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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Fleming & Wendeln GmbH & Co v Sanofi Sa/ag [2003] EWHC 561 (Comm) (20 March 2003) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2003/561.html Cite as: [2003] 2 Lloyd's Rep 473, [2003] EWHC 561 (Comm), [2003] 2 LLR 473 |
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QUEENS BENCH DIVISION
COMMERCIAL COURT
AND IN THE MATTER OF AN ARBITRATION
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
| FLEMING & WENDELN GmbH & CO |
Applicants |
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| - and - |
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SANOFI SA/AG |
Respondents |
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AND IN THE MATTER OF AN ARBITRATION |
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| SANOFI SA/AG |
Claimants |
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| - and - |
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FLEMING & WENDELN GmbH & CO |
Respondents |
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Mr Timothy Young QC and Mr Andrew Baker (instructed by Middleton Potts) for the Respondents/Sellers.
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Crown Copyright ©
Mr Justice Cresswell :
(1) "Whether in the event that the seller is in breach of successive obligations, including a failure to deliver goods, contained in a contract incorporating the GAFTA default clause as exemplified by clause 28 of GAFTA form 78, the buyer having held the seller in default and terminated the contract, the buyer is entitled to damages assessed as the difference between the contract price and the market price of the cargo at the end of the delivery period.
(2) If so, whether on the facts of the present case the contract price is to be assessed as at 1 March 1998 or (as the Board held) 27 March 1998."
(i) there was a tacit agreement by the parties that the earlier unfixed quantities would be rolled forward to March delivery (at which point the delivery period could be deferred no more). It was a requirement of the contract that the price be fixed latest 15 days prior to the delivery period; thus the ultimate deadline for price fixing became 14 February. Hence this also became the deadline for declaring loading places and silos. The Sellers were in breach of their obligation to declare loading places and silos by 14 February.
(ii) there was never any prospect of deliveries being made to railway wagons when wagons had not, and could not, be ordered because of Sellers' failure to nominate loading places and silos due to lack of goods, all of which the Buyers well knew. The Sellers' failure to declare loading places and silos was a breach of a condition of the contract going to its root as a result of which Sellers were in default of fulfilment, the date of default being 14 February.
(iii) As the date of default was the same as the date for price fixing, it followed that the default price and the contract price were identical and there were no damages.
"IT IS ORDERED BY CONSENT THAT;
1. The Award be remitted to the Board of Appeal for them to reconsider and/or give supplemental reasons for the findings set out at paragraphs 6:22–6:25 of the Award, and to vary or affirm their ultimate award (as appropriate) in the light of such reconsideration and/or additional reasons.
2. The Board of Appeal be invited to consider and address in any supplemental reasons only the following questions (in each case as regards the undelivered balance of the subject contract to which paragraphs 6:22-6:25 of the Award relate):
(a) whether Buyers were entitled not to treat the contract as discharged upon Sellers' failure to declare loading places;
(b) whether Buyers by their words or conduct did clearly and unequivocally accept the repudiation and treat the contract as discharged upon or following Sellers' failure to declare loading places;
(c) if so, when and how;
(d) what would be the quantum of Buyers' damages and interest if (as Buyers claim) the date of default for the purposes of assessing damages was the end of the delivery period;
(e) if Buyers are awarded substantial damages, what costs award should be made?"
"The size of the undelivered balance of the Contract; whether Sellers were in default for failure to deliver; and if so, the damages."
(i) In contrast to the previous season, the parties did not enter into a series of individual contracts for the 1997/8 season, but a single contract for Sellers' expected availabilities during the season, namely 20/30,000 tonnes. The price was not fixed at time of contract, but a mechanism was incorporated whereby the prices of individual shipment periods would be fixed latest 15 days beforehand at the FCA equivalent of the current market value CIF Rotterdam/FOB Black Sea. Thus until such time as the price was fixed for a particular delivery its prospective value day by day was always identical to the market. (Paragraph 7:16).
(ii) The conclusion in the Original Award that the date when Sellers were in breach of their obligation to declare loading places and silos was the date of default for the purposes of assessing damages under clause 28 of GAFTA 78, was reached on the basis of certain of the principles set out in the judgment of Robert Goff J. in Toprak v Finagrain [1979] 2 Lloyd's Rep 98. (Paragraphs 7:26 and 7:27).
(iii) In the Original Award the Board found that Sellers' failure to declare loading places and silos by reason of the fact that they had no goods to deliver, amounted to a default of fulfilment of the contract on their part and that, thereafter, there was no prospect of their delivering goods under the contract. It was not open to Buyers to determine the date of the default themselves by relying upon Sellers' later failure to deliver goods by the end of March, when there had already been a default of fulfilment on 14 February. (Paragraph 7:32).
(iv) The contract was fluid as to the actual quantities that would be delivered, the origin of the goods, the price of the goods and the point or points of delivery. The trigger that would crystallise these matters was the declaration of loading places and silos by Sellers because such declaration would fix the loading places, fix the origin of the goods, provide the essential and indispensable ingredient for the fixing of the price and start the process whereby ultimately it would become apparent whether goods would be delivered to Buyers at all (depending on whether a price could be agreed or not). (Paragraph 7:54). The obligation to declare loading places and silos was a main obligation that was fundamental to the performance of the contract. (Paragraph 7:55).
(v) Sellers' declaration of loading places and silos was the essence of further performance of the contract. Accordingly it was right to approach the present case in the same way that Goff J approached the issue in Toprak. As at the date of their failure to nominate loading places and silos, Sellers were in default of fulfilment of the contract and it was at that date that they failed to carry out the contract. Thereafter, Buyers were not obliged immediately to treat Sellers as being in default. They had the choice to keep the contract open and hold Sellers in default at a later date, but as Goff J found in Toprak, that did not mean that the date of default was changed; that date remained the day when time for performance came and went without due performance, namely when Sellers were obliged, but failed, to nominate load places and silos. (Paragraph 7:57). Once Sellers were in default of their obligation to declare loading places, further defaults inevitably followed, as Goff J found in Toprak. (Paragraph 7:58).
(vi) Buyers terminated the contract not on the grounds that Sellers had failed to load or deliver the unfixed quantities, but on the grounds that Sellers had failed to provide price proposals for those unfixed quantities. In their message of 26 March Buyers stated "Please let us have your price proposal for not yet fixed quantity of the contract (12,250MT-22,250MT) by return." On 6 April Buyers referred to the message of 26 March and stated:- "As we did not receive an answer concerning left balance/availability of fixed quantities we consider you in default of fulfilment of...contract". (Paragraph 7:59). Buyers terminated the contract on the ground that Sellers had failed to declare loading places for unfixed quantities. This was an indication that Buyers considered the declaration of loading places and pricing as a fundamental part of Sellers' delivery obligations. (Paragraphs 7:60 and 7:61).
(vii) Buyers did not "stay their hand" until the delivery period expired either in the sense that there was an agreement between the parties to postpone performance or that there was any express or implied request by Sellers to Buyers to stay their hand, with which Buyers complied. (paragraph 7:64).
(viii) It was appropriate to reconsider one part of the findings set out in the Original Award. Mr Gammel made it clear in his written statement that throughout January and February, Mr Köhntopp on behalf of Buyers pressurised him to persuade Sellers to price more seeds. By reason of the way in which pricing was to be done, these requests carried with them an implied request for a declaration of loading places to be made. There was no response to these requests such as to give rise to an agreed postponement of contractual performance, but by making the requests, Buyers represented that they would not exercise their strict legal right to performance on the contractual date. It would be inequitable to allow Buyers to treat the contractual date for performance (14 February) as the date of default for the purposes of assessing damages under the default clause. According to Mr Gammel's statement, these requests were made in January and February. There was no mention of them continuing thereafter. Accordingly the date of default for the purpose of assessing damages was 1 March rather than 14 February (as found in the Original Award). This made no difference to the finding that no damages flowed from the Sellers' breach. If there was a postponement of the date for declaring loading places as a result of Buyers' requests, then it followed that there was a corresponding postponement of the date for fixing the price (which could not have taken place without a declaration being made). The date for fixing the contract price and the date of default continued to coincide, although they fell on 1 March rather than 14 February. It followed that no damages arose. (Paragraphs 7:66 to 7:68).
(ix) Buyers were entitled not to treat the contract as discharged upon Sellers' failure to declare loading places, but that did not mean that, for the purposes of the default clause, the date of default was thereby changed. It remained the day when the time for performance came and went without due performance. This was 1 March. (Paragraph 7:72).
(x) Buyers accepted Sellers' repudiation in their message of 7 April. (Paragraph 7:76).
(xi) On the basis of a contract price fixed on 27 March and on the basis that the date of default was the end of the delivery period, the quantum of Buyers' damages would have been US$25, 875. (Paragraph 7:88). On the basis that the date of default was the end of the delivery period and on the basis of a contract price fixed on 14 February, the quantum of Buyers' damages would have been US$974,625. On the basis that the date of default was the end of the delivery period and on the basis of a contract price fixed on 1 March, the quantum of Buyers' damages would have been US$828,000. (Paragraph 7:90).
The respective cases of the parties
GAFTA No. 78 Clause 28
"DEFAULT – In default of fulfilment of contract by either party, the following provisions shall apply:-
(a) The party other than the defaulter shall, at their discretion have the right, after giving notice by letter, telegram or telex to the defaulter to sell or purchase, as the case may be, against the defaulter, and such sale or purchase shall establish the default price.
(b) If either party be dissatisfied with such default price or if the right at (a) above is not exercised and damages cannot be mutually agreed, then the assessment of damages shall be settled by arbitration.
(c) The damages payable shall be based on the difference between the contract price and either the default price established under (a) above or upon the actual or estimated value of the goods, on the date of default, established under (b) above.
(d) In no case shall damages include loss of profit on any sub-contracts made by the party defaulted against or others unless the arbitrator(s) or board of appeal, having regard to special circumstances, shall in his/their sole and absolute discretion think fit.
(e) Damages, if any, shall be computed on the quantity appropriated if any but, if no such quantity has been appropriated then on the mean contract quantity, and any option available to either party shall be deemed to have been exercised accordingly in favour of the mean contract quantity.
(f) Default may be declared by Sellers at any time after expiry of the contract period, and the default date shall then be the first business day after the date of Sellers' advice to their Buyers.
If default has not already been declared then (notwithstanding the provisions stated in the Despatch clause) if notice of advice is not passed by the 10th consecutive day after the last day for the advice of despatch laid down in the contract, the Sellers shall be deemed to be in default, and the default date shall then be the first business day thereafter".
The Buyers' Submissions
(a) An unaccepted repudiatory breach which does not give rise to an obligation to mitigate by making a substitute contract is not a "default" within the meaning of the clause;
(b) If it is, there is no reason why damages cannot be claimed by reference to any later repudiatory breach which occurs, which must equally be a "default".
(c) If, as Robert Goff J accepted, the "day of default" means the "day on which they failed to perform the obligation which entitled the [buyers] to determine the contract", that embraces the failure to deliver by the end of the delivery period.
(d) No authority or principle is cited by Robert Goff J. in support of his view that an innocent party cannot "obtain the benefit of a later date by pointing to a later default which has occurred before the acceptance of the repudiation". This is precisely what he is entitled to do at common law and with good reason – that is his choice (and risk).
(e) In so far as it is suggested that such an approach is justified where "one default is followed inevitably by a number of others" that is to introduce unnecessary and undesirable factual uncertainties.
(f) In so far as it is suggested that such an approach is justified if the first default is the "main obligation under the contract" (see Staughton J.'s attempted explanation of Toprak in Lusograin v Bunge [1986] 2 Lloyds Rep 654) that too is to introduce uncertainty. In any event the seller's main obligation under a sale of goods contract is delivery.
(g) There are clear arguments of commercial certainty in favour of the Buyers' submissions. Buyers are entitled "to opt for clarity and certainty if they choose, by waiting until the end of the shipment period", when it is absolutely plain that the sellers are in default, rather than being put in the position of having to declare default following an earlier and possibly curable breach (see Kerr J in Phoebus D Kyprianou Coy v Wm H Pim Jnr & Co Ltd [1977] 2 Lloyds Rep 570 (approved by the Court of Appeal and followed in Lusograin)). The Board's answer that the parties knew by 14 February that 14 February was the final date for declaration of loading places (Award para 7:62), misses the point. The construction of the default clause cannot depend upon whether in any particular case the earlier breach is obvious to the parties. In fact, at the time neither party treated the date as at all significant. Earlier shipments had involved late declarations, and it was the Sellers' case that there was in fact no contract at all at that stage.
The Sellers' Submissions
Analysis and Conclusions
"Seller's anticipatory repudiation not accepted. If the buyer...does not accept the seller's anticipatory repudiation, it is treated as a "nullity" and the contract continues to bind both parties: the buyer will then await the date fixed for delivery, and the seller will commit a breach of contract only if he then fails to deliver. ...The "duty" on the buyer to mitigate his loss by taking reasonable steps arises only upon the seller's breach: thus, in the case of an unaccepted anticipatory repudiation by the seller, the buyer is bound to seek substitute goods in an available market immediately when the breach actually occurs, but not earlier, and his damages are assessed with reference to the market price at the date of the breach."
"It lays down a scheme, which is in some respects different from the position at common law, but which is primarily concerned with the case in which the claim is put as the difference between the contract price and the default price or market price...".
"This brings me to the next issue: what are the appropriate dates for ascertaining the market prices? The Board of Appeal has in each case taken the last day of the respective shipment periods, Mar. 15, Mar. 31 and Apr. 15. I have already mentioned the market prices which they found for those dates, on which they based their awards of damages. They ask that the case be remitted to them in the event of the Court being of the opinion that these are not the right dates.
The buyers challenge these dates on two grounds. First, they say that they were under an obligation to spread the shipments evenly over the shipment periods. They contend that this became a requirement of all the contracts by reason of the sellers' telex of Mar. 12, which I have quoted. But this is clearly untenable, since this telex could not vary the contracts unilaterally. They then point out, correctly, that this was an express term of the third and largest contract, and that this also provided that there was to be a minimum of five days' spread between each shipment. They also rely on a finding that at Lowestoft no ships larger than 1900 tons could load, that it would take three days to load each of them, and that only one ship could be loaded at any time. The buyers accordingly contend that, at any rate in relation to the third contract, they were already in default on dates earlier than the final shipment date, and that the damages should be assessed on the basis of such earlier defaults by deciding by what dates the buyers should reasonably have lifted what quantities.
In my judgment this argument is wholly fallacious, quite apart from the fact that it comes ill from the party in default. Under the third contract the buyers were no doubt already in breach substantially before the end of the shipment period by having failed to lift parts of the contract quantity as required. But it by no means follows that the buyers are entitled to have the damages assessed by reference to such earlier dates, whatever these might be and whatever might be considered reasonable part shipments for each of them. There are at least two reasons, apart from the difficulty of computing the damages with any precision on this basis. First, I do not think that these breaches were breaches of condition. Even if they were, it was open to the sellers to keep the contract alive, as they did. Secondly, the argument fails to take account of the reasoning, which underlies the conventional measure of damages for non-acceptance or non-delivery, i.e. the difference between the contract and market prices. This reasoning is that on a certain date there is a clear default, with the result that the innocent party can resort to the market to sell the unaccepted goods or to buy the undelivered goods. It is on this date that the market price becomes the appropriate basis for the damages to be awarded. But the date of default must be certain. In the present case, however, the sellers could never safely resort to the market until the end of the respective shipment periods. They could not safely treat the buyers as having repudiated their obligations before these dates. There were no fixed quantities to be lifted on or before fixed dates. It would have been tantamount to buying litigation if the sellers had taken it upon themselves, in effect, to seek to prescribe to the buyers the quantities, which they should have lifted by certain dates. The sellers were certainly under no obligation to take this risk. They were entitled to wait until the end of the shipment period, when the buyers were certainly and irretrievably in default, and to have the damages assessed on that date. I do not accept the buyers' submission that this approach conflicts with ss. 50(3) and 51(3) of the Sale of Goods Act, 1893. These provide that in the case of an available market the measure of damages is prima facie to be ascertained by the difference between the contract price and the market price "at the time or times when the goods ought to have been accepted" or "ought to have been delivered". If the contract is properly kept alive by the innocent party until the end of the period allowed for delivery or acceptance, as in the present case, then it does no violence to these words to apply them at the end of the period."
"In Default of fulfilment of contract by either party, the other, at his discretion, shall, after giving notice in writing, have the right to sell or purchase, as the case may be, against the defaulter, who shall make good the loss, if any, on such sale or purchase. If the party liable to pay shall be dissatisfied with the price of such sale or purchase, or if the above right is not exercised, the damages, if any, payable by the party in default shall be settled by arbitration and such damages in the absence of special circumstances shall not exceed the difference between the contract price and the market price (or its equivalent as found by the Arbitrators or the Court of Appeal) on the day of default, and nothing contained in or implied under this contract shall entitle the Buyer to any damages in respect of any loss of profit suffered or liability incurred by him upon any subcontract. Where, however, any special circumstances, in the opinion of the Arbitrators or Court of Appeal, exist, the latter may, in their or its sole and absolute discretion, award to the Buyer such sum in respect of loss of profit so suffered or liability so incurred as they or it shall think fit. In the event of default in shipment or delivery, any damages shall be computed upon the mean contract quantity."
"The clause provides, therefore, that (in the absence of special circumstances) the damages shall not exceed the difference between the contract price and the market price "on the day of default". The buyers' submission was that these words meant, quite simply, the day on which they failed to perform the obligation which entitled the sellers to determine the contract, and that was, of course, Mar. 31. In answer to this simple submission, the sellers advanced a number of arguments. They submitted first that, having regard to the opening words of the clause, "In Default of fulfilment" here must mean a default in fulfilment of the contract; and that there is no default in fulfilment of the contract until there is an acceptance of the repudiation, because until that point of time the contract is still open. I cannot accept that argument; the words "in default of fulfilment of contract" mean precisely what they say - a failure to carry out the contract on the due date. The sellers then submitted that there were two breaches by the buyers in this case - first, on Mar. 31, a failure to open the letter of credit, and second, on Apr. 30, an anticipatory (and possibly an actual) breach of the buyers' obligation to secure an import licence; and that they could treat the buyers as in default on the second ground, in which event the date of default was Apr. 30. I do not however think that it is open to the sellers to pick and choose in this way for present purposes. In many cases, one default by a contracting party is followed inevitably by a number of others; and the innocent party cannot, I think, simply obtain the benefit of a later date by pointing to a later default which has occurred before the acceptance of the repudiation.
In truth, the clause is in this respect perfectly clear, and means just what the buyers submit it does mean. Of course, the subsequent actions of the parties may have some effect upon their respective rights. If, for example, there is an agreed postponement of the contractual date for performance, then there may be a variation of the contract resulting in a new date for performance, in which event there can be no default until that date has passed; a similar result may be achieved if, though there is no variation to the contract, there has been a representation by the innocent party that he will not exercise his strict legal right to performance on the contractual date, and the circumstances are such that it would be inequitable for him thereafter to treat that date as the date of default for the purposes of assessing damages under the clause. But here one has to be careful. If the contractual date for performance comes and goes, the innocent party may not immediately treat the other party as in default. He has an election whether to do so or not; he may, for a variety of reasons, decide to wait for a time, and while he waits the contract remains open to performance. But the mere fact that he waits, and does not treat the other party as in default until a later date, does not mean that, for the purposes of the clause, the "date of default" is changed; that date remains the day when the time for performance came and went without due performance.
There is however another possibility which I must refer to. After the date of default has occurred, the party in default may request the innocent party to stay his hand, and in response to that request the innocent party, possibly convinced by some assurance from the party in default that performance may yet take place, may wait for a time; then he may, losing patience, subsequently treat the contract as at an end. Between the two dates - the date of default and the date of termination of the contract - the market may have moved, and may have moved adversely to the innocent party. In such circumstances, where the contract contains a clause such as the present, is the innocent party only entitled to damages on the adverse basis of the market price of the date of default? The answer, I think, is no. In Benjamin on Sale of Goods, 13th ed., par. 640 at p. 450 the law is stated as follows:
Where the time fixed for acceptance has been postponed at the buyer's request and he ultimately fails to accept in the extended period, the point in time at which breach takes place is deferred and the damages will be calculated at the market price of the last day to which the contract was extended and the date was fixed, or the date when the plaintiff refused to grant further indulgence, or at a reasonable period after his last grant of indulgence.
See also par. 561 at p. 406 of the same edition, and the authorities there cited.
In such circumstances, there is no variation of the terms of the contract, nor is there any waiver or estoppel; but the innocent party has forborne to act at the request of the party in default, and it is a general principle of English law that, where one party acts at the request of another party, then, in the absence of circumstances indicating a contrary intention, the party who so acted is entitled to be indemnified by the party who requested him so to act against the consequences of so doing. It is for this reason that the innocent party, in the example posed by Benjamin, is entitled to recover any further damages flowing from delay in treating the party in default. (I add in parenthesis that I doubt whether Benjamin is right in saying that the delay in treating a party as in default, as a result of his request, has the effect of postponing the date of the breach; but that is immaterial for the purposes of the present case.)
The sellers sought to invoke this principle in the present case. It was submitted that they had indeed postponed at the request of the buyers the date when they had treated the buyers as in default and accordingly, the market having weakened in the meanwhile, they were entitled to have the damages assessed on the basis of the market on Apr. 30. Now before they can invoke this principle, the sellers have to show that they acted at the request of the buyers. In the present case, the relevant facts as found by the Board of Appeal are to be found in pars. 30-35 (inclusive), and in par. 51, of the special case. I read the finding of fact in par. 51 as meaning that the sellers treated the contract as remaining open for performance because of the assurances given by the buyers that the letter of credit would shortly be opened. The sellers submitted that, in the circumstances of the present case, such assurances involved a request by the buyers to the sellers to stay their hand and not treat them as in default; this submission I accept, because that was clearly the purpose of the assurances. True, the sellers may have thought it to be in their interest to stay their hand, but the fact remains that, on the finding in par. 51 of the special case, they did in fact respond to the buyers' implied request to do so. It follows, in my judgment, that, having regard to the findings of fact, the sellers are entitled to have the damages fixed by reference to the market price on the date until which, in the words of Benjamin, they granted indulgence to the buyers, viz. Apr. 30, 1975.
"The first point is this. What is the day of default? The letter of credit had to be issued by Mar. 31, 1975. The Board of Appeal seem to me to have taken that date as being the day of default on which the damages were to be assessed. But in truth the parties, by their conduct, led each other to believe that the time would be extended during which the buyers could provide the letters of credit: and the sellers would supply the goods accordingly. There are two or three sentences in the award which are important in this regard. Paragraph 31 says:
In early April 1975 enquiries about the absence of the letter of credit were made of the Buyers by and through the Sellers' representatives in Turkey, and assurances were given that the letter of credit would shortly be opened.
In other words, the state enterprise wanted the letter of credit to go forward. The buyers also sent a telex to the sellers on Apr. 18, 1975, in which they said:
. . . We await the decision of the concerned authorities for opening a letter of credit as per our agreement dated November 1st 1974. We are closely following this matter and will later advise you of the result.
In view of that the sellers were holding their hand. They asked for the letter of credit to be opened immediately: but, as it did not come, they sent a telex on Apr. 30 in which they said:
. . . no letter of credit has been opened kindly note that we hereby treat you as in default under the contract between us dated 1 Nov. 74 stop we hold you responsible.
Then, in par. 51, the Board of Appeal said:
Between the 31st March 1975 and the 30th April 1975, because of the communications transmitted from the Buyers as aforesaid the sellers treated the contract as remaining open for performance. In particular, they took no steps to cancel the charterparty before they declared the Buyers in default on the 30th April 1975.
As I have said, the Board of Appeal took the date as Mar. 31: but it seems to me - and here I would agree with the Judge - that it was extended by the conduct of the parties. On the one hand the buyers led the sellers to believe the matter was being kept open and they were hoping to provide the letter of credit if only they could get permission. Equally the sellers were hoping to fulfil the contract. They held their hands, and did not close the contract or terminate it at that time. The Judge found that there was an implied request by the buyers to the sellers to keep the matter open. I would be quite prepared to put it that way if need be. But it seems to me that it is not necessary to go into it or into the technicalities about an implied request. There is no doubt that the conduct of the buyers led the sellers to believe that the contract was still open for performance and that they were hoping all the time to get the letter of credit issued. On that conduct on their part, it seems to me there is ample ground to infer that there was an extension of time until such time as the sellers - as they did - determined the contract."
"There can be no doubt that the Court of Appeal endorsed the conclusion of Mr Justice Robert Goff that April 30 was the correct date and his reasons for reaching that conclusion. They did not expressly approve the passage in his judgment (which may be said to be obiter) in which he held that March 31 would have been the correct date but for the request by Toprak for forbearance. But I think that that passage must have had their implicit approval, albeit again perhaps obiter."
"The Kyprianou case was cited to the Court of Appeal, but, to judge from what Lord Denning M.R. said at p. 115, only in connection with another point. It does not appear to have been relied on in relation to the date for assessment of damages, although Mr. Justice Kerr had there held that damages should be measured at the end of the shipment period and the Court of Appeal had said that this judgment was wholly unassailable. But nobody was contending for the end of the shipment period in the Toprak case; the argument was as to whether the default clause in a GAFTA contract pointed to the last day for opening a letter of credit or whether the measurement of damages was postponed until Finagrain sent their telex treating the contract as at an end.
Clearly it would be right for me to look for guidance first in the Toprak case, since that was concerned with an express provision of the contract as to default, as this case is. But in my judgment the facts there were significantly different. Toprak were c. & f. buyers who had contracted to provide a letter of credit by a given date: that obligation was their main duty under the contract. Once they had performed it, Finagrain could ship the goods and obtain payment by tendering documents to the bank, without any assistance from the buyers. There was nothing left for Toprak to do except obtain an import licence, and it is not clear to me how an import licence would be any concern of the c. & f. sellers. So Toprak had by Mar. 31 failed to perform their main if not their only obligation under the contract. It followed that default occurred on that date.
By contrast in the present case the buyers were in breach of an antecedent obligation after May 13, but not necessarily of their main obligation. Consequently I consider myself entitled to hold that the carrying charges clause of the Centro terms provides, as to my mind it plainly does provide, that the date of default is the day after the last day for performance of the buyers' main obligations, taking into account the 60 day extension."
"...the question raised is the "date of default" for the purposes of the present contract. In Toprak Mansulleri Ofisi v Finagrain Compagnie Commerciale Agricole et Financière S.A., [1979] 2 Lloyd's Rep. 98 Mr Justice Robert Goff (as he then was) held at p. 109 that the same words "in default of fulfilment of contract" in cl. 28 of GAFTA 27 –
...meant, quite simply, the day on which [the buyers] failed to perform the obligation which entitled the sellers to determine the contract...
and his decision was upheld by the Court of Appeal. In Toepfer v Lenersan Poortman N.V. [1980] 1 Lloyd's Rep. 143 the Court of Appeal held that the seller's obligation under a c.i.f. contract to tender the documents in time for the buyers to pay for them by the due date, which was expressly stated in the contract, was a condition, and that the buyer was entitled to reject the documents when they were presented late. Lord Justice Brandon, (at p. 147) expressly reserved the question whether "in default of fulfilment of this contract" was equivalent to "in event of a breach of this contract going to the root of it", a point which had not been raised in the Court below."
(1) The Buyers contend for 1 April 1998 as the date of default. The Sellers seek to support the finding in the Award that the date of default was 1 March 1998. The chronology was as follows:-
| 14/2/98 | Date by which, under primary contract terms, Sellers were obliged to nominate loading places and silos for (March delivery) balance of contract (15 days before start of delivery period). Date of default found in Original Award |
| 1/3/98 | Date up to which, in light of parties' conduct, Buyers bound to treat Sellers as entitled to nominate loading places and silos. Date of default found in (second Appeal) Award |
| 26/3/98 | Buyers ask Sellers to make a price proposal for the unfixed balance, amounting to 12,250-22,250 mt. There was no reply |
| 27/3/98 | Deadline imposed by Buyers on 26/3 for declaration of loading places. Date by reference to which in (second Appeal) Award Board said contract price should be assessed if date of default was 1/4/98 |
| 31/3/98 | Last date for any delivery under the contract |
| 1/4/98 | Date of default contended for by Buyers |
| 6/4/98 | Buyers telex through brokers, holding Sellers in default and stating that they will buy in against them |
| 7/4/98 | Buyers purchase substitute goods – 2,026 mt shipment 7/30 April at $320/mt FCA any Russian railway station. |
(2) This case is concerned with the terms of the contract of 15.10.97 and in particular with the true construction of the special provisions contained in clause 28 default GAFTA No. 78 (effective 1.1.95) in so far as they apply to the contract.
(3) Clause 28 is a standard form clause which has been changed in certain respects over the years no doubt to reflect the commercial concerns, problems, needs and experience of the Grain and Feed Trade.
(4) The material terms of clause 28 are similar to the terms of the clause considered by Robert Goff J and the Court of Appeal in Toprak v Finagrain. The material terms of clause 28 are identical to the terms of the clause considered by Evans J in Concordia v Richco. Clause 28(c) provided that the damages should be based on the difference between the contract price and the actual or estimated value of the goods (i.e. the market price) "on the date of default". These words meant the day on which the Sellers failed to perform the obligation, which entitled the Buyers to determine the contract (in the present case the obligation to declare loading places and silos, a main obligation fundamental to performance of the contract). "In default of fulfilment of contract" meant a failure to carry out the contract on the due date. The commercial purpose of clause 28(c) was to provide certainty as to the relevant date (not to allow picking and choosing of dates). In the present case, as the Board pointed out at paragraph 7:54 of the Award, the contract was fluid as to the actual quantities that would be delivered, the origin of the goods, the price of the goods and the point or points of delivery. The trigger that would crystallise these matters was the declaration of loading places and silos by Sellers because such declaration would fix the loading places, fix the origin of the goods, provide the essential and indispensable ingredient for the fixing of the price and start the process whereby ultimately it would become apparent whether goods would be delivered to Buyers at all (depending on whether a price could be agreed or not).
(5) In the present case on 14 February the Sellers were certainly and irretrievably in default, with the result that the innocent party (the Buyers) could resort to the market to buy the undelivered goods.
(6) As to why the date of default became 1 March instead of 14 February, the Board in the Award held as follows. Throughout January and February, Mr Köhntopp on behalf of Buyers pressurised Mr Gammel to persuade Sellers to price more seeds. These requests carried with them an implied request for a declaration of loading places to be made. By making the requests, Buyers represented that they would not exercise their strict legal right to performance on the contractual date. It would be inequitable to allow Buyers to treat the contractual date for performance (14 February) as the date of default for the purposes of assessing damages under the default clause. According to Mr Gammel's statement, these requests were made in January and February. There was no mention of them continuing thereafter. Accordingly the date of default for the purpose of assessing damages was 1 March rather than 14 February (as found in the Original Award). This made no difference to the finding that no damages flowed from the Sellers' breach. If there was a postponement of the date for declaring loading places as a result of Buyers' requests, then it followed that there was a corresponding postponement of the date for fixing the price (which could not have taken place without a declaration being made). The date for fixing the contract price and the date of default continued to coincide, although both dates fell on 1 March rather than 14 February. It followed that no damages arose. In finding that the date of default for the purpose of assessing damages was 1 March rather than 14 February, the Board founded on the principles set out by Goff J in Toprak v Finagrain and in particular the statement "a similar result may be achieved if, though there is no variation to the contract, there has been a representation by the innocent party that he will not exercise his strict legal right to performance on the contractual date, and the circumstances are such that it would be inequitable for him thereafter to treat that date as the date of default for the purposes of assessing damages under the clause".
(7) Clause 28(f) has no application in the present case. This was not a case where the Sellers declared default "after expiry of the contract period".
(8) The Sellers' duty to declare loading places and silos was a main obligation under the contract. The contract in the present case was in most unusual terms and markedly different from the terms of contracts frequently encountered in international trade (including for example the terms of the various contracts considered in the authorities referred to above). This was not a case where:-
i) a quantity was agreed;
ii) the origin of the goods was agreed;
iii) the price of the goods was agreed;
iv) the point of delivery was agreed.
As the Board explained the trigger that would crystallise these matters was the declaration of loading places and silos by Sellers because such declaration would fix the loading places, fix the origin of the goods, provide the essential and indispensable ingredient for the fixing of the price and start the process whereby ultimately it would become apparent whether goods would be delivered to Buyers at all (depending on whether a price could be agreed or not). On 14 February the Sellers were certainly and irretrievably in default. For the reasons set out in (6) above the date of default became 1 March.
(9) I would answer question (1) by saying that for the reasons set out above the Board were right to conclude that the date of default was 1 March 1998.
The section 67 application
