Russian Wheat Ban: Court Construes GAFTA 49 Prohibition And Default Clauses

Bunge S.A. v. Nidera B.V. [2013] EWHC 84 (Comm)

The parties here entered into a contract for the sale of Russian wheat shortly before the Russian government announced a ban on wheat exports for a period of four and a half months extending over the whole of the contractual shipment period. The sellers immediately notified the buyers of the prohibition and cancelled the contract. The sellers argued that, pursuant to the GAFTA 49 Prohibition clause incorporated into the sale contract, the contract was automatically cancelled as soon as the export ban was announced. The buyers contended that was not so since, at the time the sellers purported to declare the contract cancelled, the ban had not yet in fact prevented the sellers from performing under the contract and that the sellers were consequently in repudiatory breach of the sale contract. The GAFTA Board of Appeal found in favour of the buyers and awarded them substantial damages pursuant to the GAFTA 49 Default clause in the contract. The Commercial Court has upheld that decision, confirming that the sellers' purported cancellation of the contract was premature as, at the time of the purported cancellation, it was not certain that the prohibition would in fact prevent shipment of the cargo. The Court also agreed with the Board of Appeal that the buyers were entitled to receive damages calculated by reference to the scheme set out in the Default clause, irrespective of any argument that, under common law, they might only have recovered nominal damages, because the sellers would have been entitled to cancel the contract if they had waited until the end of the shipment period.

The contractual terms

The sale contract was concluded on 10 June 2010 and incorporated the GAFTA 49 contract form, a standard set of f.o.b. terms designed for contracts for goods sold in bulk or bags from Central or Eastern Europe. The two relevant clauses, the Prohibition clause and the Default clause, read as follows:

Prohibition clause

"In the case of export, blockade or hostilities or in case of any executive or legislative act done by or on behalf of the government of the country of origin of the goods, or of the country from which the goods are to be shipped, 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 fulfilment whether by shipment or by any other means whatsoever...