Court Ruling GAFTA extension clause

Necessity is not the mother of extension

A very recent decision of the Commercial Court places what many will consider to be an unwelcome interpretation on the Extension Clause commonly seen in standard form GAFTA FOB contracts.

Nidera BV -v- Venus International Free Zone for Trading and Marine Services S.A.E. [2014] EWHC 2013 (Comm) was an appeal by Nidera to the Commercial Court under s.69 of the Arbitration Act 1996. Nidera asserted that the GAFTA Board of Appeal had made an error of law. The central point under appeal was: can the buyer invoke Clause 8 of GAFTA 49 where the vessel has already been presented in readiness to load within the delivery period under Clause 6 of GAFTA 49?

The factual background was:

• Nidera were the sellers and Venus the buyers. The contract was for the sale of 30,000MT of Ukrainian corn for delivery FOB at one Black Sea or Ukrainian port, at seller's option, between 16 and 31 October 2010. The contract incorporated GAFTA 49, a standard form contract for the sale of goods from Central and Eastern Europe on FOB terms.
• Nidera declared a Ukrainian port and Venus presented the carrying vessel in readiness to load on 15 October.
• Meanwhile, the Ukrainian Government passed wide-ranging export restrictions covering corn among other commodities, which were published on 19 October. Quotas were set and a detailed licence application procedure was published on 27 October. It was impossible for Nidera to obtain a licence - and so ship the goods - by the end of the delivery period.
• Immediately prior to the end of the delivery period, Venus claimed an extension of the delivery period, which they said extended that period by 21 days. Nidera responded by stating that Venus was not entitled to the extension, because its vessel had arrived and been presented. Consequently, Nidera stated that the delivery period had expired on 31 October and that delivery had been prevented by events falling within the Prohibition Clause contained in GAFTA 49, so that the contract was cancelled. Venus said that this was a repudiatory breach of the contract and after some further exchanges Venus terminated the contract. Venus then claimed damages from Nidera in GAFTA arbitration.

Clause 6 of GAFTA 49, which sets the delivery period, states: 'Delivery during […] at Buyers' call. […] Provided the vessel is presented at the loading port in readiness to load within the delivery period, Sellers shall if necessary complete loading after the delivery period, and carrying charges shall not apply.'

Clause 8 of GAFTA 49 – the Extension Clause – provides: 'The contract period of delivery shall be extended by a 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. In this event Sellers shall carry the goods for Buyers' account, unless the vessel presents in readiness to load within the contractual delivery period. […] Should Buyers fail to present a vessel in readiness to load under the extension period, Sellers shall have the option of declaring Buyers to be in default […]'

In the arbitration, Venus argued that the right to claim an extension was unqualified. If they were right, it would mean that Nidera had been wrong to rely on prohibition before 21 November, because their action in stating that the contract was cancelled before the extended delivery period had expired would have been a repudiation of the contract. Nidera argued that on a true construction of GAFTA 49, particularly by reading clauses 6 and 8 together, it was clear that the right to claim an extension only existed if the vessel would not be, or had not been, presented in readiness to load by the last day of the delivery period. This, Nidera said, was made clearer still by the allocation of financial responsibility set out in the clauses, dependent on the arrival date of the vessel. Both parties made commercial arguments to support their competing constructions of the GAFTA form.

The GAFTA Board of Appeal agreed with Venus. Nidera then brought its appeal before the Commercial Court. In that court, Walker J. also agreed with Venus' interpretation of the Extension Clause.

The decision is one that demands careful attention. Because the Arbitration Act 1996 provides that only the trial judge can give permission to appeal to the Court of Appeal and because Walker J. declined to do so, the Court of Appeal will not be examining the matter in this instance. Sellers and buyers on GAFTA FOB forms containing the above extension clause must therefore bear this judgment in mind. It means that a buyer may extend the delivery period even if he has put in his vessel and even if the seller has brought forward his goods to meet that vessel. It would also allow, under Clause 6, a vessel to be substituted after the expiry of the original delivery period provided that an extension had been claimed. In that situation, one need only consider how the question of demurrage might be argued to appreciate that there is scope for the decision to lead to disputes under FOB contracts on GAFTA terms. Sellers under these contracts would be well advised to consider inserting a term stating that there is to be no extension if the vessel has been presented in readiness to load within the delivery period.

Partner

Andrew Meads

Telephone

+44 (0)20 7280 9201

Email

andrew.meads@hilldickinson.com

 

 

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