The opinion of the court was delivered by: PIERCE
These are diversity actions for alleged breaches of contract. Plaintiffs are three independent corporate entities. In early 1975, they each separately contracted to provide the Federal Military Government of the Federal Republic of Nigeria with quantities of bagged cement. They each contend that thereafter in the fall of 1975 their contracts were anticipatorily breached. Each plaintiff seeks to recover the profits it contends it would have earned in the performance of its contract had the alleged breach not occurred. Each plaintiff also seeks to recover its alleged lost profits on the ground that three separate letters of credit issued by defendant Central Bank of Nigeria for their respective individual benefits was unilaterally modified without the consent of the plaintiffs. The letters of credit were issued by Central Bank of Nigeria pursuant to the terms of the contracts in controversy. Finally, plaintiffs seek to recover the profits they contend each would have earned as demurrage payments, and they also seek to obtain incidental damages, punitive damages, and interest.
These claims of the plaintiffs were tried to this Court commencing on September 10, 1979. The following discussion shall constitute the findings of fact and conclusions of law of the Court in this matter.
In 1975, the government of Nigeria, through the Nigerian Federal Ministry of Defence, entered into more than 70 contracts with foreign cement suppliers as part of its program to purchase 16 to 18 million metric tons of cement. See Defendants' Proposed Findings of Fact and Conclusions of Law PP 147, 205. All of the cement purchased by the Nigerian government through these contracts was to be delivered to Nigeria over an eighteen month period during the years 1975 and 1976. Id. PP 147, 165. Pursuant to these contracts, the Central Bank of Nigeria ("CBN") established individual letters of credit in favor of at least some of the cement suppliers, including the plaintiffs herein. The bank is an agency of the Nigerian government.
In mid-1975, the Nigerian ports became severely congested with ships seeking to discharge their cargos. Threatened with a national economic disaster because of this congestion, the Nigerian government placed an embargo on all shipping into the port of Lagos. National American Corp. v. Federal Republic of Nigeria, 597 F.2d 314, 316 (2d Cir. 1979). Thereafter, the national government established a negotiating committee which was responsible for renegotiating the foreign cement contracts and related letters of credit on behalf of the government and CBN. Id. More than 70 of the cement suppliers met with the negotiating committee, and at least 43 accepted the terms of a proposed settlement agreement, thereby releasing the government from its obligations under the cement contracts. See Defendants' Proposed Findings of Fact and Conclusions of Law P 205 at p. 53. Plaintiffs in the present action were among the cement suppliers who declined to renegotiate their contracts.
Plaintiff Decor by Nikkei International, Inc. ("Nikkei") is a New York corporation. On April 21, 1975, it entered into a contract with the Federal Military Government of the Federal Republic of Nigeria ("Nigeria") under which it agreed to supply Nigeria with 240,000 metric tons of cement (B.S.S. 12/1958), plus or minus 10% at Nikkei's option. The purchase price was $ 60 per metric ton, C.I.F. Lagos/Apapa, for a total price of $ 14.4 million, plus or minus 10%. The cement was to be delivered in 6-ply Kraft paper bags (50 kgs G/N).
Upon the filing of a performance bond by Nikkei in the amount of $ 18,000 (one twenty-fourth of 3% of the total purchase price), which apparently had already been secured before the execution of the contract, Nigeria was in turn required to establish an irrevocable, transferable, divisible and confirmed letter of credit in favor of Nikkei for the total purchase price. The letter of credit was to be established through First National City Bank in New York City and was to be payable on sight upon presentation of invoices, clean on board bills of lading, and insurance certificates.
Pursuant to the contract, Nikkei was to commence shipment of cement to Nigeria within 45 days of its receipt of the letter of credit in New York. Delivery was to be made at the rate of 20,000 metric tons per month, plus or minus 10% or plus such additional quantity as Nikkei elected to deliver. All shipments were to be insured by Nikkei out of Barcelona, Spain or Piraeus, Greece. Therefore, all shipments had to originate from those ports to be in conformance with the contract.
The contract also provided that Nikkei would receive demurrage payments in an amount "not exceeding" $ 4,100 per diem, in the event that the cement could not be unloaded in Nigeria within a specified period of time provided that Nigeria was given due notice by cable of the departure from the port of loading of each consignment. Such demurrage was to be payable under the terms of the letter of credit, in addition to the full purchase price, upon presentation of time sheets and statements of facts duly certified as correct by the ship's master and by the ship's agent in Lagos, Nigeria.
The terms of the contract were to be governed by the laws of the United States, and all disputes arising thereunder were to be submitted to arbitration by the International Chamber of Commerce, Paris, France.
On January 28, 1975, plaintiff East Europe Import Export, Inc. ("East Europe"), a New York corporation, entered into a cement contract with Nigeria. The terms of this contract were identical to those of the contract entered into by Nigeria and Nikkei except for the following: First, East Europe contracted to provide a fixed amount of bagged cement to Nigeria, 240,000 metric tons, without a 10% option. Second, the price of cement was to be $ 59.50 per metric ton, and East Europe was to provide Nigeria with a performance bond in the amount of 3% of the purchase price-$ 428,400. Third, Nigeria was to establish a letter of credit in favor of East Europe with First National City Bank in New York City. If East Europe determined that the letter of credit was not acceptable, it was to request appropriate amendments. If Nigeria refused to amend the letter of credit, the performance bond was to be returned to East Europe, and the contract was to be cancelled. Fourth, East Europe was to commence shipment of cement to Nigeria in amounts not less than 20,000 metric tons per month within six weeks of its receipt of Nigeria's letter of credit in New York. Fifth, the contract provided that East Europe was to insure each shipment from Constanza, Rumania, thereby requiring that all shipments originate from that port. Nigeria, upon request from East Europe, later amended the letter of credit to provide that shipments could be made from any port.
Plaintiff Chenax Majesty, Inc. ("Chenax"), a New York corporation, entered into a contract to supply Nigeria with cement on March 20, 1975. Its contract is similar to the contract entered into by Nikkei and Nigeria. The principal differences are that the Chenax contract required that Chenax provide Nigeria with cement conforming to Spanish specification P. 350; that Chenax was to provide Nigeria with a revolving performance bond in the amount of $ 36,000 (one-twelfth of 3% of the total purchase price of $ 14.4 million); that Nigeria's letter of credit was to be established in Chenax's favor with Schroeder, Muenchmeyer, Hengst & Co. in Hamburg, West Germany; that demurrage be accumulated at the unqualified rate of $ 4,100 per diem; and that the law of Switzerland was to govern the terms of the contract. Chenax's contract originally required that all shipments of cement be insured by Chenax from Barcelona and/or Tarragona, Spain to Lagos/Apapa Quay. Therefore, all shipments of cement were to originate from those ports. However, Nigeria later accepted Chenax's request that it be permitted to ship cement from other ports. It was agreed that shipment could be from any European or American port, and the terms of the letter of credit were amended accordingly.
Contrary to the terms of these contracts, no letters of credit were ever established by Nigeria at any of the banks listed in the three cement contracts. Instead, Nigeria unilaterally established individual letters of credit in favor of each of the plaintiffs with defendant CBN and advised plaintiffs thereof through Morgan Guaranty Trust Company of New York ("Morgan"). These letters of credit could only be drawn upon at Morgan. Nikkei's letter of credit was issued by CBN on July 14, 1975, and Nikkei was advised of this through Morgan and First National City Bank in New York. East Europe's letter of credit was issued on August 4, 1975, and Morgan advised East Europe of that by letter dated August 13, 1975. Chenax's letter of credit was issued on April 25, 1975, and Chenax was notified by Morgan by letter dated May 8, 1975.
These letters of credit further deviated from the terms of the cement contracts since none of the letters of credit were confirmed by Morgan or any of the banks specified in the contracts. In spite of this nonconformity, each plaintiff accepted its respective letters of credit. CBN had indicated to Chenax and East Europe that it was "irrevocably" committed to honoring its engagements under the letters of credit. See letter dated July 14, 1975 from Bills Manager of CBN to East Europe and letter dated May 27, 1975 from CBN's Bills Manager to Chenax. Based on these representations, Chenax and East Europe accepted CBN's irrevocable letters of credit without confirmation.
Under these letters of credit, each plaintiff was to receive both the contract price of the cement and any demurrage for which Nigeria became liable under the contract. As indicated above, Nikkei and East Europe were entitled to receive demurrage in an amount not exceeding $ 4,100 per diem, while Chenax's contract provided that it would receive demurrage at the flat rate of $ 4,100 per diem. It appears the qualifying words "not exceeding" had been originally included in Chenax's contract but were intentionally stricken therefrom with the consent of Nigeria and Chenax.
Finally, the Court notes that each of the three letters of credit specifically stated that it would be subject to the Uniform Customs and Practice Documentary Credits (1962 Revision) as set forth in Brochure No. 222 issued by the International Chamber of Commerce.
Nikkei's Performance Under the Contract
On July 29, 1975, Nikkei received notice that Nigeria had established a letter of credit in Nikkei's favor at Morgan in New York. Thereafter, on August 22, 1975, Nikkei authorized the transfer of part of its letter of credit, in the amount of $ 1,032,000, through Morgan to Transfina, N.V. of Curacao, Netherlands Antilles, from whom Nikkei had expected to purchase 20,000 metric tons of cement at a price of $ 51.60 per metric ton. The expiration date of the transfer was January 15, 1976. Transfina allegedly had sources of cement in the Caribbean. However, Nikkei's contract with Nigeria required that cement be shipped from and insured from either Barcelona, Spain or Piraeus, Greece. Since the contract was not modified to permit shipments out of the Caribbean,
Nikkei could not fulfill its contractual obligations through its subcontract with Transfina. On January 15, 1976, Nikkei's transfer of part of the letter of credit to Transfina lapsed pursuant to the terms of said transfer, and Nikkei reacquired its full interest in the letter of credit.
Thereafter, in August, 1975, Nikkei informally entered into an agreement with Productos Fontanet, S.A. of Palma de Malorca, Spain, under which Productos Fontanet was to provide Nikkei with cement for shipment to Nigeria. On August 28, 1975, Nikkei requested that Morgan transfer a portion of its letter of credit in the amount of.$ 1.2 million to Productos Fontanet. Its written instructions to Morgan regarding this transfer directed that the partial transfer was to be made upon the same terms and conditions as the original letter of credit established by Nigeria. The transfer was the means by which Productos Fontanet was to be paid for providing 20,000 metric tons of cement to Nigeria on behalf of Nikkei at the rate of $ 51 per metric ton. It appears that Productos Fontanet owned an interest in a cement factory. Also, Productos Fontanet had a wholly owned subsidiary which was a shipping company and which would provide the means of transporting the cement to Nigeria. Under this arrangement, Nikkei would have fulfilled its contractual obligations to Nigeria with respect to the first 20,000 metric tons of cement.
On or about August 29, 1975, Nikkei received a cable from Nigeria indicating that the Nigerian government had suspended the importation of cement for three months as of August 18, 1975 because of congestion at Lagos and other ports. Nikkei was directed to defer all further chartering and loading of ships. A "new agreement" was to be negotiated for the rescheduling of delivery of the balance of the cement.
Nikkei then cabled Productos Fontanet informing them of the cable from Nigeria and requesting that shipments be deferred for three months. Nikkei received a telegram on September 3, 1975 from Productos Fontanet indicating that a penalty would be assessed against Nikkei if shipments were delayed.
Thereafter, on September 11, 1975, Nikkei and Productos Fontanet entered into a written contract whereby Productos Fontanet agreed to provide Nikkei with 120,000 metric tons of BSS 12/1958 cement, plus or minus 10% at the option of Productos Fontanet. The contract further provided that Nikkei would have an option to purchase an additional 120,000 metric tons. It was agreed that the price of the cement would be $ 54 per metric ton for the first 8,500 metric tons and $ 52 for the balance. Shipment was to be made "C.I.F.F.P.A. from any Mediterranean and/or European port(s) to Lagos, Apapa." Payment was to be made by transfer of the irrevocable letter of credit issued by CBN through Morgan. Also, Productos Fontanet was to receive demurrage not exceeding $ 4,100 per diem from Nikkei.
On September 12, 1975, bills of lading and other documents were issued by Productos Fontanet for a shipment of 8,500 tons of cement from Barcelona, Spain to Lagos/Apapa. These documents were presented to Morgan in New York on September 29, 1975, and Morgan paid $ 510,000 to Nikkei and Productos Fontanet. However, no ships ever sailed for Nigeria because clearances for shipment were never issued by Nigeria.
The day following this payment to Nikkei and Productos Fontanet or soon thereafter, Morgan in New York notified Nikkei by letter that the irrevocable letter of credit issued by Nigeria had been amended to provide that "(a)ll commercial invoices presented must be certified invoices and must be certified by the beneficiaries or their agents." CBN had also informed Morgan that it should not make payments for demurrage under any letter of credit which had been issued regarding any cement contract unless the documents submitted to Morgan were certified by CBN. CBN also required that Morgan not "pay against documents presented in respect of letters of credit . . . unless such documents are accompanied by certificates confirming that clearance (for shipping) has been obtained for the ships to sail to Nigeria." See letters dated September 30, 1975 from Morgan to Nikkei.
Nikkei had not agreed to the addition of these conditions for payment under the letter of credit.
On or about October 8, 1975, Nikkei's president and principal shareholder, Tetsuo Ozawa, traveled from New York City to Lagos, Nigeria to meet with the Cement Negotiating Committee of the Nigerian government at the Committee's request. The meeting took place at CBN's offices. The purpose of this visit was to discuss the rescheduling of cement deliveries. At that meeting, Ozawa, as Nikkei's representative, was asked to cancel the cement contract and letter of credit without compensation. Ozawa declined. Ozawa again traveled to Nigeria in February, 1976 to meet with various government officials. He was again asked to discharge the contract and the letter of credit, and again he declined.
The evidence submitted at trial indicates that Nigeria did not intend to provide Nikkei or any of the other plaintiffs herein with the certificates they would need to obtain payment due from Morgan under the letters of credit as amended unless they agreed to cancel their cement contracts.
East Europe's Performance Under its Contract
Pursuant to the terms of its contract, East Europe was required to post a performance bond in the amount of $ 428,400. The contract expressly states that such a performance bond was "already deposited by (East Europe) with the Central Bank of Nigeria" as of the date of the execution of the contract-January 28, 1975. It appears, however, that no performance bond had yet been established as of that date. Indeed, East Europe did not provide Nigeria with a performance bond of any amount until July 25, 1975 when a bond was issued through First National City Bank in the amount of only $ 248,400. CBN issued a letter of credit in favor of East Europe on August 13, 1975, although a performance bond in the amount of $ 428,400 was never established by East Europe.
However, the letter of credit established by Nigeria in favor of East Europe did not contain a requisite appendix which set forth the acceptable ports from which shipment of cement might originate, the demurrage rate, and other contract terms. Therefore, it was not acceptable to East Europe. On August 18, 1975, East Europe requested that amendments be made to the letter of credit which set forth these contract terms. By letter dated September 8, 1975, Morgan in New York informed East Europe that these amendments had been made.
Because of these delays by East Europe in obtaining a performance bond and by CBN in issuing an amended letter of credit, a prior subcontract which East Europe had entered into with a Romanian cement supplier-Vitrocim-lapsed. East Europe had entered into this contract with Vitrocim on December 13, 1974 in anticipation of the Nigerian cement contract. Having lost its subcontractor, East Europe sought to find an alternate source of cement.
On September 24, 1975, East Europe entered into a subcontract with International Trade & Finance Espanola S.A. ("Intrafinsa") under which Intrafinsa would supply and deliver to Nigeria 120,000 metric tons of cement at a price of $ 51.25 per metric ton, CIF Lagos/Apapa. Payment of this subcontract was to be effected by a transfer of a portion of CBN's letter of credit in favor of East Europe to ...