Glencore Grain Rotterdam B.v v Lebanese Organisation for International Commerce (Lorico)

JurisdictionEngland & Wales
JudgeLORD JUSTICE EVANS,SIR RALPH GIBSON,LORD JUSTICE NOURSE
Judgment Date25 June 1997
Judgment citation (vLex)[1997] EWCA Civ J0625-14
Docket NumberQBCMI 96/0769/B
CourtCourt of Appeal (Civil Division)
Date25 June 1997

In the Matter of the Arbitration Acts 1950–1979

And In the Matter of an Arbitration

Glencore Grain Rotterdam BV (formerly Richco Rotterdam BV)
Plaintiffs (Sellers) Appellants/Respondents in Cross-Appeal
and
Lebanese Organisation For International Commerce ("LORICO")
Defendants (Buyers) Respondents/Appellants in Cross-Appeal

[1997] EWCA Civ J0625-14

Before:

Lord Justice Nourse

Lord Justice Evans

and

Sir Ralph Gibson

QBCMI 96/0769/B

QBCMI 96/0824/B

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

(Mr Justice Longmore)

Royal Courts of Justice

Strand

London WC2

MR T YOUNG QC (instructed by Messrs Richards Butler, London EC3) appeared on behalf of the Plaintiffs.

MR M HAVELOCK-ALLAN QC (instructed by Messrs Turner & Co., London EC3) appeared on behalf of the Defendants.

1

Wednesday, 25th June 1997

LORD JUSTICE EVANS
2

This appeal is from a judgment of Longmore J. in the Commercial Court, by which he upheld an Award of the Board of Appeal of GAFTA dated 17 October 1995, though on different grounds. It raises two issues of law. The first issue, put shortly, is whether the buyers under a sale contract on fob terms incorporating GAFTA form 64 were entitled to open a letter of credit in favour of the sellers which was restricted to payment against freight pre-paid bills of lading. The second is whether, if the buyers were not so entitled and were thereby in breach of contract, the sellers can rely on that breach to justify their own refusal and failure to ship the contract goods.

3

The judge has certified two questions of law of general public importance, pursuant to s.1(7)(b) of the Arbitration Act 1979, in the Schedule to his Order dated 19 April 1966. I should set them out here :-

4

"SCHEDULE

(1) What approach should the Court adopt on seeking to ascertain, by a process of implication, what terms of a letter of credit are contractual under an FOB sale which provides for payment to be made by an irrevocable and confirmed letter of credit but does not otherwise specify the terms which that letter of credit should contain?

(2) Whether the principle that a party, giving a wrong or inadequate reason for refusal to perform a contract, may justify his refusal by relying on some other reason not relied on at the time, is qualified by a further principle

(a) that such other reason is one which, if relied on at the time of refusal to perform, could not have been put right; and/or

(b) that a party who gives one ground for his refusal to perform may by his conduct be precluded from setting up a different ground if it would be unjust or unfair to allow him to do so".

5

The Board of Appeal found that the buyers were entitled to limit the letter of credit to payment for freight pre-paid bills of lading. They awarded the buyers damages totalling about $500,000 plus interest and costs for the seller's refusal and failure to ship. The sellers appealed to the Commercial Court with the leave of Colman, J. Longmore J. held that the buyers were not so entitled, but he upheld the Award on the ground that the sellers were precluded from relying on the buyer's breach, because they did not refer to the defect in the letter of credit at the time of their refusal to ship the goods, and in the circumstances it would be unfair and unjust to permit them to rely on the defect as a defence to the buyer's claim. He applied what he held was the underlying principle of the decision in ( Panchaud Freres S.A. V. Et. General Grain Co.Panchaud Freres [1970] 1 Ll.R 53).

6

The objection based on Panchaud Freres made fleeting appearances both at the Board of Appeal hearing and before Longmore J., but it was not developed or made the subject of detailed submissions on either occasion. Mr Timothy Young Q.C. counsel for the sellers asked the judge, after his judgment was given but before his order was drawn up, to hear further submissions on the issue. The judge refused this application, but as already stated he certified the issue as the second question of law in the appeal.

7

The contract

8

The appellants, Glencore Grain Rotterdam B.V. (formerly Richco Commodities Rotterdam B.V.), agreed to sell 25000 m.t. of Turkish soft milling wheat at the price of US $135.00 per m.t. "FOB stowed trimmed one safe berth Iskenderun" for "Shipment March 1993 M/V "Christinaki"—eta Monday 29.03.1993". The relevant terms as to payment were :-

"Payment : Cash at sight by an irrevocable letter of credit which shall be opened prior loading vessel M/V "CHRISTINAKI" ready to load Monday 29.03.1993.

…………….

Certificates of weight, quality and condition to be issued by T.M.O. and/or first class superintendence company.

……………."

9

The terms and conditions of the T.M.O. (Turkish Grain Board) contract and of GAFTA form no. 64 (General contract f.o.b. terms for grain in bulk) were expressly incorporated. Clause 10 of the TMO terms contains certain more detailed provisions for payment by means of a letter of credit, but these are not relevant for present purposes, the issue being whether a letter of credit which required the Sellers to present "freight pre-paid" bills of lading was or was not in conformity with the sale contract.

10

The sellers and the buyers, each to the knowledge of the other, were in effect intermediaries between TMO, who were the suppliers and intended shippers of the wheat, and the Ministry of Supply and Internal Trade of the Syrian Arab Republic, known as "Hoboob", who were the ultimate buyers. The Board of Appeal found that each party was aware of the terms on which the other had bought and sold the wheat, from TMO and to Hoboob respectively. What became relevant was that the sellers' purchase from TMO required February shipment, TMO as seller having the right to cancel from 30th March in the event that the appellants, as their buyers, failed wholly or partly to take the contractual quantity, "and also to ask a penalty of U.S.$7.00 per mt on the unlifted balance quantity" (Award para.7). The respondents' sale to Hoboob was on c and f (cost and freight) terms which required them to provide a full set of bills of lading marked "freight prepaid".

11

The sale contract was dated 22nd March 1993. It was apparent from the contract itself that the vessel would present itself for loading close to the end of the March 1993 shipment period. The terms included "NOR to be given only in official working hours [defined as 08.00-17.00 Monday to Friday] in written form WIBON but customs cleared, passed inspection and granted free pratique. After acceptance of valid NOR, time starts to count….." (clause 8.2).

12

Letter of Credit

13

The Buyers having formally nominated the CHRISTINAKI (or sub) to load under the contract "ETA Iskenderun 28th March", their bank on 24th March sent a tested Letter of Credit telex to the Sellers'. "It provided for shipment : "April 1993" and had a validity until 21st May. It required a full set of marine Bills of Lading marked (inter alia) "freight prepaid". It also required various certificates…" (Award para.16).

14

On the following day, 25th March, "the Sellers (through the brokers) acknowledged receipt of the Letter of Credit that day which, however, was not (they said) in accordance with the terms of the Contract. They therefore prepared their own draft L/C, the text of which they were sending on by fax separately and they asked the Buyers to open the L/C exactly as per the Sellers' draft". The Sellers' draft "differed from that drawn by the Buyers in a number of minor points and in the following principal respects :-

"(a)…..

(b) The Bills of Lading were to be marked "freight payable as per Charterparty" and

(c) It provided :- "Shipment Period : latest 30.04. 1993"."

15

In addition, the sellers asked the Buyers to confirm that they had "given your instructions to the Owners and Master of the "CHRISTINAKI" to unconditionally release all original bills of lading to (the Sellers)….. on completion of loading of the vessel as per the wording requested by (the Sellers)…." (Award para.16).

16

The next communication between the parties regarding the letter of credit terms was on 29th March, when

"…. the Buyers advised the Sellers that they had instructed their bank : "To amend the L/C in a way to comply the maximum we can with sellers' requirements without affecting our need for docs. to comply also with our receivers' L/C requirements.

B/L shall be released immediately upon completion of load and shall show freight pre-paid without any problem. Freight shall be paid prior to completion of load"

17

(Award para.19)

18

Paragraph 20 of the award reads :-

20. Later that same day, 29th March, the Buyers advised their bankers of amendments required to their Letter of Credit, which had already been opened, to meet the Sellers' requirements. These included deleting the requirements as to legalisation of certain documents by the Syrian Embassy and amending the shipment clause to read :

"Shipment : April 1993 from Iskenderun"

No change however was proposed to the endorsement to the bills of Lading as "freight pre-paid".

A copy of these amendments was immediately faxed to the Sellers".

19

The Sellers did not acknowledge this communication and there are no further findings which refer to the letter of credit or its terms. It continued to specify "freight pre-paid" bills of lading. The Board found as a fact "that the shipment period under The Contract was by mutual agreement amended to April 1993" (para.63). There is no finding that the Sellers accepted or the parties agreed that the letter of credit, as it was opened, was in conformity with the contract.

20

Other communications

21

These...

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