Give peas a chance! Mark Watson-Gandy discusses Sharp Corp Ltd v Viterra

Business Money talks to Professor Mark Watson-Gandy OBE about the Supreme Court decision in Sharp Corp Ltd v Viterra.

Q Why is Sharp Corp Ltd v Viterra important?

A The Supreme Court’s decision in this case gave important insights both on the court’s powers to hear appeals from arbitration and on the correct measure of damages for breach of contract by not accepting goods.

Q What was the case about?

A It was about the sale of lentils and peas. The buyer had agreed to pay for them before they arrived at Mundra, India, the discharge port, but failed to do so. The seller gave the buyer time to pay and allowed the goods to be landed. The peas and lentils cleared customs and were stored in a warehouse at Mundra in the meantime. With the buyer still failing to pay, the seller terminated the contract and started an arbitration claiming damages for breach of contract.

Here’s the twist: In the meantime, the Indian government imposed import tariffs. This suddenly meant the resale value of the customs-cleared goods in the seller’s hands at Mundra significantly increased.

The Arbitration Board awarded damages as the difference between the contract price and “the actual or estimated value of the goods on the date of default” with the value of the goods calculated by reference to the terms of the original cost and freight contract between the parties, and the best evidence of that value was the hypothetical cost of buying in new goods and selling them afloat: Bunge v Nidera.

The buyer appealed; the award meant that the buyer didn’t get credit for the newlyenhanced value of the peas and lentils.

Q Can you appeal an arbitration to a court?

A Yes, to a limited extent. Section 69 Arbitration Act 1996 provides that (unless otherwise agreed by the parties) a party to arbitral proceedings may appeal to the court on a question of law arising out of an award made in the proceedings. An appeal can only be brought with either the agreement of all the other parties to the proceedings, or with the leave of the court.

Q What did the Supreme Court say about the power to appeal?

A The Supreme Court in Sharp Corp Ltd v Viterra BV said that the limits on the court’s review set out in s69 must be respected and applied with the general principle that “the court should not intervene except as provided”: s1(c), Arbitration Act 1996. Since the court’s jurisdiction under s69 is limited to appeals on questions of law, it has no jurisdiction in relation to errors of fact and no power to make its own findings of fact. It must accept the facts found by the tribunal.

Q But can’t the appeal court draw its own inferences as to the facts?

A The Supreme Court in Sharp Corp Ltd v Viterra BV said that the court can infer that the tribunal has implicitly made a finding of fact only if that inference “inevitably follows” from the tribunal’s express findings.

Q Can you make any changes to the question the appeal court has to review?

A The court in Sharp Corp Ltd v Viterra BV said that you may amend the question of law posed for which permission has been granted under s69; however the substance of the question remains the same.

Q Are there any limits on points which can be taken on appeal?

A The court in Sharp Corp Ltd v Viterra BV said that question of law under appeal needs to have been raised before the arbitration tribunal. It need not have been raised with precision, but the point must have been fairly and squarely before the arbitration tribunal for determination.

Q So, what did the Supreme Court say about damages?

A In its judgment in Sharp Corp Ltd v Viterra BV [2024], the Supreme Court refused to follow Bunge v Nidera [2014]. Damages for non-acceptance of goods should be quantified by valuing the actual goods left in the seller’s hands, and not by assessing damages on the basis of a hypothetical substitute contract on the same terms as the original contract, save for the price.

Compensation and mitigation of loss were the two fundamental principles of the law of damages. They work together, with reasonable steps taken in mitigation fixing the measure of compensatory damages. The innocent party is deemed to have mitigated by going into the market to buy or sell goods and so its loss attributable to the breach is the difference between the contract price and the market price on the date of default.

Lord Hamblen explained that, in the case of a buyer’s default, the appropriate market to determine the value of the unaccepted goods was the market where “it is reasonable for the seller to dispose of the goods”. Here the goods had been landed, customs-cleared and stored in a warehouse in Mundra, where their value had increased because of the imposition of the import tariffs. Thus, “the obvious market in which to sell the goods, and in which it would clearly be reasonable to do so, is the ex-warehouse Mundra market”. The touchstone will be what the innocent party could reasonably have done in the face of the breaching party’s default.

This article was first published in the May 2024 edition of Business Money.