Sharp Corporation Ltd v Viterra BV (previously known as Glencore Agriculture BV)

Heard on 21 and 22 February 2024

Lord Hamblen ( with whom Lord Reed, Lord Hodge, Lord Briggs and Lord Leggatt agree):

This appeal and cross-appeal arise out of two Grain and Feed Trade Association (“GAFTA”) appeal awards relating to Cost & Freight free out (“C&FFO”) Mundra sales made of pulses by the appellant seller, Viterra BV (“the Sellers”), to the respondent buyer, Sharp Corporation Ltd (“the Buyers”).

The appeal concerns the jurisdiction of the court on appeals from arbitration awards under the Arbitration Act 1996 (“the Act”). In particular, it is contended that the Court of Appeal erred in (i) amending the question of law for which permission to appeal had been given; (ii) deciding a question of law which the GAFTA Appeal Board (“the Appeal Board”) was not asked to determine and on which it did not make a decision, and (iii) in making findings of fact on matters on which the Appeal Board had made no finding.

The cross-appeal concerns the Appeal Board's award of damages to the Sellers. Pursuant to the GAFTA Contract No 24 Default Clause, damages were awarded on the basis of the estimated C&FFO Mundra value of the goods. At the date of default the goods had been landed, warehoused and customs cleared in Mundra. In such circumstances the Buyers contend that damages should have been awarded on an “as is, where is” basis, being the estimated ex warehouse Mundra value of the goods.

The Sellers (formerly known as Glencore Agriculture BV) and the Buyers entered into two contracts dated 20 January 2017 for the sale of pulses by the Sellers to the Buyers. The contracts were in identical terms save as to commodity, quantity and price.

The lentils contract was for 20,000 metric tons (“mt”) of Canadian Crimson Lentils of Canadian origin in bulk, +/-5 % at the Sellers' option, at a price of US$600 per mt C&FFO Mundra (“the Lentils Contract”).

The peas contract was for 45,000 mt of Canadian Yellow Peas of Canadian origin, +/-5% at the Sellers' option, at a price of US$339 per mt C&FFO Mundra (“the Peas Contract”).

The contracts provided for payment on the basis of letter of credit at sight or cash against documents (“CAD”) at the Buyers' option. They also contained the following bespoke clause:

“Non Payment Clause: (“the Non-Payment Clause”)

If buyer fails to make payment of the documents as per contract the seller reserves the right to protect their interest and accordingly this contract acts as implied no objection/confirmation from buyers to seller to transfer / resell to alternate buyer.

This clause also serves as buyers' confirmation for the cargo clearance without any undue distress or financial penalty to sellers.

Under these circumstances, sellers can unconditionally choose to cancel the contract and withdraw or re-direct the documents and sell the cargo as per sellers' choice.

The buyers shall forfeit the advance given (if any) to the sellers under this contract, and shall unconditionally extend full cooperation to the sellers by way of providing documents and/or letters as required by all the authorities concerned to enable change of buyer's details with the shipping line, customs, Bill of Entry, etc.”

Each contract provided that all terms and conditions not conflicting with the express terms of the contracts should be as per GAFTA Contract No 24. GAFTA Contract No 24 has a default clause at Clause 25 (“the Default Clause”) which is common to many of the GAFTA standard contract forms. The material terms of clause 25 are set out in para 81 below. Under clause 25(c) the damages payable are based on the difference between the contract price and “the actual or estimated value of the goods, on the date of default”.

On 26 April 2017, the Sellers nominated the vessel RB LEAH (“the Vessel”) under both contracts.

On 10 May 2017, a total quantity of 21,000 mt of lentils and 47,250 mt of peas was loaded on board the Vessel in Vancouver under bills of lading dated 10 May 2017.

On 18 May 2017, the Buyers stated that payment would be CAD for both contracts. Payment was therefore due within 5 days prior to the Vessel's arrival at Mundra.

The Sellers presented the documents to the Buyers' bank under cover of a letter dated 31 May 2017, which stated:

“… Payment as per due date 13 June 2017 per SWIFT transfer to our account …

For good order's sake we point out that the documents respectively the goods remain our property until the payment has been effected.”

On 16 June 2017, Glencore India informed the Buyers that the ETA of the Vessel was 19 June 2017 and stated that payment had already fallen due on 14 June 2017.

On 19 June 2017, the Buyers advised the Sellers as follows:

“Thank you for your kind support in accommodating the discharge of this cargo on LOI. This gesture will go a long way and will strengthen our relationship further and stronger. We assure you that payment of the above will be paid on and before 31 July.

I also confirm that we will pay an interest of 4% PA on the above. I again thank you for your support for previous cargo on LOI whose payment schedule has been shared with your team.”

The Buyers did not pay for the goods before the Vessel's arrival at Mundra. On 20 June 2017, the Buyers filed bills of entry for the full quantity of 21,000 mt lentils and 47,250 mt peas. All of the lentils and 15,000 mt of the peas were customs cleared and out of charge orders for these quantities were issued in favour of the Buyers.

On 23 June 2017, following a request from the Sellers on 22 June 2017, the Buyers issued a letter (“the Buyers' LOI”) addressed to the Sellers as follows:

“The subject vessel has arrived at Mundra on 19 June 2017 and since the cargo is not paid yet, we request the sellers to discharge the cargo against buyers' LOI in order to mitigate demurrage exposure.

Please find below the schedule of the BL numbers per the subject vessel. The payments will be made within July 2017.

…

Since cargo will need to be Custom cleared for shifting the cargo out of port due to space shortage inside the port, we hereby irrevocably and unconditionally confirm that all cargo will be discharged and stored in custody of Mundra Port and no delivery shall be taken by M/s Sharp Corp Ltd or any party related to M/s Sharp Corp Ltd or representing M/s Sharp Corp Ltd or acting on behalf of M/s Sharp Corp Ltd against above mentioned Bs/L unless written instructions are received from Glencore Agriculture BV after cargo has been made with Original Bs/L having been submitted to vessel agent.

We irrevocably and unconditionally confirm to comply with the above conditions and shall remain liable for all consequences for not adhering to the above.”

On 25 September 2017, the parties signed a “washout” agreement in respect of the 32,500 mt of the peas cargo, terminating the Peas Contract to that extent, with the Buyers agreeing to pay compensation in the total sum of US$967,500 in two instalments on 1 March and 1 September 2018.

On 26 September 2017, the parties signed addenda in respect of both contracts giving the Buyers further time to make payment for the remaining goods in instalments (“the Addenda”). These provided that the lentils price of US$600 per mt C&FFO Mundra would be paid in instalments of $518 per mt by 15 October 2017, US$41 per mt by 1 March 2018 and US$41 per mt by 1 September 2018, and that the peas price of US$339 per mt C&FFO Mundra would be paid in instalments of US$309 per mt by 15 October 2017, US$15 per mt by 1 March 2018 and US$15 per mt by 1 September 2018. The Addenda further provided that “[e]ach bill of lading to be released after receipt of the corresponding first instalment” and that all other terms and conditions of the contracts were to remain unchanged.

On 13 October 2017, the Buyers said that they would not be able to make the payments when due on 15 October 2017, and now planned to make payments between 3 and 20 November 2017.

On 18 October 2017, the Sellers demanded payment by 25 October 2017 at the latest, making clear that time was of the essence and reserving the right to declare the Buyers in default if payment of the first instalment under the Addenda was not made by that date.

On 8 November 2017, the Government of India imposed an import tariff on Yellow Peas of 50% with immediate effect.

On 9 November 2017, the Sellers declared the Buyers in default under both contracts, claiming damages, of which details would be provided in due course. They further notified the Buyers that it was the Sellers' intention to sell the goods to a third party, as they were entitled to do under the Non-Payment Clause, and indicated that the Sellers intended to enforce the co-operation undertaking in the Non-Payment Clause strictly to enable a change in the buyer.

On 29 November 2017, the Sellers made a without prejudice proposal to the Buyers. This proposed reinstating the original contracts with payment against copy documents and that, once payment was received, the Sellers “would present original documents as per your instruction”. It further provided that “full payment of both 15,000 mt peas and 21,000 mt lentils to be received prior to releasing original documents”.

Meanwhile the goods were stored by Adani Port, who refused to release them to the Sellers without the Buyers' permission. In breach of the Non-Payment Clause of the contracts (as the Appeal Board found), the Buyers refused to co-operate to allow the...