National Produce Co. v Africa Produce Co. Kenya Ltd ('Civil Case No. 24 of 1951) [1952] EACA 291 (1 January 1952)

## ORIGINAL CIVIL

#### Before CONNELL. J.

### NATIONAL PRODUCE CO., Plaintiffs

# AFRICA PRODUCE CO. (KENYA) LTD., Defendants

### Civil Case No. 24 of 1951

Contract—Sale of specific quantity of unascertained goods—Breach—Frustration.

The defendants contracted to sell 50 tons of vegetable ghee according to sample submitted at £146 10s. per ton, delivery at Kilindini Pier during April, not later than 30th April, 1949, against waybill; payment in full against arrival advice and invoice. The sellers have to provide an export licence for the ghee to a sterling area. Owing to a series of circumstances the manufacturers were unable to supply the defendants with the ghee ordered. The plaintiffs held defendants to the contract and claimed damages.

The defendants pleaded impossibility of performance.

**Held** (2-10-52).—(1) Where there was a contract to supply a specific quantity of unascertained goods, the defence of impossibility of performance fails.

(2) Damages were awarded on the basis of the difference between the contract price and the price the plaintiffs had to pay for Kimbo, i.e. £6 per ton.

Judgment for plaintiffs.

Cases cited: Ashmore v. Cox, (1889) 1. Q. B. 436, Twentsche Overseas Trading Co. v. Uganda Sugar Factory, Ltd., (1945) 12 E. A. C. A. 1, Leavy & Co., v. Hirst & Co., (1944) 1 K. B. 24, Blackburn Bobbin Co. v. Allen (1918) 1 K. B. 24, Blackburn Bobbin Co. v. Allen (1918) 1 K. B. 540 & (1918) 2 K. B. 467, Kearson

Doshi for plaintiffs.

C. A. Patel for defendants.

JUDGMENT.—The plaint claims Sh. 11,500 as damages for breach of contract.

The contract is contained in a contract note dated 3rd January, 1949, the form being that of The East Africa Produce Dealers and Exporters Association, of which both parties are members; the sellers are the defendants and the buyers the plaintiffs; the contract was arranged by a broker and was signed by both parties; the contract was for 50 tons of "vegetable ghee according to the sample submitted, I. M. B.". The price was £146 10s. per ton. Delivery was to be at Kilindini Pier during April, not later than 30th April, 1949, against waybill, and payment was to be 100 per cent against arrival advice and invoice.

Against the printed words "special conditions" are the typed words "Quality, packing and weight certified by the manufacturer is final. Export licence of the above to sterling area to be provided by the sellers."

The defence, whilst not admitting the allegations as to the contract, pleaded in full in paragraph 3 of the plaint, took up the line that the plaintiffs knew at the date of the contract that "the defendant company was to obtain goods from, or that the goods were to be manufactured by, East Africa Industrial Management Board of Nairobi"; the latter is a Kenya Government organization; it is incorporated and is the sole organization in Kenya for manufacturing "vellow ghee", though there was at Tanga in Tanganyika a certain Merani Industries with a very small production. I shall refer to the Kenya Organization as "I. M. B.".

ν.

The defence further alleges that the plaintiffs knew at the time of the contract that if ghee was not in sufficient supply for local requirements, no export licence would be forthcoming.

The defence continues that I. M. B. could not maintain the delivery dates of all export orders placed from January, 1949, owing to breakdown in their<br>plant and due to electricity cuts causing a falling off in production; that in the result export licences for supply of ghee in Pakistan were refused. The defendants allege also that the plaintiffs were informed of the above factors which rendered the contract impossible of performance. Other allegations are that the defendants offered to supply the goods when the stocks became available for export but the plaintiffs refused that offer. As a consequence it is submitted that damages cannot be claimed and the suit be dismissed, or alternatively that damages should be merely nominal.

I will not deal at length with the reply except to state that it alleged the contract was absolute in its terms and that even admitting production of ghee was low during the relevant period and that as a result an export licence was not forthcoming, that did not absolve the defendants from carrying out their contract or being liable in damages for failure to do so.

Substantially therefore the defence was one of impossibility of performance or frustration by reason of events beyond the control of the defendants.

Mr. Scott-Winlow was called by the defendants; he was the commercial manager of I. M. B. at the material times. His evidence is unexceptionable, or to put it in another way, was accepted by each side.

Mr. Winlow stated that I. M. B. agreed to supply 50 tons of ghee for export for each month of February, March and April, 1949; that quantity (150 tons) being in fact the subject matter of two contracts with East Africa Marketing Co., one for 100 tons and the other for 50 tons; he understood that the ghee which **I. M. B.** sold to East Africa Marketing Co. was sold to the defendant company. I. M. B. were unable to supply the 50 tons per month because of-

- (1) a series of power cuts; - (2) breakdown of plant: - (3) steam failures; and - (4) a falling off in the supply of coconut oil.

Mr. Winlow, however, admitted that in January I. M. B. produced 45 tons of yellow ghee; about 40 tons in February; in March about 30 tons; and in April 22-25 tons. This aggregate, of course, far overtops the 50 tons the subject matter of the present suit.

Mr. Winlow explained that the I. M. B. plant produced hard fat and ghee and that in January, 1949, I. M. B. had to meet a minimum demand of 70 tons of Kimbo for local consumption and 30 tons of ghee for local consumption; if it were desirable to produce ghee only, 70 tons maximum could be produced for that month. There was Kimbo available also for export in that an exportable surplus was left over from 1948. I must assume that the ghee actually produced during January to April (referred to in the last paragraph) was made available for local purchase; in fact, however, an export licence for only 25 tons of ghee was issued by the Director of Produce Disposals during those months. That quantity was in fact made available to the East Africa Marketing Co. Ltd., who consigned it to the defendant company under export licence dated 19th March. 1949.

As explained by Mr. Winlow, the Director of Produce Disposals, except for that quantity of 25 tons, was not prepared to make ghee available for export in March and April.

Regarding the contract for 150 tons with East Africa Marketing Co., Mr. Winlow testifies, "It was a contract to supply, but any contract was subject to requirements of Government control. We had no reason to expect breakdowns or licences for exporting would be withheld; it was 'a straight contract' as far as we were concerned." Finally, "when East Africa Marketing Co. made the contract with us there was no reservation made: no-one thought export licence would not be given but it was commonly known that anyone trading in fats on any contract was subject to licence being granted. I think it has a worldwide assumption". "The events cutting down production preventing export licence were unexpected."

To continue the history very shortly. Mr. Winlow wrote the letter of 22nd February to East Africa Marketing Co.; the letter speaks for itself: it recites that "as a result of the above shortfall in production and due to a considerable local demand, export licences will not be granted unless the local demand is fulfilled." It recites also that I. M. B. cannot give delivery of East Africa Marketing Company's orders and assures them that as soon as you gave is available for export their names will be submitted to the Export Control Office.

This letter was forwarded by the defendant company to the plaintiff company by a letter on 28th February and the defendant company invited the plaintiff company either to cancel their contract or to accept delivery when available.

By letter of the same date the plaintiff company held the defendant company to their contract of 3rd January.

I have stated, I hope sufficiently, the facts leaving over the question of damages for the present until I have considered the law. I should add that on the pleadings condition precedent was not pleaded and the whole case and arguments proceeded only on the basis of impossibility of performance. It is that aspect of the law which I will now consider.

Mr. U. K. Doshi, for the plaintiffs, argued that the contract was for sale of a specific quantity of unascertained goods for delivery in April; was absolute in its terms and, in the absence of any qualifying or exception clause, the defendants are bound to fulfil the contract. The authorities he relied on are well summarized in Benjamin on Sale, 8th edn. at pages 565-573. I will refer<br>to some of them: Ashmore v. Cox, (1899) 1 Q. B. 436; Twentsche Overseas Trading Co. v. Uganda Sugar Factory Ltd., (1945) Vol. XII C. A. E. A. page 1; Leavy & Co. v. Hirst & Co., (1944) 1 K. B. 24: Blackburn Bobbin Co. v. Allen. (1918) 1 K. B. 540 and (1918) 2 K. B. 467; Kearon v. Pearson 7 H. & N. 386; Thornett & Fehr & Yuills Ltd. (1921) 1 K. B. 219: Hurnandrai Fulchand v. Praedas Budhsen. (1923) 47 Bomb. 344 (Privy Council); and finally, K. C. Sethia Ltd. v. Partah Mull Ramashwar, (1950) A. E. R. 51 and (1951) A. E. R. 352.

Of these cases perhaps the strongest authorities in favour of Mr. Doshi's contention were Ashmore v. Cox, Kearon v. Pearson, Blackburn Bobbin v. Allen and Re Thornett Fehr v. Yuills.

The contract in Ashmore's case was for sale of 250 bales of manila hemp to be made from port or ports by "sailer or sailers" between 1st May and 31st July, 1898; in consequence of the Spanish-American war it was, in a business sense, impossible for the defendants to ship hemp between the specified

dates; it was held that the specified dates were conditions precedent and it was not an implied condition of the contract that it should be possible to ship by sailer between those dates. Lord Russell stated at 442 "The defendants have taken upon themselves the absolute responsibility of being able to make a declaration complying with the contract and appropriating to the contract 250 bales of the commodity shipped by sailer between 1st May and 31st July."

In the Blackburn case the defendants, timber merchants in Hull, sold to the plaintiffs 70 standards of Finland birch timber to be delivered to the plaintiffs f.o.r. at Hull, deliveries to commence in June or July, 1914, and to continue till November, 1914. Before the outbreak of war the practice was to load timber at Finnish ports but the plaintiffs were unaware of that practice, nor did they know that the defendants did not keep timber in stock. After war broke out it was impossible to ship any Finland timber. It was held that the contract had not been dissolved and the defendants were liable in damages. Pickford, L. J. stated "The contract"... contained no exceptions (page 470)". "Here there is nothing to show that the plaintiffs contemplated, and there is no reason why they should be deemed to have contemplated, that the sellers should continue to have the ordinary facilities for despatching timber from Finland. That was a. matter which to the plaintiffs was wholly immaterial. It was not a matter forming the basis of the contract they entered into".

In the Fehr v. Yuills case the contract was for 200 tons 5 per cent more or less of Australian beef tallow 1919 make, shipment to be made from Australia during the months between May and August. Q. M. E. Co. did not in fact manufacture tallow in 1919 at one of their works although they could have done so and could have produced tallow of the brand manufactured at those works. Lord Reading at page 227 stated: "I am of opinion that there was no frustration of the contract. This was a sale not of specific goods, but of goods of the particular description mentioned in the contract, but which were in fact unascertained under the contract. Once the conclusion is arrived at that the sale was not of specific goods then the mere fact that the company manufacturing the goods did not produce the full quantity of 200 tons is no answer to the claim made by the buyers in this case against the sellers. The buyers would be entitled to damages unless an implied term could be read into the contract to the effect that the sellers undertook no liability and did not become responsible to the buyers if the company manufacturing the goods did not in fact manufacture the goods whatever the reason might be for the non-manufacture, and even though, as in the present case, the non-manufacture of the goods was because the manufacturing company did not think fit to manufacture during this particular year so as to complete the quantity specified in the contract. It has been laid down many times that an implied term can only be read into a contract if the Court comes to the conclusion that such a term must be implied for the purpose of giving effect to the intention of the parties." Lord Reading did go on to say that no such term (i.e. frustration) can be implied in the contract in this case for the reason that the parties were not contracting with regard to specific goods. Lord Reading's view in the last passage was in effect dissented from by Lord Wright in the Twentche case at page 5, where Lord Wright stated, "It is scarcely necessary to observe that according to the views of law now accepted the doctrine of frustration may apply to a contract for unascertained goods."

Nevertheless the correctness of the decisions of the above cases which I have quoted has never been doubted in the recent cases on impossibility quoted by Mr. Patel.

There is a passage in Benjamin at page 568 which I think directly supports Mr. Doshi's argument, "but it is necessary (it is said) that performance should have become impossible, instead of being merely temporarily suspended".

Applying as best I can the well-known principles as to frustration to the facts of the present case I can only find that from the facts as stated by Mr. Winlow it was not physically impossible for the defendants to fulfil the contract. We are not concerned as to whether it was legally impossible. We know that it was possible for the I. M. B. to manufacture more than 150 tons of ghee during January till the end of April. The fact that as a matter of policy the Director of Disposals desired that the works should allocate certain quantities of ghee and Kimbo for local consumption in Kenya and not to issue export licences for more than 25 tons does not seem to me to be a factor which can be held against the plaintiffs any more than the factor in Fehr's case that an Australian factory decided not to manufacture beef tallow. Possibly if there were an entire breakdown of machinery or the factory were destroyed that would be another matter. But 1 do not think a Court should read into the present contract a clause to the effect that an export licence was to be "provided by the sellers only on the condition that there is ghee available for export in the opinion of the Director of Disposals" or "to be provided by the sellers on the condition that ghee is not required for local consumption." Nor regarding paragraph 4 of the defence do 1 find it proved that the defendant knew when the contract was made that the Director of Disposals would not sanction an export licence if local requirements were not in sufficient supply.

The facts bear some fair resemblance to the facts in Hurnandrai's case, which were these: 864 bales of dhoties "under manufacture" were sold to the appellants and the "same are to be taken delivery of as and when the same may be received from the mills. Delivery is to be caused to be given in full by 31st December in the year 1918." As was stated by Lord Sumner at page 346, "As a matter of fact the mills remained in existence and at work and the looms, which could otherwise have manufactured goods deliverable under this contract were fully occupied in making goods for the Government of India." No evidence was given of the powers of Government to require this contract work. "It was not suggested (page 347) that there would be anything illegal in the receipt of these goods by the defendants, if they could have got them, or in the delivery of them over to the plaintiffs." Later at page 348, "As a matter of fact there is nothing surprising in a merchant binding himself to procure certain goods at all events. It is a matter of price and of market expectations. No doubt it is a speculation, but many dealings even in cotton goods are of that character." Later at page 349, "The mills did continue to exist and did continue to manufacture the goods in question, only they were made for and delivered to somebody else." "This is completely outside the principle of *Taylor* $v$ . Caldwell, etc."

In my view the defence of impossibility of performance fails and the defendants are liable for breach of contract.

The question of damages seems to me quite simple. The plaintiffs had a contract for the supply of 50 tons of ghee at £146 10s. per ton. They had originally made, as I find, a contract in February with Abdul Karim Bros. of Chittagong to supply 100 tons of ghee at a specified price. Subsequently in March they arranged with Abdul Karim that the latter would accept 100 tons of Kimbo instead of the original 100 tons of yellow ghee. The price the plaintiffs had to pay for the Kimbo was £152 10s. per ton, i.e. £6 per ton more than the original suit-contract for yellow ghee. On those facts it seems to me quite clear that from a business sense as well as in law the measure of damages to which the plaintiffs are entitled is $£6$ per ton for 50 tons.

In the result I give judgment for the plaintiffs for £300 and costs and interest at Court rates.