## Facts

- A state-owned Bangladeshi buyer invited tenders for sugar; tender rules required “earnest money” forfeitable if the successful bidder failed to finalize a contract.
- The buyer accepted Cargill’s offer and the parties entered a C&F contract (June 1994) for roughly 12,500 metric tons of sugar, with shipment timing and vessel-age requirements.
- The contract required Cargill to provide a bank performance bond for 10% of the contract value, drafted as a pay-on-demand instrument.
- Contract clauses stated the bond was “liable to be forfeited” for failure to fulfill obligations and that the buyer was “entitled to forfeit” the bond if shipment/delivery was late.
- The sugar shipment arrived late and the vessel allegedly exceeded the age limit; the buyer treated these as breaches justifying forfeiture of the full bond.
- Cargill disputed liability and asserted that even if it breached, the buyer suffered no loss (or far less than the bond), including because the market price of sugar had fallen.
- The parties agreed to have preliminary issues determined in the English Commercial Court on the assumption that Cargill was in breach, focusing on whether the buyer could retain the full bond regardless of actual loss.

## Issues

1. Whether the contract entitled the buyer, upon breach, to retain the full performance bond amount irrespective of actual loss.
2. Whether the terms “forfeit/forfeited,” as used in the contract, clearly excluded a subsequent accounting and repayment of any surplus.
3. Whether an interpretation permitting retention without regard to loss should be rejected in light of penalty-type and windfall concerns.

## Decision

- The Court of Appeal dismissed the buyer’s appeal and upheld the Commercial Court’s determination of the preliminary issues.
- The buyer could call for payment of the full bond sum on demand upon an asserted breach, without proving loss at the time of the call.
- Absent clear words to the contrary, the buyer could not retain more than its actual loss; any excess over proven loss was repayable to Cargill after later accounting.
- The phrases “liable to be forfeited” and “entitled to forfeit” were insufficient to confer an absolute right to keep the entire bond sum regardless of loss.
- The court rejected importing the tender-stage earnest-money forfeiture approach into the performance bond provisions of the concluded sales contract.

## Legal Principles

- A pay-on-demand performance bond supports prompt payment (“pay now”), but—unless the contract clearly provides otherwise—final allocation between principal and beneficiary is resolved by later accounting based on actual loss.
- Language stating a bond is “forfeited,” “liable to be forfeited,” or that a party is “entitled to forfeit,” without explicit exclusion of accounting, ordinarily authorizes a call on the bond but not retention of a surplus.
- Courts favor constructions that treat bond proceeds as security for performance rather than an amount recoverable as a punitive or windfall sum disconnected from loss.

## Conclusion

The Court of Appeal held that the buyer could draw the full amount under the pay-on-demand performance bond upon breach, but—because the contract did not clearly exclude accounting—had to account later and could retain only the amount matching its proven loss, with any excess repayable to Cargill.


Cargill Int’l S.A. v. Bangl. Sugar & Food Indus. Corp., [1998] 1 W.L.R. 461 (Eng. C.A. 1997)