GAFTA Default Clause And Damages For Non-Acceptance ' Sharp v Viterra [2022] EWHC 354 (Comm) - Chirag Karia QC

• Published date: 22 February 2022
• Subject Matter: Government, Public Sector, International Law, Litigation, Mediation & Arbitration, Government Contracts, Procurement & PPP, International Trade & Investment, Trials & Appeals & Compensation
• Law Firm: Quadrant Chambers
• Author: Mr Chirag Karia QC

OVERVIEW

Approximately 80% of the world's grain trade is conducted using GAFTA standard form contracts; and the GAFTA Default Clause, with immaterial variations, appears in 64 out of the approximately 78 GAFTA contracts currently in use. Authority on the construction and effect of that Default Clause is therefore important for grain traders and international trade lawyers alike.

The recent decision in Sharp Corp Ltd v. Viterra BV [2022] EWHC 354 (Comm) provides authority on the quantification of damages under sub-clause (c) of the Default Clause for non-acceptance of goods by the buyer. In that case, Cockerill J upheld the GAFTA Appeal Board's valuation of unaccepted goods left on the seller's hands based on the cost of buying identical goods at their port of origin plus the freight to transport them to their destination, in preference to their value in the domestic market at that destination, where they were in fact located on the date of default.

The question in Sharp was how goods (consisting of Canadian Crimson Lentils and Canadian Whole Yellow Peas) left in the hands of the seller (Viterra BV) at their discharge port of Mundra, India fell to be valued under the Default Clause following their non-acceptance by the defaulting buyer (Sharp Corp Ltd). Are such goods to be valued based on an assumed purchase and carriage of identical goods on the same delivery terms as the original sale (in this case, C&F Free Out Mundra, shipped from Vancouver) or "as they are, where they are" (in this case, Customs-cleared in Mundra, India) on the "date of default"? That question had a large impact on the quantification of the seller's damages in this case because the goods had risen in value between the date they were cleared through customs by the buyer and the date of default under the Default Clause found by the tribunal, as a result of the Indian Government's imposition of Customs tariffs of 50% on peas and 30.9% on lentils between those dates.

The sale contracts inSharp were on the GAFTA Contract No. 24 form, the Default Clause of which provides as follows:

"25. DEFAULT

In default of fulfilment of contract by either party, the following provisions shall apply:-
(a) The party other than the defaulter shall, at their discretion have the right, after serving a notice on the defaulter to sell or purchase, as the case may be, against the defaulter, and such sale or purchase shall establish the default price.
(b) If either party be dissatisfied with such default price...