FOB sale – right of substitution of vessel by buyers limited by the terms of contract
The facts
English Feed Barley was sold FOB buyer’s vessel with Hull nominated as the loadport.
The delivery period was stipulated and buyers were to give provisional notice of 8 clear days of the vessel’s ETA to sellers, such notice to show the vessel’s name, itinerary, and approximate quantity to be loaded. The provisional notice was to be followed by final (definite) notice of 4 clear days.
The contract provided further that “in the event of failure to give definite notice in accordance with the above, buyer will be deemed to be in default and the provisions of the default clause will apply”.
Buyers gave timeous provisional and final notice in respect of the first vessel. The first vessel was delayed and, in order to meet the delivery date, the buyers substituted the first vessel and issued fresh provisional and final notices in respect of the second vessel.
Although the second vessel met with contractual requirements and arrived at the loading port in time, sellers rejected the vessel on the basis that the notices were late.
The price of the cargo had risen making it more attractive for the sellers to sell at the prevailing market price. Buyers claimed damages. The dispute was referred to GAFTA arbitration (both tiers).
Findings
Both GAFTA tribunals found in favour of the buyers.
On appeal, Evans J set aside the awards.
The Court of Appeal (Parker, Bingham and Taylor LJJ – main judgement by Parker LJ) affirmed the decision of Evans J.
The reasoning of the Court of Appeal was that the clear terms of the contract constituted the late substitution of the vessel a breach which general considerations of fairness could not eliminate.
The case of Agricultores Federados Argentinos Sociedad Cooperative Ltda v Ampro SA was distinguished on the particular terms of the contract there in question.
Commentary
This decision is clearly right and the following statement by Parker LJ is noteworthy:
“It is commonplace for parties, if they can, to cancel contracts in order to take advantage of changes in the market when, but for the change, they would have been content to refrain from cancellation; but if the right to cancel is there they are entitled to exercise it notwithstanding that the sole reason for doing so is some commercial advantage.”
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