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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789 (27 July 2016) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2016/789.html Cite as: [2016] EWCA Civ 789, [2017] 1 All ER (Comm) 483 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr. Justice Leggatt
Strand, London, WC2A 2LL |
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B e f o r e :
Vice-President of the Court of Appeal, Civil Division
LORD JUSTICE TOMLINSON
and
MR. JUSTICE KEEHAN
____________________
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Claimant/ Appellant |
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- and – |
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COTTONEX ANSTALT |
Defendant/Respondent |
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Mr. Steven Berry Q.C. and Luke Pearce (instructed by Holman Fenwick Willan LLP) for the respondent
Hearing date : 25th May 2016
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Crown Copyright ©
Lord Justice Moore-Bick :
Background
(i) Between 7th April 2011 and 4th June 2011 the carrier contracted with the shipper to carry various parcels of cotton from Bandar Abbas and Jebel Ali to Chittagong. The cargo was shipped in three consignments under five bills of lading. The first consignment of 19 containers was shipped at Bandar Abbas under two bills of lading each dated 7th April 2011; the second consignment of 12 containers was shipped at Bandar Abbas under two bills of lading dated 11th and 17th April 2011; the third consignment of 4 containers was shipped at Jebel Ali under a single bill of lading dated 4th June 2011.
(ii) Each of the bills of lading contained a clause providing for a period of free time for the use of the containers at their destination, after which demurrage became payable at a daily rate.
(iii) The shipper sold the cotton to a company in Bangladesh called Regent Spinning Mills Ltd, which was named as consignee in the bills of lading. Payment was to be made by confirmed letter of credit. In due course a letter of credit was opened in favour of the shipper by Islamic Bank and confirmed by Habib Bank in London.
(iv) The containers were discharged at Chittagong on various dates between 13th May and 27th June 2011. Following a collapse in the price of raw cotton, a dispute arose between the shipper and the consignee over the dating of the bills of lading. That led to proceedings before the High Court in Dhaka, in which the consignee appears to have obtained an injunction to prevent the opening bank from taking up and paying for the documents. The consignee was therefore unwilling to take delivery of the goods. However, the shipper presented the documents to the confirming bank and obtained payment. The price of the goods covered by the first four bills of lading was paid on 23rd May 2011. By 27th September 2011 the shipper had also received payment for the second consignment. Although it had not by that time received payment in respect of the third consignment, it appears that the documents had been presented to and accepted by Habib Bank. As a result, the shipper considered that it had no right to deal with the goods, because (in its view) property in them had passed to the consignee. The result was that neither the consignee nor the shipper, nor any one else for that matter, was willing or able to take delivery of the goods, which remained at the port under the control of the customs authorities.
(v) The bills of lading contained terms which gave the carrier the right under certain circumstances to unpack the goods and dispose of them, but the customs authorities at Chittagong refused to allow the carrier or any one else to deal with them in any way without the permission of the court. No order giving permission to unpack the goods has yet been made. As a result, the containers and their contents remain at the port.
(vi) On 27th September 2011, when the impasse had continued for some weeks, the shipper sent the following message to the carrier:
"We informed that we do not have legal title to this cargo in a result of receiving financial means against the cotton and actually goods belong to Habib Bank London / Islami Bank Ltd thus would be inconvenient to remit yr debit notes as could be very difficult to regain the money from the bank later on. As soon as conflict and disputes between the banks are solved yr dues will be fully covered by the bank. From our party the situation is observing and followed and any further news will be passed to you immediately."
The judge interpreted that message as a statement that the shipper no longer had title to any of the goods and would be unable to redeliver the containers within the foreseeable future, if at all. Whether the carrier interpreted it in that way, however, is doubtful. At all events, it continued to insist that the containers be redelivered and that in the meantime demurrage would continue to accrue.
(vii) On 2nd February 2012, as a way of breaking the deadlock, the carrier offered to sell the containers to the shipper. Unfortunately, however, the negotiations came to nothing, because the shipper considered that the price being demanded for them was too high.
(viii) At all material times replacement containers were immediately available for purchase at Chittagong at a price of US$3,262 each.
The bills of lading
"14.8 The Carrier allows a period of free time for the use of the Containers and other equipment in accordance with the Tariff and as advised by the localMSC agent at the Ports of Loading and Discharge. Free time commences from the day the Container and other equipment is collected by the Merchant or is discharged from the Vessel or is delivered to the Place of Delivery as the case may be. The Merchant is required and has the responsibility to return to a place nominated by the Carrier the Container and other equipment before or at the end of the free time allowed at the Port of Discharge or the Place of Delivery. Demurrage, per diem and detention charges will be levied and payable by the Merchant thereafter in accordance with the Tariff.
14.9 The Merchant shall redeliver, to a place nominated by the Carrier, the Containers and other equipment in like good order and condition, undamaged, empty, odour free, cleaned and with all fittings installed by the Merchant removed and without any rubbish, dunnage or other debris inside. The Merchant shall be liable to indemnify the Carrier for any and all costs incurred reinstating or replacing Containers and other equipment not returned in the condition as specified above, including the reasonable legal expenses and costs of recovering the costs incurred and interest thereon.
20.2 The Merchant shall take delivery of the Goods within the time provided for in the Carrier's applicable Tariff or as otherwise agreed. If the Merchant fails to do so, the Carrier may without notice unpack the Goods if packed in Containers and/or store the Goods ashore, afloat, in the open or under cover at the sole risk of the Merchant. . . ."
The proceedings below
The judgment
The appeal
(i) Did demurrage become payable?
(ii) and (iii) Frustration of the commercial purpose of the adventure
"87. This was not immediately apparent to the Carrier. On 27 September 2011, however, the Shipper informed the Carrier that it did not have legal title to the goods as they had been paid for . . . . The Shipper had not by that date yet been paid for the third lot of four containers shipped under the final bill of lading. However, the Carrier did not know this and would reasonably have understood from the email of 27 September 2011 that there was no realistic prospect of the Shipper being able to arrange for any of the containers to be collected. I in any event consider that by this time the delay in collecting the goods had become so prolonged as to frustrate the commercial purpose of the venture.
88. In these circumstances I find that from 27 September 2011 the Shipper was clearly in repudiatory breach of all the contracts of carriage."
"Whether or not the delay is such as to bring about frustration must be a question to be determined by an informed judgment based upon all the evidence of what has occurred and what is likely thereafter to occur. Often it will be a question of degree whether the effect of delay suffered, and likely to be suffered, will be such as to bring about frustration of the particular adventure in question. Where questions of degree are involved, opinions may and often legitimately do differ. Quot homines, tot sententiae. The required informed judgment must be that of the tribunal of fact to whom the issue has been referred. That tribunal, properly informed as to the relevant law, must form its own view of the effect of that delay and answer the critical question accordingly."
The judge's finding, therefore, can be overturned only if it can be shown that it was not reasonably open to him.
(iv) The consequences of repudiation
"104. I have no doubt that the Carrier had a legitimate interest in keeping the contracts of carriage in force for as long as there was a realistic prospect that the Shipper would perform its remaining primary obligations under the contracts by procuring the collection of the goods and the redelivery of the containers. Once it was quite clear, however, that the Shipper was in repudiatory breach of these obligations and that there was no such prospect, the Carrier no longer had any reason to keep the contracts open in the hope of future performance."
"121. I accordingly find that the Carrier had no basis for claiming on 27 September 2011 that it was suffering any loss as a result of the Shipper's breach of contract. In these circumstances I conclude that the Carrier had no legitimate interest in keeping the contracts of carriage in force after that date in order to continue claiming demurrage. Its election to do so, and to go on doing so ever since, can in my view properly be described as wholly unreasonable. It is wholly unreasonable because the Carrier has not been keeping the contracts alive in order to invoke the demurrage clause for a proper purpose but in order, in effect, to seek to generate an unending stream of free income."
"It may well be that, if it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an additional burden with no benefit to himself. If a party has no interest to enforce a stipulation, he cannot in general enforce it: so it might be said that, if a party has no interest to insist on a particular remedy, he ought not to be allowed to insist on it."
79. Ever since then the law has been clear that, save when, unusually, a contract of employment specifies otherwise, the mere readiness of an employee to resume work, following a wrongful dismissal which he has declined to accept, does not entitle him to sue for his salary or wages. "He cannot", as Salmon LJ said in Denmark Productions Ltd v Boscobel Productions Ltd [1969] 1 Q.B. 699 , 726, "sit in the sun …" The law takes the view that it is better for the employee (as well, of course, as for the employer) that his claim for loss of wages or salary should be confined to a claim for damages and therefore be subject to his duty to mitigate them by taking all reasonable steps to find other work. . . . It has added to the making of a contract of employment into a special case—but, again, only in terms of remedies. Emphasis added.)
(v) Good faith
(vi) Is clause 14.8 unenforceable as a penalty?
(vii) Mitigation
Conclusion
Lord Justice Tomlinson :
"The truth of the matter is that there are a great many cases in which it is of no benefit to the innocent party to keep the contract alive for the simple reason that, in the long run, unless the repudiating party can be persuaded or impelled to change his mind and withdraw his repudiation, the only remedy available to the innocent party will lie in damages. So there are vast numbers of cases where the innocent party can in one sense be said to be forced to adopt the only practicable course because any other would be valueless. In such cases it is the range of remedies that is limited, not the right to elect."
"17. . . Some time in January 2012, however, there was a telephone conversation in which the Carrier offered to sell the containers to the Shipper. According to the Carrier's manager, Mr Sethuraman, who made this offer, the Shipper specifically asked for such an offer as a practical solution because the containers were likely to remain blocked for the foreseeable future. This discussion was referred to in an email from the Carrier to the Shipper dated 2 February 2012, which said: "we have already given the necessary solution from our side which is to buy our containers and settle up to date demurrage". According to its director, Mr Schonberger, the Shipper did not accept the Carrier's offer because the amount of money which the Carrier wanted for the containers was US$200,000 and the Shipper thought that this price was too high.
18. In March and again in June 2012 the Shipper indicated that it was expecting a decision in the court proceedings which should clarify the situation. However, despite a series of emails from the Carrier in the second half of that year asking to know what was happening with the case, there was no response from the Shipper.
19. It does not appear that any material development occurred during 2013."
"116. . . . authority for a general rule that the innocent party to a repudiated contract cannot treat it as subsisting if (i) performance on his part requires the co-operation of the repudiating party, and (ii) the contract is incapable of specific performance, with the result that that co-operation cannot be compelled. The purpose of the right to treat a repudiated contract as subsisting is to enable it to be performed at the option of the innocent party. It is difficult to see why the law should recognise such a right in a case where the contract cannot be either performed or specifically enforced."
Cooke J in The "Aquafaith" put it like this:
"44. The effect of the authorities is that an innocent party will have no legitimate interest in maintaining the contract if damages are an adequate remedy and his insistence on maintaining the contract can be described as "wholly unreasonable", "extremely unreasonable" or, perhaps, in my words, "perverse"."
"Moreover, the passage of time might in itself alter the legal position of the parties, because an insistence to treat the contract as still in being might in time become quite unrealistic, unreasonable and untenable."
Mr. Justice Keehan :