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FOSFA Prohibition clause – sellers cancelling prematurely – FOSFA Appeal Board’s decision awarding damages to buyers overturned on appeal.

The Facts

The sale was of crude groundnut oil to be shipped from Senegal CIF to Genoa.  The relevant clauses read as follows:

“22. PROHIBITION: In the event, during the contract shipment period, of prohibition of export or any other executive or legislative act by or on behalf of the government of a country of origin or of the territory where the port/s of shipment named herein is/ are situate, or blockade or hostilities, restricting export, whether partially or otherwise, any such restriction shall be deemed by both parties to apply to this contract and to the extent of such total or partial restriction to prevent fulfillment whether by shipment or by any other means whatsoever and to that extent this contract or any unfulfilled portion thereof shall be extended by 30 days.

In the event or shipment within the extended period still proving impossible by reason of any of the causes in this clause, the contract or any unfulfilled part thereof shall be cancelled.  Sellers invoking this clause shall advise buyers with due dispatch.  If required, sellers must produce proof to justify their claim for extension or cancellation under this clause.

25 DEFAULT: In default or fulfillment of this contract by either party, the other party at his discretion shall, after giving notice, have the right either to cancel the contract or the right to sell or purchase, as the case may be against the defaulter who shall on demand make good the loss, if any, on such sale or purchase.  If the party liable to pay shall be dissatisfied with the price of such sale or purchase, with neither of the above rights is exercised, the damages, if any, shall failing an amicable settlement, be determined by arbitration.  Damages awarded against the defaulter shall be limited to the difference between contract price and the actual estimated market price on the day of default.  Damages to be computed on the mean contract quantity.  If the arbitrator considers the circumstances of the default justified they may, at their absolute discretion, award damages on a different quantity and/ or award additional damages. ”

Prior for the last day for making a declaration of shipment a seller may notify his buyer of his inability to ship but the date of such notice shall not become the default date without the agreement of the buyer.  If, for any reason, either party fails to fulfill the contract and is declared to be in default by the other party and default is either agreed between the parties or subsequently found by the arbitrators to have occurred, then the day of default shall, failing amicable settlement, be decided by arbitration.”

An event qualifying as a prohibition took place and sellers gave notice of cancellation.

The notice given by sellers purported to be one of immediate cancellation depriving buyers of the 30 day extension provided for in the Prohibition clause.  Buyers accepted this as anticipatory breach and claimed damages.

The prohibition continued until the end of the notional 30 day extension so that it could be said that the sellers would have been entitled to cancel in any event i.e. even if they had afforded the buyers the benefit of the extension.


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Charter Party Casebook