Seagrain LLC (Claimants/Sellers) v Glencore Grain B v (Defendants/Buyers)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Blair |
| Judgment Date | 10 May 2013 |
| Neutral Citation | [2013] EWHC 1189 (Comm) |
| Docket Number | Case No: 2012 FOLIO 1212 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 10 May 2013 |
[2013] EWHC 1189 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Blair
Case No: 2012 FOLIO 1212
Michael Nolan (instructed by L. G. Zambartas LLC) for the Claimants/Sellers
Susannah Jones (instructed by Reed Smith LLP) for the Defendants/Buyers
Hearing dates: 26 April, 3 May 2013
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.
This is an arbitration appeal under s. 69 Arbitration Act 1996 concerning the proper construction and application of the GAFTA Prohibition Clause. The appellants, Seagrain LLC, are the sellers, and the respondents, Glencore Grain BV, are the buyers. Permission to appeal was given by Popplewell J on 1 February 2013.
The contract between the parties is dated 6 July 2010, and by it, the sellers agreed to sell, and the buyers agreed to buy, 3,000 MT 10% more or less at sellers' option of feed wheat of Ukrainian or Russian origin C & F free out, one safe port, one safe berth, Haifa or Ashdod. Shipment was from 15 to 31 August 2010 inclusive at sellers' option. The contract incorporated the GAFTA 48 contract form, which includes the GAFTA Prohibition Clause.
It is common ground that Russian wheat was subject to an export ban at the material time. The award states that the buyers accepted that "the contract had to be fulfilled by Ukrainian wheat". The sellers' contention was that measures taken by Ukrainian customs had the effect of restricting the export of wheat and that accordingly the contract was cancelled and they were discharged from liability to perform by virtue of the Prohibition Clause. They relied on, amongst other things, letters from Ukrainian customs imposing controls, in particular a letter of 2 August 2010 (13 days before the beginning of the shipment period) requiring all customs samples to be sent to one laboratory.
The sellers further relied on an article in the Gaftaworld publication of October 2010 saying:
"About 400,000 tonnes of wheat and barley are in the vessels which Customs has not cleared for export and about 1.3 M tonnes are in export terminals awaiting any clarity as to export restrictions"
The sellers further relied on a statement from Pasternak & Baum to the effect that:
"Ukrainian government imposed export restriction, but export quotas were not announced and distributed yet. One could not buy grain for export and load a vessel. The situation lasted August through September, vessels were not loading, vessels which completed loading prior to restrictions were not allowed to sail. Market was at a standstill."
The sellers' contentions were not accepted. By GAFTA Appeal Award No. 4277 dated 20 August 2012 (the appeal being conducted on the documents), the GAFTA Board of Appeal upheld the buyers' claim for damages for the wrongful repudiation of the contract by the sellers. The Board awarded the buyers damages of US$270,000 plus interest and fees and expenses.
The questions of law in respect of which permission to appeal has been given are pleaded in the sellers' arbitration claim form as follows:
(1) What does a seller have to show in order to rely on the Prohibition Clause (clause 18) in GAFTA 48 to excuse non-performance of a contract of sale?
(2) In particular is it necessary for such a seller to show:
(a) that there was something akin to an outright ban on or prohibition of export or is it sufficient to show that there was an executive act done by or on behalf of the government of the country of origin, the effect of which was to restrict export partially or otherwise;
(b) that it has tried all avenues and made all reasonable efforts either to ship the goods or to try to buy replacement goods, afloat or otherwise?
(3) Were the sellers excused from performing the contract of sale and was the contract cancelled by virtue of the Prohibition Clause as incorporated into it?
It is not in dispute that round about the relevant time difficulties were experienced in exporting Ukrainian wheat. The circumstances give rise to the two questions in the appeal. The first is as to the nature of an "executive act … restricting export". What kind of "executive act" qualifies for these purposes? The second is as to what a seller has to prove to rely on the clause. This is essentially a causation question. Does the seller have to prove that it made all reasonable efforts either to ship the goods or to try and buy replacement goods? Or can it simply rely on the deemed incorporation of the restriction?
The facts as found by the Board are as follows. On 29 April 2010, State Customs Control of Ukraine strengthened controls in relation to the export of cargoes by taking samples during loading. There was no actual restriction on exports however, and no suggestion in the letter issued by Customs that export cargoes would actually be prevented at any time.
By letter of 28 July 2010 (that is, after conclusion of the sale contract) customs stated that completion of customs clearance should be made exclusively after receiving the results of research and approval by the risk management and audit analytical department.
On 2 August 2010, the letter of 28 July 2010 was withdrawn, and the Kyiv Research Forensic Institute became the only laboratory to which customs samples were to be sent. This is the letter on which the sellers place primary reliance in the appeal (though saying that it has to be seen against the background.) An export quota system was eventually put in place in respect of Ukrainian exports, but not until 19 October 2010.
The Board found that at the time the contract was entered into the sellers were fully aware that there were restrictions in place because two of the Customs letters were dated to prior to the contract. The buyers accepted that wheat exports were delayed and disrupted due to the inspections being carried out by Ukrainian Customs.
The Board found that the sellers had made little or no effort to indicate what steps they took to try to perform, for example attempts to buy in goods already loading/loaded/afloat. It noted that whilst the contract did not envisage that the sellers would purchase goods afloat, that would not have prevented them from doing so.
The key findings of the Board are as follows:
"8.6 … There was no actual restriction on exports per se, in the same context as when an outright ban/prohibition had been implemented. The inspections might well have been a contributory factor in the delay of customs clearance and/or sailing of export cargoes. However, there was no suggestion in the letter, that export cargoes would actually be prevented at any time."
Then later at paragraph 8.16:
"The burden is on Sellers to show that they were entitled to the protection of the Prohibition Clause. Sellers have to clearly demonstrate that they have tried all avenues and made all reasonable efforts to either ship the goods or to try and buy replacement goods in order to comply with their contractual obligation to ship the goods. This the Sellers, in the Board's view, have failed to do. At no stage was there an official prohibition or ban, enacted by or on behalf of the Ukrainian Government prior to, or during, the shipment position and evidence shows that goods were loaded by others during 15/31 August. Sellers have stated that the Ukrainian authorities were hindering exports, however no proof had been provided by Sellers to substantiate that any of their cargoes were hindered. There may have been delays and difficulties in loading and/or shipping the goods but this did not constitute a prohibition and therefore Sellers were not protected under the contract for their non shipment. The risk and costs of such a situation are with a seller not a buyer. "
The first question
The parties' contentions
The sellers' case is that the Board did not ask itself, as it should have done, whether the executive acts of Ukrainian Customs (and in particular the requirement in the letter of 2 August 2010 that all samples be sent to one laboratory), and the consequential delay and disruption, had the effect of restricting export of goods of the contractual description (i.e. feed wheat) partially or totally in the limited 16 day window allowed by the contract. Instead it treated "restrictions" and "prohibition" as synonymous and asked itself whether Customs had imposed any ban or prohibition on export.
The sellers contend that the Board thereby set the bar too high. It should have been asking itself whether the delay and disruption caused by the acts of Customs had the effect of restricting, partially or totally, shipment of wheat during the limited shipment period at the end of August specified in the contract. Had it asked itself that question, it would inevitably have concluded that it did restrict shipment for it is obvious that the delay and disruption caused by a requirement that all Customs samples should be sent to one laboratory will restrict export where there is a requirement that that export should take place within a limited period (in this case 16 days).
The buyers submit that at its highest, the sellers' case is that after 2 August 2010, samples of wheat for export from the Ukraine could only be analysed by one laboratory. They submit that delays in and disruption to the customs clearance regime did not constitute a restriction on export within the Prohibition Clause. The buyers say that the Board was right to find (as it did)...
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