Alegrow S.A. v Yayla Agro Gida San Ve Nak A.S.

Hearing date: 12 May 2020

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

(A) INTRODUCTION

The Claimant (“ Alegrow”) brings this appeal on a point of law, pursuant to section 69 of the Arbitration Act 1996 (“ the Act”), from Appeal Award No. 4539 dated 24 April 2019 (the “ Award”) of the GAFTA Appeal Board (the “ Appeal Board”). The appeal is brought pursuant to permission granted by Teare J on 9 October 2019.

The questions of law in relation to which the appeal is brought are:-

i) “ Was the Buyer contractually entitled to demand a ‘shipment schedule’ on 29 March 2017?”; and

ii) “ Was the Seller in repudiatory breach of the Contract in failing to provide such a shipment schedule by the Buyer's deadline of 30 March 2017?”.

The Defendant (“ Yayla”) disputes that those questions in truth arise from the Award.

An application for clarification and/or for removal of ambiguities in the Award was made to the Appeal Board on 10 May 2019 (the “ Section 57 Application”). The Appeal Board responded on 5 June 2019 (the “ Section 57 Response”).

The claim relates to a quantity of Russian paddy rice which Alegrow agreed to sell to Yayla, only part of which was ultimately shipped. The Appeal Board concluded that, following a series of events culminating in Yayla on 29 March 2017 asking Alegrow to provide by the following day a schedule for shipment of the remaining rice by 15 April 2017, and Alegrow's failure to provide such a schedule, Alegrow was in breach of contract as of 31 March 2017 and (implicitly) that Yayla was entitled on 7 April 2017 to bring the contract to an end.

The essence of Alegrow's appeal is that the Appeal Board was wrong in law to conclude that it was obliged to provide a shipment schedule by 30 March 2017 and was in repudiatory breach by failing to do so.

Yayla has served a Respondent's Notice which contends inter alia that the questions of law Alegrow has identified are not questions the Appeal Board was asked to determine, and that their determination would not affect the outcome. The Notice also states that if the Appeal Board is held not to have expressed or fully expressed the following reason(s) for its decision, then Yayla will contend that the Award should be upheld for these reasons:

i) Alegrow was in continuing breach of the contract by failing to ship the remaining rice or to commit to doing so, which culminated in renunciation by Alegrow's non-response to Yayla's deadline contained in its email to Alegrow dated 29 March 2017.

ii) To the extent that Yayla was previously estopped from terminating the contract and claiming damages, Yayla gave reasonable notice to resile from any representation giving rise to such estoppel(s) by its 29 March 2017 email to Alegrow.

For the reasons set out below, I have concluded that the Award was wrong in law, and that the correct determination of the questions of law raised leads to the conclusion that Alegrow had not committed a breach of contract such as to entitle Yayla on 31 March (or 7 April) 2017 to treat the contract as having been brought to an end. It also follows that by purporting to do so, Yayla itself renounced the contract and is contingently liable in damages. The Award must be varied accordingly, and the case remitted to the tribunal to decide the remaining issues identified in section (E) below.

(B) PRIMARY FACTS

I summarise below the basic facts in so far as they were either found by the Appeal Board or are not in dispute.

By a contract dated 21 May 2016 governed by English law, Yayla agreed to buy, and Alegrow agreed to sell, 24,000 MT of Russian Paddy Rice Rapan Type Crop 2016 CIF Free Out Mersin, Turkey (+/- 10% at Alegrow's option) (“ the Contract”). The Contract price was US$280/MT and shipment was to be between 1 September 2016 and 15 December 2016 (with both dates included).

The rice had to meet various detailed contractual specifications, including that it be from the crop year 2016, that rice harvested from the side of the fields was not to be shipped, and the rice was to be harvested “ slowly by a combiner to avoid high percentage brokens”. In order to meet those specifications, Alegrow agreed to purchase the same quantity of rice from Krasnodarzernoprodukt-Expo LLC, Krasnodar, Russia (“ KZP”); Yayla knew this, but it was not a term of the Contract that Alegrow should do so. The terms of Alegrow's purchase from KZP were US$235/MT FOB Temryuk, with delivery to be between 1 September 2016 and 15 December 2016.

The Contract incorporated: (i) GAFTA Contract No. 48; (ii) GAFTA Sampling Rules No. 124; and (iii) GAFTA Arbitration Rules No. 125.

The Appeal Board found that there was a considerable level of rainfall for this harvest in 2016, and that this could have delayed harvesting. From the time of harvest, the rice was processed and stored by KZP, and the impact of the weather on the humidity and condition of the rice made drying/processing necessary.

By an email of 9 November 2016, Yayla told Alegrow that it had planned that shipment of the rice would start in September and that the whole contract quantity would be loaded by the end of December 2016, “explaining that they had to change all production and delivery schedules due to delays”.

7,116.28 MT of rice were loaded onto the MV Kiowa on 1 December 2016, and 5,498.14 MT of rice were loaded onto the MV Karewood Pride on 3 December 2016, making a total of 12,614.42 MT out of the total contractual quantity of 24,000 MT.

On 23 November 2016, Yayla e-mailed Alegrow asking for a shipment time for the remaining rice, stating that the latest date for shipment was 31 December 2016 and that if Alegrow would be late for some shipments in December 2016 then they should revise the latest shipment date in the Contract.

Alegrow's case before the tribunal was that on 23 November 2016 Yayla asked for the remaining two (if not three) shipments to be spread out with intervals of 10 to 15 days after the previous shipment. The “Karewood Pride” loaded on 3 December and therefore the third shipment would be between 12 to 18 December and the fourth shipment might not be until 2 January 2017. The Appeal Board did not deal with this point in the Award, but in the Section 57 Response it said “the Board understands that from 23 ^rd November 2016 shipments were to be spread over 10 to 15 days period” (§ 5).

The rice on board the MV Karewood Pride was imported into Turkey, but the rice on board the MV Kiowa was initially rejected by the Turkish authorities. The MV Kiowa arrived at the discharge port of Mersin on 14 December 2016 and tendered notice of readiness. On 19 December 2016, the Turkish customs and quarantine authorities rejected the cargo due to what they alleged was the apparent presence of nematodes (roundworms). The rejection was subsequently confirmed by local lawyers on 6 January 2017. (Alegrow makes the points, in this regard, that (a) it had complied with the contractual terms, providing the requisite quality certification by a GAFTA approved surveyor, and (b) the Kiowa cargo was from the same supplier, fields and storage facility as the Karewood Price cargo, which reached Mersin after the Kiowa and after a short delay was accepted for discharge by the Turkish authorities, the rice having been found to be free of nematodes).

On 27 December 2016 Yayla sent Alegrow an email repeating its 23 November request for an amended contract showing the new shipment date.

The Appeal Board found that in the months after the due date for shipment (15 December 2016) and from 27 February 2017, the shippers and Yayla's representative in Russia were aware of the condition of the rice in KZP's store. However, the Appeal Board found that Alegrow did not exercise any remedies under the Contract arising in the case of inferior quality and/or condition, nor allege that it had been frustrated.

The Appeal Board further found that Alegrow did not ship the outstanding 11,385.58 MT of rice by 15 December 2016; that Yayla initially sought an amended shipment period to 31 December 2016; but that Alegrow did not, however, ship the outstanding 11,385.58 MT of rice by the end of December 2016.

On 20 January 2017 Yayla sent Alegrow an email referring to a conversation on 19...