Who’s in breach?
By a sale contract dated December 13, 2017, the seller sold a consignment of Ukrainian feed corn to the buyer on free onboard (FOB) terms, 1 safe berth/1 safe Ukrainian port, Yuzhny, Odessa or Chernomorsk.
Pursuant to the contract, the port of loading was to be declared not more than eight days before the delivery period and latest upon nomination of the performing vessel. The delivery period was April 1-15, 2018, both dates included and no extension. Further, if required, the buyer had to provide the seller with a working copy of the charterparty at the seller’s first request. In addition, the buyer was required to serve on the seller a pre-advice with various items of information, including vessel’s name, owner’s name, ETA and so on.
The contract incorporated the provisions of GAFTA Form 49 insofar as they were not inconsistent with the bespoke terms. The relevant parts of clause 6 GAFTA 49 provide as follows:
“Nomination of Vessel. Buyers shall serve not less than ………………….consecutive days’ notice of the name and probable readiness date of the vessel and the estimated tonnage required …The Buyer has the right to substitute any nominated vessel … Notice of substitution to be given as soon as possible but in any event no later than one business day before the estimated time of arrival of the original vessel…”
Based on third party information received (which subsequently proved to be incorrect), the seller doubted the genuineness of this nomination and sought a copy of the charterparty from the buyer
On March 20, 2018, the buyer nominated the Tai Hunter. The nomination gave the ETA as April 1, 2018 and the destination as Egypt, but did not give the owner’s name as required by the pre-advice clause. Based on third party information received (which subsequently proved to be incorrect), the seller doubted the genuineness of this nomination and sought a copy of the charterparty from the buyer. The buyer indicated that they had requested this from the sub-buyer and asked the seller to nominate the load port. The seller did not do so because it appeared to them that the vessel would not be in Ukrainian Black Sea waters on April 1, 2018.
On March 26, 2018, after various exchanges between the parties and without the charterparty having been produced or a load port having been nominated, the seller sought to terminate the contract for repudiatory breach. On March 28, the buyer purported to nominate a substitute vessel, Mariana, with an ETA of April 5, 2018 and destination given as Portugal. The seller did not accept the revised nomination, advising that they considered the contract as terminated by the buyer’s breach. Also on March 28, the buyer purported to substitute Mariana with Deribas with an ETA of April 8 and destination Portugal. Again, the seller did not accept this.
By April 3, 2018, both parties accepted that the contract was at an end, but then entered into a holding arrangement for the contract to be performed which incorporated a variation in the cargo purchase price. This would depend on which party was ultimately found to be correct. The matter went to arbitration. The GAFTA Appeal Board held that the nomination of the Tai Hunter was not manifestly false, but it was invalid because it was unreasonably ambitious in terms of the ETA given for delivery. The buyer’s nomination gave an ETA of April 1, but congestion in Egypt was predicted to prevent the vessel’s return to Odessa within the delivery period. On this point, while the failure to provide a valid nomination was held to be a breach of contract, it was not a breach of condition entitling the seller to terminate the contract. The seller should just have rejected the nomination. The buyer still had time to make a valid substitute nomination, with the required pre-advice, before the end of the delivery period. The seller was held to be obliged to accept the nomination of the substitute vessel and also to nominate a load port at the time of the nomination of the substitute vessel. Their refusal to do so was a breach of contract in both respects. It was further held that a failure to provide a copy of the charterparty by the buyer was not a breach of condition.
The seller appealed.
On this point, while the failure to provide a valid nomination was held to be a breach of contract, it was not a breach of condition entitling the seller to terminate the contract
The Commercial Court decision
The primary question on appeal was whether making an “unreasonably ambitious” nomination was a breach of condition entitling the seller to terminate. The Court indicated that if the contract provided a particular date by which the buyer had to nominate a vessel, then it would be a condition of the contract that a valid nomination be provided by the relevant deadline. If it was not, then the seller could terminate the contract. A valid nomination was one made honestly and on reasonable grounds, and otherwise in accordance with the contract terms. However, a valid nomination might be preceded by an initial nomination that was or became invalid, because either: (a) it was ‘non-contractual’ in the sense of failing to provide the contractually stipulated notice period, or stating an ETA outside the contractual shipment window; (b) it was not made both honestly and on reasonable grounds; or (c) it became invalid due to subsequent events e.g. unforeseeable delays. The giving of the initial invalid nomination was not in itself a breach of condition; no breach of condition occurred, provided that a valid and timely nomination was given in due course.
As the Board found, the buyer had further time to make a valid nomination before the end of the delivery period; and the buyer in due course did so
The Court added, however, that an initial invalid nomination made otherwise than honestly and in good faith (e.g. of a vessel which the buyer knew could not possibly meet the contractual lifting deadline) might evince an intention not to perform the contract, and thus entitle the seller to treat the contract as having been renounced by the buyer. This would depend on the specific facts of the case.
The Court held that the Board was entitled to conclude as it did. As the Board found, the buyer had further time to make a valid nomination before the end of the delivery period; and the buyer in due course did so. Consequently, the initial nomination of the Tai Hunter was not a breach of condition entitling the seller to treat the contract as having come to an end. The Court further agreed with the Board that the failure to provide a copy of the charterparty was not, per se, a breach of condition.
The appeal was, therefore, dismissed.
The giving of an ETA without honest and reasonable grounds can amount to a breach of condition (usually in a charterparty context). However, in a sale contract such as this one, it will not be such unless it can be inferred that the invalid nomination can also be taken as evincing an intention not to be bound by the sale contract. The sellers’ remedy is to reject the nomination. Of course, if the stage is reached where the buyer is unable to nominate any contractual substitute vessel which complies with the timing or any other material requirements, the seller may then consider termination by breach.
Source: The Baltic Briefing