Cargill International SA v. Bangladesh Sugar and Food Industries Corp.

[1998] 1 WLR 461 (1997)

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Cargill International SA v. Bangladesh Sugar and Food Industries Corp.

England and Wales Court of Appeal
[1998] 1 WLR 461 (1997)

Facts

The Bangladesh Sugar and Food Industries Corporation (BSF) (defendant) invited Cargill International SA (Cargill) (plaintiff) and others to bid on a sugar sales contract. BSF required each bidder to pay earnest money, which would be forfeited if a bidder did not conclude a deal, and also required the winner to obtain a performance bond. BSF and Cargill signed a contract setting a delivery deadline for the sugar and requiring Cargill to use a sufficiently new vessel. Clause 13 of the contract provided that Cargill’s bond was “liable to be forfeited” if Cargill breached the contract, and Clause 16 provided that BSF would be entitled to forfeit the bond if the delivery was late. BSF subsequently claimed to be entitled to forfeit the bond because Cargill shipped the sugar late and used a ship that was too old. Cargill countered that BSF suffered no loss. Cargill then sued BSF, seeking an injunction prohibiting BSF from drawing on the bond. The lower court ruled that unless a bond contained contrary language, parties were entitled to an accounting after the beneficiary was paid. Specifically, the court ruled that if the bond amount was insufficient to cover the beneficiary’s injury, the beneficiary was entitled to seek damages, and that if the bond amount exceeded the beneficiary’s injury, the party who provided the bond was entitled to a refund. BSF did not dispute this rule but argued that the contract contained express language stating that BSF was permanently entitled to the full bond amount upon Cargill’s breach regardless of whether BSF was injured or whether BSF’s injury was less than the bond amount. Specifically, BSF contended that the words “forfeit” and “forfeited” plainly meant that Cargill had no right to a postdraw accounting. The lower court rejected this argument, ruling that the parties would have used plainer language if they meant to foreclose an accounting. In the court’s view, “forfeit” meant that BSF was entitled to be paid under the bond upon a breach without having to show damages but that Cargill retained the right to recover any overpayment. BSF appealed, arguing that the lower court misinterpreted the word “forfeit” because (1) the word’s meaning was plain, (2) the trial court’s interpretation made the bond commercially worthless, and (3) the sales contract should be interpreted in accordance with the earnest-money forfeiture provision relating to Cargill’s bid.

Rule of Law

Issue

Holding and Reasoning (Potter, J.)

Concurrence (Staughton, J.)

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