IN THE SUPREME COURT OF JUDICATURE		QBCMF 96/1138/B
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR JUSTICE MORISON)

								Royal Courts of Justice
								The Strand
								London WC2

							Wednesday 19th November, 1997

	B e f o r e:

	LORD JUSTICE STAUGHTON
	LORD JUSTICE SWINTON THOMAS
	LORD JUSTICE POTTER

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	CARGILL INTERNATIONAL SA, GENEVA BRANCH
	CARGILL (HK) LIMITED

	Respondents

	- v -

	BANGLADESH SUGAR & FOOD INDUSTRIES CORPORATION
	Appellant

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	(Computer Aided Transcript of the Palantype Notes of
	Smith Bernal Reporting Limited, 180 Fleet Street,
 	London EC4A 2HD
	Tel: 0171 421 4040
	Official Shorthand Writers to the Court)
	- - - - - - 
MR S MALES (Instructed by Messrs Middleton Potts, London EC1A 7LD) appeared on behalf of the Respondents 

MR A HOSSAIN (Instructed by Messrs Beale & Company, London WC2A 8JD) appeared on behalf of the Appellant 
	- - - - - - 
	J U D G M E N T
	(As approved by the Court)
	- - - - - - 

	©Crown Copyright

								Wednesday 19th November, 1997
 
	JUDGMENT	
LORD JUSTICE STAUGHTON: Lord Justice Potter will give the first judgment. 
  
LORD JUSTICE POTTER: This is an appeal by the Bangladesh Sugar and Food Industries Corporation (hereafter "BSFIC") who were, under a contract dated 16th June 1994, the buyers of a quantity of sugar from the respondents ("Cargill") under a contract of sale in connection with which Cargill as sellers provided BSFIC with a performance bond issued on its behalf by the Banque Indo Suez on 4th June 1994, in a sum equivalent to ten per cent of the total C & F value of the sugar to be supplied. 

Disputes have arisen between the parties in respect alleged contractual breaches arising from of the late arrival and the age of the ship carrying the cargo. BSFIC claimed to be entitled to forfeit the bond in respect of Cargill's breaches of contract. Cargill in turn claimed that the breaches were in fact caused by the default of BSFIC.  Cargill also claimed that, in any event, BSFIC suffered no loss because the market price of the sugar had fallen over the period between the date of contract and the date for delivery. 

The disputes led to the commencement of litigation in various jurisdictions, which was eventually compromised by an agreement of the parties dated 12th April 1996, under which it was agreed inter alia that the matter was to be submitted for determination before the Commercial Court. The parties further agreed that the Court should determine two preliminary issues, on the assumption for the purpose of such determination that Cargill were indeed in breach of contract as alleged by BSFIC. 

The two preliminary issues were ordered to be tried by Rix J on 2nd May 1996 in the following form: 
	
		"(1) Whether on the true construction of the contract of sale dated 16th June 1994 and on the assumption that the Plaintiffs were in breach of the contract in the respects alleged at paragraph 5 of the Defendant's Points of Defence (whether individually or cumulatively) the defendant was entitled to make a call for the full amount of the performance bond of Banque IndoSuez in any of the following events, namely the Plaintiff's breach (or breaches) of the contract 

		(a) caused no loss to the Defendants;
		
		(b) caused some loss to the Defendants which was less than the amount of the performance bond; 

		(c) caused some loss to the defendants which was equal to or greater than the amount of the performance bond. 
		(2) Whether on a true construction of the contract and on the same assumption as in (1) above, and in the event of the Defendant having obtained payment under the performance bond as a result of any such call which it was entitled to make, the Defendant was entitled to retain: 
		
		(a) all of the monies received by it;

		(b) only such amount as was equal to the amount of the loss suffered by it; or 

		(c) some other and if so what amount." 

The breaches of contract alleged at paragraph 5 of the Points of Defence, which were to be assumed for the purpose of the preliminary issue, were breach of clause 6 (ii) of the contract of sale in shipping the sugar in an overage vessel without BSFIC's clearance and (2) breaches of clauses 5 and 16, in that the vessel only arrived at Chittagong on 21st September 1994. 
  
In the judgment of Morison J, and by his order dated 7th June 1996, he gave the answer "Yes" to question (1) and "(b)" to question (2).  He thus held that, on the assumption that Cargill was in breach of the contract, BSFIC was entitled to make a call for the full amount of the performance bond, even if Cargill's breach or breaches caused no loss to BSFIC. However, on the same assumption, and in the event of BSFIC having obtained payment under the performance bond as a result of any call, BSFIC was entitled to retain only such amount as was equal to the amount of the loss suffered by it. 
  
For the purposes of the arguments raised before us on this appeal it is necessary to refer to three principal documents. 
The first is the form of tender invitation issued by BSFIC to tenderers in respect of 12,500 metric tonnes, plus or minus five per cent of sugar as described. This required tenderers to furnish various documents under various headings. In particular, by clause 10, it required submission of two documents described as: "earnest Money/Bid bond" and "Performance Guarantee". 

In that respect clause 10 provided: 

		"(a) The tenderer/bidder will furnish 1 per cent of the total quoted value as earnest Money/Bid bond in the form of Bank Draft/Bank Guarantee in favour of this Corporation as per format given at Annexure-A ... 
		(c) The earnest money in respect of the tenderer/bidder whose offers have been accepted will be released to them only after they have furnished performance guarantee and signed the contract. The Corporation reserves the right to forfeit the earnest money if the tenderers/Bidders fail to sign the contract or to furnish Performance Guarantee for performance of the contract within the time stipulated and/or allowed for the purpose ... 

		d) In the event of the acceptance of this tender by the Corporation, a Letter of Intent will be issued to the successful tenderer/bidder (hereinafter referred to as the Supplier) who shall provide, within 7 (seven) days from the date of the issue of the Letter of Intent, the Performance Guarantee in the form of a Bank Guarantee in the format given at annexure "B". ... 
		The Performance Guarantee is liable to encashed/forfeited (i) if the successful bidder fails/refuses to sign the formal contract and (ii) if the full cargo in respect of both quality and quantity as per B/L and invoice is not received. But such encashment and forfeiture of the Performance Guarantee shall not limit the consignee to have the right to seek redress of full recovery of short receipt through other means." 
  
Although the tender invitation, which was dated 5th May 1994, provided for signature by the tenderer and was in fact signed to indicate that Cargill as tenderer had understood and accepted the conditions as laid down, it also provided under the heading "Acceptance and Contract" that: 

		"Issuance of a Letter of Intent shall not mean a formal contract and will be completed in all aspects when the formal contract is signed."

Cargill's firm offer in response to the invitation to tender was dated 28th May 1994. It gave details of the tonnage offered, origin, payment, delivery, price, etcetera and ended "all other terms and conditions: as per tender". It was accepted on 30th May. Cargill then procured its bankers, Banque IndoSuez, to issue the second important document, namely the performance bond or "Performance Guarantee" as it was called in the tender invitation. It took the form of a banker's "Letter of Guarantee" dated 4th June 1994. It provided inter alia that: 
		"Whereas ... (BSFIC) ... has accepted the offer .... (of Cargill) ... for supply of 12,500 Metric Tons (Five Pct more/less at Seller's Option) of sugar to be supplied by Cargill ... on the terms and conditions governing the purchase order and whereas the supplier has requested us through the Chase Manhattan Bank, London to issue a Guarantee for an amount of USD 526,273.15 ... only being 10 Pct of the C&F (C) value of the contract, in consideration of aforesaid we, Banque Indo Suez, Dhaka hereby undertake and guarantee due signing, acceptance and performance of the contract by the supplier and we unconditionally and absolutely bind ourselves

		I) To make payment of USD 526,273.15 ... to the Corporation or as directed by the said Corporation in writing without any question whatsoever. 
	
		II) ... The guarantee is unconditional and it is expressly understood that the sole judge for deciding whether the suppliers have performed the contract and fulfilled the terms and conditions of the contract will be the said Corporation." 

On 16th June 1994 there was completed and dated the third important document: the contract of sale. Under its terms the respondents agreed to sell C & F (C) to the appellant 12,500 metric tonnes of sugar plus or minus five per cent at the seller's option. There was an express promise by the respondent to ensure the arrival of the sugar at Chittagong before 15th September 1994 "positively".  There was also a stipulation in the contract that the cargo would be shipped in a vessel which was not more than 20 years old. 

Clause 13 of the contract of sale provided as follows: 
  
		"13: Performance Bond. 
		The seller has already submitted a Performance Bond to the BUYER in the form of Bank Guarantee equivalent to 10 per cent of the total offered C & F (C) value of 12,500 m.tons plus or plus or minus 10 per cent of sugar. The Performance Bond is liable to be forfeited by the BUYER if the SELLER fails to fulfil any of the terms or conditions of the contract ... and also if any loss/damage occurs to the BUYER due to any fault of the SELLER." 

Clause 16 of the contract of sale provided as follows: 
 
		"16: Special clause. 
		i) The arrival period/time is the essence of the contract. Therefore the SELLER shall strictly adhere to the arrival period/time stipulated in this contract. If the SELLER fails to do so, the BUYER shall be entitled to recover from the seller liquidated damage @ 2 per cent of the contract value, as agreed, of the undelivered goods for each month or part of the month during which the delivery of the goods will be in arrears, or to terminate the contract and call back the LETTER OF CREDIT and also to forfeit the Performance Bond mentioned at clause 13." 

 
The decision of Morison J 
Morison J held that it is implicit in the nature of a performance bond that in the absence of clear contractual words to a different effect there will be an accounting between the parties at some stage after the bond has been called, in the sense that their rights and obligations will be determined at some future date. If the amount of the bond is not sufficient to satisfy the beneficiary of claim for damages he can bring proceedings for his loss, giving credit for the amount received under the bond. 

Conversely if the amount received under the bond exceeds the true loss sustained, the party who provided the bond is entitled to recover the overpayment. The judge's reasoning in that respect has already been the subject of approving comment by this Court in Comdel Commodities Ltd v. Siporex Trade SA [1997] 1 Lloyd's Rep 424 at 431 and is not the subject of challenge in this appeal. The issue in this appeal centres upon the reservations expressed by Morrison J that the implicit features set out above must give way to contractual words of contrary effect. It is the contention for BSFIC that the use of the word "forfeited" in clause 13, echoed by the word "forfeit" in special clause 16, demonstrates that the parties indeed intended to oust the usual implication as to any subsequent accounting between the parties. In that respect the judge observed as follows in relation to clause 13: 
  
		"It seems to me that on a proper construction of this clause there is no indication that it was the parties' intention that the Bond would either satisfy the whole of the Buyer's damages (see above) or prevent the seller from recovering any overpayment. The word "forfeit" might be apt to suggest that, once called, the bond monies had "gone" for good.  But if it had been the intention of the parties to produce a result whereby the Buyer could both call on the Bond and sue for damages, whereas the Seller forfeited his right for any overpayment, then much plainer words would have been required to take this case away from the general principles as I perceive them to be. That being so, it seems to me that treating the two parts of the clause disjunctively and treating the right to forfeit as arising if either there was a breach or if any loss or damage occurred to the Buyer due to any fault of the seller (which might not be a breach) would make commercial good sense. The Buyer is stipulating clearly that, as between himself and the Seller, all he needs to show to be entitled to call on the Bond as a breach of contact; he need not show damage (although damage will almost always follow); if on the other hand, say by a misrepresentation by the seller, damage was caused to the buyer then the right to call the bond was conferred by the second half of the clause.  But in either event there will be an "accounting" at trial or arbitration to ensure the buyer has not been underpaid or overpaid. 

		Further, it seems to me that the more natural reading of the clause is to treat the events giving rise to a right to "forfeit" the bond as disjunctive. The words "also if" would otherwise be unnecessary and the words "due to any fault of the Seller" would not lie easily with the construction which treated the only triggering event as a breach of contract. ("fails to fulfil any of the terms and conditions of this contract").
 
In relation to clause 16 the judge continued: 
  
		"It seems to me that clause 16 clearly provides that if the arrival period/time stipulated in the contract is not adhered to then the buyer will either be entitled to liquidated damages or to terminate the contract and call back the letter of credit and forfeit the Bond. Again, the right, as between the parties, of the Buyer to call on the Bond is not conditional upon him showing any damage. On termination he is entitled to receive immediate payment of the Bond monies and sue for damages, and the seller, conversely, is entitled to recover any overpayment."  

 
Given his conclusion on the question of construction, the question of whether or not the terms of the contract of sale as to forfeiture of the bond were penal in effect did not arise for the judge's decision. However it had been argued before him, and in this respect he held: 

		"Had I been persuaded that there was a term of the contract between the parties which enabled the Buyer to call on the bond when he had suffered no damage, and to retain the monies, I would have held the provision to have been penal." 

He then quoted certain remarks of Lord Browne-Wilkinson in Workers Trust and Merchant Bank Ltd v. Dojap Investments Ltd [1993] AC 573 at 582 and went on: 

		"It seems to me that it is a fortiori where, as here, there has been a "mere" breach not giving rise to non‑completion of the contract. I do not, I hope without discourtesy to Mr Hossain's interesting argument, need to consider the line of cases on forfeiture of monies already paid under a contract or analogous cases relating to the forfeiture of deposits. If provisions of the contract are penal within principles which are well‑known, then the power to grant relief from their effect is undoubted.  Relief from the effects of a penalty clause is akin to the right to relief from forfeiture in those cases where the Court would grant specific performance of the contractual obligations, namely where the contract confers some proprietary or possessory interest." 

 
In argument before us, Mr Hossain for BSFIC accepted that clear words are required to avoid the general principles expounded by the judge, and that, if he failed in his contention that clauses 13 and 16 contained such clear words, then he must fail in this appeal. However, on the assumption that he was entitled to succeed, he submitted in his skeleton argument that the judge was wrong to go on to hold that clauses 13 and 16 were penal in effect, and therefore enforceable only to the extent of damage actually suffered by BSFIC. 

He submitted that neither clause 13 or 16 is in any conventional sense a penalty clause, providing as each does for money already provided by the seller pursuant to a well-recognised tripartite commercial arrangement which, as Mr Hossain submits, would be undermined by introduction of doctrine of relief from penalties. He submitted that, whatever the statements of general principle made in authorities and text books, there is no reported authority directed to an analogous situation which could assist Cargill in this respect. 

Mr Hossain's arguments may well have force. They did not attract Morison J who, without deciding the point, certainly appears to have considered the principles relating to penal provisions were apt to be applied in a case of this kind. Since, for reasons which appear below, I consider the judge was right in his decision upon the principal issue of construction, I prefer to leave the `penal clause' question undecided. 
  
Mr Hossain relies upon the principle that no term should be implied into a contract which conflicts with other express terms of the contract. He argues that the meaning of the term "forfeit" is clear. He relies upon the definition of the word in its ordinary and popular sense in the Shorter Oxford Dictionary, that the verb "to forfeit" means to lose, give up or render oneself liable to pay, or be deprived of, something as a penalty of a fault, breach of duty or breach of engagement. He observes that it is implicit within that definition that the party to whom something, whether money or other property, is said to be forfeit is entitled to retain it. Thus, he said, use of the expression "forfeit" in clause 16 and "liable to be forfeited" in clause 13 in respect of a performance bond of this kind carries the plain and inevitable connotation that, once monies have been paid pursuant to its terms, it is irrevocably lost to the payee.  That being so, he relies upon the long established dictum that contractual terms are to be understood in their "plain, ordinary and popular sense, unless they have generally in respect of that subject matter, as by the known usage of trade or the like, acquired a peculiar sense as distinct from the popular sense." (See Robertson v. French [1803] 4 E. 130 at 135)

Thus, submits Mr Hossain, the judge was wrong in regarding the use of the words "forfeit" and "forfeited" as insufficiently clear to displace the implied term of ultimate accountability which is the usual incident of a performance bond. In this connection, he has rightly made the point that, when construing the effect of particular words in a commercial contract, it is wrong to put a label on the contract in advance and thus to approach the question of construction on the basis of a pre‑conception as to the contract's intended effect, with the result that a strained construction is placed on a words, clear in themselves, in order to fit them within such pre‑conception. 

As Lord Goff observed in the another context in Palm Shipping v. Kuwait Petroleum [1988] 1 Lloyds Rep 500 at 502: 
  
		"It is not a permissible method of construction to propound a general or generally accepted principal ... (and) ... then to seek to force the provisions of the ... (the contract) ... into the straightjacket of that principle." 

On the other hand, modern principles of construction require the Court to have regard to the commercial background, the context of the contract and the circumstances of the parties, and to consider whether, against that background and in that context, to give the words a particular or restricted meaning would lead to an apparently unreasonable and unfair result. 
  
As Lord Reid observed in Wickman Machine Tool Sales Ltd v. Schuler AG [1974] AC 235 at 251: 
  
		"The more unreasonable the result, the more unlikely it is that the parties can have intended it, and if they do intend it, the more necessary it is that they shall make that intention abundantly clear." 

 
That approach may fairly be said to have reached a high watermark in the recent decision of the House of Lords in Charter Reinsurance Co Ltd v. Fagan [1997] AC 313 in which "the landscape of the instrument of a whole" as Lord Mustill put it at page 384, led the Court effectively to construe the words "actually paid" in the ultimate net loss clause of a reinsurance contract as meaning "actually payable". 

If questions of reasonableness are taken into account and if the usual characteristics and broad commercial purpose of performance bonds are borne in mind, it seems to me that the following matters are pertinent to the task of construction in the case. 
  
First, as Mr Hossain accepts, such a bond is a guarantee of performance. That is not to say it is a guarantee in the sense it has all the normal incidents of a contract of surety; it is of course a contract of primary liability so far as the bank that gives it is concerned. However it has the feature that its purpose is to provide security to the buyer for the fulfilment by the seller of his contractual obligations. (See Kerr J in Harbottle (RD) (Mercentile) Limited v. National Westminster Bank Limited [1978] QB 146 at 149B.  

Second, its purpose is also that the buyer may have money in hand to meet any claim he has for damage as a result of the seller's breach. 
  
Third, it confers a considerable commercial advantage upon a buyer. Not only does the buyer have an unquestionably solvent source from which to claim compensation for a breach by the seller, at least to the extent of the bond, but payment can be obtained from the seller's bank on demand without proof of damage and without prejudice to any subsequent claim against the seller for a higher sum by way of damages. In these circumstances the obligation to account later to the seller, in respect of what turns out to be an overpayment, is a necessary corrective if a balance of commercial fairness is to be maintained between the parties. 

In the light of those considerations, the question arising in this case is whether, by use of the word "forfeit" in relation to the bond, the parties intended to negative any later obligation of the buyers to account, should the sum paid over exceed the damage actually suffered. 
  
Turning to the use of the word "forfeit" and "forfeited" in the context in which they appear, I do not accept that such intention is plain. I start from the position that the words have not been used with any degree of precision, let alone with any eye to the ultimate position between the parties so far as damage suffered is concerned. In both clause 13 and clause 16, the terms "forfeited" and "forfeit" respectively are applied to the bond, not (as one would expect if Mr Hossain were right) to the monies paid under the bond. While Mr Hossain submits the point is a technicality and that, by their reference to the bond the parties must in fact have intended to refer to the monies paid under it, I consider that the term has simply been used as a shorthand for the exercise of the buyer's right to call for payment under the bond. In other words it refers to the position as between BSFIC and the bank, not BSFIC and Cargill. This seems to me to be consistent with a further feature, that the bond is said to be "liable to be forfeited by the buyer", whereas if the clause were intended to convey that the sum paid or payable under the bond would be forfeit, in the sense of irrecoverably lost to Cargill, a reference to forfeiture by the seller would have been more appropriate. 

Further, the decision of the judge to read the words "liable to be forfeited", in the context in which they appear, as equivalent to "liable to be called or encashed" accords more with reason, fairness and commercial good sense than does the meaning for which Mr Hossain contends. The effect of Mr Hossain's construction would be to provide BSFIC with a substantial windfall in any case where it had suffered no loss or relatively nominal loss, and would run counter to the general proposition that compensation for breach of contract depends on proof of loss. Whilst national and international trade is encouraged and enhanced by the role of the performance bond, both as a security and as an incentive for the performance of the parties' contractual obligations, the very fact that such bonds are payable by bankers on demand and without proof of loss seems to me to require that, as between the parties, the circumstances said to justify such demand should remain open to subsequent challenge, and to quantification of damage so that an ultimate balance may be struck between the parties. 
  
For those reasons I do not regard the "dictionary definition" approach of Mr Hossain as helpful. However, even if that approach is appropriate, I note that one of the definitions of "forfeit" on which he relies is "to render oneself liable to have to pay." Taken on its own, that definition is certainly not one which precludes or excludes any later intention or obligation on the part of the parties to account in respect of the actual loss suffered. I come back to the point that the real purpose of clause 13 is to define as between the parties the circumstances in which the buyer shall be entitled to make a call on the bank, a matter upon which the bond itself is silent. The use of the words "forfeit" and "forfeited" fall to be considered in that light. 
  
Mr Hossain referred us also to certain examples of the use of the word "forfeit" and "forfeited" in Stroud's Judicial Dictionary. While it is true that the opinion is expressed in the text that the words seem to involve the idea of permanent loss or liability thereto, the statutory examples given do not afford any real assistance in the present contractual context. 

In further support of his argument Mr Hossain has submitted: 

1. 	That without the meaning contended for by BSFIC the bond would provide no incentive for the sellers to fulfil the terms of the contract and would be commercially worthless to achieve its claimed purpose. 

2. 	That the text of a Cargill telex dated 27th May 1994 suggests that Cargill may have been adding a cushion of 10 per cent over the Stock Market price, in order to hold the offer price until 30th May, which date was extendable on request, and thus would have taken into account the possible loss of 10 per cent of the price, which might be sustained under any forfeiture of the bond. 

3. 	That clause 13 of the contract should be construed by reference to, and in harmony with, the earlier bid bond required to be provided by way earnest to the value of one per cent of the contract price, in which respect clause 10 of the invitation to tender provided that BSFIC reserved the right to forfeit the earnest money if the tenderers/bidders failed to sign the contract or furnish the performance guarantee. 

I find none of those arguments persuasive. 
  
1. 	I do not think it is right to stigmatise the obligation to provide the bond as commercially worthless simply because the monies paid over under its terms are not to be regarded as irrecoverable by the seller. I have already touched upon the commercial advantage to the buyer in obtaining a bond. The right to call on the bond at an early stage in respect of any breach or suspected breach by the seller is plainly of value. It acts as an obvious incentive for his performance. It achieves the effect of an early payment against loss or possibility of loss without the need to resort to litigation, and if it is sufficient (or more than sufficient) to compensate the buyer, it places the onus of challenge and recovery upon the seller. 

2. 	The suggested evidence of an intended cushion is highly questionable. However, whether or not as a prudent seller Cargill indeed provided for a cushion, in what is an uncertain market, that does not provide evidence of any common intention or recognition that a cushion should be provided to cover the contingency of the bond being called, and thus it cannot affect the question of construction. 

3. 	I do not consider that clauses 13 and 16 of the sale contract fall to be construed by reference to the terms of the earlier bid bond.  It is plain from the terms of that bond and from the requirement for the seller to furnish of one per cent as earnest money in respect of the signature of the contract and the performance bond, that the bid bond was to be provided as a deposit in the conventional sense. That is to say, as an earnest of good faith prior to signature of a formal contract, the amount of which would be forfeit to the buyer, in the sense that he would be entitled to retain it, if the matter went off through the seller's default. 

I consider that the judge was correct in the decision he reached upon the principal point for the reasons which he gave. That being so, the need to consider the argument as to the penal effect of clauses 13 and 16, had he come to a different conclusion, does not fall for decision. 
  
There is one other aspect of this appeal to which I have not yet referred; it concerns costs. The judge ordered that the defendant should pay to the plaintiffs three‑quarters of the plaintiffs' costs for the preliminary issues, determined pursuant to the order of Rix J. 

Mr Hossain suggests that there were no good grounds for the judge to make his order in that form because he had answered one issue in favour of BSFIC and the other in favour of Cargill; thus honours were at the very least even. The parties are not able to produce a proper note of the judge's reasons or, indeed, to recall them in detail. This Court can only speculate that the order was made either on the basis of time spent in argument upon the issues, or on the basis of the view the judge took of the overall merits, in the absence of any suggestion that any damage had actually been suffered by BSFIC. He may have had both or, indeed, other considerations in mind; however, bearing in mind the width of the judge's discretion in the matter of costs, I see no reason or warrant to interfere with the order which he made. I would dismiss the appeal. 
  
LORD JUSTICE SWINTON THOMAS: This case has been succinctly and extremely well argued on both sides. The issue is as to the meaning to be given to the words "forfeit" and "forfeited" in clauses 13 and 16 of the contract. 
  
Although I have not found this an altogether easy question to answer, I agree with the conclusions reached by Lord Justice Potter and for the reasons given by him I will also dismiss this appeal. 
  
As to costs, I do not think it is possible in this case successfully to challenge the judge's exercise of discretion. 
  
LORD JUSTICE STAUGHTON: If my heart ruled my head I would award the $526,000 to the State Corporation of Bangladesh and not to an arm of the Cargill empire. But I have to decide this appeal according to law. I regard the law as providing that the Bangladesh Sugar & Food Corporation cannot keep the money, except to the extent that they can establish loss from a breach of contract by Cargill. 
  
The general situation as to performance bonds is that they provide that the bank or other party giving the bond has to pay forthwith, usually on demand. but subsequently there has to be an accounting between the parties to the commercial contract. 
Mr Hossain accepts that, and in my judgment he is right to do so. But as Lord Justice Potter has said, one does not place too much weight on that general approach. It is wrong to apply a label to a contract before one looks at the wording, and then bend the words to meet that label. 
  
Nevertheless it seems to me right to bear in mind that the parties very probably will have known that that is a general feature of performance bonds. Is there then wording in this contract which shows a different intention? In my judgment there is not. The references to forfeiture of the performance bond in clauses 13 and 16 of the sale contract are capable of being read as referring only to the position as between the Bangladesh Sugar & Food Corporation and the bank, and not as between the Bangladesh Sugar & Food Corporation and Cargill. In other words, the bond is to be forfeited when it is called upon in the circumstances described, the bank must pay, and the money must go to the Bangladesh Food & Sugar Corporation. But that does not effect the position which generally applies, as between the Bangladesh Sugar & Food Corporation and Cargill, so that there must be an accounting. 
  
I do not need to resort to the decision of the House of Lords in Charter Reinsurance v. Fagan in order to reach that conclusion. I too would dismiss the appeal on the substantive point. 
  
As to the question of the costs in the court below, it seems to me that the order which Morrison J made was well within his discretion, and we cannot interfere with it. 
  
 	ORDER: Appeal dismissed with costs; to be taxed 
 	and paid forthwith. Leave to appeal refused