Effectiveness of Notices in International Trade under the Rules of the Grain and Feed Trade Association

20 Июл

В статье исследуется порядок исполнения контрактов, составленных с использованием проформ ГАФТА, и процесс разрешения споров в арбитраже ГАФТА, причем особенное внимание уделяется автором роли и значению сообщений, которыми обмениваются стороны в ходе исполнения контракта. Своевременность направления таких сообщений и точность их формулировок очень важны при ведении деятельности на сельскохозяйственном рынке. Если же возникают споры, то очень удобно рассматривать их в арбитраже ГАФТА, поскольку арбитры обеспечивают строгое соблюдение положений применимого права.

After nearly 10 years since the author’s first article on subject we are back to where we started: there is nothing more important for the parties to an international trade transaction than effective com­munication. This includes not only knowing what is to be said but also making sure that it has been expressed in an appropriate manner, within sometimes very specific time limits and with due account of the consequences that may or will follow.

Agricultural trade, be it in grain, feed, sugar, vegoil or any other commodities regularly trad­ed from Ukraine, is no exception. It is further complicated by the fact that the parties often trade on standard contract forms and quite a few international com­modity trade associations, such as GAFTA, base their standard contracts on English law. This im­plies that the parties shall have a thorough knowledge of all the applicable rules and follow the latest legal developments, even though England is not their home jurisdiction or the country of the origin of the goods.

Two cases reported at the end of the last year in respect of FOB contracts involving standard GAFTA forms revisit several basic principles related to exchange of notices between counterparties in international commercial con­tracts. We believe these shall be of great interest on the part all readers involved in trade and car­riage of agricultural commodities or working on the advisory side of the matters.

Notices related to the estimated time of arrival of the vessels

The recent judgement in Thai Mapam Trading Co Ltd vs. Louis Drefyus Commodities Asia Pte Ltd1 addressed the issue of whether a seller was in breach of contract by indicating that he had no cargo available after his buyer nominated a vessel giving a short notice of vessel’s estimated time of arrival (ETA) or, in the trade language, pre-advice.

The case concerned an appeal against two arbitration awards of the GAFTA Board of Appeal in re­spect of two FOB contracts for the sale of Thai rice that contained essentially identical terms except for the delivery periods. The con­tracts further incorporated GAFTA standard contract form No. 120. Under the contracts the respond­ent buyers (“the buyers”) were re­quired to give a seven days’ notice of the vessels’ ETA and, as it hap­pened, in both cases the notices given by the buyers did not com­ply with this requirement. The appellant sellers (“the sellers”) did not reject or contest the validity of the respective notices at the time but advised at a later stage that they could not accept the nomina­tion due to not having the cargo and printed bags ready by the time stated in the notice. The buy­ers considered this as an anticipa­tory repudiation of the contract and terminated the same.

In both awards the GAFTA Boards of Appeal agreed with the first tier tribunal findings and up­held that the sellers did repudiate the contract by making it clear to the buyers that they did not and would not have cargo available to meet the nominated vessel. This was clearly a “default” for the purposes of GAFTA 120 and the buyers were therefore entitled to substantial damages.

The sellers appealed to the High Court and the key questions brought before the judge on ap­peal were as follows:

(a) whether the seller was en­titled to reject (or not accept) a no­tice by the buyer, if an FOB con­tract expressly required a buyer to give a vessel nomination notice within a specified period of time before the vessel’s ETA and the buyer’s actual notice contained a shorter period of notice; and

(b)whether the seller was in repudiation or renunciation of the contract where, upon receipt of a non-contractual short period of notice, he rejected that notice and said that he did not have cargo available for loading on an non­contractual date.

The sellers submitted that

(a)  rejection of an invalid notice could not be treated as a breach of contract and neither could a repu­diation or a renunciation of it and

(b)  the messages in the present cases plainly did not say that the sellers would not have cargo available during the delivery peri­od but merely advised the buyers that the sellers did not have the cargo ready for the dates specified in the notices due to insufficient notice period.

Appeals were dismissed. Judge Beatson did not accept the sellers’ reasoning that the short notices were invalid and of no effect. This would assume that the obligation in the contracts to provide the cargo after the ten­der of a valid Notice of Readiness was dependant on an additional seven day notice of the vessels’ ETAs but there was nothing in the contracts to support this as­sumption. In addition, since the notice was of an “estimated” time of arrival it was still conceivable that the vessel would arrive be­fore (or even after) the expiry of the notice period.

Another observation was made in respect of laytime calculation. It is a basic rule that time starts to count after the Notice of Readiness is tendered and its commencement is not affected by the period of no­tice of the estimated time of ves­sel’s arrival. Hence, the pre-advice was considered to be a mere means of protecting the sellers from po­tential liability arising due to late­ness of the buyers’ notice since lay-time would not have started to run until the expiry of seven days after the date of the pre-advice.

Similarly, on the facts the sellers’ ability and obligation to deliver the goods within the con­tractual delivery period was not affected as it was still possible for them to complete delivery within the respective time limits after the tender of the pre-advice.

Interestingly enough, the po­sition was distinguished from the well established earlier authori­ties on timing of notices in com­mercial contracts, where the time requirements were held to be conditions. The main basis for dis­tinction was that on the previous occasions the short notices were served too late for the delivery to be made within the contractual delivery period and, therefore, the breach consisted not of giv­ing less than required number of days’ notice but of giving notice too late and after the last day on which it could be legitimately giv­en. Moreover, in one of the cases it was a term of contract that if the requisite notice was not given, Notice of Readiness could not be tendered and this was clearly not the case in the present scenario.

The court further stressed that if the sellers had objected at the relevant time that the notices were short and could not have been accepted, the buyers would have been in a position to remedy the defect and furnish new com­pliant notices of ETA well before expiry of the contractual period of delivery. Thus, the problem could have been avoided if the sellers acted in a proactive and coopera­tive way.

Notices related to the extension of time

Another recent case of PEC Ltd vs. Thai Maparn Trading Co Ltd2 provides valuable guidance as to the construction and ap­plication of the GAFTA extension clause, which is a commonly used clause in standard FOB trades.

The case concerned an appeal from the award of the GAFTA Board of Appeal dismissing the buyers’ claim for damages aris­ing out of an FOB contract for the sale of 22,000 mt of Thai rice. The contracts incorporated stand­ard GAFTA contract form No.120 that contained an Extension of Delivery Clause3, which stated as follows: “The contract period of delivery shall be extended by an additional period of not more than 21 consecutive days, pro­vided that buyers serve notice claiming extension not later than the next business day following the last day of the delivery pe­riod”.

The buyers failed to provide a vessel during the original delivery period and purported to extend the delivery period by a follow­ing message: “As a gesture of goodwill, without prejudice to our rights, we are ready to extend the delivery period by 21 days. …if we do not receive any reply regard­ing the cargo readiness for load­ing from your side within 2 days we shall put you in default of the contract”. A few moments later, the buyers’ solicitors sent the sell­ers another message worded as follows:”… our clients hereby give you Notice… that they require the delivery period to be extended by an additional period of 30 days… invite you to confirm to us with­in 7 days that you do intend to perform the aforesaid contract. We must give you further notice that if you fail to respond to this letter within 7 days… we will hold you in breach and claim the loss suffered by us to your non-per­formance as damages”. Four days later the sellers rejected the nomi­nation of the vessel as served after expiry of the contractual delivery period and declared the contract null and void. The buyers claimed arbitration and were awarded some USD 14 million as damages.

The GAFTA Board of Appeal, however, reversed the decision of the first tier tribunal. The reason­ing of the Board of Appeal was that since the buyer’s right to claim ex­tension was unconditional and the seller’s consent was not required, the contract delivery period was not extended due to the buyers’ im­posing conditions for an extension and the sellers’ not complying with these conditions. Therefore, the is­sue before the judge on appeal to the High Court was whether the buyers had made a valid claim for extension of the delivery period in an FOB contract under the respec­tive provisions of the GAFTA 120.

In essence, a validly claimed extension affects the contract to the extent that the rights and ob­ligations of the parties are ulti­mately modified. Therefore, it is essential that the parties are cer­tain as to whether an extension had been validly claimed and for what period. On that basis, Judge Hamblen agreed with the GAFTA Board of Appeal and held that the notices furnished by the buy­ers case did not constitute a valid claim for an extension.

Among the reasons it was stated that the first notice was expressed in terms of a proposal rather than the exercise of a uni­lateral right and offered the sell­ers a choice either to advise that the cargo was load ready within a specified time, or be considered in default. That clearly made the ex­tension subject to the sellers’ con­firmation, which had never been given, and so such a conditional claim by the buyers could not be considered as a valid extension notice.

The honorable Judge further observed that if the extension had been claimed, that would affirm the contract and extend the delivery period accordingly, and so it could not be open for the buyers to reserve their right to hold the sellers to the original delivery period or indeed threat­en them with claims for any al­leged breaches of the same.

Even if the two messages were to be construed together, it was entirely unclear what exact­ly the buyers were claiming and on what basis. The notices re­ferred to different extension pe­riods, different GAFTA contracts and were generally inconsistent with each other in terms of con­ditions imposed or deemed to be imposed on the sellers. In addi­tion, neither notice expressed with sufficient certainly whether the extension was claimed irre­spective of the sellers’ requested response. In the Judge’s opinion, a notice that does not make it clear that the delivery period is being extended is not a sufficient or valid notice.

As a result, the appeal was dismissed together with the buy­er’s claim that initially succeeded before the first tier GAFTA tribu­nal.

Conclusions

The above decisions are ex­pository in several respects. First, they remind market players about the need to differentiate between various time stipulations in the contract and understand differ­ent factors that determine signif­icance of such stipulations in the execution process. Second, they place equal importance on the timing of notices as well as their clear wording. Finally, they show that GAFTA arbitrators do tend to be correct in applying the law while deciding trade disputes, which should provide agricul­tural traders with more comfort when seeking dispute resolution through GAFTA arbitration.

Автор: Ivanna A. DORICHENKO

Источник: The Ukrainian Journal of Business Law. – 2012. – № 7-8. – Р. 33 – 35.

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