The Court of Appeal in CTI Group Inc v Transclear SA (22 July 2008) has reiterated that under English law international commodities sellers are required to perform their contractual obligations in full even if deprived of their intended source of supply.
The Court of Appeal upheld last year's High Court decision that Transclear were liable to CTI for failure to supply cement under contracts for delivery fob Padang and fob a Taiwanese port. Transclear's Indonesian suppliers refused to provide them with cement after coming under pressure from the Mexican state company Cemex, who had learned that CTI intended to sell the cement into Mexico. Transclear tried and failed to find alternative suppliers in Indonesia and Taiwan, and then informed CTI that they could not perform.
Transclear argued that their contracts with CTI had become frustrated (i.e. discharged by reason of impossibility) because of their inability to find cement suppliers in Indonesia or Taiwan. The Court of Appeal rejected this argument. It held that a commodities seller "undertakes a personal obligation to procure the delivery of the contractual goods and thereby takes the risk of his supplier's failure to perform". The Court stated that, except in cases of export prohibition, commodities contracts will rarely be frustrated, because if the seller's supplier chooses not to make the goods available, performance of the contract, though practically difficult, will usually remain physically and legally possible.
The Court of Appeal's decision underlines again how important it is to set limits on sellers' performance obligations in commodities contracts through appropriately worded force majeure clauses.
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