FOB SALE – GAFTA 119 – Period of advance notice of readiness from buyers to sellers a condition as opposed to a term of the contract.
US soya bean meal was sold FOB in terms of the Grain and Feed Trade Association Limited standard form contract 119.
The contract was made 18 months in advance of the first delivery which was to take place in three equal shipments over three consecutive months.
Buyers were to give 15 days’ advance notice of readiness of the loading vessel.
There were 3 sub-sales of the first shipment and buyers gave the sellers short notice of the readiness of the loading vessel. Sellers treated the short notice as repudiation. The dispute was referred to GAFTA arbitration and thereafter to a GAFTA Board of Appeal. Both tribunals held that the sellers were entitled to cancel.
On appeal,Parker J held that the sellers were not entitled to cancel and that the advance notice clause was simply a term of the contract as opposed to a condition.
The Court of Appeal (Megaw, Browne and Brightman LJJ – judgment Megaw LJ) restored the GAFTA Board of Appeal decision.
The line of reasoning was that time of delivery in a contract of sale was of the essence and that a clause covering this aspect was therefore a condition as opposed to a term. Insofar as the sellers were entitled to be given reasonable notice, over the period agreed upon between the parties, namely, 15 days, to prepare for delivery, the notice period was also a condition rather than a term of a contract.
Megaw LJ disagreed with Diplock LJ’s definition of a condition in the Hong Kong Fir case, namely, that it is a clause, the breach of which, necessary deprives one party of his/her entire bargain. The test adopted by Megaw LJ was rather one of the intention of the parties.
The House of Lords (Lords Wilberforce, Fraser of Tullybelton, Scarman, Lowry and Roskill – main speech by Lord Roskill) affirmed the Court of Appeal decision.
Lord Roskill found the judgment of Megaw LJ to be closely reasoned and convincing.
Nevertheless, the reasoning is circular and the real difficulty is to ascertain intention of the parties.
The jurisprudence on the distinction between terms and conditions is an example of the box/category type analysis where sets of facts are placed in compartments or boxes to determine the legal consequences.
In deciding whether a provision in a contract is important enough to visit the right of cancellation upon a breach, the objective materiality or importance of the provision should be considered. This principled approach would do away with the necessity to distinguish between conditions and terms.
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