Common law compensatory damages -v- contractual default clauses

Bunge SA v Nidera BV [2015] UKSC 43 (1 July 2015)

This Supreme Court decision addressed the application of the common law principle of compensatory damages to a sale contract default damages regime, where subsequent events appear to ‘wipe out’ the actual losses suffered.

This article considers the application of the decision over the past decade.

The background facts

The original claim arose out of an FOB sale contract under which Bunge SA had agreed to sell 25,000 tonnes of Russian wheat to Nidera BV.

The shipment period of the goods under the contract had been narrowed to between 23 -30 August 2010. Before this could occur, however, Russia announced that an embargo on the export of Russian wheat would begin on 10 August 2010.

In light of this, on 9 August 2010, Bunge stated that the contract was cancelled by application of the GAFTA Prohibition Clause that was incorporated into the contract. Nidera accepted the attempt to cancel as a repudiation of the contract and went on to commence GAFTA arbitration, as provided by the contract.

Key contractual terms

For many years, a significant proportion of grain trades world-wide have incorporated standard form contracts produced by the Grain and Feed Trade Association (GAFTA). In this case, the contract incorporated GAFTA Form 49 terms, including clause 13 (‘Prohibition’) which allowed for the cancellation of the contract (as a whole or in part) where a prohibition ‘by or on behalf of the country of origin of the goods’ restricted the performance of the contract.

GAFTA 49 also contains the standard GAFTA ‘Default’ clause, which provided that, where the level of damages following a default were to be settled by arbitration (and no default price was agreed), ‘[t]he damages payable shall be based on, but not limited to the difference between the contract price and… the actual or estimated value of the goods on the date of default [i.e. the market price]’.

The parties’ respective arguments

Nidera maintained that cancellation under clause 13 ‘Prohibition’ was not available to Bunge on 9 August 2010, given that it was not yet clear that the export embargo would be in force during the later shipment period. Bunge’s actions therefore amounted to a repudiation of the contract. Accordingly, Nidera believed themselves to be entitled to damages calculated in accordance with clause 20 ‘Default’ and claimed USD 3,062,500 (the difference between the contract price and market price of the cargo on the date that Bunge’s repudiation was accepted).

In their defence, Bunge initially maintained that they were entitled to cancel the contract upon the announcement of the export embargo. In the alternative, if they were not entitled to cancel at that time, Bunge pointed out that the embargo did in fact continue throughout the shipment period. As such, even if no repudiation occurred, subsequent events would have prevented the contract being fulfilled regardless, so Nidera had sustained no loss.

GAFTA arbitration’s First Tier decision

At the First Tier of the GAFTA arbitration, the Tribunal held that Bunge’s attempt to cancel the contract on 9 August was invalid, because (to the parties’ knowledge at that time) the embargo may still have been lifted before the end of the shipment period, allowing the contract to still be performed. Accordingly, the contract had been repudiated and Nidera was able, in principle, to claim damages under clause 20 ‘Default’.

However, the embargo remained in place throughout the shipment period. Had Bunge waited, the contract would have been cancelled under clause 13 without liability being incurred. The Tribunal accordingly decided against awarding damages, on the basis that Nidera had suffered no loss.

GAFTA arbitration’s Appeal Board and lower court decisions

The GAFTA Appeal Board agreed with the First Tier Tribunal that Bunge’s early attempt to cancel was a repudiation of the contract, but reversed the decision on damages, instead awarding the difference between the contract and market price on the date of termination. That decision was based on a finding that damages were payable in accordance with the clause 20 ‘Default’ provisions regardless of the eventual continuation of the embargo, by performing a comparison between contract and market values at the date of default.

Bunge appealed, but the Commercial Court considered that the damages assessment set out in clause 20 had been correctly applied by the GAFTA Appeal Board. The Court of Appeal upheld the Commercial Court decision, leaving the Supreme Court to have the final say.

The Supreme Court decision

The Supreme Court identified two outstanding issues, which can be summarised as:

1. Was Nidera entitled to damages calculated in accordance with the clause 20 ‘Default’ provisions, regardless of the common law position?

2. Under the common law position, did the decision in Golden Strait Corporation v. Nippon Yusen Kubishka Kaisha [2007] UKHL 12 (28 March 2007) (The Golden Victory) apply to impose the compensatory principle on the Default Clause, so that Nidera would only be entitled to nominal damages?

Regarding the first issue, the Supreme Court found that the Default Clause was not intended to be, nor was it drafted to be, a complete code for the assessment of damages. Instead, the clause appeared to be a codification of the market loss damages provisions set out in sections 50(3) and 51(3) of the Sale of Goods Act 1979. The phrasing made it clear the market price difference was a starting point for the assessment of damages, but that the arbitral tribunal was not limited to them – i.e. ‘based on, but not limited to...’. As such the common law approach to damages should still apply where it differed significantly from the clause 20 Default’ benchmark.

In deciding issue 2, the Supreme Court settled a long-standing question of whether the principles set out in The Golden Victory case could apply to one-off sale contracts.

In The Golden Victory, it was found that damages under a time charter (that was wrongfully repudiated in reliance on a war clause) could only be claimed up until the war clause could have been used to terminate the contract (i.e. the outbreak of hostilities with Iraq in March 2003). While, under the compensatory principle, owners were considered entitled to damages in accordance with hire under a notional replacement charter; that notional replacement charter would have similar terms to the actual charter, including a war clause allowing for cancellation in March 2003. By attempting to claim hire for the time beyond that date, owners were effectively seeking compensation that exceeded the benefits they were deprived of by the early cancellation of the charter.

The Supreme Court confirmed the application of the compensatory principle to the sale contract between Bunge and Nidera: Nidera could not claim as losses a benefit they would have never had - or in other words, the compensatory principle could not put Nidera into a better position than they would have been in had there been no repudiation.

As a result of their findings on both issues, the Supreme Court awarded Nidera only nominal damages, on the grounds that the common law position should be followed where it differs substantially from the non-exhaustive damages provision of the Default clause.

Developments

In the immediate wake of the Supreme Court decision, there was considerable debate in the agricultural commodities industry about its likely impact. The GAFTA Default clause was not amended in light of the decision and there have been relatively few cases in which the court has relied on Bunge -v- Nidera in reaching its decision, although anecdotal evidence suggests the case is cited often in commodities arbitrations, especially before GAFTA tribunals. In any case, subsequent caselaw has largely confirmed the Supreme Court’s decision regarding the compensatory principle.

In another, recent, Supreme Court decision, Great Asia Maritime Ltd v Orion Shipping and Trading LLC [2026] UKSC 23 (22 July 2026) (Lila Lisbon), the question arose as to whether buyers could claim loss of bargain damages from sellers under clause 14 of the 2012 Norwegian Sale Form which provided that sellers ‘make due compensation to the Buyers for their loss’ following a certain type of breach. Sellers’ defence invoked, inter alia, Bunge -v- Nidera, to suggest clause 14 was not capable of providing for loss of bargain damages in the circumstances. In their judgment, the Supreme Court confirmed the principle stated in Bunge -v- Nidera that ‘clear words would be needed if an express damages clause were to override the compensatory principle by giving compensation where no loss has been suffered’. However, the Supreme Court found that the buyers in Lila Lisbon had in fact suffered loss of bargain damages, so that there was no need for the compensatory principle to be overridden, and that Buyers could rely on the wording of clause 14 to claim the loss of bargain damages.

Other caselaw, such as Globalia Business Travel SAU of Spain v Fulton Shipping Inc of Panama [2017] UKSC 43 (28 June 2017) (New Flamenco), further refined how post-repudiation events should impact damage. In the New Flamenco, charterers repudiated a two-year charterparty, with owners claiming the lost charter income as the damages resulting from the early redelivery of the vessel.

As a result of the early termination of the charterparty, owners fortuitously sold the vessel for a substantial sum, before the 2008 financial crash reduced the vessel’s value by approximately USD 16 million. Charterers’ attempts to reduce their liability for damages to owners, on the basis that the wrongful early return allowed owners to sell earlier and avoid the vessel’s subsequent loss of value, were rejected by the Supreme Court. The alleged benefit (avoiding a loss of value by selling earlier) had not been caused by charterer’s breach or by a successful act of mitigation following the breach. Indeed, owners could have sold the vessel during the charterparty if it had never been repudiated, so charterers could not claim their actions prevented a loss to owners.

In Sharp Corp Ltd v Viterra BV [2024] UKSC 14 (08 May 2024), another key case regarding damages, the decision in Bunge -v- Nidera was influential, albeit the focus was more on how the GAFTA Default clause itself should be construed. The judgment discussed the exposition that Lord Sumption had given in Bunge -v- Nidera as to how the sub-clauses in the Default clause related to the common law compensatory principle and sections 50(3) and 51(3) of the Sale of Goods Act heavily but cautioned against blind reliance on those passages. Indeed, in Sharp -v- Viterra, the Supreme Court developed the position set out by Lord Sumption, in finding that it will sometimes be reasonable to rely on the market for a non-identical substitute contract to determine the default price.

Comment

Ultimately being a Supreme Court decision, the principle of Bunge -v- Nidera remains largely unmodified today. While its impact may not have been as seismic as originally predicted, Bunge -v- Nidera’s role of strengthening the compensatory principle has ensured that it will remain a first port of call when considering contractual damages provisions.

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