It Ain't Over Till It's Over

It ain't over till it's over: the Supreme Court has the final word on damages in Bunge SA v Nidera BV in the context of the GAFTA Default Clause

On 1 July 2015 the Supreme Court, being the last instance in a five year long dispute, delivered a unanimous judgment in Bunge SA v Nidera BV,1 a case which will be very familiar for grain industry participants trading in the Black Sea region as it concerned the consequences of the Russian grain export embargo in 2010.

The judgment has immediately been labelled in London legal circles as a "landmark decision" and a "long awaited ruling" on damages for repudiation of commercial contracts. While it is still arguable how much practical impact the case will have on the resolution of commercial disputes, and GAFTA arbitration in particular, it is nevertheless of significance.

First of all, the Supreme Court has provided valuable guidance on the application of general common law principles for the assessment of damages to cases of wrongful repudiation of contract. In doing so, the Court upheld it's own findings in The Golden Victory; a case perhaps better known for the amount of received criticism and the careful resistance of a number of commercial judges and arbitrators in following it.

Secondly, the Supreme Court considered the GAFTA Default Clause and clarified several key aspects of its interpretation. While this is not the first judicial attempt to construe the clause, it is certainly one of the most comprehensive attempts to date to merit a detailed review.

The facts and procedural history

The dispute arose out of a contract for the sale of 25,000mt of Russian milling wheat FOB Novorossiysk with delivery in August 2010. The contract incorporated GAFTA 49, containing the now abolished GAFTA prohibition clause and the standard GAFTA Default Clause. On 5 August 2010 Russia introduced a grain export embargo to run from 15 August to 31 December 2010. On 9 August 2010 the sellers purported to cancel the contract pursuant to the GAFTA Default Clause, which the buyers treated as repudiation of contract and proceeded to claim damages for the difference in market price of approximately USD3 million.

The dispute went to GAFTA arbitration where the first-tier tribunal found that sellers had repudiated the contract by cancelling early but awarded no damages to the buyers since the contract would have been cancelled in any event and no loss would have been suffered. The Appeal Board agreed with the first-tier tribunal on liability but nevertheless awarded damages to the buyers, stating that such an approach was required by the GAFTA Default Clause. On appeal, Hamblen J and, subsequently, the Court of Appeal agreed with the Board and upheld the award of damages in favour of the buyers. The Supreme Court, however, disagreed with all findings on damages post appeal and reversed the decision of the lower courts endorsing the approach of the first-tier tribunal.

Before turning to the actual findings of the Supreme Court, it is worth making a few preliminary observations, especially for the benefit of those reviewing the decision with a view to finding a "one fits all" answer.

First of all, the case concerned "a repudiation of contract before the time for performance came" or, in simple terms, an anticipatory breach, and did not test any other breach scenarios; therefore, the findings...