Court considers date of default under GAFTA 100

In this case, it was not disputed that the buyers under the sale contract were in anticipatory repudiatory breach or had renounced the contract. The issue was whether the date of default, for the purposes of the default clause in GAFTA 100, was the date of breach or date of acceptance.

The Court decided it was the date of breach. It further found that the sellers were obliged to refund the advance payment made by the buyers, reflecting 20% of the purchase price, because it was not a deposit. However, insofar as the sellers could prove their loss resulting from the buyers’ breach, they could claim their damages.

The background facts

Pursuant to a contract dated 2 April 2018, the defendant sold a consignment of rapemeal and non-GMO (not genetically modified) soyabean meal to the claimant. The contract provided for an “advance payment/guarantee” of US$494,500 (20% of the payment price) to be made upon the signing of the contract.

The contract incorporated the standard terms of GAFTA 100, including the default clause, which states as follows:

“23. 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 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) above 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 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 advance payment/guarantee was sent to the defendant on 23 March 2018, before the contractual terms had been finalised. The claimant indicated in an email on 27 March 2018 that if the terms of the contract were not agreed, the defendant should return the money to the claimant’s bank account.

The goods were destined for Turkey and there was some dispute between the parties as to whether the soyabean meal would be considered “non-GMO” by the Turkish authorities. 

On 27 April 2018, before the goods were shipped, the claimant emailed the defendant asking it not to ship the goods and seeking to have the advance payment/guarantee refunded to it. In subsequent emails, it chased for the refund. 

By an email dated 7 May 2018, the defendant contended that the money was non-refundable and offered to deliver instead regular GMO soyabean at the contract price and wash out the contract for a fee to be agreed.

GAFTA arbitration proceedings

The claimant commenced GAFTA arbitration, seeking to recover its advance payment even though it accepted that it was in anticipatory repudiatory breach of the contract (it would not have been in actual breach until the goods had been delivered and it had failed to accept them or pay for them) or had renounced the contract. 

The defendant argued that the sum was a non-refundable deposit and that it was entitled to retain the money to compensate it for loss and damage it had suffered as a result of the claimant’s conduct.

The GAFTA First Tier Tribunal held that the advance payment was refundable. It further found that the date of default was 7 May 2018, this being the date on which the claimant’s repudiation was accepted. However, the defendant had failed to prove it had suffered any loss by reference to the date of default of 7 May.

On appeal to the GAFTA Board of Appeal, the Board held that the claimant had repudiated the contract by its email dated 27 April 2018 and that the repudiation was accepted by the defendant by its message dated 7 May 2018.

The Board further found that, on the true meaning of the contract, the advance payment was a non-refundable deposit, paid in the normal course of business to secure the goods. The word “guarantee” also demonstrated that the sum was provided to secure the sellers for the buyers’ performance. In circumstances where the buyers had defaulted, they could not claim back the money.

The claimant appealed the arbitration award to the Court, arguing that the Board had made a mistake in law as to the actual date of default and also as to whether the advance payment was refundable or not.

The Commercial Court decision

Date of default

The claimant submitted that under GAFTA 100, at least in the case of an anticipatory repudiatory breach, the date of default is the actual date of the repudiatory breach, not the date when it was accepted. 

Relying on the Court of Appeal decision in Toprak -v- Finagrain Compagnie Commerciale [1979] 2 Lloyd’s Rep 98, which dealt with the GAFTA 27 default clause, the Court in this case held that where there was an actual breach by non-performance of an existing obligation to perform the contract, the date of the breach was the “date of default.”

The Court also referred to the decision in Thai Maparn -v- Louis Dreyfus Commodities Asia Pte Ltd [2011] 2 Lloyd’s Rep 704, in which the Court considered the GAFTA 100 default clause. That was a case of anticipatory breach and the Court found that the date of default was the date of breach, not the date of acceptance.

The Court in this case thought that the position was less obvious in the case of an anticipatory breach than actual breach because until an anticipatory breach has been accepted, it remains open to the defaulting party to perform in accordance with the contract. However, the Court emphasised the importance of construing standard form contracts in a consistent way and followed the decision in Thai Maparn.

Consequently, the Court concluded that the Board had erred in this respect in finding that the date of default was the date that the breach was accepted. The default date was, therefore, 27 April and not 7 May. If the parties could not agree on the extent of the defendant’s loss as at that date, then the matter would be remitted to the Board for determination.

Advance payment

The Court also disagreed with the Board’s findings on the nature of the advance payment. To find that the advance payment was not recoverable even if the sellers suffered no loss through non-performance by the buyers would go beyond the normal meaning of the words used and would have a potentially draconian result. Had the parties intended the advance payment not to be recoverable, they would either have called it a deposit or expressly stated this to be the case. They did not do so. 

Furthermore, in the Court’s view, the prepayment by the buyers of 20% of the purchase price gave significant security to the sellers since it provided an available fund from which the sellers could recover their losses (if any) that flowed from non-performance. The advance payment was, therefore, repayable.

Comment

This is a useful decision for those contracting on the basis of GAFTA standard forms and clarifies when the relevant date of default is for cases of anticipatory repudiatory breach for the purposes of calculating any losses under the GAFTA default clause. Such date has also gone against the perhaps more popular notion of the date of acceptance being the relevant date, which the Court opted for in order to maintain certainty under English law (such decision following that of the Thai Maparn case). 

It also makes it clear that where parties intend that any advance payment towards the purchase price should be non-refundable in the event of the buyer’s breach, they should state this expressly in the contract. Without clear wording in the contract itself, there is likely to be the potential for debate between the parties as to the status of any monies advanced prior to contractual performance.