[HOUSE OF LORDS]

AND

Contract - Frustration - Force majeure clause - Polish state organisation contracting to sell sugar on terms of Refined Sugar Association - Force majeure and licence clauses - Sellers obtaining necessary export licences - Governmental decree banning export of sugar - Whether sellers part of government - Whether entitled to rely on act of own government to escape liability - Licence clause excluding reliance on force majeure - Whether sellers excused from liability for breach of contract

Under the Polish national economic plan the greater part of home-produced beet sugar was allocated to the domestic market and a proportion was sold on world markets through a Polish state enterprise, Rolimpex, which was a separate legal entity in Polish law. It claimed no sovereign immunity, and, although subject to ministerial directions, had considerable freedom of decision and action. In May and July 1974 Rolimpex contracted with an English company to sell them 17,000 metric tons of sugar, part of the export quota. The contract terms incorporated the Rules of the Refined Sugar Association, rule 18 (a) of which - the force majeure clause - provided that if delivery was prevented, inter alia, by "government intervention... beyond the seller's control" the contract would be void without penalty. Rule 21 made the seller "responsible for obtaining any necessary export licence" and added that "the failure to obtain such licences shall not be sufficient grounds for a claim of force majeure if the regulations in force... when the contract was made, called for such licences to be obtained."

Owing to floods and heavy rain the 1974 sugar beet crop was so poor that the whole of it was required for home needs, and on November 5, 1974, the Council of Ministers resolved on an immediate ban on the export of all sugar and a formal decree was issued on the same date giving legal effect to the ban, though it did not in terms revoke the export licences already obtained timeously by Rolimpex in compliance with rule 21.

Rolimpex thereupon in reliance on the force majeure clause informed the buyers that the contracts could not be fulfilled by reason of "government intervention beyond their control"; and they carried out all consequential steps required by the contracts.

On a reference of the dispute to a panel of the Refined Sugar Association in London, the arbitrators unanimously found in favour of Rolimpex that it was a legal entity separate from the Polish government and could rely on the force majeure rule 18 (a). Kerr J. on an award stated by the

arbitrators dismissed the buyers' appeal. The Court of Appeal affirmed his decision.

On appeal by the buyers:-

Held, dismissing the appeal, (1) that on the findings of the arbitrators the sellers had established that they were not an organ or a department of the Polish government but an independent state enterprise, and accordingly their contracts with the buyers were frustrated by "government intervention... beyond the seller's control" within rule 18 (a) so as to release them from liability under the contracts (post, pp. 364E-F, 367E-F, 369H-370A, 373F-G).

Commissioners of Crown Lands v. Page [1960] 2 Q.B. 274, C.A. considered.

(2) (Lord Salmon dissenting) that the sellers were not precluded from relying on rule 18 (a), since the obligation under rule 21 to "obtain" any necessary export licence which they had done, imported no obligation or warranty to maintain it in force (post, pp. 364G, 366C-D, 373B-D).

Decision of the Court of Appeal [1978] Q.B. 176; [1977] 3 W.L.R. 677; [1978] 1 All E.R. 81 affirmed.

The following cases are referred to in their Lordships' opinions:

Board of Trade v. Temperley Steam Shipping Co. Ltd. (1926) 26 L1.L.Rep. 76; (1927) 27 L1.L.Rep. 230, C.A.

Commissioners of Crown Lands v. Page [1960] 2 Q.B. 274; [1960] 3 W.L.R. 446; [1960] 2 All E.R. 726, C.A.

SociŽtŽ d'Avances Commerciales (London) Ltd. v. A. Besse & Co. (London) Ltd. [1952] 1 Lloyd's Rep. 242; [1952] 1 T.L.R. 644.

The following additional cases were cited in argument:

British Broadcasting Corporation v. Johns [1965] Ch. 32; [1964] 2 W.L.R. 1071; [1964] 1 All E.R. 923, C.A.

Cassidy (Peter) Seed Co. Ltd. v. Osuustukkukauppa I. L. [1957] 1 W.L.R. 273; [1957] 1 All E.R. 484.

Partabmull Rameshwar v. K. C. Sethia (1944) Ltd. [1951] 2 Lloyd's Rep. 89, H.L.(E.).

Pfizer Corporation v. Ministry of Health [1965] A.C. 512; [1965] 2 W.L.R. 387; [1965] 1 All E.R. 450, H.L.(E.).

SociŽtŽ Co-operative Suisse des CŽrŽales et Mati�res Fourrag�res v. La Plata Cereal Co. S.A. (1947) 80 Ll.L.Rep. 530.

Tamlin v. Hannaford [1950] 1 K.B. 18; [1949] 2 All E.R. 327, C.A.

Trendtex Trading Corporation v. Central Bank of Nigeria [1977] Q.B. 529; [1977] 2 W.L.R. 356; [1977] 1 All E.R. 881, C.A.

Walton (Grain & Shipping) Ltd. v. British Italian Trading Co. Ltd. [1959] 1 Lloyd's Rep. 223.

APPEAL from the Court of Appeal.

The appellants, C. Czarnikow Ltd., appealed from a judgment of the Court of Appeal (Lord Denning M.R. and Cumming-Bruce L.J., Geoffrey Lane L.J. dissenting) dated May 26, 1977, affirming the judgment of Kerr J. dated December 13, 1976, which upheld an award in the form of a special case by a panel of six arbitrators of the Council of the Refined Sugar Association. The arbitrators dismissed the appellants' claims for damages for non-delivery of about 14,300 tonnes of Polish white sugar f.o.b. Polish ports in November/December 1974. The broad issue raised

by the appeal was whether a state trading organisation could rely on the act of its own government as a defence to claims for non-performance of commercial contracts. The particular issue was whether the respondents, Centrala Handlu Zagranicznego, Rolimpex, who were established by the Minister of Foreign Trade in Poland for the purpose of exercising the state monopoly in (inter alia) the export and import of sugar, could rely on a decree published by the minister as a case of force majeure under rules 18 and 21 of the Refined Sugar Association.

The appellants made contracts for the purchase of sugar from the respondents. The first contract, as amended, provided for the appellants to purchase 11,000 metric tons of Polish white crystal sugar f.o.b. and stowed at one safe Polish port, delivery to be made to vessel during October and/or November 1974 as required by the buyers. The second contract, as amended, provided for the appellants to purchase 6,000 metric tons of which 2,000 were to be shipped in October 1974, a further 2,000 tons in October/December 1974 and the remaining 2,000 tons in December 1974. Each of the contracts was subject to the rules of the Refined Sugar Association and expressly provided that it was subject to force majeure as defined by those rules.

The facts are stated in their Lordships' opinions.

Anthony Evans Q.C. and David Johnson for the appellants. The issues in this case are ultimately questions of construction of rules 18 and 21 of the Refined Sugar Association. They raise the question whether a government can frustrate a contract made by a trading authority of its own State. There is no reported decision on such a situation in relation to a State trading authority in the West nor is there any clear guidance in the authorities.

There is a clear distinction between such bodies as the British Steel Corporation and one like Rolimpex established to exercise a State monopoly. It is not submitted that the status of such bodies as British Steel in England should be equated with bodies like Rolimpex in Poland, creations of the Minister who may liquidate them. Rolimpex exercises a State monopoly and is carrying out a function of the State. The sums involved in this case are very substantial and several similar cases are pending in arbitration. The action of the Polish government was calculated to avoid financial loss to the State. It is not accepted that Rolimpex was not so closely connected with the Polish government as to be precluded from relying on the export ban as "government intervention" within rule 18 (a). Under rule 21 the status of Rolimpex is irrelevant, but under rule 18 the consideration of its status and function is relevant. The question is whether or not it is to be identified with the Polish State so that the Polish government's acts cannot be relied on as force majeure.

There is no finding in the case stated that there is any shortage of foreign exchange in Poland nor is there any finding as to how any financial loss on the contract would be borne by the Polish State. Rolimpex had the monopoly of exporting sugar but there is no clear indication of the machinery for its purchasing the sugar.

On the construction of rule 21 the seller is responsible for obtaining an export licence, an obligation imposed by its first sentence as a separate

collateral obligation, and accordingly failure to obtain a licence will defeat reliance on force majeure. Rule 21 must be read with rule 18 (a) but for the purposes of rule 21 Rolimpex may be assumed to be no different from any other trader. There is an obligation on the seller to deliver the goods f.o.b. and rule 18 (a) provides an exemption from that obligation. The sellers were obliged to obtain an export licence: see Peter Cassidy Seed Co. Ltd. v. Osuustukkukauppa I. L. [1957] 1 W.L.R 273, 277-278. Rule 21 imposing the responsibility is of general application. It is a standard form in use for many years. Local procedures in granting export licences are bound to vary. A licence may be required before delivery on the quay or before loading. It must be a licence for shipment effective at the time of shipment.

Questions may arise as to the meaning of the word "obtaining" in rule 21. Here the requirement is to acquire and hold at the time of shipment. It is not limited to the initial acquisition of a licence which is subsequently revoked. In the Oxford English Dictionary (1933), vol. 7, p. 37, "obtain" is defined as: "To come into the possession or enjoyment of (something) by one's own effort." The root is "tenere: to hold, keep." The necessary idea is that of possession. Under the clause the licence is to be obtained for a particular purpose, viz. that it should be produced to the appropriate authority at the appropriate time. The time of acquisition is irrelevant, provided the licence is available when it is required. What must be obtained is whatever permission is required by the local law: (a) possibly, though not necessarily, in documentary form, i.e., a permit, (b) possibly, though not necessarily, given on behalf of the government concerned. Getting a licence which is subsequently cancelled does not amount to "obtaining." The word "such" is a reference back to "any necessary export licence."

The words "failure to obtain such licences" presuppose that there has been non-delivery, or delay in the delivery of, the contract goods, that it was caused by failure to obtain the necessary export licence. Rule 21 provides that the sellers cannot rely on that as force majeure within rule 18 (a), even though the failure was beyond their control.

One must look first at the time the export licence was required to see whether the export regulations at the time were the same as when the contract was made.

The respondents contend for a broad meaning of the contract, submitting that the Polish government's intervention was a form of force majeure, but the later part of rule 21 prevents them from relying on force majeure when there is a government decision to refuse or revoke a licence required by regulations in force at the time the contract was made. There is no case in the authorities in which a government has purported to revoke by administrative act a licence already granted.

Government intervention leading to a failure to obtain or retain a licence might take several forms. Some form of quota system might be introduced after the contract was signed without changing the existing regulations. Or an internal administrative order might be made after which the civil servants would refuse a licence. If an administrative order was published the position would be the same, or after a licence had been

granted new regulations might be introduced regarding a new form of licence when it was required.

The intervention in the present case was itself a revocation of the licence already granted and consequently the respondents failed to hold the licence necessary for the shipment to take place. There was a breach of contract and the respondents could not rely on force majeure as a defence. As to government export bans, see Walton (Grain & Shipping) Ltd. v. British Italian Trading Co. Ltd. [1959] 1 Lloyd's Rep. 223, 232, 235. In the present case the export ban was precisely the same thing as cancellation of the licence; there was a failure to provide an export licence.

As to rule 18, Rolimpex in many ways depended on the Polish State. It agreed to sell sugar on account of the State sugar enterprises for a commission. As to the position of commission merchants, see Bowstead on Agency, 14th ed. (1976), pp. 6-7.

The statement in clause 50 (a) of the award that "Rolimpex is an organisation of the Polish State" means that it is part of the State's organisation. In paragraph 22 of the award it is stated that "a State enterprise in Poland is in Polish law a unit or organisation of the socialist economy." It is a part of that economy as a generic whole, a part of that body which calls itself the Polish State. In that state of affairs the respondents were precluded from relying on force majeure: see Board of Trade v. Temperley Steam Shipping Co. Ltd. (1926) 26 L1.L. Rep. 76, 77-78; (1927) 27 L1.L.Rep. 230, 231-233; Commissioners of Crown Lands v. Page [1960] 2 Q.B. 274, 286-287, 291-292. A distinction can be drawn between the actual facts in the latter case and those in the present case where the object of the government action was to avoid loss simpliciter. In that case Devlin L.J. drew a distinction between a general executive purpose and the particular purpose of the government action. It was not a question of a rule of constitutional law but a matter of implication arising from the identity of one of the parties. The same principle would apply to a private contract governed by English law to which a foreign sovereign was a party, e.g., a shipping contract made with the President of India. In such a case it could not be supposed that the foreign sovereign had signed away his right to act in the best interests of his people. The distinction correctly formulated by Devlin L.J. depended on the purpose for which the government act was done. The same distinction is reflected in international law and is not peculiar to English constitutional law. In international law the distinction is drawn between the taking of property for public utility as opposed to private purposes. The matter was put correctly by Lord Denning M.R. in the Court of Appeal [1978] Q.B. 176, 195B-D. The Polish Government's intervention cannot be brought within the category of acts done for the public good, since avoiding financial loss to the State in relation to these particular contracts is not enough. On the principles of English law the government would have been free to issue a new licence the day after the decree became law. Given that there is a broader and a narrower meaning of "government intervention" in rule 18 (a), an exceptions clause, the expression should be construed in the narrower sense: see

Chitty on Contracts, 24th ed. (1977), vol. 1, para. 816. Rule 21 was designed the cover the case of failure to obtain or to hold a licence since a change of government policy was foreseeable and the defence of force majeure is not available. Here "government intervention" should be construed by reference to the identity of the sellers in their capacity as a State trading organisation. The parties cannot have intended that these words should enable the Polish Government to avoid the contract while acting in the interests of the Polish State but without justification on the grounds of public good. It is a question of the construction of rule 18 (a).

In Partabmull Rameshwar v. K C. Sethia (1944) Ltd. [1951] 2 Lloyd's Rep. 89, 93, 94-95, the House of Lords, finding against the sellers, was concerned with an express exception.

In the present case there are no specific findings as to what would have been the opinion of commercial men on this point. But in paragraph 50 (a) (v) of the award there is an expression of regret that the Council of Ministers authorised the ban instead of permitting the purchase of sugar on the world market thus enabling Rolimpex to honour their contractual obligations, an indication of what the arbitrators as reasonable businessmen would have regarded as being the scope of the contract. The question is whether the Polish Government could do what they did with impunity under English law.

The appellants do not need to contend that Rolimpex is to be identified with the Polish Government. It is sufficient if it was employed by the State in the character of commission agents though it contracted in its own name. It has a monopoly in the export of sugar. If Rolimpex has links with the government the inference is the stronger that the exceptions clause was not intended to apply when the government intervention was merely designed to save the State financial loss.

The buyers as parties to the contract would not necessarily know whether Rolimpex was a department of State or a mere trading organisation. It is the representative of the Polish State in the market. Buyers would know that they could only buy Polish sugar by dealing with Rolimpex which might be either part of the State or just a State trading organisation.

Reliance is placed on Trendtex Trading Corporation v. Central Bank of Nigeria [1977] Q.B. 529, 559-560. The words "government intervention" in rule 18 (a) do not absolve the respondents from liability for breach of contract. When a State engages in foreign trade and, through its appropriate representatives, enters into a commercial contract governed by English law, an act of the government of that State done in order to relieve the State or its representatives of liability under the contract is neither force majeure nor a frustrating event. This holds good whether the particular representative of the State with whom the contract is made is or is not a department of the Government of that State. Its precise nature may depend on niceties of municipal law, but as to the substance there will rarely, if ever, be room for doubt. Where a State monopoly is established, the appropriate State trading organisation is easily identified. It is inadmissible to distinguish between a State trading organisation and a department of State (a) because the distinction is not clear and (b)

because it leads to sovereign immunity by a back door. Apart from the inherent difficulties of investigating such a distinction, the question of status is peculiarly unfitted for decision by commercial arbitration in connection with the special case procedure, owing to the admixture of fact, questions of foreign law, which are technically "fact," and English law. If the respondents' argument is sound a particular government, recognising that sovereign immunity was not available to it in connection with some commercial transaction, could resort to subordinate legislation forbidding performance of a particular contract and a plea of force majeure preventing the relevant trading corporation from performing the contract. In any event, force majeure could only apply when the government's action was for public purposes and not merely to avoid the consequences of a particular contract. There is nothing to justify a plea of public need nor would it be equitable to allow Rolimpex to rely on force majeure, when one considers its true limits.

Rolimpex was not a private seller because of its links with the State. It was a State corporation enjoying a State monopoly. In relation to the Union of Sugar Industries in Poland, Rolimpex acts as a "commission merchant." The sugar was owned by the State. Rolimpex is thus an organisation of the State. In this market it was treated as a representative of the State. It was created by the Minister of Foreign Trade and was subject to his control. It exercised the monopoly as a delegate of the Minister. It might be liquidated by the Minister. It is to be distinguished from nationalised industries in England. The British Transport Commission is a public authority but not a government department (Tamlin v. Hannaford [1950] 1 K.B. 18, 22-25), nor is the British Broadcasting Corporation (British Broadcasting Corporation v. Johns [1965] Ch. 32, 59-60, 62, 72, 73, 74, 78-79, 81-82). But Pfizer Corporation v. Ministry of Health [1965] A.C. 512, 532, 540, 548, 555, 559-565, 568 demonstrates that even in the United Kingdom the categories of the functions of government are not closed and a body which exercises a State monopoly on behalf of the Government is regarded as a servant of the Crown. Unlike England's nationalised industries, Rolimpex is subject to detailed control by the Ministry, though in England the oil industry would seem to be in a different category from other nationalised industries. In the case of Rolimpex the three most important factors are the monopoly, the ministerial control and the finding that it was acting as a commission merchant for other State enterprises. It made this contract for the State.

The contracts were authorised by the minister and export licences were granted by his authority. They were forward contracts and were authorised at a time when the sugar had not been produced in order to benefit the Polish State. Any financial loss would have been borne by the State. The effect of the ban was to throw the loss on the overseas traders. If Rolimpex had been private sellers the present question could not have arisen. There was no occasion for the State to intervene unless it was standing behind Rolimpex. There was no need to default on the contract. This was a case of a forward contract which had gone wrong. The decision of the State was not made for the public good. The risk inherent in all forward contracts is that there may be a shortfall or the

home demand may be greater than was anticipated. The price of sugar in the world market was high. The position would have been fundamentally different if no sugar had been available. It was never suggested that foreign exchange to buy sugar on the world market was not available. This problem would never have arisen if Rolimpex had been a private citizen. Without the force majeure clause State intervention in a private contract would leave the private seller liable.

As to the quality of the Polish Government's action, if the matter had been governed by English law, the intervention would have been unlawful: see O'Connell, International Law, 2nd ed. (1970), vol. 2, pp. 776-778.

Michael Mustill Q.C., Andrew Longmore and Timothy Saloman for the respondents. The appellants seek to identify Rolimpex with the State and to impose a restriction on government intervention in the contract. They say in effect that Rolimpex are the government and therefore government intervention in the contract by force majeure is impossible.

There was disagreement among the ministers as to whether the ban should be imposed and the matter was referred to the Council of Ministers and the initiative came from it. The Minister for Foreign Trade and Shipping, who supervises Rolimpex, did not cause it to make the contracts and then to break them. There is no suggestion that the appellants in contracting with Rolimpex were looking to the State. Rolimpex is not part of the mechanism of the government.

The English cases might have helped if there had been no evidence on Polish law and if there had been a presumption that Polish law was the same as English law. The arbitrators have set out what Rolimpex is and the position must be taken as they have found it. The right course is to look at their findings.

According to the award Rolimpex is not so closely connected with the government as to be precluded from relying on the ban as "government intervention" within rule 18 (a). The State Treasury is not responsible for its obligations. It cannot claim sovereign immunity. As a matter of Polish law it is treated separately from the State and the government. It is autonomous, a State enterprise carrying on its activities independently but in accordance with the decree or order establishing it. Apart from the supervision of the Minister of Foreign Trade and Shipping, Rolimpex makes its own decisions about its commercial activities, deciding with whom it will do business, where and on what terms; in practice it is allowed to get on by itself. Its relationship with the State is similar to that established by the Petroleum and Submarine Pipe-lines Act 1975. Taking all the facts found together, it is wrong to say that Rolimpex and the State are one and the same and that the State in one capacity is intervening in the affairs of the State in another.

The present case is not similar to the situation of a private person who had made a contract with the Crown which the Crown declines to perform on the ground of executive necessity, since here there is no contract between the appellants and the Polish equivalent of the Crown. Even if this were such a contract, the Crown and the State cannot be taken to be jurisprudentially identical. It is dangerous to seek to transfer decisions in England on Crown immunity to other countries and

those cases are irrelevant to the present case, which is expressly concerned with government intervention. The appellants had expressly agreed that government intervention was to be an excuse for non-performance. In England the Crown could never agree in advance to fetter its decisions by an undertaking not to intervene if executive necessity required it. Here the appellants have sought to transfer the principles of Crown immunity in England to a country with which it has nothing to do. This case is concerned with a different subject matter.

The appellants contend that in the case of a body like Rolimpex government intervention is not available as a defence under rule 18 unless it was for the public good. But in many cases there is no way of saying why the government acted as it did. Yet the motive is at the heart of the appellant's argument. It would be an impossible task to require arbitrators to find the motive, since this would require access to the secret policy of the government. Different conceptions lie behind the words "the public good" in England, Poland and the United States.

As to rule 21, one must take the contractual relationship as a whole. The contract is f.o.b., under which a seller's primary obligation is to ship the goods and if, for any reason, he does not do so, he is in breach of contract. If, after the contract is made, an event happens which makes shipping illegal, the contract is prima facie discharged by supervening illegality. The circumstances in which a contract is made, or else its terms, may be such that the seller expressly or impliedly promises that shipment will be legal, i.e., there is a continuing warranty of legality. The courts in general have refused to make this implication. The position may be dealt with by an exception providing what is to happen if shipment is prevented for an identified reason. There may be a proviso by a seller that he will obtain a licence and keep it, but such a warranty is not usually implied. If the seller loses the licence and cannot present it to the customs he would be liable for failure to ship.

Clause 21 is designed to deal, not with overpowering events but with a totally different position, i.e., the existence of an export licence at the time of the contract if the regulations then in force called for a licence to be obtained. Failure to obtain one is not "sufficient grounds" for a claim of force majeure. It is therefore not open to the seller to say that his inability to obtain a licence amounts to force majeure. Clause 21 is independent of clause 18, for which a clause 18 event is required.

Under rule 21 the seller is responsible for "obtaining" a necessary export licence. "Obtain" in the Oxford English Dictionary, vol. 7, p. 37. is defined as "to come into the possession" of something; also "to acquire, get." To "get" is synonymous with "obtain," which does not mean "keep." Once the seller has a licence, that is sufficient. In clause 21 it is assumed that events will remain the same as they were. The seller has contracted in the context of the existing system, not in the context of changed circumstances. Rule 21 stipulates for "any necessary export licence," so that if there is a need for an export licence the seller must get the right one, i.e., the one appropriate to the system. If he has obtained the licence, he has performed his obligation, even though it is cancelled next day. It is the buyer who takes the risk of supervening illegality

by revocation of the licence. A continuing warranty of legality is not usually implied. The case is different from that of losing a licence through one's own fault. If a licence was stolen from the seller's safe there would be a defence under the sweeping-up provisions of rule 18. An example of the use of the word "obtain" is found in SociŽtŽ d'Avances Commerciales (London) Ltd. v. A. Besse & Co. (London) Ltd. [1952] 1 Lloyd's Rep. 242. The word "necessary" in rule 21 means "called for by the system," not "effective at the time of the shipment," with which the seller is not concerned. One is dealing with the contractually existing set up. When the system, the existing set up, was swept away it became irrelevant. When the Council of Ministers said that the goods must not go out, the licence became out of date so far as the realities of the situation were concerned.

There is here no continuing warranty of legality: see Walton (Grain & Shipping) Ltd. v. British Italian Trading Co. Ltd. [1959] 1 Lloyd's Rep 223, 236 and SociŽtŽ Co-operative Suisse des CŽrŽales et Mati�res Fourrag�res v. La Plata Cereal Co. S.A. (1947) 80 L1.L.Rep. 530.

Clause 21 is concerned with the existing state of affairs and clause 18 with new events.

Should the respondents lose this appeal, the buyers must prove any loss beyond the minimum. The market was very volatile and the market price was admittedly higher than the contract price. The damages must relate to the date on which delivery should have been made and no one knows when that would have been. The buyers were keeping the contract open but they did not nominate any vessel under the second contract. It is for the buyers to prove their loss and they cannot establish what they suffered. They must prove what would have happened but for the breach of contract, and this they have not been able to do. If the respondents are held liable the assessment of the damages should be by reference to the time during the delivery period when the market price was lowest.

Evans Q.C. in reply. Section 51 (3) provides the measure of damages. The words "ought to have been delivered" are applicable to the situation where a ship was nominated. The words "If no time was fixed" relate to the situation in regard to the rest of the goods. In their case the damages should be assessed as at the market value on November 15, 1974, the date when the appellants must have known that the ban was final.

Rule 21 means that the sellers should not only acquire but also hold at the time of shipment the necessary export licence when it is required for delivery under this f.o.b. contract. The obligation is to be regarded as a separate and collateral agreement on the agreement to deliver the goods. The word "obtained" in the contract indicates that the licence must be held at the time it is required. The words "failure to obtain" must be read in relation to non-shipment attributable to a failure to hold the licence. When a licence is revoked the seller cannot rely on the fact that he acquired the revoked licence. Walton's case [1959] 1 Lloyd's Rep. 223, 236 is not an authority on rule 21. Under rule 18 (a) there are certain circumstances in which the seller is entitled to invoke force majeure. Rule 21, the second sentence of Which is clear, is intended to modify

the operation of rule 18, so that force majeure cannot be invoked if the sellers fail to obtain a licence required by the regulations in force at the time the contract was made. That sentence prevents the sellers from pleading force majeure, as they could otherwise have done, in the case of supervening illegality. It prevents the plea of force majeure only when the fact relied on by the buyers is the failure to obtain a licence.

This was not a case of a general embargo or ban on the export of sugar. The decree was directed at these contracts only. The regulations remained in force.

Their Lordships took time for consideration.

LORD WILBERFORCE. My Lords, this appeal arises out of two contracts for the purchase of sugar by the appellant from the respondent. Each contract was made subject to the rules of the Refined Sugar Association and expressly provided that the performance of the contract was subject to force majeure as defined in the association's rules. There are two relevant rules. Rule 18 (a) applies if the delivery in whole or in part within the delivery time should be prevented or delayed directly or indirectly by (inter alia) government intervention and provides, as is usual, for an extension and ultimately for cancellation of the contract. Rule 21 deals with licences and is in the following terms:

"The buyer shall be responsible for obtaining any necessary import licence and the seller shall be responsible for obtaining any necessary export licence. The failure to obtain such licence/s shall not be sufficient grounds for a claim of force majeure if the regulations in force at the time when the contract was made, called for such licence/s to be obtained."

The contracts were made in May and July 1974 (subject to addenda of later dates) and were forward sales for delivery in November/December 1974. The seller thus assumed the risk of a rise in the price of sugar between the contract date and the date of delivery.

Since the seller failed to deliver any of the 11,000 m.t. provided for by the first contract and part of the tonnage provided for by the second contract, it would be liable to the buyer for substantial damages unless it could rely on force majeure.

The respondent (seller) Rolimpex is a state trading organisation of the Polish state: it obtains sugar required for export from the Sugar Industry Enterprises represented by the Union of Sugar Industries in Poland. The relation between the latter body and Rolimpex is that Rolimpex sells as "commission merchant," i.e., it sells in its own name but only for a commission and on account of the Sugar Industry Enterprises concerned. The contracts now in question were no doubt intended to be satisfied from the 1974 sugar crop in Poland. It is found that the Polish National Economic Plan required a total sugar production of 1,835,000 m.t. for the season 1974/75. Of this, 1.500,000 m.t. was required for the domestic market and the balance was authorised for export. In May 1974 Rolimpex was authorised to contract for the export of 200,000 m.t.

In August 1974 there was heavy rain and flooding in the sugar beet producing areas: the result was that only 1,432,000 m.t. were produced - a shortfall even on the amount required for domestic consumption. On November 5, 1974, a resolution of the Council of Ministers was passed banning the export of sugar with effect from November 5, 1974, and cancelling export licences. This resolution was found not to have the force of law. However, later on November 5, 1974, the Minister of Foreign Trade and Shipping signed a decree providing:

"1. From November 5, 1974, it is prohibited to release export deliveries of sugar specified by present contracts. 2. Customs authorities shall immediately stop the deliveries of sugar prepared for export and notify disposers about the prohibition of sugar export. 3. The rule is in force from the date of its signature."

This made the export of sugar illegal by Polish law.

It was found by the arbitrators that on November 5, 1974, there was a considerable quantity of sugar at the port of Gdynia and a further quantity on the way to Gdynia by rail. But for the ban, sugar would have been available for the performance by Rolimpex of both contracts. It was also found that both before and after November 15, 1974 (the date when the buyer was able to ship) there was Polish sugar of the contract quality available on the market. If there were insufficient quantities available, there was a market for the purchase and sale of other sugar of equivalent quality. In the condition of the market any purchaser would have accepted any sugar of equivalent quality in substitution for Polish sugar. The market value of the relevant quality of sugar on November 15 was however FF. 7,500 per m.t. as compared with FF. 3,064, the price fixed for one contract and about FF. 4,000 for the other.

The export ban remained in operation until July 1, 1975. Rolimpex declared force majeure on November 6, 1974, and, if it was entitled to do so, both contracts became void.

The seller referred the matter to the council of the Refined Sugar Association in accordance with the association's rules. The council appointed a panel of six arbitrators in respect of the dispute. They heard evidence over a hearing of 10 days. In their award the arbitrators found (inter alia) that sugar was available on the world market to meet the shortage in the Polish market but the Council of Ministers resolved not to purchase sugar on the world market because of the high price and the loss of foreign exchange that such a purchase would have entailed; that the ban was imposed to relieve the anticipated shortage in the domestic market; that its effect was to throw the losses caused by the partial failure of the Polish sugar crop on overseas traders and consumers, thus saving the Polish state having to bear any financial loss in replacing the sugar sold well in advance of the 1974/75 campaign. They added this unusual observation:

"(a) (v) We very much regret that the Council of Ministers authorised the ban rather than permitting the purchase of sugar on the world market, so enabling Rolimpex to honour its contractual obligations."

A further group of findings contained the following:

"(b) The persons employed in Rolimpex did not induce the Council of Ministers to authorise the ban and did not influence its continuance or effect. (c) Rolimpex is an organisation of the Polish state. (d) Rolimpex is not so closely connected with the Government of Poland that it is precluded from relying on this ban (imposed for the reasons set out above) as 'government intervention' within rule 18 (A) of the rules of the Refined Sugar Association. (e) Rolimpex is accordingly entitled to rely on rule 18 (A) as a defence to Czarnikow's claims."

The award having been stated in the form of a special case, the matter came before the court with two main questions for decision. 1. Was this a case of government intervention within rule 18 (a)? 2. Was the case taken out of rule 18 (a) by the provisions of rule 21? There was also a question (of very considerable difficulty) as to the measure of damages.

Questions 1 and 2 were answered by Kerr J. in favour of the seller, i.e., Yes and No respectively. The Court of Appeal (Lord Denning M.R. and Cumming-Bruce L.J.) affirmed this decision. Geoffrey Lane L.J. dissented holding that Question 2 should be answered in the affirmative.

Consideration of Question 1 can conveniently start from the arbitrators' finding (b) above. It was the case of the buyer before the arbitrators that there was some kind of collusion or conspiracy between Rolimpex and the government of Poland by which the government was persuaded, in the interest of Rolimpex, to impose the ban. In order to deal with this, Rolimpex produced a quantity of evidence to show that there was no such collusion or conspiracy, on the contrary, when the possibility of a ban on exports was mentioned to the director and general manager of Rolimpex before November 6, 1974, he protested about it and the persons employed in Rolimpex were not consulted about the imposition of the ban and were not informed of the ban until after its imposition. The arbitrators found that Czarnikow had failed to prove its allegation that the ban was imposed after consultation between the persons employed in Rolimpex and the Ministry of Foreign Trade and Shipping. The ban was in fact requested by the Minister of Food and Agricultural Industries on the grounds that it was unacceptable to put the people of Poland on short rations and that other alternatives were unacceptable. There being disagreement among the ministers (including the Minister for Foreign Trade and Shipping who supervises Rolimpex) the matter was referred to the Council of Ministers which passed the resolution of November 5, 1974 (see above). There was thus ample evidence to support the arbitrators' finding against collusion or conspiracy.

Before the courts and this House the buyer took a different line. It appealed to a group of English cases dealing with actions taken by or on behalf of the Crown in which a distinction has been made, broadly, between the acts which are performed by a government for the public good or for a general executive purpose and acts which a government does so as to avoid liability under a contract or contracts (see Board of Trade v. Temperley Steam Shipping Co. Ltd. (1926) 26 L1.L.Rep. 76, and Commissioners of Crown Lands v. Page [1960] 2 Q.B. 274, per

Devlin J.). Lord Denning M.R. was disposed to hold that this distinction might be applied to the present case if, but only if Rolimpex was to be regarded as a department of government: he then proceeded to hold that it was not. I have very great doubt whether the doctrine developed by these cases, which is very much one of English constitutional law, can viably be transplanted into the constitutional climate of foreign States - particularly such states as Poland which we are entitled to know have an entirely different constitutional structure from ours. Such a transplantation, if possible at all, would involve English courts in difficult and delicate questions as to the motivation of a foreign State, and as to the concept of public good, which would be unlikely to correspond with ours. I am not saying that there may not be cases when it is so clear that a foreign government is taking action purely in order to extricate a state enterprise from contractual liability, that it may be possible to deny to such action the character of government intervention, within the meaning of a particular contract, but that result cannot, in my opinion, be achieved by means of the doctrine mentioned above: it would require clear evidence and definite findings. It is certain that no such evidence or findings exist in the present case. On the contrary, the evidence is that the action was taken to avoid serious domestic, social and political effects and to avoid loss of foreign exchange if high price sugar were to be brought on the world market. The arbitrators indeed so found.

I agree, however, wholly with Lord Denning M.R. that Rolimpex cannot on the evidence be regarded as an organ of the Polish state. The award does indeed use the words "an organisation of the Polish state" but read with the evidence this can mean no more than that it was set up by the Polish state and controlled by the Polish state: in their next finding quoted above, the arbitrators find that Rolimpex is not so closely connected with the government of Poland that it is precluded from relying on the ban as government intervention - a finding not as clear as it might be but, in the light of the evidence, meaning necessarily that Rolimpex is not an organ or department of the state. The independence of Rolimpex from the government is in my opinion amply demonstrated by the facts set out at length in the award. Together with all four learned judges who have considered this point, I find the conclusion clear, and I therefore hold that the seller makes good the contention that there was government intervention within rule 18.

The second question is whether rule 21 operates as a saving clause which, in the circumstances, takes the case out of rule 18. I am afraid that I can find no substance in this argument. Rule 21 appears in a section of the rules headed "Licences." In my opinion it does no more than to place on the seller the obligation to obtain an export licence (and on the buyer to obtain an import licence) and to state that failure to fulfil this obligation shall not be a sufficient ground for a claim of force majeure. The word "obtain" in this context means "obtain" or "get" and I cannot read in to it any obligation or warranty to maintain it in force. The seller complied with this obligation and the clause is satisfied. I agree entirely with the disposition of this point by Kerr J.

I would dismiss the appeal.

VISCOUNT DILHORNE. My Lords, under two contracts made in 1974 the appellants agreed to buy from the respondents quantities of sugar f.o.b. Each contract incorporated the rules of the Refined Sugar Association and this appeal is as to the meaning and effect of rules 18 (a) and 21 of those rules.

Under the Polish Economic Plan 1,835,000 metric tons of sugar were to be produced in the 1974/75 season. It was estimated that 1,500,000 tons would be required for domestic consumption and 335,000 tons were allocated for export. In May 1974 the respondents were authorised to contract for the export of 200,000 tons thereof and the contracts made with the appellants were pursuant to that authority.

In that season due to bad weather only 1,432,000 tons were produced, and in October 1974 the Minister of Food and Agricultural Industries told the Prime Minister of Poland that the sugar produced would not cover domestic needs, and that the respondents were insisting nevertheless on the export of 200,000 tons for which they had concluded contracts. He suggested that there should be an immediate ban on the export of sugar "as it was socially and politically unacceptable to put the people of Poland on short rations and other alternatives were also unacceptable."

On November 5, 1974, this was considered at a meeting of the Council of Ministers. It was decided that an immediate ban on the export of sugar should be imposed and it was resolved:

"1. Sugar export is banned commencing November 5, 1974. 2. Export licences granted hitherto are cancelled. 3. Minister of Foreign Trade and Shipping shall issue without delay respective decrees in order to strictly execute this provision. 4. The resolution is carried into effect on the passing date."

That afternoon a decree, which had force of law in Poland, was signed by the Minister of Foreign Trade and Shipping. It read as follows:

"On the basis of paragraph 3 of the resolution of the Council of Ministers on November 5, 1974, related to a prohibition to export sugar, the following is made to apply: 1. From November 5, 1974, it is prohibited to release export deliveries of sugar specified by present contracts. 2. Customs authorities shall immediately stop the deliveries of sugar prepared for export and notify disposers about the prohibition of sugar export. 3. The rule is in force from the date of its signature."

This ban remained in force until July 1, 1975, So from November 5, 1974, till then the export of sugar from Poland was illegal. Sugar which the respondents had contracted to deliver to the appellants f.o.b. could not consequently be delivered. By telex on November 5 the respondents told the appellants of the ban and the appellants replied saying that they did not accept that delivery of sugar already contracted for could be stopped in that manner. The next day the respondents told the appellants that it was a case of force majeure.

The rules of the Refined Sugar Association contain a chapter headed "Force Majeure." The chapter contains rules 17-20. Rule 18 (a) is relevant to this case and so far as material reads as follows:

"Should the delivery in whole or in part within the delivery time specified be prevented or delayed directly or indirectly by government intervention... beyond the seller's control, the seller shall immediately advise the buyer... of such fact and of the quantity so affected, and the period of delivery shall be extended by 30 days for such quantity.... If delivery is still prevented by the end of the extended period, the buyer shall have the option of cancelling the contract for the affected quantity or of taking delivery at the contract price without claiming damages as soon as the sugar can be delivered.... Should the buyer elect not to cancel the contract but delivery of the sugar in whole or in part still remains impossible 60 days after the last delivery date provided for by the contract, the contract shall be void for such quantity without penalty payable or receivable."

It is in my opinion clear beyond all doubt that delivery of the sugar in pursuance of the contracts within the delivery time was prevented by the intervention of the government of Poland. It is, I think, equally clear that the action taken by the government was beyond the respondents' control. The facts found by the arbitrators show, as I have said, that the respondents had insisted on the export of the 200,000 tons they had contracted to sell, and also that on November 5 when informed of the possibility of the ban, the respondents' director and general manager had protested. Nevertheless the ban was imposed.

The appellants contended that "government intervention" in rule 18 (a) should be interpreted to mean only intervention for what was called a general executive purpose; that the decree was imposed to achieve a particular result in relation to the contracts for the export of sugar, and that intervention for such a purpose was not to be regarded as government intervention within the meaning to be given to those words in rule 18 (a).

The particular result which it was the respondents' purpose to achieve was, it was alleged, to throw the losses caused by the failure of the sugar crop on to overseas traders and consumers and to avoid it being borne by the Polish state.

Rule 18 (a) clearly requires it to be established, if the force majeure relied on is government intervention, that the cause of the delivery being prevented or delayed was government intervention. It does not stipulate that, if there is such intervention, one has to go on to consider for what purpose the intervention was made. I do not find it necessary in this case to consider whether a government intervention, which in fact occurred, can be treated as not having occurred if it be established that it was to secure a particular result such as that alleged by the appellants, for the facts found by the arbitrators in their award, in my view, clearly negative the contention that it was for that particular purpose. They found that Poland was faced with a shortage of sugar if all contracts for the export of sugar were performed, that the Council of Ministers feared that the shortage of sugar in the home market would have serious domestic social and political effects, that sugar was available on the world market to meet the shortage but that the Council of Ministers resolved not to purchase on the world market because of the high price of sugar and the

loss of foreign exchange that such a purchase would have entailed and that the ban "was accordingly imposed to relieve the anticipated shortage in the domestic market." Presumably this purpose was achieved. The arbitrators say that the effect of the ban was

"to throw the losses caused by the partial failure of the Polish sugar crop on overseas traders and consumers thus saving the Polish state having to bear any financial loss in replacing the sugar sold well in advance of the 1974/75 campaign."

While this was a consequence of the ban, its purpose as stated by the arbitrators was not that but to relieve the anticipated shortage on the home market.

The foundation for this contention by the appellants is not there and so it is unnecessary to consider what effect, if any, it would have had it been.

The appellants do not say that the respondents are to be identified with the Polish government. The respondents are an organisation of the state. Under Polish law they have a legal personality. Though subject to directions by the appropriate minister who can tell them "what to do and how to do it," as a state enterprise they make their own decisions about their commercial activities. They decide with whom they will do business and on what terms and they have considerable freedom in their day to day activities. They are managed on the basis of economic accountability and are expected to make a profit. The arbitrators in my opinion rightly found as a fact that the respondents were not so closely connected with the government of Poland as to be precluded from relying on the ban imposed by the decree as government intervention.

The appellants also asserted that the respondents bought and sold for the state. This while no doubt true, does not in my view help the appellants. The facts found by the arbitrators stated above show that they were not a department of the government but have a separate identity. They were, it was found as a fact, employed as "a commission merchant" to sell sugar intended for export on behalf of Sugar Industry Enterprises which were also state enterprises.

The fact that they did so cannot in my opinion invalidate the decree made on November 5.

So if rule 18 (a) stood alone, the respondents are in my opinion entitled to rely on it as excusing them from liability for non-delivery of the sugar within the period stipulated in the contract.

The appellants, however, say that they are prevented from doing so by rule 21. That rule is headed by the word "Licences," and is clearly designed to deal with the situation where at the time when a contract is made a licence is required for export or for import. It reads as follows:

"The buyer shall be responsible for obtaining any necessary import licence and the seller shall be responsible for obtaining any necessary export licence. The failure to obtain such licence I s shall not be sufficient grounds for a claim of force majeure if the regulations in force at the time when the contract was made called for such licence/s to be obtained."

Export licences for sugar were required when the contracts were made between the appellants and the respondents. The first sentence of this rule imposes a collateral obligation on the buyer to obtain any necessary import licence and on the seller to obtain any necessary export licence. But what is the extent of this obligation? The appellants contend that the respondents undertook by undertaking to obtain any necessary export licence, not only to get but also to have at the time that delivery was required to be made, a valid licence under which the delivery could be made, and that the licences they had having been cancelled by the decree, they were in breach of this obligation. In those circumstances, they say, the second sentence of the rule prevents the respondents from relying on force majeure.

If this is the right construction of the rule, it would mean that where a licensing system was in force at the time of the contract, the words "government intervention" in rule 18 (a) would have little, if any, significance. Never could the seller in any country rely on that rule if the government of that country placed an embargo on export and a licence for export was required both at the time of the contract and at the time for delivery.

I do not think that this is the right construction to be placed on the rule. I do not think that it was ever intended to have such a far-reaching effect. I see no reason for giving the word "obtaining" which appears twice in the rule and "obtained" any other than their natural meaning which in my view is "getting" and "got," and I agree with my noble and learned friend, Lord Fraser of Tullybelton, whose speech in draft I have now had the advantage of reading, that for the reasons he gives, the word "necessary" in rule 21 gives no assistance to the appellants.

If it was the intention of the parties that in addition to the getting of any necessary licence, the buyer in the case of an import licence and the seller in the case of an export licence undertook to have and warranted that he would have a valid import or export licence when the time came for importation or for delivery, I would have expected express provision to have been made for that as it was in a clause in the c.i.f. contract under consideration in SociŽtŽ d'Advances Commerciales (London) Ltd. v. A. Besse & Co. (London) Ltd. [1952] 1 Lloyd's Rep. 242. The word "obtaining" is in my view too slender a peg to sustain the weight of such a far-reaching obligation.

The second sentence of the rule is in my opinion of limited effect. It merely provides that failure to get a necessary licence shall not of itself suffice to justify a claim of force majeure.

In this case the cause of the non-delivery was government intervention not failure to obtain an export licence.

For these reasons in my opinion this appeal fails and should be dismissed. It is not necessary to consider to what damages the appellants would have been entitled had their appeal succeeded.

LORD SALMON. My Lords, I need not recite the two contracts entered into between the sellers and the buyers in May and July 1974, nor rule 18 (a) of the Refined Sugar Association's rules incorporated in these contracts, nor the export ban imposed by the Polish government on November

5, 1974, nor the basic facts concerning the dispute between the parties to this appeal, for these are all fully and lucidly set out in the speeches of my noble and learned friends, Lord Wilberforce and Viscount Dilhorne.

One of the allegations which had been unsuccessfully made in the arbitration by the buyers was that the ban which I have mentioned had been planned or plotted between the sellers and the Polish government in order to force a substantial increase in the price of the sugar sold under the contracts to which I have referred. The arbitrators held that this allegation had no foundation in fact (see paragraph 19 of the award). Mr. Evans, quite rightly, never challenged this finding; the evidence referred to in the award clearly established that the sellers had no knowledge of the ban until after it was made and that the Minister of Foreign Trade and Shipping, who supervised the sellers' business, had strongly opposed the imposition of the ban.

Mr. Evans did, however, argue that the sellers were, in fact, part of the Polish government and that therefore the ban caused by the intervention of that government could not be recognised as being "beyond the control of the sellers" within the meaning of those words in rule 18 (a); and that accordingly it followed that the sellers could not be excused on the ground of "force majeure" from fulfilling their obligations under the contracts of sale. This argument was most skilfully developed but it faced the insuperable difficulty that it was contrary to the arbitrators' findings of fact.

The arbitrators' found in paragraph 50 (d) of the award that the sellers were not so closely connected with the Polish government that they were precluded from relying on the ban. I do not overlook the finding in paragraph 50 (c) of the award that the sellers were "an organisation of the Polish state." These words, are, however, very loose and imprecise and must be read in the light of the findings of fact in paragraphs 21-29 of the award. It is clear from these findings that the sellers were set up by the state as a separate entity. They were known as a state enterprise and registered as such. This gave them in Polish law a "legal personality." Some of the consequences of the sellers' legal personality and economic accountability are that the State Treasury is not responsible for their obligations and they are not responsible for the obligations of the State Treasury; nor are they entitled, under Polish law, to claim sovereign immunity. Although the sellers are under the general supervision of the Minister for Foreign Trade and he has the power to tell them "what to do and how to do it," the sellers generally make their own decisions about their own business and have substantial freedom in their day-to-day activities. The sellers carry on business as commission merchants on a very large scale. They have a virtual monopoly of selling, on commission, in their own name, all the sugar intended for export and produced by the various state enterprises. They also sell on commission many other commodities intended for export and produced by other state enterprises. In my view, the arbitrators were justified in refusing to hold that the sellers were an organ or a department of the government or the state. Accordingly, I agree that but for rule 21 (which I shall presently consider) the sellers would have a complete

defence under rule 18 (a) to the claim brought against them by the buyers for failure to perform their obligations under the contract.

I do not express any concluded opinion as to what the position might have been, in law, had the facts as found by the arbitrators established that the sellers were an organ or department of the government or of the state. I am inclined to the view that, in such circumstances, the facts as found in paragraph 50 (a) of the award may nevertheless have been expressed without sufficient clarity to establish with the necessary certainty that the ban was not imposed "for the public good" or for "a general executive purpose" but only for the purpose of extricating the government from its obligation under the contracts of sale. If the findings had been so expressed, I would agree with Lord Denning M.R. that the sellers, in the circumstances postulated, would have been precluded from relying on rule 18 (a) - see Commissioners of Crown Lands v. Page [1960] 2 Q.B. 274, 293-294, per Devlin J.; Board of Trade v. Temperley Steam Shipping Co. Ltd. (1926) 26 L1.L.Rep. 76, per Roche J.

In my view paragraph 50 (a) of the award is somewhat ambiguous. Naturally the Council of Ministers feared that a shortage of sugar in the home market would have serious domestic, social and political effects. But there was no risk of such a shortage because the council had one of two alternative means of preventing it. A. There was plenty of sugar available for sale on the world market to avoid the shortage which would otherwise have occurred on the home market if the sellers had honoured their obligations under their contracts with the appellant and other buyers for exporting 200,000 tonnes of sugar; or B. The contracts for exporting 200,000 tonnes of sugar could all have been torn up and a total ban on exports imposed; then the home produced sugar, freed from export, would have supplied virtually all the sugar required on the home market.

If the latter course were followed, it could have been accompanied by paying reasonable compensation to all the foreign buyers. The sellers did adopt the latter course but did not pay any compensation.

According to the findings in paragraph 50 (a) (iii) of the award, "the Council of Ministers resolved not to purchase sugar on the world market because of the high price and the loss of foreign exchange that such a purchase would have entailed." There is no finding as to whether this loss of foreign exchange would or would not have seriously affected Polish currency. If it would have done so, then the ministers' decision to do as they did could have been justified on the ground that they were acting for the public good and for a general executive purpose.

If, on the other hand, the currency would not have been affected and the sellers had been part of the government or the state, they would only a have been evading a financial loss on the forward contracts into which they had entered and could not, in my view, have sheltered behind rule 18 (a).

Paragraph 50 (a) (iv) of the award makes it plain that the ban had been imposed to relieve the anticipated shortage in the domestic market: but this step was taken only because it had been decided not to buy the sugar which was readily available on the world market and would equally have relieved any home shortage. For my part I am not at all surprised by the comment in paragraph 50 (a) (v) of the award: "We very much

regret that the Council of Ministers authorised the ban rather than permitting the purchase of sugar on the world market, so enabling [the sellers] to honour [their] contractual obligations."

Since, however, the sellers were not found to be an organ or department of the government or the state, it is unnecessary to express any concluded view on what should have been the result had such a finding been made.

I now turn to consider the effect of rule 21 of the Refined Sugar Association's rules which was also incorporated in the contracts of sale. It reads as follows:

"The buyer shall be responsible for obtaining any necessary import licence and the seller shall be responsible for obtaining any necessary export licence. The failure to obtain such licence/s shall not be sufficient grounds for a claim of force majeure if the regulations in force at the time when the contract was made called for such licence/s to be obtained."

The regulations in force in Poland at the time the contracts were made called for such licences to be obtained.

Someone had to take the risk that the necessary export licences might become unobtainable or be cancelled. In my opinion, it was the sellers who accepted the responsibility for obtaining such licences and the risk that they might fail to do so. If they failed from any cause, obviously, they could not deliver the sugar they had sold: but they would then be liable to compensate the buyers for any damage the buyers had suffered as a result of the non-delivery.

I do not think that there is any difficulty about the meaning of the word "obtain" in rule 21. It means simply to "get." The obligation is merely to get "any necessary export licence." This prompts the question "necessary for what?" In my opinion, in order to make any commercial sense out of the rule, it can only be referring to a licence necessary to enable the sugar sold to be cleared through customs and loaded on board ship.

If the sellers obtain a document purporting to be an export licence, but before the shipment is due, the document is cancelled, or for any other cause does not enable the sugar to be cleared through customs and loaded on board then, in my view, the sellers have failed to obtain or get a "necessary" export "licence"; and they are precluded from relying on force majeure to escape from their liability to pay compensation to the buyers for their failure to deliver under the contracts. I would add that it is, in my view, impossible for a seller to know for certain whether he has obtained a necessary export licence until he presents it to the customs authorities and they clear the goods on the strength of it.

It was argued on behalf of the sellers that the rules of the game were changed when the ban on exports came into force on November 5, 1974, because the whole licensing system was temporarily put out of action by government intervention and rule 21 no longer had any application am afraid that I cannot accept that argument. I entirely agree with the judgment of Geoffrey Lane L.J. and gratefully adopt the following passage in his judgment [1978] Q.B. 176, 201:

"To say that that which caused the failure to deliver was the ban on exports rather than the absence of a valid licence,... is to draw a distinction without a difference. A ban on exports means a refusal to permit exports. A licence to export is a permit to export. Therefore the ban is no more and no less than a withdrawal of any existing licences and a refusal to grant any further licence for the time being."

It seems to me that one of the most obvious risks which rule 21 envisaged and the sellers accepted was that the necessary export licences might be unobtainable by reason of government intervention whether in the form of a ban on the export of sugar or in any other form. Once the sellers contracted to shoulder the risk of failing to obtain the necessary export licences, the reasons why they failed to do so became irrelevant. In my opinion, an export licence is, in reality, no more and no less than government permission to export.

Export licences are wholly unlike dog licences or television licences which are issued automatically upon the payment of a fee and the completion of a form. It is incredible that there should be government intervention of any kind in respect of such licences. Not so in respect of export licences. These are normally issued by a department of government and depend upon government policy - which alters from time to time. The department concerned may, on behalf of the government, decide not to issue a licence or to cancel an issued licence, in its own discretion, or as a result of a decree or direction emanating from the government itself.

At the time when these forward contracts were entered into, it must have been foreseen that before the stipulated delivery date, the Polish government might well intervene by preventing export licences from being issued and cancelling any such licences as had been issued. This, in my opinion, was a risk which fell upon the sellers under rule 21. To construe this rule otherwise emasculates it and deprives the buyers of the protection which it purports to afford them.

Rule 18 (a) cites, first, government intervention and then ten other specific examples of force majeure. Any of these, unless excluded by some provision in the contract, would afford a valid defence to the sellers if it prevented or delayed delivery under the contract. So far as the sellers' contractual obligations are concerned, rule 21 preserves only their obligation to obtain the necessary export licences: otherwise, the sellers' escape routes under rule 18 (a) for failure to deliver, or a delay in delivery, are left intact. I consider, however, that rule 21 makes it plain that the sellers cannot escape from their failure to obtain the necessary export licence on the ground of government intervention or any other ground of force majeure; certainly not without implying or writing into rule 21 after the words "force majeure," the words "unless caused by government intervention." I cannot find any justification for doing so. Far from it being necessary to emasculate rule 21 in order to give business efficacy to the contract, I consider that it makes far better commercial sense as it stands.

I would accordingly allow the appeal.

LORD FRASER OF TULLYBELTON. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Wilberforce, and I agree with it.

On the arbitrators' findings in this case there is no doubt that there was government intervention in the sense of rule 18. At one time I was inclined to attribute more importance than some of your Lordships do to rule 21, and to think that it was intended to place on the seller an obligation to obtain an export licence which would be effective at the time of exporting. But further reflection has satisfied me that for the reasons stated by my noble and learned friend, Viscount Dilhorne, to construe rule 21 in that way would involve reading into the word "obtain" more than it can fairly bear. Nor does it seem to me that the word "necessary" helps the appellants. In the context of rule 21, the word must imply that there is in force a licensing system of such a character that, if the necessary licence is obtained, it would be effective to allow the seller to export the goods which he had contracted to sell. But if the licensing system is abolished or (as in the present case) superseded, with the result that no licence can be effective during the period of suspension, rule 21 do s not have the effect of imposing on the seller an absolute obligation to obtain government permission to export the goods; if it did, it would remove almost the whole of the protection against government intervention given to him by rule 18. I agree with Cumming-Bruce L.J. in the Court of Appeal [1978] Q.B. 176, 204 that:

"His [the seller's] obligation though absolute is more restricted, and is only to obtain from the licensing department or authority evidence of such permission to export as is within the ordinary scope of the licensing system that that department is concerned with."

I would dismiss the appeal.

LORD KEITH OF KINKEL. My Lords, I have had the opportunity of reading in draft the speech of my noble and learned friend, Lord Wilberforce. I agree with it, and for the reasons he gives I too would dismiss the appeal.

Solicitors: William A. Crump & Son; Norton, Rose, Botterell & Roche.

F. C.