UK: GAFTA 49: High Court Rules On FOB Buyers' Right Of Nomination And Substitution

Following the recent judicial examination of the GAFTA Default clause in Bunge v Nidera1, in the case of Ramburs v Agrifert2 the courts revisited GAFTA contracts to give fresh guidance on the rules for nomination and substitution of vessels by FOB buyers.

The facts and arbitration history

The dispute concerned a sale of 25,000mt of maize FOB Ukraine for delivery in March 2013.

Among other terms, the contract required the Buyers to serve a 10 day pre-advice of the vessel's name and ETA, and incorporated GAFTA 49, which included clause 6 "Period of delivery" and its unmodified paragraphs on vessel's nomination and substitution.

On 20 March 2013, the Buyers nominated M/V "PUFFIN" with an ETA at Nikolayev of 26/27 March. On 26 March, the Buyers purported to make a substitution and nominated M/V "SEA WAY" with an ETA of 28 March. Later that day, the Sellers rejected both nominations as false, and held the Buyers in repudiatory breach of contract. The Buyers disagreed, bought a substitute cargo, and claimed circa USD 800,000 as the market price difference.

In arbitration, the Sellers argued that the Buyers' nomination was invalid so the Sellers were entitled to terminate the contract. The first tier GAFTA Tribunal agreed with the Sellers; the Appeal Board disagreed and allowed the Buyers' appeal. The Sellers lodged an appeal to the High Court asking the court to clarify whether an FOB Buyer, substituting a vessel under Clause 6 of GAFTA 49, had to comply with contractual nomination and pre-advice provisions, and, if so, whether, on a true construction of the Contract and the Board's factual findings, the Buyers' claim was invalid.

The judgment

The parties' court debate was largely centred upon the case of Cargill UK Ltd v Continental UK Ltd3, where in similar circumstances, the substitution was considered invalid due to its failure to meet an eight day pre-advice within the shipment period. The Sellers duly relied on Cargill while the Buyers sought to distinguish the case on the basis that the relevant clause in Cargill specifically provided for the consequences of non-compliance with its nomination provisions, and did not contain an express right of substitution.

The Buyers further contended that Clause 6 of GAFTA 49 was a complete code, defining and limiting their right to substitution, with the only restriction being that the delivery period should not be affected by the substituted nomination: that was the contractually agreed protection for disruption of the Sellers' arrangements by late substitution, and no further protection (i.e., compliance with pre-advice requirements) was necessary.

Mr Justice Andrew Smith disagreed with the Buyers and answered both questions in the Sellers' favour. In his view, on the natural interpretation of the nomination provision in Clause 6, it referred to the vessel that was to load the cargo: the only vessel whose name and "probable readiness date" could possibly matter. While the Sellers were to have the goods ready "at any time within the contract period of delivery" that did not mean that the Sellers would not be interested in receiving information about the time when the vessel, intended to carry the cargo, would probably be ready. Similar considerations applied to the pre-advice provisions in the confirmation of contract. The Board decided that the identity of the nominated vessel did not much matter to the Sellers; however, the judge endorsed the Cargill approach and emphasised that, where contracting parties had stipulated the information to be provided, what mattered was the parties' agreement, not the views of arbitrators, even those as experienced as here.

Mr Justice Smith further disagreed with the Board's conclusion 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: in the judge's opinion, it would be more bizarre to interpret the contract as requiring the Buyers to give detailed pre-advice information for a vessel that was never used. It was also the judge's view that his preferred interpretation left a sensible commercial purpose for the substitution provisions by making express the implied right to substitute, but qualifying it to give the sellers a remedy in case they relied on a nomination later changed by the buyers.

This article was first published in Gaftaworld, February 2016.


1 [2015] UKSC 43

2 [2015] EWHC 3548

3 [1989] 1 Lloyd's Rep 193

4 for example, the sellers might want the dimensions and draft of the vessel to arrange a safe berth

GAFTA 49: High Court Rules On FOB Buyers' Right Of Nomination And Substitution

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