In June 2014, Brent Crude Oil was trading at prices of around US$115 per barrel, with average prices having remained in triple digits for most of the preceding three years. However, the past six months have seen a dramatic slump and, in January 2015, the price of one barrel of Brent Crude dipped below the US$50 per barrel mark.

One consequence of this volatility in the market is that some buyers are committed to paying prices under historical deals well in excess of current spot prices. This is likely to give rise to increased instances of parties defaulting on their contracts. Buyers, in particular, are likely to seize any opportunity to walk away from unprofitable transactions, especially if they have not hedged their exposure to price fluctuations.

By contrast, sellers in this position will be determined to hold buyers to their agreements and should, therefore, be cautious not to provide them with any justification to terminate the contract.

In any given transaction, there are many terms which, if breached, may permit a buyer to terminate a contract or reject a delivery under a term deal. Buyers looking to walk away from a contract are likely to give particularly close scrutiny to the sellers’ compliance with all their contractual obligations. We examine below some of the obvious aspects of a seller’s contractual performance which are particularly susceptible to such scrutiny.

Nomination obligations

Many CFR/CIF/DAP contracts expressly require the seller to give the buyer advance notice of shipment or delivery, often referred to as a notice of nomination. This will require the seller to give notice of the vessel on which the cargo has been or will be shipped and may require certain other information, such as the dimensions of the vessel, the bill of lading date and quantity and confirmation that the vessel complies with any regulations at the discharge port.

If the contract specifies a date or time by which the notice of nomination must be given, this is likely to be treated as a condition of the contract. It follows that if the seller is late in giving the notice of nomination, the buyer is likely to be entitled to reject that nomination and will not be obliged to accept the delivery.

A notice of nomination that does not contain all of the required information will also be defective and liable to be rejected. However, in this situation the seller will generally be entitled to remedy the initial “bad” nomination by making a further, compliant, nomination, provided that the second notice of nomination is given within the time specified by the contract.

Compliance with delivery periods

Any provision as to the timing of delivery will be of the essence of the contract. If the seller fails to give delivery, or if the buyer fails to take delivery, within the contractual delivery period, that failure will entitle the innocent party to terminate the contract unless there is some provision in the contract excusing the delay.

Taking the example of a FOB contract, under the “classic” version of such a contract governed by English law the buyer will be required to present a ship at the loadport at such a time that would enable it to complete loading of the full cargo within the delivery period. Provided the vessel arrives in time and that any nomination obligations have been complied with, the seller will be obliged to load the complete cargo before  the end of the delivery period. Alternatively, the contract may require the seller to have the cargo ready for loading immediately upon the vessel’s arrival at the load port.

A failure by the seller to load the complete cargo within the delivery period or to have the cargo ready for loading upon the vessel’s arrival, as the case may be, may again entitle the buyer to reject the delivery and to terminate the contract.

It should, however, be noted that this will only be the case where the contract includes a genuine delivery period. If, for example, the contract includes a laycan in place of a delivery period, the obligation of a FOB buyer is to ensure that the vessel arrives within that period. The seller is then required to complete loading within the agreed laytime and will be liable to pay demurrage if loading exceeds this time. In these circumstances, the buyer will not be entitled to terminate the contract by reason of a failure to complete loading by the end of the laycan or the expiry of the agreed laytime.

Tender of documents in CAD transactions

It is common for contracts to provide for payment to be made against the tender of documents. In times of market volatility, parties looking for a way out of their contracts can be expected to carefully scrutinise the documents tendered to them, as any deficiencies in either the timing of tender or the content of the documents could provide grounds for their rejection.

Where, for example, the contract specifies a fixed date or period for tender of documents, or at least specifies a time that can be precisely ascertained from the terms of the contract, the courts are likely to treat this as a condition of the contract. A failure to tender documents within that time could, therefore, provide grounds for rejection.

Equally, a tender that does not include all of the documents required by the contract, or that includes documents that are on their face defective (such as tendering a claused bill of lading when a clean bill is required), will also be defective and could entitle the buyer to reject the documents.

Force Majeure?

It is common for sale contracts to include a force majeure clause, allowing the parties to cancel or suspend performance of their obligations upon the occurrence of certain unforeseeable events. Such clauses are often the first port of call for parties looking for a way out of unprofitable contracts in volatile market conditions. However, regardless of how sudden and unexpected a fluctuation in the market might be, it is highly unlikely that market volatility will amount to a force majeure event and provide the buyer with a valid excuse not to perform.


Volatile market conditions are always likely to give rise to disputes between traders, with an increased likelihood of parties defaulting against their obligations. In these  conditions, parties dissatisfied with the difference between  the price they are contracted to and the existing market prices are likely to look for any opportunity to walk away from their obligations.

Any trader considering rejecting a delivery and/or terminating a contract should take care to ensure that they are entitled to do so. A wrongful rejection would amount to a repudiatory breach and would entitle the counterparty to terminate the contract and claim damages for any losses suffered as a result.

Equally, any trader who suspects that their counterparty may be looking for a way out of a contract should take care to ensure that they fully comply with their obligations in order to avoid providing any potential justification for a termination.