Court Of Appeal Considers GAFTA Default Clause And Damages For Non-Acceptance Of Goods (Sharp v Viterra) (Video)

• Law Firm: Quadrant Chambers
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Trials & Appeals & Compensation
• Author: Mr Chirag Karia KC
• Published date: 10 March 2023

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Commercial analysis: The Court of Appeal's decision in Sharp Corp Ltd v Viterra BV provides the first appellate-level authority on the quantification of damages under sub-clause (c) of the GAFTA standard form contract default clause for non- acceptance of goods by the buyer. The Court of Appeal held that 'the actual or estimated value of the goods, on the date of default' under sub-clause (c) must be measured by positing a notional substitute contract on the same terms as the parties' contract, save as to price, on the date of default. Prior to the default, the parties had varied the terms of their two contracts to effectively convert them from C&F free out sales into ex warehouse sales of landed and customs cleared goods on instalment payment terms. Since the GAFTA Appeal Board had valued the unaccepted goods on a C&F free out basis, the Court of Appeal remitted the Award to the Board to value those goods on the alternative ex warehouse basis.

Sharp Corp Ltd v Viterra BV (previously known as Glencore Agriculture BV) [2023] EWCA Civ 7

What are the practical implications of this case?

The practical implications of this ruling remain to be worked out in future cases. However, particularly in cases of non-delivery or non-acceptance of ascertained goods, the requirement that those goods must be valued by positing a notional substitute contract as a surrogate for their value, rather than simply valuing those goods 'as is where is' on the date of default, is likely to lead to unnecessary complexity in many disputes. The effect of the Court of Appeal's decision would appear to be that parties in similar cases will now have to adduce evidence of the price hypothetical parties would likely have agreed under a hypothetical contract concluded on the date of default for the purchase or sale of identical goods on the same terms as those that the breached contract had on that date. Arguably, this ruling leads to an uncommercial result that the drafters of the default clause are unlikely to have intended.

What was the background?

The buyer had purchased consignments of Canadian Lentils and Yellow Peas from the seller C&F Free Out Mundra, India, which goods were shipped from Vancouver, Canada. In June 2017, before the buyer had paid the purchase price, the parties agreed that the buyer would discharge, customs clear and store the goods in a warehouse at Mundra, but not remove them from the warehouse without the seller's written consent. The parties then further...