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TMI Blog1997 (11) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... spect alleged contractual breaches arising from of the late arrival and the age of the ship carrying the cargo. BSFIC claimed to be entitled to forfeit the bond in respect of X's breaches of contract. X in turn claimed that the breaches were in fact caused by the default of BSFIC. X also claimed that, in any event, BSFIC suffered no loss because the market price of the sugar had fallen over the period between the date of contract and the date for delivery. The disputes led to the commencement of litigation in various jurisdictions, which was eventually compromised by an agreement of the parties dated 12th April 1996, under which it was agreed inter alia that the matter was to be submitted for determination before the Commercial Court. The parties further agreed that the Court should determine two preliminary issues, on the assumption for the purpose of such determination that X were indeed in breach of contract as alleged by BSFIC. The two preliminary issues were ordered to be tried by Rix J on 2nd May 1996 in the following form: "(1) Whether on the true construction of the contract of sale dated 16th June 1994 and on the assumption that the Plaintiffs were in breach of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired submission of two documents described as: "earnest Money/Bid bond" and "Performance Guarantee". In that respect clause 10 provided: "(a) The tenderer/bidder will furnish 1 per cent of the total quoted value as earnest Money/Bid bond in the form of Bank Draft/Bank Guarantee in favour of this Corporation as per format given at Annexure-A ... (c) The earnest money in respect of the tenderer/bidder whose offers have been accepted will be released to them only after they have furnished performance guarantee and signed the contract. The Corporation reserves the right to forfeit the earnest money if the tenderers/Bidders fail to sign the contract or to furnish Performance Guarantee for performance of the contract within the time stipulated and/or allowed for the purpose ... d) In the event of the acceptance of this tender by the Corporation, a Letter of Intent will be issued to the successful tenderer/bidder (hereinafter referred to as the Supplier) who shall provide, within 7 (seven) days from the date of the issue of the Letter of Intent, the Performance Guarantee in the form of a Bank Guarantee in the format given at annexure "B". … ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms and conditions of the contract will be the said Corporation." On 16th June 1994 there was completed and dated the third important document: the contract of sale. Under its terms the respondents agreed to sell C & F (C) to the appellant 12,500 metric tonnes of sugar plus or minus five per cent at the seller's option. There was an express promise by the respondent to ensure the arrival of the sugar at Chittagong before 15th September 1994 "positively". There was also a stipulation in the contract that the cargo would be shipped in a vessel which was not more than 20 years old. Clause 13 of the contract of sale provided as follows: "13: Performance Bond. The seller has already submitted a Performance Bond to the BUYER in the form of Bank Guarantee equivalent to 10 per cent of the total offered C & F (C) value of 12,500 m.tons plus or plus or minus 10 per cent of sugar. The Performance Bond is liable to be forfeited by the BUYER if the SELLER fails to fulfil any of the terms or conditions of the contract ... and also if any loss/damage occurs to the BUYER due to any fault of the SELLER." Clause 16 of the contract of sale provided as follows: "1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "gone" for good. But if it had been the intention of the parties to produce a result whereby the Buyer could both call on the Bond and sue for damages, whereas the Seller forfeited his right for any overpayment, then much plainer words would have been required to take this case away from the general principles as I perceive them to be. That being so, it seems to me that treating the two parts of the clause disjunctively and treating the right to forfeit as arising if either there was a breach or if any loss or damage occurred to the Buyer due to any fault of the seller (which might not be a breach) would make commercial good sense. The Buyer is stipulating clearly that, as between himself and the Seller, all he needs to show to be entitled to call on the Bond as a breach of contact; he need not show damage (although damage will almost always follow); if on the other hand, say by a misrepresentation by the seller, damage was caused to the buyer then the right to call the bond was conferred by the second half of the clause. But in either event there will be an "accounting" at trial or arbitration to ensure the buyer has not been underpaid or overpaid. Further, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt would grant specific performance of the contractual obligations, namely where the contract confers some proprietary or possessory interest." In argument before us, Mr Hossain for BSFIC accepted that clear words are required to avoid the general principles expounded by the judge, and that, if he failed in his contention that clauses 13 and 16 contained such clear words, then he must fail in this appeal. However, on the assumption that he was entitled to succeed, he submitted in his skeleton argument that the judge was wrong to go on to hold that clauses 13 and 16 were penal in effect, and therefore enforceable only to the extent of damage actually suffered by BSFIC. He submitted that neither clause 13 or 16 is in any conventional sense a penalty clause, providing as each does for money already provided by the seller pursuant to a well-recognised tripartite commercial arrangement which, as Mr Hossain submits, would be undermined by introduction of doctrine of relief from penalties. He submitted that, whatever the statements of general principle made in authorities and text books, there is no reported authority directed to an analogous situation which could assist X in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned construction is placed on a words, clear in themselves, in order to fit them within such pre-conception. As Lord Goff observed in the another context in Palm Shipping v. Kuwait Petroleum [1988] 1 Lloyds Rep 500 at 502: "It is not a permissible method of construction to propound a general or generally accepted principal ... (and) ... then to seek to force the provisions of the ... (the contract) ... into the straightjacket of that principle." On the other hand, modern principles of construction require the Court to have regard to the commercial background, the context of the contract and the circumstances of the parties, and to consider whether, against that background and in that context, to give the words a particular or restricted meaning would lead to an apparently unreasonable and unfair result. As Lord Reid observed in Wickman Machine Tool Sales Ltd v. Schuler AG [1974] AC 235 at 251: "The more unreasonable the result, the more unlikely it is that the parties can have intended it, and if they do intend it, the more necessary it is that they shall make that intention abundantly clear." That approach may fairly be said to have reached a high waterma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tart from the position that the words have not been used with any degree of precision, let alone with any eye to the ultimate position between the parties so far as damage suffered is concerned. In both clause 13 and clause 16, the terms "forfeited" and "forfeit" respectively are applied to the bond, not (as one would expect if Mr Hossain were right) to the monies paid under the bond. While Mr Hossain submits the point is a technicality and that, by their reference to the bond the parties must in fact have intended to refer to the monies paid under it, I consider that the term has simply been used as a shorthand for the exercise of the buyer's right to call for payment under the bond. In other words it refers to the position as between BSFIC and the bank, not BSFIC and X. This seems to me to be consistent with a further feature, that the bond is said to be "liable to be forfeited by the buyer", whereas if the clause were intended to convey that the sum paid or payable under the bond would be forfeit, in the sense of irrecoverably lost to X, a reference to forfeiture by the seller would have been more appropriate. Further, the decision of the judge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BSFIC the bond would provide no incentive for the sellers to fulfil the terms of the contract and would be commercially worthless to achieve its claimed purpose. 2. That the text of a X telex dated 27th May 1994 suggests that X may have been adding a cushion of 10 per cent over the Stock Market price, in order to hold the offer price until 30th May, which date was extendable on request, and thus would have taken into account the possible loss of 10 per cent of the price, which might be sustained under any forfeiture of the bond. 3. That clause 13 of the contract should be construed by reference to, and in harmony with, the earlier bid bond required to be provided by way earnest to the value of one per cent of the contract price, in which respect clause 10 of the invitation to tender provided that BSFIC reserved the right to forfeit the earnest money if the tenderers/bidders failed to sign the contract or furnish the performance guarantee. I find none of those arguments persuasive. 1. I do not think it is right to stigmatise the obligation to provide the bond as commercially worthless simply because the monies paid over under its terms are not to be regarded as irrecoverable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duce a proper note of the judge's reasons or, indeed, to recall them in detail. This Court can only speculate that the order was made either on the basis of time spent in argument upon the issues, or on the basis of the view the judge took of the overall merits, in the absence of any suggestion that any damage had actually been suffered by BSFIC. He may have had both or, indeed, other considerations in mind; however, bearing in mind the width of the judge's discretion in the matter of costs, I see no reason or warrant to interfere with the order which he made. I would dismiss the appeal. LORD JUSTICE SWINTON THOMAS: This case has been succinctly and extremely well argued on both sides. The issue is as to the meaning to be given to the words "forfeit" and "forfeited" in clauses 13 and 16 of the contract. Although I have not found this an altogether easy question to answer, I agree with the conclusions reached by Lord Justice Potter and for the reasons given by him I will also dismiss this appeal. As to costs, I do not think it is possible in this case successfully to challenge the judge's exercise of discretion. LORD JUSTICE STAUGHTON: If my heart ..... X X X X Extracts X X X X X X X X Extracts X X X X
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