England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		13/10/2009

Mr Justice David Steel :

1. This is an appeal from an award of the GAFTA Board of Appeal dated 24 February 2009, permission to appeal having been granted by Beatson J on 16 June 2009. The question of law concerns the state of readiness of the carrying vessel to satisfy the requirement of Clause 6 of GAFTA contract form no. 49 to the effect that the vessel should have been "presented at loading port in readiness to load."
2. It is the Appellants ("Sellers") contention that the degree of readiness required was such that the vessel should be ready to load in all respects as would permit a valid notice by a shipowner to a voyage charterer for the commencement of laytime. It is the Respondents ("Buyers") contention that the degree of readiness required was such that it was physically and legally possible for the sellers to load even if the circumstances did not justify the shipowner giving such notice.
3. The relevant sale contract was dated 19 September 2006 by which the Sellers sold to the Buyers a consignment of 15,000 tons of feed barley, FOB Nikotera, Ukraine. Delivery was stated to be: "Between 9 - 22 October 2006 at Buyers' call both dates included. (No extension)." Weight, quality and condition were to be "final at load port as per certificates issued by GAFTA approved surveyor Sellers' option and costs".
4. The cargo was to be loaded by the sellers "at the rate of 5,000 metric tons per WWD of 24 consecutive hours SSHEX even if used." It followed that loading was to be completed in about three days. In this connection there were provisions as to laytime and as to demurrage or despatch. The commencement of laytime was tied to a valid tender of NOR with demurrage at $15,000 per day (half despatch).
5. The contract also incorporated the terms of GAFTA contract form No. 49 (save where in conflict). Clause 6 of GAFTA No. 49 formed the foundation of the dispute:

"6. PERIOD OF DELIVERY

Delivery during-………….at Buyers' call.

Nomination of Vessel- Buyers shall serve not less than ………consecutive day's notice of the name and probable readiness date of the vessel and the estimated tonnage required. The Sellers shall have the goods ready to be delivered to the Buyers at any time within the contract period of delivery.

Buyers have the right to substitute the nominated vessel, but in any event the original delivery period and any extension shall not be affected thereby. Provided the vessel is presented at the loading port in readiness to load within the delivery period, Sellers shall if necessary complete loading after the delivery period, and carrying charges shall not apply. In case of re-sales a provisional notice shall be passed on without delay, where possible, by telephone and confirmed on the same day in accordance with the Notices Clause."

6. In the arbitration, the Buyers claimed damages for failure to load the cargo. The vessel had given notice of readiness to load on the last day of the delivery period. There was a dispute as to whether the vessel's holds were in a condition of readiness to load the cargo. The Sellers contended that the holds were unclean and thus, it was contended, were not presented "in readiness to load" during the delivery period. The Buyers disputed this and called upon the Sellers to load after the 22 October. The Sellers' refusal to do so was treated as repudiatory by the Buyers.
7. It follows that the issue between the parties focuses on the extent to which the Sellers would be under an obligation to complete loading after the prescribed delivery period. That obligation was dependent on two pre-conditions:

i) The vessel is presented at the loading port "in readiness to load" within the delivery period;

ii) Loading has commenced (or at least could have been commenced) during the delivery period.

8. The GAFTA Appeal Board approached the issue on the basis that the issue turned on whether Clause 6 imposed a requirement on the Buyers to present a vessel ready to load in all respects (in the same sense as would justify the shipowner serving a valid NOR) or whether the Buyers were simply to present a vessel for loading. The Board expressly found that the Buyers were only under a duty to present a vessel for loading and had done so on the last day of the delivery period (albeit there was dispute as to whether the cargo holds were suitable for the carriage of grain cargoes, an issue upon which no finding was made).
9. The basis of this conclusion was that:

i) The claim was under a sale contract for failure to load and not for demurrage;

ii) The Buyers, having bought on FOB terms, had a responsibility to provide a vessel within the delivery period which it was physically and legally possible to load: in that event the Sellers were obliged to load whatever concern they might have about say the cleanliness of the vessel.

10. This analysis led to the conclusion that the vessel was indeed "presented" for loading there being no physical restrictions rendering it impossible to load (such as excessive draft) and no legal restriction rendering it a breach of law to load (such as disease).
11. The Board concluded its reasoning as follows:

"29 We are encouraged towards this conclusion by the fundamental commercial dynamic in this shipment sale. Risk in transit loss or damaged passed from Sellers to Buyers on the loading of the goods onto the vessel chartered and provided by Buyers. It was Buyers who were asking Sellers to load goods onto a vessel engaged by Buyers. If (and we make no finding in this regard) the vessel's holds were not fit to receive the goods such that they might be discharged clean, then that was Buyers' decision and their risk. We failed to be persuaded that Sellers had a right or a duty to ensure that the vessel was, by their lights, fit to receive their cargo: it would take very clear terms in a sale contract to give such rights to an FOB seller, far clearer terms, in our view, than a simple term giving the sellers the right of joint inspection. Moreover we simply fail to perceive the interest which Sellers might have protected through such a right, given that the contract contained a term making a certificate of quality final at loading port."

12. The Respondent Buyers on this appeal supported the Board's conclusion. Their arguments can be summarised as follows:

i) The critical time for the performance of Sellers' obligations was at the moment of delivery at which stage risk passed to the Buyers. Thereafter the Buyers could treat the goods as they saw fit.

ii) The moment of delivery was at the ship's rail. To reach that stage the Buyers must have given effective shipping instructions in the sense that the ship nominated by the Buyers must be capable of loading the goods within the shipment period (or any extension). If the holds are unclean that was of no concern to the Sellers.

iii) The Buyers are the Charterers. The shipowner owes the Sellers no duties under the charterparty as to the condition of the holds. It follows that any inability on the part of the shipowners to serve a valid NOR under the terms of the charterparty is of no concern to the Sellers.

iv) Indeed the irrelevance of the contractual requirement of readiness to load is confirmed by the fact that Clause 6 merely furnishes an exception relating to the circumstances where delivery is not completed within the delivery period. In the usual run of events delivery will be complete before expiration of the period in which case Clause 6 never bites. The scope of the Buyers' obligation cannot be more extensive when delivery commences within the period but is incomplete.

v) The obligation to effect delivery is expressly "at Buyers' call". Once the call is made then the obligation on the part of the Sellers to commence the loading process arises so long as it is legally and physically possible to do so. The Sellers must be able to obey the call but have no right (let alone duty) to refuse on the basis of their own reservations as to the fitness of the vessel to receive the cargo

vi) The laytime and demurrage provisions arise from the terms of the charterparty. The Seller's obligation under the sale contract to load within the delivery period is quite distinct. There is no call for the concepts of readiness to be the same in both cases.

13. The Appellant Sellers challenged the Board's conclusion. Their submissions were in summary as follows:

i) Although it is only in the exceptional situation (vis. the completion of loading outside the delivery period) that there is an express requirement of readiness to load, "readiness" is critical to establishing the moment for commencement of the loading operation (during which process delivery is occasioned at the ship's rail).

ii) The inclusion of laytime and demurrage provisions (and the associated requirement of a NOR) is a compelling reason for treating "readiness" in Clause 6 as meaning the degree of readiness required for NOR.

iii) This is all the more so where, as here, the charterparty terms are expressly incorporated into the sale contract.

iv) If a vessel could be presented which was not ready to load in all respects, the Buyers although not wanting to commence loading until the vessel was rendered fit to load would be able by presenting an unfit vessel to trigger an extension of the delivery period during which the seller would be saddled with the carrying charges.

v) To draw a distinction between readiness for charterparty purposes and for sale purposes introduces uncertainty and confusion. In short, on this premise Buyers would be calling for the Sellers to start loading at a time when the shipowners were not in a position to give a valid NOR, a recipe for disputes as to what did or did not constitute a physical or legal impediment to loading.

vi) It is clear that Seller have an interest in the condition of holds which merits the need for Buyers to give a concurrent NOR:

a) Unfitness gives rise to the risk of delay particularly if the Buyers wanted to take steps to render the holds fit.

b) This in turn may give rise to the potential for earning demurrage but in circumstances where the laytime regime remains inoperative.

14. I must start the discussion with a preliminary point. The Sellers contended that the Board had erred in affording no meaning at all to the phrase "readiness to load" and simply construed Clause 6 as requiring the Buyers to "present" the vessel. I do not think that is a fair reading of the reasons. In paragraph 26 the Board stated that the Buyers responsibility was to provide a vessel for shipment and this in turn was accomplished "so long as it was physically and legally possible" for the Sellers to load.
15. It follows that, by virtue of the award, the Board has concluded that, whether or not there was present material quantities of coal powder and whether or not such would have precluded the shipowners from serving a valid NOR, as a matter of fact it was physically and legally possible to load. I do not regard the limited examples of physical or legal restrictions which would have militated against that state of affairs as leading to any different conclusion.
16. Against that background, I regard the starting point as the usual indicia of an FOB contract such as the present:

i) risk passes to the Buyers on delivery;

ii) the obligation to deliver arises on the Buyers' call;

iii) such a call is valid and effective if it is possible and lawful for the Sellers to comply with it: see generally Benjamin Sale of Goods 7^th Ed. para 20-043;

iv) delivery occurs as the cargo passes the ship's rail;

v) thereafter the Sellers have no interest in the cargo.

17. There is nothing in the agreement expressly requiring the Buyers to give NOR to load to the Sellers in like terms to any such requirement on the part of the shipowners to serve any such notice on the Buyers.
18. The only reference to readiness so far as it concerns the Sellers was the liberty afforded under Clause 6 of GAFTA No. 49 to complete loading after the prescribed delivery period if the vessel had been presented at the loading port in readiness to load "within the delivery period." This makes it a premise of such liberty that loading did start (or at least could have started) before the end of the delivery period.
19. It follows that "presented" is there used in the sense that:

i) the vessel has arrived at the port;

ii) it is moored at a suitable berth for loading;

iii) there are no legal or physical restrictions on the Sellers preventing them from obeying the Buyers orders.

20. There is nothing to give rise to the inference that "readiness" in clause 6 is to be read as equivalent to "NOR". This is all the more so where clause 7 of Gafta No 49 makes provision for loading in the absence of any other stipulation to be accomplished "in accordance with the custom of the port of loading".
21. In short, the parties to the sale agreement contemplated that the Buyers could call for the cargo at any time during the delivery period. The Sellers had to obey that call if it was practical to do so. The Sellers could not otherwise refuse to obey the call on the grounds, say, that the vessel was not thought to be in a fit condition to receive the cargo.
22. The Board stated that there was no interest which the Sellers would be protecting by any such right of refusal. I agree:

i) It is true that it follows that loading might as a consequence get under way in circumstances where the shipowner could not serve a valid NOR and this in turn may have implications from the perspective of the accrual of demurrage or dispatch. But it is difficult to see how the interests of the Sellers would be prejudiced thereby.

ii) The suggestion that the Sellers might be faced with claused bills of lading is simply far fetched. Such would be entirely extraneous and wrongful.

iii) Equally illusory is the suggestion that the Sellers might be faced by tort-type claims by third parties where loading into unfit holds arose from obeying the Buyers' instructions.

23. The Sellers placed considerable weight on the proposition that the Buyers would be able to benefit from an indefinite extension beyond the agreed delivery period by presenting an unfit vessel but thereafter taking steps to render the vessel fit. But the short answer is that the Buyers are not in a position to both call for the cargo and in the same breath require work to be carried out prior to commencement of loading.
24. For all these reasons I would dismiss this appeal.