

It follows that Mr Nolan’s first submission fails.

Mr Nolan’s second and third submissions were that the tribunal were wrong to find (implicitly) that (i) the breach was the effective cause of the loss sought to be recovered; and (ii) the loss was not too remote. Instead, they should have found that the loss was not caused by the sellers’ breach and was too remote to be recoverable. He argued that he did not have to show that the tribunal’s findings on these issues were findings that no reasonable tribunal could have can come to on the evidence and adopting the right approach. Instead, the court could and should make its own assessment of causation and remoteness and if its conclusions on these topics differed from those of the tribunal they should be substituted for the latter.

In support of this submission Mr Nolan relied on the wording of paragraph 12.3 (3) of the Arbitration Practice Direction that requires that a respondent opposing the grant of leave to appeal under section 69 should specify whether he wishes to contend that the award should be upheld for reasons not expressed (or not fully expressed) in the award and, if so, state those reasons. The Practice Direction thus does not say that the reasons relied on must constitute a point of law. Mr Nolan also referred to that part of Lord Steyn’s speech in Vitol SA v Norelf Ltd [1996] AC 800 at 814B where, in holding that neither leave nor a certificate under section 1 (7) of the Arbitration Act 1979 was required to enable a respondent to seek to uphold an award on grounds not expressed in the award, Lord Steyn said that to require such a certificate could imperil the finality of arbitration awards because a perfectly good award might be set aside.

Where the grounds on which a respondent to a section 69 appeal relies for upholding an award have not been pronounced upon by the arbitral tribunal, the court will inevitably come to its own conclusions on those grounds which, in my view, must be based on a point or points of law. It does not follow from Vitol that because under the 1979 Act neither leave nor a certificate that the point of law was one of general public importance was required that a respondent can rely on grounds that are not points of law. And where, as here, the tribunal has rejected the grounds relied on, the respondent must in my judgement show that in doing so the tribunal erred in law so that, if any of the relevant findings are mixed findings of fact and law, there will only be an error of law if the finding fails the Edwards v Bairstow (Footnote: ²) test that tribunal misdirected itself or no tribunal properly instructed as to the relevant law could have come to the determination reached. To accept Mr Nolan’s submission and decide de novo a question of mixed fact and law decided by the tribunal would be to act contrary to the clear policy of the Act which is to limit severely the grounds on which the reasoning in arbitral awards can be challenged. And it matters not, in my opinion, that it was strictly unnecessary for the tribunal to give the reasons it did for rejecting the ground or grounds sought to be relied on by a respondent to uphold the award.

Mr Nolan contended that the effective cause of the buyers’ loss was not the sellers’ failure to deliver a cargo but the buyers’ plan to break the Cemex cartel and the consequent refusal of any suppliers in Asia to supply the Mary Nour with cement. On the issue of remoteness, he submitted that the additional costs incurred in obtaining a cargo from Novorossiysk did not arise in the ordinary course of events or naturally from a failure to deliver cargo f.o.b. Padang. Nor were these losses in the reasonable contemplation of the parties at the time the contract was made. In support of this last point, he relied on the tribunal’s findings when dealing with the frustration issue that the action of Cemex in pressuring suppliers not to provide a cargo was unprecedented and “the only alternative performance (involving a shipment from the Mediterranean or Black Sea) was fundamentally different to that contemplated by the parties.”

Mr Nolan further submitted that if he had to show that the tribunal’s findings on causation and remoteness were outside the permissible range of findings open to them, he had succeeded in doing so.

In my judgement, the tribunal’s findings on causation and remoteness were findings of mixed fact and law and neither finding was outside the permissible range; nor did the tribunal misdirect themselves as to the law. The failure to make delivery was undoubtedly a cause of the buyers’ losses and it was well open to the tribunal to find that it was an effective cause. The fact that there may have been another effective cause (the plan to break Cemex’s cartel and Cemex’s pressure on suppliers in Asia) is nothing to the point; see eg County Limited v Girozentrale Securities [1996] 3 All E R 834. As for the remoteness finding, the question was whether the kind of loss suffered by the buyers – the cost of finding a replacement cargo and the additional cost of the replacement cargo itself – was a kind of loss directly and naturally resulting, in the ordinary course of events, from the sellers’ breach. As Mr Kenny submitted on behalf of the buyers, the kind of loss suffered by the buyers is that which is invariably suffered by a buyer in a case of non-delivery. It follows, in my judgement, that the tribunal’s implicit finding that the losses claimed were not too remote is a finding that was open to the tribunal to make.

The sellers have accordingly failed to establish that the tribunal erred in law in concluding that the buyers’ losses would have been recoverable if the contracts had not been frustrated. It follows that this application to have the tribunal award upheld on grounds other than those expressed in the award must be dismissed.