Ramburs Inc v Agrifert SA [04.12.15]

High Court rules that nomination of substitute vessel under GAFTA ‘Period of Delivery’ clause was invalid.

Background

A free on board (FOB) contract for the sale of maize on the Grain and Feed Trade Association (GAFTA) 49 terms provided for a delivery period of 15 to 31 March 2013 and for not less than 10 days pre-advice of the performing vessel’s characteristics. Under this contract the buyers, Agrifert SA nominated a performing vessel on 20 March giving an estimated time of arrival (ETA) of 26/27 March.

On 26 March 2013, the buyers purported to exercise their right of substitution under clause 6 of GAFTA 49, nominating a different vessel with an ETA of 28 March. The sellers, Ramburs Inc rejected both nominations as invalid and terminated the contract. The buyers bought a replacement cargo and claimed the price difference of over US$800,000.

The First Tier GAFTA Tribunal found in favour of the sellers. This decision was overturned by the GAFTA Board of Appeal (the Board). The Board considered that it would be “bizarre” for the right to substitute to be subject to the same requirement for 10 days’ pre-advice as the original nomination. The sellers appealed to the High Court.

Decision

Mr Justice Andrew Smith allowed the appeal.

Where an FOB buyer nominated a substitute vessel pursuant to its right under GAFTA 49, that nomination had to comply with the terms of the contract of sale, including those as to nomination and pre-advice. GAFTA 49 was not a complete code defining and limiting the right to substitution which dispensed with the requirement for pre-notice. Interpreted commercially in this way, the provisions made express the implied right to substitute but qualified that by giving the seller a remedy if the buyer changed the nomination after the buyer had relied upon it. In the circumstances, the buyers’ nomination of the substitute vessel was invalid and their claim failed.

Comment

The sellers’ suspicion was that the buyers had initially nominated a vessel which was never going to perform at all – as the sellers put it, a “Mickey Mouse” nomination – in the hope of then finding a substitute which could meet the delivery period window.

Abuse of the substitution provision in this way may cause practical difficulties for a seller, as the High Court effectively recognised, without, we stress, making any finding as to the buyers’ motivation.

The Board’s comment is understandable if the initial nomination is a valid one and there is no material difference between the original nomination and the substitute. However, we suggest it is both commercially desirable and legally correct that, to be valid, any substitution must still comply with the contractual requirements for the original nomination, whatever those may be. The solution (if one is needed by an FOB buyer) is to make the substitution provision more generous.