Bunge Corporation v Tradax Export

Bunge Corporation v Tradax Export SA Panama [1981] UKHL 11

Construction of contractual terms as ‘conditions’ and the right to terminate a contract of sale.

Facts

A party contracted to purchase 15,000 tons of US soya bean meal, to be shipped in three shipments. Under the standard form of contract, Clause 7 stipulated that, in respect of the first shipment, “[b]uyers shall give at least [15] days’ notice of probable readiness of vessel(s) …” The last day for the buyers to give notice pursuant to Clause 7 was June 12. This notice was given on 17 June. Following the late notice, the sellers held the buyers to be in default, terminated the contract and claimed damages.

Issue

The question arose as to whether the notification clause constitutes a contractual ‘condition’, the breach of which by the buyer gave the seller a right to terminate.

Decision/Outcome

The Court held that, in a written contract, where a stipulated term has to be performed by one party as a prerequisite to the other party’s ability to perform their obligations, the term ought to be constructed as a condition. In the case of mercantile contracts, time is essential and clauses related to time require precise compliance by the Parties. On the facts, Clause 7 prescribed requisite notice by the buyers, absent which the sellers would not be able to ascertain the loading port to nominate to fulfil the delivery of the contract goods within the shipment period. The ability of the seller to fulfil his contractual obligation is entirely dependant on the buyer’s punctual performance of this contractual clause. Thus, and particularly in consideration of the essential role of time within mercantile contracts, the notification clause is constructed as a contractual condition that requires strict compliance. Accordingly, the buyers have breached the condition and the sellers had the right to terminate and claim for damages.

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