Money turns on the construction of notices in GAFTA commodity contracts.
Volatility in the commodity markets has invited sellers and buyers to explore different ways out when a sale position becomes unprofitable or indeed a source for substantial losses. In 2014 two cases were decided by the Commercial Courts in London where the disputes related to the validity of notices of extension under GAFTA FOB contract forms.
Thus in Nidera BV (Sellers) v. Venus International Free Zone (Buyers), Mr. Justice Walker had to decide whether the contract had been rightly cancelled by Nidera or properly extended by Venus under a GAFTA form number 49. In the background the corn market had moved and a dispute arose as to the execution of a contract for 30.000 mts of Ukrainian corn on FOB terms one safe Black Sea or Ukrainian port in Seller’s option.
Before reaching the commercial Court, the GAFTA arbitrators had decided that the cancelation of Nidera under the prohibition of export clause was premature as Buyers had validly extended the contract delivery period under clause 6.
Before the Commercial Court the Sellers’ appeal was based on two questions of law: (i) whether clause 8 may be invoked by buyers where they have presented a vessel with readiness to load within the delivery period under clause 6 of GAFTA 49. (ii) whether buyers’ claim for an extension of the delivery period on 29 October 2010 was a valid claim under clause 8, with the consequence that the original period under clause 6 was extended to 21 November 2010.
The relevant events in October and November 2010 as quoted in the judgment are as follows:
(1) Sellers declared Yuzhny, Ukraine as the loading port. On 7 October buyers nominated MV Pioneer Wave giving an ETA of 16-17 October for loading about 31,000-32,000 metric tons. Pioneer Wave duly arrived at Yuzhny on 15 October and tendered notice of readiness.
(2) At the time of the nomination there was widespread reporting of possible Ukrainian government export restrictions in the form of export quotas for various cereal products. On 4 October Ukraine had in fact adopted Resolution 938 implementing a quota system over various exports including corn, with determination of the volume and terms of the allocation of quota for export to be advised. The resolution was not published until 19 October.
(3) On 19 October sellers advised buyers that Ukraine had published resolution 938. When doing so sellers added: We fully reserve all our rights and in particular those pursuant to the Prohibition Clause in GAFTA 49, which is incorporated into our contract.
(4) Also on 19 October Ukraine issued Order 661 setting a quota for corn export of 2,000,000 metric tons and prescribing the export licence application procedure. This order was not published until 27 October.
(5) In subsequent correspondence sellers told buyers that they were investigating the possibilities of obtaining a licence, adding that they could not state that shipment would be possible within the delivery period. Buyers responded that Pioneer Wave was ready willing and able to load the cargo, and asked sellers to take “necessary steps to load the contractual cargo as soon as possible”. They added that demurrage was for sellers’ account in any event. Sellers responded that they were using best endeavours to perform the contract but denied responsibility for any demurrage.
(6) During the period running up to 29 October rival stances were taken by the parties. Buyers said that Pioneer Wave would remain at the load port ready to load the goods. They asserted that under clause 6 of GAFTA 49 sellers were obliged to have the goods ready for delivery at any time within the delivery period, and that sellers were under a continuing liability for demurrage. Sellers answered that they had had cargo available at the loading port from the beginning of the loading period and it was not their fault that the vessel had been unable to berth before the restrictions came into operation. They stated that these circumstances constituted an exception to demurrage and they reserved their right to rely on the prohibition clause.
(7) As to how to resolve the matter, buyers proposed that they would cancel the Pioneer Wave charterparty and fix a substitute vessel to arrive at the load port later in the shipment period. They said that this would limit sellers’ liability to buyers for demurrage, but all costs for such an exercise would be for sellers’ account. The response from sellers was that they would be prepared to load a substitute vessel that conformed to the contract, but would not accept any associated costs. They added that if they were compelled to rely on the prohibition clause they would provide all necessary proof.
(8) On 29 October buyers claimed “extension of the shipment period to 21 November in accordance with Clause 8 of GAFTA 49”. Buyers further advised that they were negotiating with the owners of Pioneer Wave to cancel the charterparty and, if possible, would nominate a substitute vessel. They asked sellers to say when sellers would have the goods ready to load. Buyers added that the extension of delivery was to allow sellers to comply with their contractual obligations and load the goods, and thus any carrying charges would be for sellers’ account.
(9) Sellers responded on 2 November stating that “the delivery period expires on 31 October 2010”. They added: Despite our best efforts no licences have been granted for the export of the contract goods. The government restriction of exports has prevented us from effecting the delivery of any of the contract goods.
By reason of the above and according to the terms of our contract, specifically the Prohibition Clause in GAFTA 49, the contract is cancelled.
(10) In response buyers on 3 November contended that the effect of their “extension” was to extend the period for delivery up to and including 21 November 2010, stating:… we extended the contract delivery period by 21 days in accordance with the GAFTA extension clause. In the circumstances it remains possible for you to perform the contract by shipping the contractual goods within 21 November 2010.
In short Mr. Justice Walker disagreed with the arguments put by NIDERA on appeal. He concluded that NIDERA’s arguments provided no sound basis for departing from what sentence 8.1 of clause 8 appears to say on its face: where a timely notice is served, there is an unqualified right of extension under clause 8. He further added that the purpose of this particular standard form contract was to enable traders to make contracts speedily and where there were clear and unqualified words in such a contract, if it would not be obvious to a trader that they have a limited meaning.
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In Soufflet Negoce SA (the “Seller”) v Fedcominvest Europe SARL (the “Buyer”) by a contract dated 4 October 2010 Soufflet agreed to sell 38,000 mt of French feed barley to Fedcominvest on FOB terms. The terms of GAFTA 64 were incorporated. Clause 8 provided that the contractual delivery period should be extended by not more than 21 days “provided that Buyers serve notice claiming extension not later than the next business day following the last day of the delivery period”.
Clause 19 of the contract provided: “19. NOTICES
All notices required to be served on the parties pursuant to this contract shall be communicated rapidly in legible form. Methods of rapid communication for the purposes of this clause are defined and mutually recognised as: – either telex, or letter if delivered by hand on the date of writing, or telefax, or Email, or other electronic means, always subject to the proviso that if receipt of any notice is contested, the burden of proof of transmission shall be on the sender who shall, in the case of a dispute, establish, to the satisfaction of the arbitrator(s) or board of appeal appointed pursuant to the Arbitration Clause, that the notice was actually transmitted to the addressee. In case of resales/repurchases all notices shall be served without delay by sellers on their respective buyers or vice versa, and any notice received after 1600 hours on a business day shall be deemed to have been received on the business day following. A notice to the Brokers or Agent shall be deemed a notice under this contract.”
The delivery period was 10 November to 10 December 2010 at the Buyer’s option. 10 December 2010 was Friday and “the next business day following the last day of the delivery period” on which any notice claiming extension under clause 8 had to be served was Monday 13 December 2010.
Buyers tendered a notice claiming extension at 17.09 on 13 December 2010. Since the notice was served after 16.00 the Sellers refused to perform. The Buyers said that the deemed notice provision was concerned only with cases of “resales/repurchases” which was not the present case, and claimed damages for more than 1M USD.
The GAFTA Board of Appeal and the Commercial Court of the Queen’s Bench Division concluded that the deemed notice provision applied only to resales/repurchases. The goods were not resold back-to-back terms and therefore the provision was inapplicable. The Buyer’s notice extending the time was valid, and the Sellers had wrongfully rejected the contract.