FOB sale – terms linked to a charterparty with laycan and demurrage provisions – sellers failing to deliver goods within laycan period – buyers not entitled to cancel
The sellers agreed to sell fuel (gasoline) to buyers FOB. Loading was to take place at the sellers’ refinery and the fuel was to be shipped to Kenya.
The agreement was partly oral and partly written. The written clauses provided for a laycan period and demurrage at the charterparty rate. The charterparty was between the buyers as charterers and the owners of the vessel who were not parties to the action.
The buyers nominated a vessel which arrived at the refinery within the laycan period and tendered a Notice of Readiness. The sellers failed to provide the fuel within the laycan period upon which the buyers cancelled and ordered the vessel to leave the loading terminal. Each party accused the other of breach.
Langley J in the Commercial Court found that the delay was non-frustrating and therefore not a ground for cancellation. The buyers had accordingly repudiated the contract of sale and were liable for damages.
On the other hand, the sellers were liable for the buyers’ liability to the shipowners for demurrage. Langley J held that the sellers could not be liable in addition, to general damages for delay, whatever these may have been.
The Court of Appeal (Buxton and Longmore LJJ and Sir Martin Nourse) endorsed the findings of the Commercial Court. Longmore LJ pointed out that the market had moved in the buyers’ favour so that it was not clear what damages they suffered.
The decision refers to the judgment by Mocatta J in applying remedies contained in a charterparty to a contract of sale – the Al-Hofuf -and other noteworthy judgments.
The case offers doubtful guidance on the measure of damages because the primary enquiry was the breach itself. There is no indication in the report of the damages suffered by the buyers vis a vis the vessel nominated to carry the fuel.
Both courts found that, in principle, the buyers could pass on their liability to the sellers for demurrage incurred by them to the ship owners.
As the buyers themselves were in repudiatory breach it is difficult to see why the sellers should have been liable at all.
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