Ghankurh Vilas Cashew Indurstries v. Hadman Kasim and Comp. Ltd. Civ. Case. 10-D-65, 19/3/69, Georges C. J.

Ghankurh Vilas Cashew Indurstries v. Hadman Kasim and Comp. Ltd. Civ. Case. 10-D-65, 19/3/69, Georges C. J.

This is an action for damages for breach of contract to deliver two shipments of cashew nuts. The plaintiffs are a firm in Quilon, Indian, who placed the order. The defendants are a Tanzanian company who then dealt in cashew nuts. The contracts were in writing, both dated 21^st October, 1963. In both contracts, delivery date was October, /first half of November. Payment in both cases was to be by irrevocable letter of credit for full invoice value of the goods to be opened by buyers guaranteeing payment of 95% of invoice value against shipping documents, the balance of 5% after delivery and adjustment of accounts, but in any event not later than one month after delivery of the goods. The goods were never delivered. The plaintiffs claimed damages of Shs. 42,000/-, the difference between the purchase price and of Shs. 42,000/-, the difference between the purchase price and the date of non-delivery and the contract price. The plaintiffs

alleged that the letters of credit had been opened as agreed. The Statement of Defence denied this and put the plaintiffs to strict proof thereof. The defendants denied being in breach of the contract. There was no reply. The matter was eventually referred to arbitration by two persons – one appointed by each of the disputants, or, in case of their failing to agree, to the determination of any umpire appointed by them. The facts did not appear to be seriously disputed. The plaintiffs up to 5^th November, 1963, and not yet opened letters of credit for payment for the shipments which were not delivered. The defendants cabled them warning that the business would be cancelled if the credits had not been opened by November 7^th. On November 9^th the defendants cabled that they were increasing their credits immediately to cover the 300 tons in dispute. On November 9^th the plaintiffs did open credits with the United Commercial Bank Ltd. Bombay. On November 13^th the defendants were notified that the credit had been opened. They had already dispatched a cable dated November 9^th stating that they regarded these orders as cancelled. There was only one ship sailing before November 15^th by which the goods could have been shipped, closing date for expert papers for which was November 11^th. The plaintiffs led evidence that it was a practice in cashew nut business that credits were to be opened after confirmation in writing had been forwarded to the buyers at Quilon. This took time and often credits were opened after shipment had been effected. It appeared that there had been three other contracts between the parties which had been carried out. In two instances, the letters of credit had been opened after the goods had been shipped and in one case only the day before. The arbitrators disagreed as to what the award should be. They noted the case of Pavia & Co. S. P. A. v. THURMANN NELISEN [1952] 1 All E. R. 492. In that case also there was a sale of goods, vendor. Payment was to be made by irrevocable letter of credit. Somervell, L. J. in his judgment at page 494 stated – “When a sailor is given a right to ship over a period and there is machinery for payment, that machinery must be available over the whole of that period. If the buyer is serious, as he might be if the period of shipment is a long one, not to have to put the credit machinery in motion until shortly before the seller is likely to want to ship, then he must insert some provision in the contract by which the credit shall be provided, e. g. fourteen days after a cable received from the seller.” One arbitrator held that the law was clear that the buyers had not performed their part of the contract and were in breach. The other held that because of the practice in the cashew nut business, the plaintiffs were not in breach. The arbitrators could not agree on an umpire and eventually one was appointed by the Court. He considered all the evidence taken by the arbitrators, including that on the question of practice and what had happened in the three performed contracts. He held that the plaintiffs were not in breach and awarded damages in the sum of Shs. 28,000/-. This led to the present application to set aside the award on the ground of misconduct by the arbitrator. The only ground seriously pressed was that the arbitrator had clearly. Considered inadmissible evidence in arriving at his conclusion.  

Held: (1) “It seems agreed on both sides, and indeed I do not think that it could be disputed, that it would be misconduct in the legal sense on the part of the arbitrator to admit inadmissible evidence and to base his decision on that evidence. I am satisfied that the umpire and one arbitrator based their views on the issue of the practice in the cashew nut business.”

            (2) “No East African authority has been cited to on the issue of the time when letters of credit must be opened to pay for goods which may be shipped over an agreed period. I would, however, accept the view of the Court of Appeal in Pavia’s case as sound and adopt it. In any event, in matters of international commercial practice uniformity is highly desirable. As Somervell, T. J. has so cogently argued, it is always open to the parties to make a special bargain by imposing on the seller the obligation to notify the buyer of the date of shipment and fixing the date of the opening of the letter of credit from that. The plaintiffs on that view of the law are clearly in breach. They did not open their letter of credit until November 9^th – and the seller was not informed until November 13^th when in fact it was not possible to ship within the contract period”.

            (3) “It is my view that evidence as to the usage in the cashew nut business was wrongly admitted. The plaintiffs did not plead usage. The relevant paragraph of the pleading reads: “In accordance with the terms and conditions of the aforesaid two contracts, the plaintiff duly opened letters of credit to enable the defendant to effect shipment of the gods within the contract period.” The defendants denied that that was so and put the plaintiffs to strict proof of this matter. There was no reply t the defence. The law touching usage is quite complicated. Usage must be notorious, certain, reasonable and legal. These are matters requiring thorough investigation, which is only possible when the issue is clearly raised between the parties, so that each can come, prepared to battle on that ground. In this case the reference was made by order of the Court, but the issues between the parties had been settled by the pleadings. The questions to be answered by the arbitrator arose squarely on the pleadings. Evidence of usage was, therefore, inadmissible because it had not been raised and there was nothing on the record to show that the parties by agreement added this as an issue to be tried.”

            (4) “I do not agree with the contention that the usage, if it had been pleaded, could not have been proved by parol evidence. Such evidence would not, in my view, contradict the terms of the contract. To refer again to the judgment of Somervell, T. J., it would be permissible to draft a payment clause as in this case with a proviso that the credit used not be opened until fourteen days after notification that the goods are ready for shipment. If there were proved such a notorious and certain usage in the cashew nut business, I can see no reason why it should not be enforced. The point is, however academic

In this instance, as I am satisfied that the evidence was wrongly admitted on other grounds.”

            (5) Award set aside.