Bunge SA v Nidera BV: No loss, no damages

The compensatory principle of damages and the requirement of mitigation have recently been confirmed by the Supreme Court.

In Bunge SA v Nidera BV [2015] UKSC 43, the appellants had contracted to sell Russian milling wheat to the respondents. This decision was upheld by the High Court and the Court of Appeal.

The appeal to the Supreme Court raised questions about the construction, applicability, and correctness of the compensatory principle in Golden Strait Corporation v Nippon Yusen Kubisha Kaisha (The Golden Victory) [2007] UKHL 12.

Key aspects

The Supreme Court handed down a unanimous decision to award only notional damages of $5, holding:

• When assessing damages the overriding principle is the compensatory principle, as laid down in The Golden Victory. The court must therefore take into account contingencies known at the date of the assessment of damages. This included the fact that the contract would have been lawfully cancellable in any event;
• It is inherent in a damages clause that it may produce a different result from the common law. For that reason there can be no presumption that the parties intended the clause to produce the same measure of damages as the compensatory principle at common law; such clauses necessarily assume the parties are willing to take the rough with the smooth. However, a damages clause may be assumed, in the absence of clear wording, not to have been intended to operate arbitrarily, for example by producing a result unrelated to anything which the parties could reasonably have expected to approximate to the true loss;
• It cannot be presumed that damages clauses are ‘complete codes’ for the assessment of damages. Construing the GAFTA default clause was not a complete code, and did not preclude the operation of the common law principle on mitigation of loss. The court should accordingly take into account supervening events (other than price movements, which had to be determined in accordance within the damages clauses) which reduce or extinguish the loss;
• In the present case, the sellers had offered to reinstate the contract. There was no finding that the offer was not genuine and, on the fundamental compensatory principle, it provides a full answer to the buyers’ claim; and
• As no loss had been suffered, only notional damages of $5 were appropriate.

Lessons learnt

Although the case concerned the construction of particular clauses of GAFTA, it affirmed some important general principles of the assessment of damages.

First, if parties seek to exclude the compensatory principle to allow recovery of damages where no loss has been sustained, this requires clear and express wording, and second, damages clauses which provide for a test for calculating damages are not necessarily comprehensive codes for the assessment of damages, and absent express wording, the common law principle on mitigation of loss will apply.

The reasoning of the Supreme Court yielded a common-sense and fair result. However, it will create greater commercial uncertainty and potentially more litigation in the future. SJ

Lina Mattsson is a barrister practising from Hardwicke