This was an appeal from a first instance decision of Mr Justice Blair. Seagrain LLC (The Sellers) agreed to sell to Glencore Grain (The Buyers) a quantity of feed wheat of Ukrainian and Russian origin on C&F free out terms by a contract made on 6 July 2010, which incorporated the terms of GAFTA 48. At the time of shipment The Sellers stated that they were unable to execute the contract alleging that the Ukrainian ports were “fully blocked by local government for any kind of grains”. The appeal concerned the proper construction of the GAFTA Prohibition Clause (clause 18 of GAFTA 48), which states:
In case of prohibition of export, blockade or hostilities, or in case of any executive or legislative act done by or on behalf of the government of the country of origin or of the territory where the port or ports of shipment named herein is/are situate, restricting export, whether partially or otherwise, any such restriction shall be deemed by both parties to apply to this contract and to the extent of such total or partial restriction to prevent fulfilment whether by shipment or by any other means whatsoever and to that extent this contract or any unfulfilled portion thereof shall be cancelled. Sellers shall advise Buyers without delay with the reasons therefore and, if required, Sellers must produce proof to justify the cancellation.”
At the relevant time Russian wheat was subject to an export ban, so that the contract had to be fulfilled by Ukrainian wheat only. However, based on some letters from the Ukrainian Customs Control strengthening the controls in relation to the export of cargoes –by which customs officer took samples from the goods during loading– The Sellers considered that the Prohibition Clause applied and declared themselves discharged from liability to perform.
The Buyers commenced arbitration proceedings in respect of a claim for damages in the sum of US$270,000, representing the difference between the contract price and the market price on 1 September 2010. The GAFTA Board of Appeal and the judge rejected The Sellers’ broad construction of the relevant clause and held that the measures required by the above-referred letters did not constitute a restriction of exports because they did not actually restrict exports per se. In their opinion, those sampling and testing measures imposed by the authorities, which simply led to delay in obtaining custom clearance, did not suffice for the purposes of the Prohibition Clause. The Sellers appealed to the Court of Appeal, which upheld Blair J’s decision in the following