Sharp Corporation Ltd v Viterra B.v (Previously known as Glencore Agriculture B.v)
| Jurisdiction | England & Wales |
| Judge | Cockerill J |
| Judgment Date | 18 February 2022 |
| Neutral Citation | [2022] EWHC 354 (Comm) |
| Docket Number | Case No: CL-2021-000128 |
| Court | Queen's Bench Division (Commercial Court) |
[2022] EWHC 354 (Comm)
Mrs Justice Cockerill DBE
Case No: CL-2021-000128
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
IN THE MATTER OF THE ARBITRATION ACT 1996
IN AN ARBITRATION APPLICATION
Rolls Building
Fetter Lane
London
EC4A 1NL
Chirag Karia QC (instructed by Zaiwalla & Co Ltd) for the Claimant
Michael Collett QC (instructed by Reed Smith LLP) for the Defendant
Hearing date: Tuesday 18 January 2022
Approved Judgment
I direct that 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 judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives and Bailii. The date and time for hand-down is deemed to be Friday 18 February 2022 at 10:00am.
By his Order and Reasons of 13 May 2021, Jacobs J granted the Claimant Buyer leave pursuant to section 69 of the Arbitration Act 1996 to appeal the following question of law arising from the GAFTA Board of Appeal's (“the Tribunal”) Amended Award nos. 4580A and 4581A dated 1 April 2021 (collectively, “the Awards”):
“Where goods sold C&F free out are located at their discharge port on the date of the buyer's default, is “the actual or estimated value of the goods, on the date of default” under sub-clause (c) of the GAFTA Default Clause to be assessed by reference to:
The market value of goods at that discharge port (where they are located on the date of default); or
The theoretical cost on the date of default of (i) buying those goods FOB at the original port of shipment plus (ii) the market freight rate for transporting the goods from that port to the discharge port free out?”
The GAFTA default clause (“the default clause”) of GAFTA Contract No.24, which is therefore at the centre of this dispute, provided (in part) as follows:
“25. DEFAULT
In default of fulfilment of contract by either party, the following provisions shall apply:-
[a] The party other than the defaulter shall, at their discretion have the right, after serving a notice on the defaulter to sell or purchase, as the case may be, against the defaulter, and such sale or purchase shall establish the default price.
[b] If either party be dissatisfied with such default price or if the right at [a] is not exercised and damages cannot be mutually agreed, then the assessment of damages shall be settled by arbitration.
[c] The damages payable shall be based on, but not limited to, the difference between the contract price of the goods and either the default price established under [a] above or upon the actual or estimated value of the goods, on the date of default, established under [b] above.”
The same Default Clause was the subject of dispute in the case of Bunge SA v Nidera BV [2015] UKSC 43 [2015] 2 Lloyd's Rep. 469.
So much for the issue of law. The economic issue which this masks is this: the goods which Sharp did not pay for fortuitously gained in value after they were customs cleared and before Sharp enabled Viterra to retake possession of them and resell them. If valued on the basis of the contract terms damages are therefore considerably higher than if they are valued on the basis of the value which they actually had by the time they were sold. Who, Sharp or Viterra, should benefit from that increase in value?
The facts
This appeal arises out of two contracts dated 20 January 2017 for the sale of pulses by Viterra to Sharp. Both contracts were on C&F Free Out Mundra terms. In addition to incorporating GAFTA Contract No.24, each contract included bespoke terms addressing the possibility that Sharp might fail to make payment before the goods arrived at the discharge port and enabling Viterra in those circumstances to take possession of the goods and resell them.
Award 4580A concerns contract no. 1700808 for the sale of 20,000 mt of Canadian Crimson Lentils at a price of US$ 600 per mt. Award 4581A concerns contract no. 1700806 for the sale of 45,000 mt of Canadian Whole Yellow Peas at a price of US$ 339 per mt.
On 10 May 2017, the Lentils and Peas were shipped at Vancouver onto the “R B Leah” (“the Vessel”).
Each sale contract provided:
“Payment:
Basis LC At Sight or CAD at buyers option. …
If CAD:
100% Net cash within 5 days prior to vessel arrival at destination port, against presentation of below mentioned documents, at Buyers bank acceptable for Sellers.…
In case of late payment(s) under this contract, Buyers agree to pay Sellers interest on the invoice value at the rate of 8% per annum until receipt of payment by Sellers.”
On 18 May 2017, Sharp exercised its option for payment on CAD (Cash Against Documents) terms. Payment was therefore due within 5 days prior to the Vessel's arrival at Mundra.
The Vessel arrived at Mundra on 19 June 2017. Sharp filed Bills of Entry for the goods on 20 June 2017. As Sharp had not made payment, the goods were discharged against letters of indemnity.
As there was insufficient space to store the goods inside the port, they were customs cleared by the Buyers and put into storage in a warehouse pending payment, with Viterra retaining property in them and the goods held to their order. Any costs incurred by the Buyers in obtaining customs clearance were ultimately ordered to be reimbursed to the Buyers. There was no applicable tariff at the time.
Payment remained outstanding. The parties signed a Wash-Out Contract dated 25 September 2017 in respect of 32,250 mt of the Peas. The parties also signed Addendums No.1 to each contract dated 26 September 2017, which gave Sharp further time to make payment for the remaining goods in instalments.
The first instalment under each Addendum was due by 15 October 2017. Payment was not made. On 18 October 2017, Viterra demanded payment by 25 October 2017, stating that time was of the essence.
Each of the contracts contained a bespoke Non-Payment Clause which provided as follows:
“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.”
On 25 October 2017, Viterra's local affiliate Glencore India sent Sharp a pro forma letter to be sent by Sharp to Adani Port to authorise release of the goods to Viterra. Sharp replied on 26 October 2017 that they could not give any such letter.
On 8 November 2017, the Government of India imposed an import tariff on Yellow Peas of 50% with immediate effect.
Viterra held Sharp in default under both contracts on 9 November 2017.
Viterra's message holding Sharp in default noted Viterra's intention to sell the goods to a third-party buyer, as it was entitled to do under the Non-Payment Clause, and indicated that Viterra intended to strictly enforce the co-operation undertaking in the Non-Payment Clause to enable a change in the buyer.
On 21 December 2017, the Government of India imposed an import tariff on Lentils of 30.9% with immediate effect.
Meanwhile the goods were stored by Adani, who refused to release them to Viterra without Sharp's permission. In breach of the Non-Payment Clause of the contracts (as the Board has found), Sharp refused to co-operate to allow the goods to be released to Viterra. Viterra pursued proceedings in the Gujarat Court against Sharp and Adani Ports in order to obtain possession of the goods. A consent order was granted on 2 February 2018. It is common ground that the goods were not available to Viterra until the date of this order.
Because the goods had been customs cleared before the Government of India imposed tariffs in November and December 2017, their value on the domestic market had (as the Board found) “undoubtedly increased”.
By contracts dated 9 February 2018, Viterra resold the goods to Agricore Commodities Ltd (“Agricore”) at US$ 431 per mt (the Lentils) and US$ 378 per mt (the Peas) C&F Free Out Mundra (inclusive of storage charges up to 6 February 2018 and handling and waterfront royalty charges). Agricore was a fellow subsidiary of Viterra. It was legally distinct from Viterra.
The Awards
The Appeal Board rejected Sharp's argument that Viterra was in default by taking back the goods and reselling them.
The Appeal Board found that Sharp was in default by its failure to pay for the goods in accordance with the terms and conditions of the contract, and liable to pay damages for default in accordance with the GAFTA 24 default clause.
The Appeal Board said that, while the date of Viterra's declaration of default on 9 November 2017 was the “apparent date of default”, it was impossible for Viterra to re-sell the goods until it was able to obtain possession of the goods on 2 February 2018. It found that Sharp was in breach of the Non-Payment Clause. Sharp did not propose any alternative date of default in respect of its own default (although...
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