EWHC 1252 (Comm),  All ER (D) 73 (Jun) – The Defendant agreed to sell to the Claimant Russian feed barley in bulk. The contract, dated 29th June 2004, provided for shipment during the period of August – 10th October 2005.
The contract incorporated the GAFTA (Grain and Feed Trade Association) Forms 48 and Arbitration Rules 125. Form 48 Clause 24 was the clause that handled the event of a default.
At the end of September 2004, the Defendant had not made any shipments to the Claimant.
The Claimant emailed the Defendant on the 4th of October 2004 and included an email from the Claimant’s sub-buyers which stated that the sub-buyers were claiming compensation on the basis that they considered their contract as defaulted.
The email from the Claimant requested at the end that there be an amicable settlement by the 15th of October. If this did not happen, the Claimant stated that they would have to claim via legal means.
The Defendant replied to the Claimant on the 5th of October and in their reply, stated that they were not in default as the relevant period under the contract had not yet expired (i.e. August – 10th October 2005). The Defendant further stated that the Claimant’s notice of termination was premature and therefore amounted to a repudiatory breach of contract – which the Defendant accepted, with the effect that the Defendant considered the contract between them to have come to an end.
The Claimant responded to this email and pointed out to the Defendant that they had no intention in their email of putting the Defendant on default, and that they still intended to settle the matter amicably. However, the reply from the Defendant rejected the contents of the Claimant’s email dated the 5th of October, and reinforced their previous message.
Finally, on the 19th October, the Claimant sent a further email to the Defendant, rejecting the Defendant’s purported acceptance of its alleged repudiatory breach. The Claimant gave the Defendant notice of default for the purposes of clause 24 of GAFTA Form 48.
The Claimant then commenced proceedings before the GAFTA First Tier Tribunal and sought damages for the alleged non-shipment of the goods. The claim went in favour of the Defendant.
Subsequently the Claimant lodged an appeal with the GAFTA Appeal Board. The board came to the following conclusions:
- The email from the Claimant dated the 4th of October had been a notice of default, which had purported to terminate the contract.
- At that point, the Defendant had not been in anticipatory breach of contract, and
- On the 4th of October, the Claimant had wrongfully repudiated the contract, which repudiation had been accepted by the Defendant on the 5th of October.
The Board therefore dismissed the appeal but the Claimant was given leave to appeal concerning various questions of law. These included the question of whether a party incorrectly serving a notice of default under the GAFTA default clause, either alone or accompanied by an expression of hope that the parties might talk their way out of a crisis at the eleventh hour, had thereby committed a repudiatory breach of contract.
The Claimant believed the Board had made two errors of law, which were:
- Reaching the conclusion that in the context of a GAFTA contract when a notice of default was sent, the prima facie assumption had to be that the contract was at an end, and
- Holding that there was therefore some kind of burden upon the party who sent such a notice to show that it had not been its intention to terminate the contract.
Held: The appeal was dismissed. When an act had been done which was said to be a repudiation of a contract, it was necessary to ask what, objectively, was the intention of the party who had carried out that act. Whether it was (objectively) that party’s intention to abandon or repudiate the contract or not was a question of fact, to be determined by the fact finding tribunal from all the relevant evidence available.
“I cannot accept these submissions. The Appeal Board is a well known and respected trade tribunal. It heard evidence in this case. It had to find the facts. In doing so it was entitled to draw on its experience in the grain and feed trade and the use of GAFTA contracts. I have concluded that it was reasonable for the Appeal Board to find, as a fact, that in GAFTA trades, when a Notice of Default is sent, that it is “clearly predicated on” ie. based upon, the termination of the contract. In that situation, if a party has sent a Notice of Default, but it asserts that the notice was not intended to terminate the contract and that its intention remained to perform its side of the bargain, then an “evidential” burden is bound to fall on that party to demonstrate that this was the case. There is no error of law in putting the matter that way. The Board’s conclusion is that Gulf had failed to show that it was not its intention to terminate the contract when the Notice was sent in the email of 4 October 2004. That is a conclusion of fact, based upon the evidence, that cannot be attacked. Given the Appeal Board’s other findings on the facts, the Appeal Board was then bound to conclude that Gulf was in repudiatory breach of the contract”.
Click here to view a PDF of the appeal judgement – Gulf Agri Trade Fzco v Aston Agro Industrial AG  Int.Com.L.R. 06/06.
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