Court Of Appeal Restates That Frustration Will Be A Rare Event

The Court of Appeal in CTI Group Inc v Transclear SA

(22 July 2008) has reiterated that under English law international

commodities sellers are required to perform their contractual

obligations in full even if deprived of their intended source of

supply.

The Court of Appeal upheld last year's High Court decision

that Transclear were liable to CTI for failure to supply cement

under contracts for delivery fob Padang and fob a Taiwanese port.

Transclear's Indonesian suppliers refused to provide them with

cement after coming under pressure from the Mexican state company

Cemex, who had learned that CTI intended to sell the cement into

Mexico. Transclear tried and failed to find alternative suppliers

in Indonesia and Taiwan, and then informed CTI that they could not

perform.

Transclear argued that their contracts with CTI had become

frustrated (i.e. discharged by reason of impossibility) because of

their inability to find cement suppliers in Indonesia or Taiwan.

The Court of Appeal rejected this argument. It held that a

commodities seller "undertakes a personal obligation to

procure the delivery of the contractual goods and thereby takes the

risk of his supplier's failure to perform". The Court

stated that, except in cases of export prohibition, commodities

contracts will rarely be frustrated, because if the seller's

supplier chooses not to make the goods available, performance of

the contract, though practically difficult, will usually remain

physically and legally possible.

The Court of Appeal's decision...