Fleming & Wendeln GmbH & Company v Sanofi Sa/ag
| Jurisdiction | England & Wales |
| Judge | Mr Justice Cresswell |
| Judgment Date | 20 March 2003 |
| Neutral Citation | [2003] EWHC 561 (Comm) |
| Docket Number | Case No: 2002 Folio No. 607 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 20 March 2003 |
[2003] EWHC 561 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Cresswell
Case No: 2002 Folio No. 607
And in the Matter of an Arbitration
Mr Nicholas Hamblen QC and Mr Lawrence Akka (instructed by Richards Butler) for the Applicants/Buyers
Mr Timothy Young QC and Mr Andrew Baker (instructed by Middleton Potts) for the Respondents/Sellers.
Approved Judgment
Fleming & Wendeln GMBH & Co ("Buyers") challenge Appeal Award Number 3860A published by the GAFTA Board of Appeal on 25 May 2001, re-published with amendments (following remission) on 27 May 2002. By the Award the Board of Appeal reversed in part an Award of GAFTA first-tier arbitrators in an arbitration between the Buyers as respondents and Sanofi SA/AG ("Sellers") as claimants.
On 29 October 2002 Thomas J granted the Buyers' application for permission to appeal under section 69 of the Arbitration Act 1996 in respect of the following questions of law:-
(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."
The Buyers further seek an order pursuant to section 67 of the 1996 Act declaring the Board's Award of 27 May 2002 to be of no effect in so far as it concludes that it follows from clause 28 of the contract that the damages payable to the Buyers for the Sellers' breach in respect of the undelivered balance are to be the difference between the contract price and the market price as at the date of the Sellers' failure to nominate silos.
The Buyers realistically accepted that the questions of law set out above represent the heart of the dispute. I will accordingly consider the questions of law before the application under section 67.
On 15 October 1997 the parties concluded a contract for the sale and purchase of 20,000MT up to 30,000MT at Sellers' option Russian/Ukrainian black sunseed crop 1997. The price was to "be fixed for each shipment latest 15 days prior delivery period FCA (Free Carrier) Russian/Ukrainian Region in railcars on a calculated parity to the FOB Black Sea market or CIF Rotterdam market on proposal of brokers involved in [the] contract. In case Buyers/Sellers don't find an agreement Sellers keep the right to re-sell part or totality of the mensuality on the free market and this contract will confirm[ed] by the broker as a proof of the fulfilment of the contractual obligations for the mensuality concerned." As to delivery, the contract provided:—"November 1997/March 1998 for quantity equally spread for each delivery but with possibility to cumulate part or totality of one mensuality to the next one if both Buyers and Sellers agreed upon."
The contract contained further provisions as to Quality, Payment, Loading Rate, Special Conditions and Brokerage. The contract further provided "All Other terms conditions as per ctr GAFTA 78 Arbitration London 125". Thus the contract incorporated GAFTA form 78 (Contract for Bulk Grain and Pulses by Rail effective 1.1.95) and the arbitration rules set out in GAFTA form 125.
Certain deliveries were made under the contract. By early 1998 a substantial quantity (12,250/22, 250 tonnes Sellers' option) remained undelivered.
Disputes arose concerning the delivered parcels and the undelivered balance. A GAFTA first-tier arbitration tribunal was appointed.
The first-tier arbitrators published their Award on 6 September 199The Sellers appealed to the Board of Appeal. The applications before the Court are only concerned with the Board of Appeal's decision in relation to the undelivered balance.
On 25 May 2001 the Board published Appeal Award number 3860A (the "Original Award").
As to the undelivered balance, the Board held in the Original Award:-
(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.
By an arbitration application issued on 21 June 2001 Buyers applied under section 69(2)(b) of the 1996 Act for leave to appeal against the Original Award.
Prior to any determination by the court, the parties agreed a consent order dated 5 December 2001. By that order the proceedings were stayed pending an agreed remission to the Board of Appeal of GAFTA upon the terms set out below:-
"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 Board of Appeal published the second Appeal Award ("the Award" or the "(second Appeal) Award") on 27 May 2002.
At paragraph 3 of the Award the Board of Appeal set out the four issues. The applications before the Court are only concerned with the fourth issue:-
"The size of the undelivered balance of the Contract; whether Sellers were in default for failure to deliver; and if so, the damages."
The Board addressed Issue 4 (the undelivered balance) at paragraph 7.
The Board held:-
(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...
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