Damages for breach of contract

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Bunge SA v Nidera BV [2015] UKSC 43

Facts

The parties entered a contract for the sale of Russian milling wheat.  Bunge was the Seller, Nidera the Buyer.  The contract provided for shipment between 23 – 30 August.  Unfortunately, Russia introduced an embargo on agricultural exports on 5 August, which was to run between 15 August and 31 December.  This meant that the Seller could not ship the goods to the Buyer on any of the shipment dates in the contract.  As a result, on 9 August the Seller attempted to cancel the contract, pursuant to  a ‘Prohibition’ clause.  This allowed the Seller to cancel the contract without penalty in a number of circumstances; in many ways it is similar to the more common force majeure clause.

The Buyer alleged that the Seller had no right to do this, because the basis for exercising the Prohibition clause was not established (i.e. the Russian embargo had not yet come into effect on 9 August).  The Buyer claimed that the Seller had repudiated the contract, which they accepted.

The Buyer then commenced a claim for breach of contract.  The claim was dismissed at first instance, however the Buyer won on appeal and was awarded substantial damages for the breach of contract.  This was upheld by the High Court and Court of Appeal.  The Seller appealed to the Supreme Court.

Held

The Supreme Court unanimously allowed the appeal and the Buyer’s substantial damages awarded was reduced to a nominal figure of 5 dollars.  This was on the basis that, although the Seller did technically repudiate (‘walk away’ from) the contract, the Buyer had suffered no loss.  This is because the Seller would have lawfully cancelled the contract in any event, with no financial penalty, as soon as the Russian embargo began.  Therefore, there was no actual loss suffered by the Buyer.

Comment

The Supreme Court has confirmed that the court must take into account supervening events when assessing damages claims.  In doing so, it has affirmed the principle that a claimant can only recover losses which it has suffered or will suffer, in reality.

A good example is a seller who, having entered a contract for the manufacture and sale of goods to a purchaser which subsequently breaches the contract, is then able to sell its goods to an alternative buyer for the same price.  In this instance, the seller would not be able to claim for the lost sale proceeds, as it has not actually suffered that loss.

For more information, help or advice please contact Rob Langley on 0191 211 7975 or [email protected].