UK: Landmark UK Supreme Court Ruling On Default Clauses And Damages: Bunge SA V Nidera BV

The decision has been long awaited. In its landmark unanimous ruling handed down on 1 July 2015, The Supreme Court laid down clear guidance on the assessment of damages arising out of a wrongful repudiation of a contract for the sale of goods.The Supreme Court also considered the interpretation of the standard GAFTA Default Clause. Reed Smith acted for the successful party, Bunge, in these proceedings.

The judgment is significant: it addresses the interpretation of express damages clauses (so called "default clauses"); it reinforces the law on the application of compensatory principles in the assessment of damages in the event of contract repudiation; and it clarifies other matters, including the law of mitigation when assessing damages in the case of contracts for the sale of goods.

Key Aspects of the Decision

  • It is inherent in the use of an express damages clause that it may produce a different result from the common law. It cannot be presumed that the parties intended an express damages clause to produce the same measure of damages as the compensatory principle. Nor can it be presumed that damages clauses are 'complete codes' for the assessment of damages, so that they exhaustively cover the entire field of damages.
  • The GAFTA Default Clause is not sufficiently comprehensive to be regarded as a complete code covering the entire field of damages. It neither provides nor assumes that assessment will depend only on the difference between contract price and market price; it simply provides that damages "shall be based on" that difference.
  • Similarly, the GAFTA Default Clause does not preclude the operation of the common law principle on mitigation of loss.
  • The Supreme Court removed all doubt by expressly stating that The Golden Victory (the compensatory principle) applies equally to 'one-off' sale contracts as it does to instalment contracts.
  • Under the GAFTA Default Clause and similar express damages clauses, damages can be assessed as at the date when the injured party accepted the repudiation only when that party actually went into the market to fix a price at that date. If the injured party did nothing as a result of the termination and lost nothing, the arbitrators should not feel inhibited from saying so.

The Facts The dispute concerned the sale contract between sellers (Bunge) and buyers (Nidera) for 25,000 mt of Russian milling wheat, delivery FOB Novorossiysk in August 2010. In accordance with the contract terms, the parties narrowed the loading window to 23-30 August 2010. The contract incorporated the GAFTA 49 form.

On 5 August 2010, the Russian government introduced a temporary ban on the export of various commodities, including wheat, which was to run from 15 August to 31 December 2010 (therefore covering the contractual delivery period). On 9 August 2010, in reliance of the prohibition clause in GAFTA 49, sellers declared the contract cancelled. On 11 August 2010, buyers stated that sellers' purported cancellation was a repudiation, which they accepted.

The following day, sellers offered to reinstate the contract on the same terms. Buyers did not agree. Buyers brought a claim for damages against sellers of US$3,062,500.

Notably, had the contract run its course, sellers would have cancelled the contract without liability in accordance with the prohibition clause in GAFTA 49, as, in the event, the export ban was maintained and so delivery would have been prohibited.

Previous Proceedings

  • Before the first tier GAFTA tribunal, buyers' claim for damages failed. The first tier arbitrators found that although sellers were in anticipatory breach by sending their cancellation notice on 9 August 2010, the contract would have been cancelled in any event and thus had no value. Accordingly, buyers suffered no loss and were not entitled to any damages.
  • Buyers appealed against the first tier tribunal's findings on damages to the GAFTA Board of Appeal. The Board also found that sellers were in anticipatory breach by sending their cancellation notice on 9 August 2010. However, the Board went on to find that the purpose of the GAFTA Default Clause is to provide certainty – buyers were entitled to apply the contract versus market price test on the date of default (in accordance with Clause 20(c) of GAFTA 49) and so recover US$3,062,500 in damages.
  • Sellers appealed against the Board of Appeal's award to the High Court in relation to both issues of liability and damages, including mitigation. The High Court (Mr Justice Hamblen) upheld the Board of Appeal's award.
  • Sellers then appealed to the Court of Appeal. The sellers abandoned their arguments on mitigation. All Lord Justices (Mr Justice Moore-Bick, Mr Justice Floyd and Mr Justice Christopher-Clarke) unanimously affirmed the High Court decision and upheld the GAFTA Board of Appeal's award.
  • Sellers then obtained permission to appeal to The Supreme Court.

The Issues Before The Supreme Court The Supreme Court was asked to consider the construction of the GAFTA Default Clause and the application of the principle established in The Golden Victory. In particular, the following two issues were placed before The Supreme Court:

(a) Does the GAFTA Default Clause exclude the common law principles for the assessment of damages in the case of an anticipatory repudiatory breach of contract?

(b) If not, is the overriding compensatory principle established by The Golden Victory applicable to one-off sale contracts, such as in this case, as opposed to instalment contracts?

The Judgment

Interpretation of the GAFTA Default Clause The question before The Supreme Court was whether the GAFTA Default Clause was sufficiently clearly worded to confer a right to damages where no loss has been suffered by the buyers.

As sellers contended before The Supreme Court, in approaching the GAFTA Default Clause, it is objectively to be presumed that the parties and the GAFTA draftsman intended to contract by reference to the compensatory principle. This requires that the injured party is "so far as money can do it, to be placed in the same situation with respect to damages as if the contract had been performed". The sellers said that the GAFTA Default Clause did not intend to give a right to damages for loss of the contractual benefit where the contractual benefit would never have accrued. (The question of whether the compensatory principle applies to one-off sale contracts was considered separately.)

The position on the construction of the GAFTA Default Clause was summarised by Lord Sumption as follows:

  • The clause applies, as its opening words declare, "in default of fulfilment of contract by either party". Thus, the clause is concerned with non-performance. It does not matter whether the contract has not been performed, because it was repudiated in advance of the time for performance, or because it was simply not performed when that time arrived.
  • The clause gives, at sub-clause (a), the injured party the option, at its discretion, to sell or buy, as the case may be, against the defaulting party, in which case the sale or purchase price will be the 'default price'.
  • Two alternative bases of assessment by the arbitral tribunal are provided at sub-clause (c): the first is the difference between the default price and the contract price and applies if a default price has been established but not accepted by the defaulting party; and the second is the difference between the contract price and the 'actual or estimated value' of the contract goods at the 'date of default'.
  • The combined effect of these provisions is therefore to produce a measure of damages which differs in two main aspects from common law: the first is that the injured party is not required to mitigate its loss by going into the market to buy or sell against the defaulter, but has a discretion whether to do so; and the second is that if the injured party has not in fact gone into the market and made a substitute contract, the contract price falls to be compared not with the market price of the goods, but with their 'actual or estimated value'.

According to Lord Sumption, the facts in this case give rise to two questions: (i) what is the relevant market price or value of the goods for the purpose of assessing damages? and (ii) in what, if any, circumstances will it be relevant to take account of contingencies, other than a change in the market price or value of the goods, which would have prevented the goods from being delivered whatever the market price or value, with the result that the buyer would have suffered the same loss in any event?

The Supreme Court effectively decided that the GAFTA Default Clause is concerned only with the first of these questions. Sub-clauses (a) to (c) constitute an elaborate and complete code for determining the market price or value of goods that either were actually purchased by way of mitigation, or might have been purchased under a notional substitute contract.

The clause, however, does not deal at all with the effect of subsequent events which would have resulted in the original contract not being performed in any event. As Lord Sumption characteristically said, the GAFTA Default Clause is not sufficiently comprehensive to be regarded as a complete code covering the entire field of damages. Likewise, in his opinion, it neither addresses nor excludes the consideration of supervening events (other than price movements), which reduce or extinguish the loss.

Application of The Golden Victory The issue before The Supreme Court relating to the construction of the GAFTA Default Clause and the correct understanding of the decision of the House of Lords in The Golden Victory are related. The Golden Victory, a case of wrongful repudiation of a time charter by the charterers, is one of the most academically criticised House of Lords judgments.

In that judgment, the House of Lords laid down the principle that where, after the date on which the market price is to be ascertained, a supervening event occurs which shows that neither the original contract (had it continued), nor the notional substitute contract at the market price, would ever have been performed, the innocent party has suffered no loss and so can recover no damages. The House of Lords held by a majority in that case that the overriding principle was the compensatory principle. Irrespective of the date at which the market price was ascertained, it was necessary to take account of contingencies known at the date of the arbitral tribunal's or court's assessment to have occurred, if their effect was that the contract would have been lawfully terminated at or before its contractual term.

The principle upheld in that case has faced a certain amount of academic criticism and judicial doubt, both of which are, to the minds of The Supreme Court, unjustified. Indeed, The Supreme Court upheld The Golden Victory principle in full force. Moreover, The Supreme Court made clear that The Golden Victory applies to both instalment contracts and one-off sale contracts and that there is no logical reasoning for distinguishing the two, as contended by the buyers.

The Supreme Court acknowledged that certainty is vital. They considered, however, that it was not important enough to justify a substantial damages award to someone who has suffered none. Hence, Lord Toulson held that the fundamental principle for the assessment of damages in cases of breach of contract is, within the limits set out in Hadley v Baxendale, to put the parties in their position had the contract been performed.

In the present case, sellers offered to buyers total restitution immediately upon the termination of the contract. There was no finding in the GAFTA appeal award that the offer was not genuine, and on the fundamental compensatory principle it provides a full answer to the buyers' claim.

Mitigation The application of the common law principle of mitigation of loss was not the subject of argument before The Supreme Court, but interestingly the Court rejected the argument that the GAFTA Default Clause precludes the operation of this principle.

In practice, where there is a renunciation of a contract and there exists an available market, the relevant market price for the purposes of assessing damages will generally be determined by the principle of mitigation: the innocent party is normally required to mitigate its loss by going into the market for a substitute contract as soon as is reasonable after the original contract was terminated. Damages will then be assessed by reference to the price which it obtained. If the innocent party chooses not to do so, damages will generally be assessed by reference to the mitigation principle at the time when it should have done.

As was held by Lord Sumption, although the GAFTA Default Clause deals with the innocent party's duty to mitigate by going into the market to buy or sell against the defaulter, it does not deal with any other aspect of mitigation. It therefore leaves open the possibility that damages may be affected by a successful act of mitigation on the part of the innocent party or by an offer from the defaulter which would have been reasonable for the innocent party to accept.

What Does This Mean For You?

  • Clear and express words are required to exclude the compensatory principle so as to allow recovery of damages where no loss has been sustained.
  • Even where the contractual test for calculating damages results in damages being payable to the innocent party, the innocent party may not in fact recover any damages if it has suffered no loss.
  • These principles apply to one-off sale contracts as well as term/ instalment contracts.
  • Where the contractual test for calculating damages is based on the innocent party going into the market for a substitute contract, where the innocent party chooses not to, the normal mitigation principle may nonetheless apply. Again, clear and express words are required if a damages clause is to limit the innocent party's duty to mitigate.
  • It is to be expected that damages issues debated in commodity arbitrations (and disclosure required) will become more complicated as a result of this decision, even when there is an express damages clause.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.