|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Bunge Corporation (New York) v Tradax Export SA (Panama)  UKHL 11 (25 February 1981)
Cite as:  2 All ER 513,  1 WLR 711,  UKHL 11,  WLR 711
[New search] [Printable version] [Buy ICLR report:  1 WLR 711] [Help]
Die Jovis 7° Maii 1981
Upon Report from the Appellate
Committee to whom
was referred the Cause Bunge Corporation, New York
against Tradax Export S.A., Panama, et e contra, That
the Committee had heard Counsel as well on Monday
the 23rd as on Tuesday the 24th, Wednesday the 25th
and Thursday the 26th days of February last upon the
Petition and Appeal of Bunge Corporation of 1, Chase
Manhattan Plaza, New York 10005, United States of
America praying that the matter of the Order set
forth in the Schedule thereto, namely an Order of
Her Majesty's Court of Appeal of the 14th day of
December 1979 so far as therein stated to be appealed
against might be reviewed before Her Majesty the
Queen in Her Court of Parliament and that the
said Order so far as aforesaid might be reversed,
varied or altered or that the Petitioners might have such
other relief in the premises as to Her Majesty the Queen
in Her Court of Parliament might seem meet; as also
upon the Petition and Cross-Appeal of Tradax Export
S.A. of P.O. Box CH-1211 Geneva 12, Switzerland
praying that the matter of the Order set forth in the
Schedule thereto, namely an Order of Her Majesty's
Court of Appeal of the 14th day of December 1979 so
far as therein stated to be appealed against might be
reviewed before Her Majesty the Queen in Her Court
of Parliament and that the said Order so far as aforesaid
might be reversed, varied or altered or that the Petitioners
might have such other relief in the premises as to Her
Majesty the Queen in Her Court of Parliament might
seem meet; as also the Case of Tradax Export S.A. and
also upon the Case of Bunge Corporation lodged in
answer to the said Original and Cross Appeals; and due
consideration had this day of what was offered on either
side in this Cause:
It is Ordered and Adjudged,
by the Lords Spiritual
and Temporal in the Court of Parliament of Her Majesty
the Queen assembled, That the said Order of Her
Majesty's Court of Appeal (Civil Division) of the 14th
day of December 1979 in part complained of in the
said Original and Cross Appeals be, and the same is
hereby, Affirmed and that the said Petitions and Appeals
be, and the same are hereby, dismissed this House: And
it is further Ordered, That the Original Appellants do
pay or cause to be paid to the said Original Respondents
the Costs incurred by them in respect of the said Original
Appeal, and that the Cross Appellants do pay or cause
to be paid to the said Cross Respondents the Costs
incurred by them in respect of the said Cross Appeal,
the amount of such Costs to be certified by the Clerk of
the Parliaments if not agreed between the parties.
Bunge Corporation, New York (Original Appellants and Cross- Respondents) v. Tradax Export S.A., Panama (Original Respondents and Cross-Appellants).
HOUSE OF LORDS
CORPORATION, NEW YORK
(ORIGINAL APPELLANTS AND CROSS-RESPONDENTS)
EXPORT S.A., PANAMA
(ORIGINAL RESPONDENTS AND CROSS-APPELLANTS)
Lord Fraser of Tullybelton
I have had the advantage of
reading in advance the speech to be delivered
by my noble and learned friend, Lord Roskill. I agree entirely with it
and desire only to add a few observations on some general aspects of the
The appeal depends upon the
construction to be placed upon clause 7
of GAFTA form 119 as completed by the special contract. It is not
expressed as a " condition " and the question is whether, in its context and
in the circumstances it should be read as such.
Apart from arguments on
construction which have been fully dealt with
by my noble and learned friend, the main contention of Mr. Buckley Q.C.
for the appellant was based on the decision of the Court of Appeal in
Hong Kong Fir Shipping Co., Ltd. v. Kawasaki Kisen Kaisha Ltd. 
2 Q.B. 26, as it might be applied to clause 7. Diplock L.J., as he then was,
in his seminal judgment illuminated the existence in contracts of terms which
were neither, necessarily, conditions nor warranties, but, in terminology
which has since been applied to them, intermediate or innominate terms
capable of operating, according to the gravity of the breach, as either
conditions or warranties. Relying on this, Mr. Buckley's submission was
that the buyer's obligation under the clause, to " give at least  consecutive
" days' notice of probable readiness of vessel(s) and of the approximate
" quantity required to be loaded ", is of this character. A breach of it,
both generally and in relation to this particular case, might be, to use
Mr. Buckley's expression, " inconsequential ", i.e. not such as to make
performance of the seller's obligation impossible. If this were so it would
be wrong to treat it as a breach of condition: Hong Kong Fir would require
it to be treated as a warranty.
This argument, in my opinion, is
based upon a dangerous
misunderstanding, or misapplication, of what was decided and said in Hong
Kong Fir. That case was concerned with an obligation of seaworthiness,
breaches of which had occurred during the course of the voyage. The
decision of the Court of Appeal was that this obligation was not a
condition, a breach of which entitled the charterer to repudiate. It was
pointed out that, as could be seen in advance the breaches, which might
occur of it, were various. They might be extremely trivial, the omission
of a nail; they might be extremely grave, a serious defect in the hull or
in the machinery; they might be of serious but not fatal gravity,
incompetence or incapacity of the crew. The decision, and the judgments
of the Court of Appeal, drew from these facts the inescapable conclusion
that it was impossible to ascribe to the obligation, in advance, the character
of a condition.
Diplock L.J. then generalised this
particular consequence into the analysis
which has since become classical. The fundamental fallacy of the appellant's
argument lies in attempting to apply this analysis to a time clause such as
the present in a mercantile contract, which is totally different in character.
As to such a clause there is only one kind of breach possible, namely, to
be late, and the questions which have to be asked are, first, what importance
have the parties expressly ascribed to this consequence, and secondly, in
the absence of expressed agreement, what consequence ought to be
attached to it having regard to the contract as a whole.
The test suggested by the
appellants was a different one. One must
consider, they said, the breach actually committed and then decide whether
that default would deprive the party not in default of substantially the whole
benefit of the contract. They invoked even certain passages in the judgment
of Diplock L.J. in Hong Kong Fir to support it. One may observe in the
first place that the introduction of a test of this kind would be commercially
most undesirable. It would expose the parties, after a breach of one, two,
three, seven and other numbers of days to an argument whether this delay
would have left time for the seller to provide the goods. It would make it,
at the time, at least difficult, and sometimes impossible, for the supplier
to know whether he could do so. It would fatally remove from a vital
provision in the contract that certainty which is the most indispensable
quality of mercantile contracts, and lead to a large increase in arbitrations.
It would confine the seller—perhaps after arbitration and reference through
the courts—to a remedy in damages which might be extremely difficult to
quantify. These are all serious objections in practice. But I am clear
that the submission is unacceptable in law. The judgment of Diplock L.J.
does not give any support and ought not to give any encouragement to any
such proposition; for beyond doubt it recognises that it is open to the parties
to agree that, as regards a particular obligation, any breach shall entitle the
party not in default to treat the contract as repudiated. Indeed, if he were
not doing so he would, in a passage which does not profess to be more
than clarificatory, be discrediting a long and uniform series of cases—at
least from Bowes v. Shand (1877) 2 App. Cas. 455 onwards which have
been referred to by my noble and learned friend. Lord Roskill. It remains
true, as Lord Roskill has pointed out in Cehave N.V. v. Bremer
Handelsgesellschaft m.b.H.  1 Q.B. 44, that the courts should not be
too ready to interpret contractual clauses as conditions. And I have myself
commended, and continue to commend, the greater flexibility in the law of
contracts to which Hong Kong Fir points the way (Reardon Smith Line Ltd.
v. Hansen-Tangen  1 W.L.R. 989, 998). But I do not doubt that, in
suitable cases, the courts should not be reluctant, if the intentions of the
parties as shown by the contract so indicate, to hold that an obligation has
the force of a condition, and that indeed they should usually do so in the
case of time clauses in mercantile contracts. To such cases the " gravity
" of the breach " approach of Hong Kong Fir would be unsuitable. I need
only add on this point that the word " expressly " used by Diplock L.J.
at p.70 of his judgment in Hong Kong Fir should not be read as requiring
the actual use of the word " condition ": any term or terms of the contract,
which, fairly read, have the effect indicated, are sufficient. Lord Diplock
himself has given recognition to this in this House (Photo Production Ltd.
v. Securicor Transport Ltd. [I980] A.C. 827, 849). I therefore reject that
part of the appellant's argument which was based upon it, and I must
disagree with the judgment of the learned trial judge in so far as he
accepted it. I respectfully endorse, on the other hand, the full and learned
treatment of this issue in the judgment of Megaw L.J. in the Court of
I would add that the argument
above applies equally to the use which
the appellant endeavoured to make of certain observations in United
Scientific Holdings Ltd. v. Burnley Borough Council  A.C. 904,
a case on which I do not need to comment on this occasion.
In conclusion, the statement of
the law in Halsbury's Laws of England,
4th Ed. Vol. 9 (Contract) paragraphs 481-2, including the footnotes to
paragraph 482 (generally approved in the House in the United Scientific
Holdings case), appears to me to be correct, in particular in asserting (1)
that the court will require precise compliance with stipulations as to time
wherever the circumstances of the case indicate that this would fulfil the
intention of the parties, and (2) that broadly speaking time will be considered
of the essence in " mercantile" contracts—with footnote reference to
authorities which I have mentioned.
The relevant clause falls squarely
within these principles, and such
authority as there is supports its status as a condition—see Bremer
Handelsgesellschaft v. J.
H. Rayner & Co. Ltd.  2 Lloyd's Rep. 73
and cp. Turnbull & Co. (Pty) Ltd. v. Mundas Trading Co. (Pty) Ltd. 
2 Lloyd's Rep. 198 (H.C. of A.). In this present context it is clearly
essential that both buyer and seller (who may change roles in the next
series of contracts, or even in the same chain of contracts) should know
precisely what their obligations are, most especially because the ability of
the seller to fulfil his obligation may well be totally dependent on punctual
performance by the buyer.
I would dismiss the appeal, and
for the reasons given by my noble and
learned friend, Lord Roskill, the cross-appeal.
Lord Fraser of Tullybelton
I have had the advantage of
reading in draft the speeches of my noble
and learned friends, Lord Wilberforce and Lord Roskill, and I agree with
them. For the reasons stated by them I would dismiss the appeal and
I have had the advantage of
reading in draft the speeches of my noble
and learned friends, Lord Wilberforce and Lord Roskill. I agree with
both of them, and would, therefore, dismiss the appeal and the cross-appeal.
I wish, however, to make a few
observations upon the topic of
" innominate " terms in our contract law. In Hong Kong Fir Shipping Co.
Ltd. v. Kawasaki K.K. Ltd.  2 QB 26, the Court of Appeal
rediscovered and reaffirmed that English law recognises contractual terms
which, upon a true construction of the contract of which they are part, are
neither conditions nor warranties but are, to quote my noble and learned
friend Lord Wilberforce's words in Bremer v. Vanden  2 Lloyd's
Rep. 109 at p. 113, " intermediate ". A condition is a term, the failure to
perform which entitles the other party to treat the contract as at an end.
A warranty is a term, breach of which sounds in damages but does not
terminate, or entitle the other party to terminate, the contract. An innominate
or intermediate term is one, the effect of non-performance of which the
parties expressly or (as is more usual) impliedly agree will depend upon the
nature and the consequences of breach. In the Hong Kong Fir case the
term in question provided for the obligation of seaworthiness, breach of
which it is well known may be trivial (e.g., one defective rivet) or very
serious (e.g., a hole in the bottom of the ship). It is inconceivable that parties
when including such a term in their contract could have contemplated or
intended (unless they expressly say so) that one defective rivet would entitle
the charterer to end the contract or that a hole in the bottom of the ship
would not. I read the Hong Kong Fir case as being concerned as much with
the construction of the contract as with the consequences and effect of breach.
The first question is always, therefore, whether, upon the true construction
of a stipulation and the contract of which it is part, it is a condition, an
innominate term, or only a warranty. If the stipulation is one, which upon
the true construction of the contract the parties have not made a condition,
and breach of which may be attended by trivial, minor, or very grave
consequences, it is innominate, and the court (or an arbitrator) will, in the
event of dispute, have the task of deciding whether the breach that has arisen
is such as the parties would have said, had they been asked at the time they
made their contract:__ " it goes without saying that, if that happens, the
" contract is at an end."
Where, therefore, as commonly
happens, the parties do not identify a
stipulation as a condition, innominate term, or warranty, the court will
approach the problem of construction in the way outlined by Upjohn L.J.,
at pp.63 and 64 of the report. As the Lord Justice put it,
" Where, however, upon the
true construction of the contract, the
" parties have not made a particular stipulation a condition, it would in
" my judgment be unsound and misleading to conclude that, being a
" warranty, damages is necessarily a sufficient remedy."
Unless the contract makes it
clear, either by express provision or by necessary
implication arising from its nature, purpose, and circumstances (" the factual
"matrix " as spelt out, for example, by Lord Wilberforce in his speech in the
Reardon Smith case  1 W.L.R. 989, at pp.995E-997D), that a
particular stipulation is a condition or only a warranty, it is an innominate
term, the remedy for a breach of which depends upon the nature,
consequences, and effect of the breach.
When the Court of Appeal had taken
the logical step of declaring that the
Hong Kong Fir analysis applied to contracts generally (the Hansa Nord case
 1 Q.B. 44), the law was back where it had been left by Lord Mansfield
in Boone v. Eyre (1777) 1 Hy. Bl. 273 and the judgment of Bramwell B. in
Jackson v. Union Marine Insurance Co. Ltd. L.R. 10 C.P. 125.
Section 11(1) (b) of the Sale of Goods Act 1893 can now be seen to be no
more than a statutory guide to the use of the terms " condition" and
" warranty " in that Act. It is not to be treated as an indication that the
law knows no terms other than conditions and warranties. This fallacy was
exposed in the Hong Kong Fir case. To read the subsection as a guide
to a comprehensive classification of contractual terms is to convert it into
a will-o'-the-wisp leading the unwary away from the true path of the law.
The difficulty in the present case
is, as Mr. Buckley's excellent argument
for the appellants revealed, to determine what is the true construction of the
completed clause 7 of GAFTA form 119, which the parties incorporated in
their contract. After some hesitation, I have concluded that the clause was
intended as a term, the buyer's performance of which was the necessary
condition to performance by the seller of his obligations. The contract, when
made, was, to use the idiom of Diplock L.J. (Hong Kong Fir p.65) and
Demosthenes (Oratt. Attici. Reiske 867.11), " synallagmatic ", i.e. a contract
of mutual engagements to be performed in the future, or, in the more familiar
English/Latin idiom, an " executory " contract. The seller needed sufficient
notice to enable him to choose the loading port: the parties were agreed
that the notice to be given him was 15 days: this was a mercantile contract
in which the parties required to know where they stood not merely later with
hindsight but at once as events occurred. Because it makes commercial sense
to treat the clause in the context and circumstances of this contract as a
condition to be performed before the seller takes his steps to comply with
bargain, I would hold it to be not an innominate term but a condition.
I have had the advantage of
reading in draft the speeches of my noble
and learned friends Lord Wilberforce and Lord Scarman, as well as the
comprehensive review of the facts and the relevant law contained in the
speech about to be delivered by my noble and learned friend Lord Roskill.
I respectfully agree with their opinions, which taken together leave little
of value to be said.
If I venture to add a few words of
my own (which gives me an
opportunity to acknowledge the excellent arguments on both sides), it is
because I wish to refer to two points of general interest and then to state
shortly why I would hold the term breached by the buyers to have been a
As your Lordships have observed,
the appellants based themselves on
Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Shipping
Ltd.  2 QB 26, but they sought from that case a degree of support
which it could not give them by citing it for the proposition that a term
of a contract is not a condition unless a breach of it is seen to have deprived
the party not in default of
substantially the whole benefit which he was
intended to obtain from the contract. By this argument the appellants were
saying that in Hong Kong Fir Diplock L.J., as he then was, had adopted a
new criterion for deciding by means of hindsight whether a term was a
condition or not.
This was wrong. In the first
place, the term in question in Hong Kong Fir
was one relating to seaworthiness, and the entire court agreed that it was
not a condition but a term the remedy for a breach of which might be
rescission (with or without damages) or merely damages for the breach.
Secondly, at p.70 Diplock L.J. introduces the discussion by saying that there
are many contractual undertakings of a more complex character which
cannot be categorised as being conditions or warranties. And the description
which has since been applied to this kind of term provides a conclusive
answer to the appellants' contention. It is " intermediate " because it lies
in the middle between a condition and a warranty (just as the remedy for
its breach lies somewhere between the remedies for breach of a condition
and breach of a warranty), and it is " innominate " because it is not called
a condition or a warranty but assumes the character of each in turn.
It is by construing a contract
(which can be done as soon as the contract
is made) that one decides whether a term is, either expressly or by necessary
implication, a condition, and not by considering the gravity of the breach of
that term (which cannot be done until the breach is imminent or has
occurred). The latter process is not an aid to construing the contract, but
indicates whether rescission or merely damages is the proper remedy for a
breach for which the innocent party might be recompensed in one way or
the other according to its gravity. The approach of Diplock L.J. at
pp.69-70 of Hong Kong Fir is absolutely consistent with the classic
statement of Bowen L.J. in Bentsen v. Taylor  2 Q.B. 274, 281 which
Sellers L.J. cited at p.60.
The " wait and see "
method, or, as my noble and learned friend Lord
Wilberforce has put it, the " gravity of the breach " approach, is not the
way to identify a condition in a contract. This is done by construing the
contract in the light of the surrounding circumstances. By his illuminating
analysis Diplock L.J. shed a new light on old and accepted principles: he
did not purport to establish new ones.
The second general point which I
desire to mention concerns stipulations as
to time in mercantile contracts, in regard to which it has been said that,
broadly speaking, time will be considered to be of the essence. To treat time
limits thus means treating them as conditions, and he who would do so must
pay respect to the principle enunciated by Roskill L.J., as he then was, in
the Hansa Nord case  Q.B. 44, 71A, that contracts are made to be
performed and not to be avoided.
The treatment of time limits as
conditions in mercantile contracts does not
appear to me to be justifiable by any presumption of fact or rule of law, but
rather to be a practical expedient founded on and dictated by the experience
of businessmen, just the kind of thing which Bowen L.J. could have had in
mind when framing his classic observations on the implied term in The
Moorcock (1889) 14 P.D. 64 at p.68:-
" Now, an implied warranty,
or, as it is called, a covenant in law, as
" distinguished from an express contract or express warranty, really is in
" all cases founded on the presumed intention of the parties, and upon
" reason. The implication which the law draws from what must
" obviously have been the intention of the parties, the law draws with
" the object of giving efficacy to the transaction and preventing such a
" failure of consideration as cannot have been within the contemplation
" of either side; and I believe if one were to take all the cases, and they
" are many, of implied warranties of covenants in law, it will be found
" that in all of them the law is raising an implication from the
" presumed intention of the parties with the object of giving to the
" transaction such efficacy as both parties must have intended that at
" all events it should have. In business transactions such as this, what
" the law desires to effect
by the implication is to give such business
" efficacy to the transaction as must have been intended at all events by
" both parties who are business men; not to impose on one side all the
" perils of the transaction, or to emancipate one side from all the chances
" of failure, but to make each party promise in law as much, at all
" events, as it must have been in the contemplation of both parties that
" he should be responsible for in respect of those perils or chances.
" Now what did each party in
a case like this know? For if we
" are examining into their presumed intention we must examine into
" their minds as to what the transaction was."
This passage has stood the test of
time and I commend it to all lawyers who
undertake to advise their clients on mercantile affairs.
In order to identify an implied
term (concerning which both parties to the
contract, being men of business, would say, " of course; it goes without
" saying ") one must construe the contract in the light of the surrounding
circumstances and, to understand how that is done, we cannot do better than
read the passage from Lord Wilberforce's speech in the Reardon Smith
case  1 W.L.R. 989 at pp 995E-997C to which my noble and learned
friend, Lord Scarman, has already referred your Lordships.
The law having been established,
why should we regard the term here in
question as a condition. I start by expressing my full agreement with the
reasons given in your Lordships' speeches. Among the points which have
weighed with me are the following: —
There are enormous practical
advantages in certainty, not least in
regard to string contracts where today's buyer may be tomorrow's seller.
Most members of the
string will have many ongoing contracts
simultaneously and they must be able to do business with confidence in the
legal results of their actions.
Decisions would be too difficult
if the term were innominate, litigation
would be rife and years might elapse before the results were known.
The difficulty of assessing
damages is an indication in favour of
condition: McDougall v. Aeromarine of Emsworth Ltd.  1 W.L.R.
One can at least say that recent
litigation has provided indications that
the term is a condition. Parties to similar contracts should (failing a strong
centra-indication) be able to rely on this: The Mihalis Angelos 
1 Q.B. 164, 199F per Edmund-Davies L.J.
To make " total loss "
the only test of a condition is contrary to
authority and experience, when one recalls that terms as to the date of
sailing, deviation from a voyage and the date of delivery are regarded as
conditions, but that failure to comply with them does not always have serious
Nor need an implied condition pass the total loss test: see 6 above.
If the consequences of breach of
condition turn out to be slight, the
innocent party may treat the condition as an innominate term or a warranty.
While the sellers could have made
time of the essence, if it were not
so already, this would require reasonable notice, which might well not be
practical either in a string contract or at all.
10. In Tarrabochia v.
Hickie 1 H. & N. 183; 156 E.R. 1168, upon which
the appellants strongly relied, Bramwell B. said:
" No doubt it is competent
for the parties, if they think fit, to
" declare in express terms that any matter shall be a condition precedent,
" but when they have not so expressed themselves, it is necessary for
" those who construe the instrument to see whether they intend to do it.
" Since, however, they could have done it, those who construe the
" instrument should be chary
in doing for them that which they might,
" but have not done for themselves."
But in that very case both Pollock
C. B. and Bramwell B., without the benefit of
any express term, said that, where the agreement was that a ship should sail
on a particular day, that was a condition precedent.
To accept the argument that
conditions ought not to be implied
" because the parties themselves know how to describe a term " would logically
condemn the entire doctrine of implied terms.
Arbitrators and courts might, if
the term were innominate, give
different answers concerning the effect of a breach in very similar transactions,
and parties could never learn by experience what was likely to happen in a
given situation. So-called string contracts are not made, or adjudicated on, in
The only arguments against
treating the term as a condition appear to me
to be based on generalities, whereas the considerations which are peculiar to
this contract and similar contracts tell in favour of its being a condition.
For these reasons, and for the
reasons given by my noble and learned
friends, I would concur in dismissing both the appeal and the cross-appeal.
The appellants (Bunge Corporation,
New York) were the buyers and the
respondents (Tradax Export S.A., Panama) the sellers under a contract
concluded on 30th January 1974 through their respective brokers in Antwerp
and Rotterdam for the sale and purchase of 15,000 long tons, 5% more or
less in vessel's option, of United States soyabean meal, shipment of 5,000 long
tons in each of May, June and July 1975 at a price of U.S. dollars 199-50 per
metric ton, F.O.B. one United States Gulf port at sellers' option. The
respondents through their associated German company issued a contract note
bearing that date for 5,000 long tons, 5% more or less for May 1975 ship-
ment and the present appeal arises out of that May 1975 shipment. The
appellants' brokers in Antwerp issued a single contract note for the entire
quantity of 15,000 tons already referred to. The two contract notes were not
in identical terms but nothing now depends upon the differences.
The contract incorporated the
terms and conditions of GAFTA form 119.
The relevant extracts from the two contract notes are as follows.
The respondents' Contract Note.
" Quantity 5,000 (five
thousand) tons of 2,240 lbs, 5% more or less
" in vessel's option at contract price, to be declared latest when
" nominating the vessel.
" Shipment May,
1975—buyers to give sellers 15 days loading
"notice F.o.b. one Gulf port at seller's option, stowed/trimmed."
The appellants' Contract Note.
" Quantity 15,000 L.T.
of 1.016 kilos, 5% more or less at vessel's
" option at contract price, quantity to be declared latest when
" nominating vessel. . . .
" Other Conditions. . . .
Buyers to give 15 days preadvice of
" readiness of steamer."
The most relevant clauses in form 119 are as follows:
" 7. Period of Delivery. During.....................................at Buyers' call.
" Buyers shall give at least....................................consecutive days' notice of
" probable readiness of
vessel(s), and of the approximate quantity
" required to be loaded. Buyers shall keep Sellers informed of any
" changes in the date of probable readiness of vessel(s).
" 8. Extension of
Delivery. The contract period of delivery shall,
" if desired by Buyers, be extended by an additional period of one
" calendar month, provided that Buyers give notice in accordance with
" the Notices Clause not later than the next business day following
" the last day of the delivery period. In this event Sellers shall carry
" the goods at Buyers account and all charges for storage, interest,
" insurance and other such normal carrying expenses shall be for
" Buyers' account. Should Buyers not have taken delivery by the
" end of this extension period, Sellers shall have the option of declaring
" the Buyers to be in default or shall be entitled to demand payment
" at contract price plus such charges as stated above, less current f.o.b.
" charges against warehouse warrants and such tender of warehouse
" receipts shall be considered complete performance of the contract
" on the part of the Sellers." . . .
" 20. Notices. Any Notices
received after 1600 hours on a business
" day shall be deemed to have been received on the business
" day following. A Notice to the Broker or Agent shall be deemed
" a Notice under this contract. All Notices given under this contract
" shall be given by letter or by telegram or by telex or by other method
" of rapid written communication. In case of resales all Notices shall
" be passed on without delay by Buyers to their respective Sellers or
" vice versa." . . .
" 22. Default. In default of
fulfilment of contract by either party,
" the other, at his discretion shall, after giving notice by letter, telegram
" or telex, have the right to sell or purchase, as the case may be,
" against the defaulter and the defaulter shall make good the loss, if
" any, on such purchase or sale on demand. If the party liable to
" pay be dissatisfied with the price of such sale or purchase or if the
" above right is not exercised and damages cannot be mutually agreed,
" any damages, payable by the party in default, shall be settled by
" arbitration. In the event of default by Sellers entitling Buyers to
" damages, such damages shall be based upon the actual or estimated
" value of the goods on date of default, to be fixed by arbitration
" unless mutually agreed, and nothing contained in or implied under
" this contract shall entitle Buyers to recover any damages in respect
" of loss of profit upon any sub-contracts made by themselves or
" others unless the Arbitrators or Board of Appeal, having regard to
" any special circumstances, shall in their sole and absolute discretion
" award such damages. In the event of default in shipment or
" delivery, damages, if any, shall be computed upon the mean contract
My Lords, since it was agreed that
there was no material difference
between the two important clauses regarding the giving of the 15 days'
notice to which those clauses refer, it is clear that the two blanks in
clause 7 of form 119 have to be treated as completed with the words
" during May 1975 " in the first blank and the figures " 15 " in the second
blank, so that clause 7 thus completed reads:
" Period of delivery—during
May 1975 at Buyers' call. Buyers
" shall give at least 15 consecutive days' notice of probable readiness
" of vessel(s) and of the approximate quantity required to be loaded.
" Buyers shall keep Sellers informed of any changes in the date of
" probable readiness of the vessel(s)."
It was found by the Board of
Appeal of GAFTA, in paragraph 6 of
the special case, that extensions were claimed under clause 8 of form 119
so that the relevant delivery period became June 1975. The Board of
Appeal also found in paragraph 11 of the special case, that the appellants'
nomination of the vessel concerned to load what had thus become a June
shipment was given to the respondents at 0846 on 17th June 1975 when
it was received by the respondents' brokers in Rotterdam, less than 15
consecutive days before the end of the extended shipment period. It is
not necessary to detail the passing on of this notice until it reached the
respondents on 18th June 1975. On
20th June 1975 the respondents
claimed default because of the alleged lateness of the appellants' notice.
The relevant details will be found in paragraphs 12, 13, and 14 of the
special case. As is found in paragraph 19 of the special case, the market
price had by then fallen by over U.S. $60 per metric ton. The respondents
claimed damages from the appellants. The dispute was referred to
arbitration in accordance with clause 26 of form 119. The umpire awarded
the respondents U.S. $317.500 as damages, this figure being based on the
mean contract quantity of 5,000 long tons together with certain other sums
not now immediately relevant. The appellants appealed to the Board of
Appeal of GAFTA and that Board consisting of five members dismissed
their appeal in all respects but stated a special case for the decision of the
court. Upon the hearing of that special case by Parker J., that learned
judge reversed the decision of the Board of Appeal and upheld their
alternative award. The respondents thereupon appealed to the Court of
Appeal (Megaw, Browne and Brightman L.JJ.) who restored the award of
the Board of Appeal on liability but varied the quantum of damages
holding that these should be measured by the minimum quantity the
appellants would have been obliged to take. Leave to appeal to your
Lordships' House was granted by the Court of Appeal.
My Lords, your Lordships' House is
the fifth tribunal before whom this
dispute has been heard. I understand all your Lordships are agreed that
the appeal and also the cross-appeal on quantum fail in substance for the
reasons given by Megaw L.J. in, if I may respectfully say so, a powerful
and closely reasoned judgment in the Court of Appeal. It follows that the
same view upon the main issue involved in this dispute has been formed
by six members of GAFTA, three learned Lords Justices and five members
of your Lordships' House, a total of fourteen with only the learned judge
taking the opposite view on that main issue. My Lords, I intend no
disrespect to the learned judge in pointing this out. I do so merely for
the purpose of expressing regret that, notwithstanding repeated adverse
comments in your Lordships' House, in a simple case of this kind there
should be a succession of no less than four appeals from the decision of
an umpire well versed in disputes of this kind and that this is still possible.
I derive some comfort however, from the fact that with the passing of the
Arbitration Act 1979 this multiplicity of appeals should soon be a thing
of the past.
My Lords, the central question in
this appeal is whether the appellants'
obligation under clause 7 completed as I have completed it, are of such a
character that a breach of them by the appellants such as, in my view,
undoubtedly took place, entitled the respondents forthwith to rescind and
claim damages. Put into lawyers' language—is the appellants' obligation to
give the required 15 days' notice a condition or not? If it is, this appeal
fails. If it is not, this appeal must succeed. As already stated, at all stages of
these proceedings, save one, this obligation has been held to be a condition.
The learned judge not only held that it was not a condition but also held that
there was no breach by the appellants of clause 7. The Court of Appeal
disagreed and this latter submission which found favour with the learned
judge was not—rightly in my view—pursued in argument before your
My Lords, the relevant phrase "
give at least 15 consecutive days' notice "
consists only of six words and two digits. But the able arguments of which
your Lordships have had the benefit have extended over 3 full days. The
appellants' arguments may be summarised thus. They submitted that this
term was not a condition but was what has come to be described since the
Hong Kong Fir case  2 QB 26, as an " innominate " obligation—
neither a condition nor a warranty, and that when a term is an innominate
obligation the question whether or not a breach gives the innocent party the
right to rescind depends upon whether the innocent party was thereby deprived
" of substantially the whole benefit which it was intended he should obtain
" from the contract ". This last quotation is from the judgment of
Diplock L.J. (as he then was) in
the Hong Kong Fir case at page 70 of the
report. It was further argued that since the respondents accepted that they
could not show the now admitted breach by the appellants in giving a late
notice had deprived them of substantially the whole benefit which it was
intended they should obtain from the contract, the respondent had no right to
rescind on account of that late notice. Much reliance was also placed by
Mr. Roger Buckley, Q.C. for the appellants upon the ensuing passage in the
learned Lord Justice's judgment, also at page 70 of the report: " and the legal
" consequences of a breach of such an undertaking, unless provided for
" expressly in the contract [my emphasis], depend upon the nature of the event
" to which the breach gives rise ". There was, Mr. Buckley argued, no such
" express " provision in this contract. Mr. Buckley also placed reliance upon
the application of the principle enunciated in the Hong Kong Fir case, which
was a case of a time charterparty relating to an unseaworthy ship, to contracts
for the sale of goods, such as the present, by the Court of Appeal in the
Hansa Nord case,  Q.B. 44, a decision approved in your Lordships'
House in the Reardon Smith case,  1 W.L.R. 989. The principles
enunciated in the first two cases mentioned were, he said, of general
application and pointed the way to a new and now correct approach to the
question how a term in a contract alleged on the one hand to be a condition
and on the other hand to be an " innominate term " should be approached.
My Lords, it is beyond question
that there are many cases in the books
where terms, the breach of which do not deprive the innocent party of
substantially the whole of the benefit which he was intended to receive from
the contract, were nonetheless held to be conditions any breach of which
entitled the innocent party to rescind. Perhaps the most famous is Bowes
v. Shand (1877) 2 App. Cas. 455. Reuter v. Sala (1879) 4 C.P.D. 239, is
another such case. Both these cases were decided before the Sale of Goods
Act 1893 was enacted. But that Act only codified the relevant common law.
I think Mr. Buckley was entitled to say that these two, and other similar
cases, largely turned upon the fact that the breach complained of was part
of the description of the goods in question and that would therefore today
be a statutory condition under section 13 of the Sale of Goods Act. But
there are many other cases, modern and less modern, where terms in
contracts for the sale of goods have been held to be conditions any breach of
which will give rise to a right to rescind. Though section 10 (1) of the
Sale of Goods Act provides that, unless a different intention appears, terms
as to the time of payment are not deemed to be of the essence of a contract
of sale, there are many cases, notably those in connection with the opening
of bankers credits and the payment against documents, where the relevant
obligations have been held to be a condition a breach of which will entitle
the innocent party to rescind. No useful purpose will be served by listing all
those cases cited in argument on either side. Many are usefully collected in
the judgment of Diplock J. (as he then was) in Ian Stach Limited v. Baker
Bosley Ltd.  2 Q.B. 130 at pages 139-144, and I would emphasize in
this connection the need for certainty in this type of transaction to which
that learned judge referred at pages 143 and 144 of his judgment. Parties
to commercial transactions should be entitled to know their rights at once
and should not, when possible, be required to wait upon events before those
rights can be determined. Of course, in many cases of alleged frustration or
of alleged repudiatory delay it may be necessary to await events upon the
happening or non-happening of which rights may well crystallise. But
your Lordships' House has recently reiterated in a series of cases arising
from the withdrawal of ships on time charter for non-payment of hire the
need for certainty where punctual payment of hire is required and has held
that the right to rescind automatically follows a breach of any such
My Lords, I find nothing in the
judgment of Diplock L.J. in the Hong
Kong Fir case which suggests any departure from the basic and long
standing rules for determining whether a particular term in a contract is
or is not a condition and there is much in the judgment of Sellers LJ.
with which Upjohn L.J. (as he then was) expressly agreed, to show that
those rules are still good law and
should be maintained. They are
enshrined in the oft quoted judgment of Bowen L.J. (as he then was) in
Bentsen v. Taylor  2 Q.B. 274 at 281. " There is no way of deciding
" that question except by looking at the contract in the light of the
" surrounding circumstances, and then making up one's mind whether the
" intention of the parties, as gathered from the instrument itself, will best
" be carried out by treating the promise as a warranty sounding only in
" damages, or as a condition precedent by the failure to perform which
" the other party is relieved of his liability." That well-known passage will
be found quoted by Sellers LJ. at page 60 of the report in the Hong
Kong Fir case. I would add a reference in this connection to the judgment
of Scrutton L.J. in Comptoir Commercial Anversois v. Power  1 K.B.
868 at 899, where that learned Lord Justice added to the statements of the
same principle in the Exchequer Chamber in Behn v. Burness (1863)
3 B. & S. 751 and in Oppenheim v. Fraser (1876) 34 L.T. 524, his own
My Lords, the judgment of Diplock
L.J. in the Hong Kong Fir case is,
if I may respectfully say so, a landmark in the development of one part
of our law of contract in the latter part of this century. The learned Lord
Justice showed by reference to detailed historical analysis, contrary to what
had often been thought previously, that there was no complete dichotomy
between conditions and warranties and that there was a third class of
term, the innominate term. But I do not believe the learned Lord Justice
ever intended his judgment to afford an easy escape route from the normal
consequences of rescission to a contract breaker who had broken what
was, upon its true construction, clearly a condition of the contract by
claiming that he had only broken an innominate term. Of course when
considering whether a particular term is or is not a condition it is relevant
to consider to what other class or category that term, if not a condition,
might belong. But to say that is not to accept that the question whether
or not a term is a condition has to be determined solely by reference to
what has to be proved before rescission can be claimed for breach of a
term which has already been shown not to be a condition but an
innominate term. Once it is appreciated that the whole of the passages
on pages 69 and 70 of the learned Lord Justice's judgment are directed
to the consequences of a term which is not a condition but an innominate
term and not to the question of whether or not a particular term is a
condition, the difficulties mentioned by Megaw L.J. in his judgment if
the passages in question are read too literally, and as the appellants invite
your Lordships to read them, disappear. The only criticism I would
respectfully venture of these passages is the use of the adverb " expressly "
in the passage I have already quoted from the middle of the full paragraph
on page 70. Surely the same result must follow whether the legal
consequences of the breach are also " impliedly " provided for in the
contract upon that contract's true construction? In venturing this amend-
ment to what the learned Lord Justice said, I derive comfort from the
fact that my noble and learned friend, Lord Diplock himself in Photo
Production Ltd. v. Securicor Transport Ltd.  AC 827 at page 849,
speaks of the case where the contracting parties have agreed " whether by
" express words or by implication of law" (my emphasis) that " any "
(Lord Diplock's emphasis) " failure by one party to perform a particular
" primary obligation (' condition ' in the nomenclature of the Sale of Goods
" Act 1893), irrespective of the gravity of the event that has in fact resulted
" from the breach, shall entitle the other party to elect to put an end to
" all primary obligations of both parties remaining unperformed ". Thus
I think it legitimate to suggest an amendment to the passage in 
2 Q.B. at page 70 either by deleting the word " expressly " or by adding
the words " or by necessary implication ".
My Lords, your Lordships' House
had to consider a similar problem in
relation to a different clause (clause 21) in a different GAFTA contract
in Bremer v. Vanden  2 Lloyd's Rep. 109. In passing I would
observe the text of that clause is inaccurately quoted in the headnote of
the report but will be found
correctly quoted in the speech of Viscount
Dilhorne at page 121. My noble and learned friend Lord Wilberforce
said at page 113:
" Automatic and invariable
treatment of a clause such as this runs
" counter to the approach, which modern authorities recognise, of
" treating such a provision as having the force of a condition (giving
" rise to rescission or invalidity), or of a contractual term (giving rise
" to damages only) according to the nature and gravity of the breach.
" The clause is then categorised as an innominate term. This doctrine
" emerged very clearly in the Hong Kong Fir case in relation to the
" obligation of seaworthiness, and was as applied to a contract for
" sale of goods made on GAFTA form 100 in the Hansa Nord, a
" decision itself approved by this House in the Reardon Smith case.
" In my opinion, the clause may vary appropriately and should be
" regarded as such an intermediate term: to do so would recognise
" that while in many, possibly most, instances, breach of it can
" adequately be sanctioned by damages, cases may exist in which, in
" fairness to the buyer, it would be proper to treat the cancellation
" as not having effect. On the other hand, always so to treat it may
" be often be unfair to the seller, and unnecessarily rigid."
The passage I have just quoted was
directed to clause 21 of the contract
there in question. All members of your Lordships' House were of the
opinion that that clause was not a condition because it was insufficiently
definitive or precise—see the speeches of my noble and learned friends,
Lord Salmon at page 128, and Lord Russell of Killowen at page 130.
But it is important to observe that your Lordships' House had also to
consider clause 22 of that contract. All members of your Lordships'
House held that clause 22 was a condition—see the speeches of my noble
and learned friends, Lord Wilberforce at page 116, and Lord Salmon at
page 128. I venture to emphasise the statement in the former passage
that accurate compliance with the stipulation in question was essential
to avoid commercial confusion in view of the possibility of long string
contracts being involved, a point of especial importance in the present case.
In short, while recognising the
modern approach and not being over-
ready to construe terms of conditions unless the contract clearly requires
the court so to do, none the less the basic principles of construction for
determining whether or not a particular term is a condition remain as
as before, always bearing in mind on the one hand the need for certainty
and on the other the desirability of not, when legitimate, allowing rescission
where the breach complained of is highly technical and where damages
would clearly be an adequate remedy. It is therefore in my opinion
wrong to use the language employed by Diplock L.J. in the Hong Kong
Fir case as directed to the determination of the question which terms of
a particular contract are conditions and which are only innominate terms.
I respectfully agree with what Megaw L.J. said in the passage in his
judgment in the instant case at  1 Lloyd's Rep. 294 at pages 307,
308. The explanation of the passage which he quotes is that which I
have just given.
My Lords, Mr. Buckley founded much
of this part of his argument
upon the decision of your Lordships' House in United Scientific Holdings
v. Burnley Borough Council  A.C. 904 when your Lordships' House,
unanimously reversing two separate decisions of the Court of Appeal, held
that the time table specified in rent review clauses for the completion of
the various steps for determining the rent payable in respect of the period
following the review was not of the essence. Naturally, Mr. Buckley
relied upon a passage in the speech of my noble and learned friend. Lord
Diplock, at page 928. I quote the passage in full.
" My Lords, I will not take
up time repeating here what I myself
" said in the Hong Kong Fir case, except to point out that by 1873:
" (1) Stipulations as to the
time at which a party was to perform
" a promise on his part were among the contractual stipulations which
" were not regarded as
'conditions precedent' if his failure to perform
" that promise punctually did not deprive the other party of
" substantially the whole benefit which it was intended that he should
" obtain from the contract;
" (2) When the delay by one
party in performing a particular
" promise punctually had become so prolonged as to deprive the
" other party of substantially the whole benefit which it was intended
" that he should obtain from the contract it did discharge that other
" party from the obligation to continue to perform any of his own
" promises which as yet were unperformed;
" (3) Similar principles were
applicable to determine whether the
" parties' duties to one another to continue to perform their mutual
" obligations were discharged by frustration of the adventure that was
" the object of the contract. A party's ability to perform his promise
" might depend upon the prior occurrence of an event which neither
" he nor the other party had promised would occur. The question
" whether a stipulation as to the time at which the event should occur
" was of the essence of the contract depended upon whether even a
" brief postponement of it would deprive one or other of the parties
" of substantially the whole benefit that it was intended that he should
" obtain from the contract."
Read literally, the passage might
be thought to be of universal
application and to suggest that by 1873 terms in contract as to time,
whatever their character, were not to be construed as conditions any
breach of which would give rise to a right to rescind unless the several
prerequisites specified in this passage were fulfilled. My Lords, I do not
think that my noble and learned friend can possibly have intended this
passage to be so read. In the immediately preceding pages he had been
dealing with the manner in which the courts of Chancery had been
developing the equitable principles which he describes and explaining how
contemporaneously the courts of common law were reaching the same
result though by a different route. But to read the passage I have just
quoted as of universal application and in particular as of application to
to stipulations as to time in mercantile contracts would be to misread it,
for it would be quite inconsistent with many earlier authorities such as
Behn v. Burness as well as later authorities such as Bowes v. Shand,
Reuter v. Sala and Bentsen v. Taylor to which I have already referred.
That this is so is strongly reinforced by the fact that Mr. Hugh Francis
Q.C., whose argument for the appellants was unanimously accepted by
your Lordships' House, expressly conceded that the doctrine that my
noble and learned friend, Lord Diplock, ultimately so clearly expounded
at pages 926 to 928 did not apply in three classes of case of which the
second was " where the courts may infer from the nature of the contract
" or the surrounding circumstances that the parties regard time stipulations
" as of the essence of their bargains; mercantile contracts . . ."—see page
908 of the report, a concession which I think was clearly rightly made.
In reply to this part of Mr.
Buckley's argument Mr. Staughton drew
your Lordships' attention to Halsbury's Laws of England (4th Edition,
1974) Volume 9, paragraphs 481 and 482. He was able to show that the
penultimate full paragraph in paragraph 481 had been expressly approved
by no less than three of your Lordships in the United Scientific Holdings
case, by Viscount Dilhorne at page 937, Lord Simon of Glaisdale at pages
941 and 944, and by Lord Fraser of Tullybelton at page 958, while Lord
Salmon at page 950 stated the law in virtually identical terms though
without an express reference to this particular passage in Halsbury. The
passage in question reads thus:
" The modern law, in the case
of contracts of all types, may be
" summarised as follows. Time will not be considered to be of the
" essence unless: (1) the parties expressly stipulate that conditions
" as to time must be strictly complied with; or (2) the nature of the
" subject matter of the
contract or the surrounding circumstances show
" that time should be considered to be of the essence; or (3) a party
" who has been subjected to unreasonable delay gives notice to the
" party in default making time of the essence."
The relevant passage in paragraph 482 reads thus:
" Apart from express
agreement or notice making time of the
" essence, the court will require precise compliance with stipulations
" as to time wherever the circumstances of the case indicate that this
" would fulfil the intention of the parties. Broadly speaking, time
" will be considered of the essence in ' mercantile ' contracts and in
" other cases where the nature of the contract or of the subject matter
" or the circumstances of the case require precise compliance."
A footnote, No. 3, refers among
other cases to Reuter v. Sala and to Bowes
v. Shand. My Lords, I agree with Mr. Staughton that the express approval
of the passage in paragraph 481 cannot be taken as involving implied
disapproval of the passage I have just quoted from paragraph 482.
My Lords, I venture to doubt
whether much help is necessarily to be
derived in determining whether a particular term is to be construed as a
condition or as an innominate term by attaching a particular label to the
contract. Plainly there are terms in a mercantile contract, as your Lordships'
House pointed out in Bremer v. Vanden, which are not to be considered as
conditions. But the need for certainty in mercantile contracts is often of
great importance and sometimes may well be a determining factor in
deciding the true construction of a particular term in such a contract.
To my mind the most important
single factor in favour of Mr. Staughton's
submission is that until the requirement of the 15 day consecutive notice was
fulfilled, the respondents could not nominate the " one Gulf port " as the
loading port, which under the instant contract it was their sole right to do.
I agree with Mr. Staughton that in a mercantile contract when a term has to
be performed by one party as a condition precedent to the ability of the
other party to perform another term, especially an essential term such as
the nomination of a single loading port, the term as to time for the
performance of the former obligation will in general fall to be treated as a
condition. Until the 15 consecutive days' notice had been given, the
respondents could not know for certain which loading port they should
nominate so as to ensure that the contract goods would be available for
loading on the ship's arrival at that port before the end of the shipment
It follows that in my opinion the
umpire, the Board of Appeal and the
Court of Appeal all reached the correct conclusion and for the reasons I
have given I would dismiss the appellants' appeal. It will have been
observed that I have reached this conclusion as a matter of the construction
of the relevant clause. I have thus far paid no regard to the finding in
paragraph 5 of the special case that " This term in an FOB contract is
" regarded in the trade as of such great and fundamental importance that
" any breach thereof goes to the root of the contract." Naturally, though
the crucial question of construction is a matter of law for the court, the
court will give much weight to the view of the trade tribunal concerned.
Though I question whether on the argument of a special case it is permissible
to look outside the findings of fact in that special case to findings of fact
in other special cases, Mr. Buckley was able to point to a contrary finding
of fact by a different Board of Appeal of the same association in Bremer
v. Rayner  2 Lloyd's Rep. 73 at page 81 " Failure of an fob buyer to
" indicate to his seller the demurrage/despatch rate with the nomination of
" a vessel or at any time is not [my emphasis] customarily treated by the
" trade as being a term of great or fundamental importance to the contract
" such as to give a seller the right to reject the nomination or to refuse to
" ship the goods."
The relevant clause 7 in that case
will be found at page 85 of the report in
the judgment of Mocatta J.
" 7. Nomination of Vessel.
Buyer to give nomination of vessel to
" seller, in writing, in time for seller to receive with minimum 15 days'
" notice of earliest readiness of tonnage at first or sole port of loading."
The learned judge held at page 89
of his judgment that the finding which
I have just quoted did not preclude his reaching the conclusion that that
clause was a matter of construction a condition, a breach of which entitled
the innocent party to rescind. The learned judge's decision was reversed
on appeal on a different point—see  2 Lloyd's Rep. 216. But
Bridge L.J. (as he then was) at page 234 was at pains to say that as then
advised he was not persuaded that on this question the learned judge had
reached the wrong conclusion. See also the judgment of Megaw L.J. at
page 229. With respect, I think that Mocatta J. was plainly correct in his
conclusion on this question.
Mr. Staughton also relied upon a
number of cases where the argument
presently urged by Mr. Buckley might have been but was not advanced.
They included Turnbull v. Mundas  2 Lloyd's Rep. 198, (a decision of
the High Court of Australia which included Sir Owen Dixon C.J.) and
Carapanayoti v. Andre  1 Lloyd's Rep. 139—a decision of the Court
of Appeal). With respect I doubt whether past omissions, whether for good
or bad reasons, greatly advance the solution of the present problem.
My Lords, I would only add in
conclusion that it seems clear from the
argument and indeed from the judgment of Parker J. in the present case
that certain passages in the judgment of Diplock L.J. in the Hong Kong
Fir case and in the speech of my noble and learned friend Lord Diplock
in United Scientific Holdings v. Burnley Borough Council have been read
out of context and thus misunderstood. An excellent illustration of this
misunderstanding is shown by the argument advanced and unanimously
rejected in Toepfer v. Lenersan  2 Lloyd's Rep. 555 (Donaldson J.
as he then was) and  1 Lloyd's Rep. 143 (Court of Appeal). There
the sellers attempted on the strength of the decision in the Hong Kong
Fir case to argue that the sellers' obligations regarding time for presenta-
tion of the documents against which the buyers had to pay not later than
20 days after the bill of lading date was not a condition a breach of
which entitled the buyers to rescind but was only an innominate term.
I find myself in complete agreement with the observations of Donaldson J.
pointing out how the Hong Kong Fir case had been misunderstood. I
would, therefore, dismiss this appeal with costs.
My Lords, I turn to deal briefly
with the respondents' cross-appeal.
Both the umpire and the Board of Appeal awarded the respondents
damages on the basis of the mean contract quantity of 5,000 long tons.
They clearly reached this conclusion on the strength of the last sentence
of clause 22 of GAFTA form 119. The Court of Appeal reduced the
damages payable to the respondents by assessing them by reference not
to 5,000 long tons but to 4,750 long tons being 5% less than the mean
contract quantity, this being the minimum quantity the appellants would
have been obliged to take. As a result of the Court of Appeal decision,
the Board of Appeal subsequently made a supplementary award in the
respondents' favour for a lesser amount based upon the figure of 4,750
It was common ground that the
reference in the contract " at vessel's
" option " meant " at buyers' option ". My Lords it was also common
ground that the Court of Appeal was bound to reach this conclusion by
reason of an earlier decision of that court, Toprak v. Finagrain 
2 Lloyd's Rep. 98 to which I was a party. In that case the court held
that the relevant sentence in the contract applied only to default of
shipment by the seller or default of delivery by the seller and not to
default by the buyer. In the latter case damages fell to be assessed on
My Lords the respondents urged
that in this context " default" bore
its primary dictionary meaning of " failure " or " want " or " absence "
and that since there had been a " failure " or " want " or " absence " of
shipment by the sellers that was
sufficient to enable the last sentence of
clause 22 to be invoked so as to require the respondents' damages to be
assessed on the mean contract quantity.
My Lords, no doubt in some
contexts the word " default" may bear
this particular dictionary meaning. But in determining the meaning of
the word in any case, the context in which the word in used is of crucial
importance. One has only to see the number of times that the word
" default" or " defaulter" is used in clause 22 to see that the context
is one of a breach of contract sounding in damages and not of non-
performance without breach. My Lords, I am clearly of the view that
" default" in the last sentence of clause 22 means default by the sellers
in breach of their contractual obligations. That sentence has no application
to the present case. Accordingly with all respect to the umpire and the
Board of Appeal in the present case I think that Toprak v. Finagrain
was correctly decided. If the trade wishes to have the same result where
the relevant default is by the buyer and not by the seller the terms of
GAFTA form 119 and other similar terms will require to be altered.
For these reasons I would dismiss the cross-appeal with costs.
313270 Dd 8208150 C2 4/81