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Commodity news

“Golden Victory” for GAFTA sellers

Damages for premature cancelation of a contract of sale reduced from US$3 million to US$5 by the UK Supreme Court

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by Vassiliki Payiataki, (Partner) and Diane Galloway, (Partner), Reed Smith

n Bunge SA v Nidera BV, the UK Supreme Court held that buyers could only recover nominal damages (only US$5) for premature cancelation of a contract of sale on GAFTA form 49. This article looks at the reasons why the damages were reduced and the impact on GAFTA cases going forward. The case was unusual – not many parties agree arbitration in their contract and then find themselves in the English Supreme Court five years later! The issue was one of importance in the trade, however, and so it was permitted to proceed through the High Court, the Court of Appeal and the Supreme Court following the arbitration outcome in GAFTA. The outcome has an impact on damages assessments under many sale contracts that have a damages or default clause (not only GAFTA and FOSFA): the clause will not now usually be the only calculation of damages to be made in assessing loss.

82 | September 2015 - Milling and Grain

Background Facts The dispute related to the sale of Russian milling wheat on FOB terms by Bunge SA (sellers) to Nidera BV (buyers). The contractual delivery period was 23 to 30 August 2010. The contract incorporated GAFTA form 49, which included the standard GAFTA default clause (clause 20), which provides a contractual scheme for establishing damages payable in the event of default by either party (based on a contract price versus market price comparison). On August 5, 2010, the Russian Government introduced an embargo on agricultural exports to run from August 15, to December 31, 2010. On August 9, 2010 the sellers purported to cancel the contract in accordance with a prohibition clause in the GAFTA contract. The buyers rejected this (correctly, as it turned out) and alleged that the sellers had cancelled the contract prematurely, since the export ban had not yet come into effect. Accordingly, the buyers treated the

Sep 2015 - Milling and Grain magazine  

The September 2015 edition of Milling and Grain magazine

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