A v B
DMC/SandT/22/08
England
A v B [2021] EWHC 793 (Comm)
English High Court, Queen's Bench Division: Henshaw J: 31 March 2021
Judgment available on BAILII @ https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Comm/2021/793.html&query=(.2021.)+AND+(EWHC)+AND+(793)+AND+((Comm))
Michael Nolan QC (instructed by W Legal Limited) for the Claimant ("Sellers")
Angharad M Parry (instructed by Studio Legale Associato Ridolfi Ghigi Longanesi) for the Defendant ("Buyers")
SALE OF GOODS: BUYERS MAKING INVALID NOMINATION OF VESSEL AND SELLERS PURPORTING TO TERMINATE CONTRACT: WHETHER FALSE NOMINATION A BREACH OF CONDITION: WHETHER NOMINATED VESSEL HAD TO HAVE BEEN ALREADY CHARTERED BY BUYERS: WHETHER BUYERS’ OBLIGATION TO PROVIDE COPY OF CHARTERPARTY AT "SELLERS' FIRST REQUEST" WAS CONDITION
Summary
In dismissing a challenge to an arbitration award under both s.68 and s.69 of the Arbitration Act 1996, the Court held that:
(i) Where a contract of sale requires the buyers to nominate a vessel by a particular date, it is a condition that the buyers provide a valid nomination by that date; if the buyers fail to do so, it is a breach of condition that entitles the sellers to terminate the contract.
(ii) A valid nomination is one made honestly and on reasonable grounds; it may be preceded by an initial “invalid” nomination (non-contractual, not made honestly or on reasonable grounds, or due to subsequent delays).
(iii) Giving an invalid nomination is not a breach of condition if a valid and timely nomination is given in due course, although an initial invalid nomination made otherwise than honestly or in good faith may evidence an intention not to be bound by the contract.
(iv) The Buyers’ failure to provide a copy of the charterparty immediately upon the Sellers’ request following nomination of the Vessel was not a breach of a condition
Obiter: the Court did not consider it possible to infer into the contract a condition that the charterparty must be fixed at the time of nomination.
Case note contributed by Cindy Ko, LLB (Hons), Advocate & Solicitor of Singapore, Solicitor of Hong Kong, International Contributor to DMC’s Case Notes
Introduction and background
On 13 December 2017, the Sellers agreed to sell to the Buyers Ukrainian Feed Corn in Bulk, FOB 1 safe berth/1 safe Ukrainian port, Yuzhny, Odessa or Chernomorsk.
The contract incorporated the provisions of GAFTA Form 49 insofar as they were not inconsistent with the bespoke terms. The salient terms of the contract were:
• DELIVERY PERIOD: 1ST APRIL 2018 TO 15TH APRIL 2018, BOTH DATES INCLUDED, NO EXTENSION
• C/P: IF REQUIRED, BUYERS SHALL SEND BY EMAIL/FAX/COURIER A WORKING COPY OF THE C/P OR BOOKING NOTE DULY SIGNED AND STAMPED TO SELLERS AT THEIR FIRST REQUEST
• PRE-ADVICE: BUYERS SHALL SERVE TO THE SELLERS NOT LESS THAN 8 DAYS’ PRE-ADVICE WITH THE FOLLOWING INFORMATION: ETA; VESSEL’S NAME AND AGE; FLAG; DIMENSIONS OF THE VESSEL (LOA/BEAM/DM); OWNERS NAME; DWT; AIRDRAFT; DEMURRAGE/DESPATCH RATE; IMC; COUNTRY OF DESTINATION; ESTIMATED QUANTITY TO BE LOADED
• …
• Nomination of Vessel. Buyers shall serve not less than..............consecutive days’ notice of the name and probable readiness date of the vessel and the estimated tonnage required. … The Buyer has the right to substitute any nominated vessel. … Notice of substitution to be given as soon as possible but in any event no later than one business day before the estimated time of arrival of the original vessel. ….”
On 20 March 2018, the Buyers nominated the M/V “Tai Hunter”. The nomination gave an ETA of 1 April 2018 AGW WP and the destination as Egypt. The nomination failed to provide the owners’ name as required by the Pre-Advice clause in the Contract.
On the same day, a third party indicated to the Sellers that the “Tai Hunter” was due to sail directly to Ireland without going via any Ukrainian ports. Such information was subsequently proved incorrect but led the Sellers to doubt the genuineness of this nomination and to request a copy of the charterparty.
On 26 March 2018, after continuous exchanges between the parties where the Sellers demanded sight of the charterparty for the “Tai Hunter” and the Buyers demanded the nomination of load port and agents, Sellers purported to terminate the contract for repudiatory breach on the grounds of the Buyers' continuing refusal to provide the charterparty in respect of the “Tai Hunter”, and the fanciful nature of the nomination of that vessel, given her then current position and itinerary.
On 28 March 2018, following further dialogue between the parties, the Buyers purported to nominate the M/V “Mariana” as the substitute vessel, with an ETA of 5 April 2018 AGW WP and the destination as Portugal, and asked Sellers for details of the load port, load port agents and surveyors. The nomination was rejected by the Sellers, referring to their earlier acceptance of Buyers’ repudiatory breach.
On 3 April 2018, the parties agreed that the contract was at an end. The Buyers took the position that Sellers’ rejection of the MV “Mariana” and refusal to declare the loadport, and Sellers’ messages of 26 and 28 March 2018 amounted to an anticipatory breach and/or renunciation of the contract.
On 4 April 2018, the parties entered into an agreement under which the Buyers purchased the corn at an increased price of USD 190pmt but otherwise on the same terms, with a price variation in the event of the dispute under the original contract being referred to GAFTA arbitration.
The dispute was referred to a GAFTA tribunal which decided in favour of the Buyers. The Sellers appealed to a GAFTA Board of Appeal, which, again, found in favour of the Buyers. The Board of Appeal ruled that:-
(i) there was a breach by Buyers in failing to give a true and accurate ETA at the time of nomination as the ETA given was unreasonably ambitious;
(ii) however, in failing to give a true and accurate ETA at the time of nomination, the Buyers were not in breach of a condition, as they had further time to make a valid nomination before the end of the delivery period;
(iii) there was no sufficient evidence for the Board to conclude whether the Buyers were in breach of contract by nominating a vessel that was not yet chartered, but the Buyers did have an obligation to nominate a vessel which had been fixed or which they had a reasonable expectation would be fixed;
(iv) Buyers were in breach of contract by failing to send a copy of the charterparty to Sellers, but Sellers were not entitled to claim damages as Sellers had claimed a right to terminate rather than seek damages;
(v) Sellers were not discharged by terminating the contract invalidly as Buyers were entitled to make a valid nomination before the end of the delivery period
The Sellers appealed to the English High Court under both s.68 and s.69 of the Arbitration Act 1996.
The three key substantive issues before the Court were:-
(i) Is the obligation on the buyer of goods FOB not to make a false nomination of a vessel a condition, breach of which entitles the seller to terminate the contract?
(ii) Were the Buyers obliged to nominate a vessel which had been chartered by them or their sub-buyers at the date of the nomination?
(iii) Was the Buyers’ obligation to provide a copy of the charterparty a condition, breach of which entitled the Sellers to terminate the contract?
Judgment
Obligation not to make a false nomination
Sellers argued that the ETA should have been given honestly and on reasonable grounds and that the nomination of the “Tai Hunter” was accordingly “not valid”. That obligation was a condition, breach of which entitled the Sellers to terminate the contract. Sellers argued that the pre-advice clause was a time clause and there was a need for certainty; until the Buyers had performed their obligation to nominate the vessel, the Sellers were not able to make arrangements to load the vessel, and the need for certainty was reinforced by the fact that the contract was part of a string.
Buyers' case was that where the obligation was to perform within a timeframe, a party whose performance was defective was entitled to correct that performance provided that it did so within the contractually allotted period.
The Court acknowledged that it is well established that where an ETA is incorporated as a term of a sale contract, there is a breach of condition if that ETA has not been given honestly and on reasonable grounds. An ETA is a stipulation as to time in a mercantile contract in relation to which the parties should be taken to have intended time to be of the essence. Accordingly, if by the latest date on which a valid nomination could be made, the buyer has failed to provide one, then there is a breach of condition that will entitle the seller to treat the contract as being at an end.
However, the pre-advice obligation does not import a negative obligation, namely not to make any prior ‘false’ nomination, nor was it a condition of the contract. An initial invalid nomination made otherwise than honestly and in good faith (for example, of a vessel which the buyer knows could not possibly meet the contractual lifting deadline) may evince an intention not to perform the contract, and thus entitle the seller to treat the contract as having been renounced by the buyer.
Where a contract of sale requires the buyer to nominate a vessel by a particular date, it is a condition that the buyer provides a valid nomination by the relevant deadline, and if the buyer fails to do so by the latest date, it is a breach of condition that entitles the settler to terminate the contract.
A valid nomination is one made honestly and on reasonable grounds; it may be preceded by an initial “invalid” nomination (non-contractual, not made honestly or on reasonable grounds, or due to subsequent delays). The contractual timetable for the buyer's vessel nomination will be designed to give the seller sufficient time to arrange the provision of the goods. Provided a valid nomination is ultimately given by the applicable deadline, it should be possible for the contract (and the other contracts in any string) to be fulfilled without difficulty.
The giving of an invalid nomination is not a breach of condition if a valid and timely nomination is given in due course.
The Buyers had further time to make a valid nomination before the end of the delivery period and the Buyers in due course did so. The initial nomination of the "Tai Hunter" was not a breach of condition entitling the Sellers to treat the contract as having come to an end. This aspect of the 69 appeal was therefore dismissed.
Obligation to nominate a vessel already chartered
The Court agreed with the Buyers that the question was moot under s.69, as the determination of this question could not affect the outcome of the case, as there was insufficient evidence to support the facts alleged (that is, that the vessel nominated had not been chartered yet).
But the Court did say that it did not consider it possible to infer into the contract a condition to the effect that the charterparty must have been fixed at the time of nomination. It was not critical in order for the contract to work nor for the parties to have the requisite degree of certainty about how it was to work.
The s.69 appeal on this issue was also dismissed.
Obligation to provide a copy of the charterparty
Sellers’ appeal under s.68 on this issue was on the basis that there was a serious irregularity because the Board of Appeal had failed to consider whether the failure to provide the charterparty “at first request” was a condition.
The Court agreed that the Board had failed to address this issue. However, the Court did not remit the issue back to the Board. This is because an appeal has also been filed under s.69 on this issue.
Under the s.69 appeal, no authority had been cited as to whether or not an obligation promptly to provide a copy of the charterparty for a nominated vessel was a condition of the contract.
The Court was of the view that it would be illogical to hold that the buyer could be in breach of a condition to provide a charterparty relating to what might well turn out not to be the effective nomination. It was also unlikely that, given the obvious risk in chain transactions of delays in passing copy documentation, parties would have intended delay of that type to render the contract liable for termination.
As such, the Court said that the Buyers’ failure to provide a copy of the charterparty immediately upon Sellers’ request following nomination of the Vessel was not a breach of a condition.
As such, the Board's failure fully to address the copy charterparty issue had not caused and would not cause substantial injustice to the Sellers. Thus, it did not constitute a serious irregularity within s.68 of the Act.
Both the s.68 challenge and the s.69 appeal on this issue were accordingly dismissed.
Comment
1. This case highlights the importance of timely and valid nominations by a FOB buyer, and the need to act quickly to make a valid re-nomination within the deadline in order to avoid potential termination by the seller.
2. It also clarifies the circumstances in which a seller will be entitled to treat an initial invalid nomination as repudiatory: the threshold is very high as it has to be a nomination made in bad faith and evince an intention not to be bound by the contract.
3. Sellers should also be prudent; the first course of action on receiving an invalid nomination is to reject it. Not every breach of contract entitles the innocent party to terminate it.
