Soufflet Negoce v Bunge SA

DMC/SandT/10/26

England

Soufflet Negoce SA v Bunge SA

English Court of Appeal: Longmore, Wilson and Toulson LJJ: [2010] EWCA 1102: 13 October 2010

http://www.bailii.org/ew/cases/EWCA/Civ/2010/1102.html

Mr David Owen QC and Ms Charlotte Tan, instructed by HBJ Gateley Wareing LLP, for the Appellant/Sellers

Mr Stephen Males QC, instructed by Reed Smith, for the Respondent/Buyers

FOB CONTRACT: GAFTA 49 FORM: “IN READINESS TO LOAD”: WHETHER THIS MEANS THAT VESSEL MUST BE “READY” TO LOAD IN A LAYTIME SENSE: RISK OF GOODS DAMAGED BY UNCLEAN HOLDS ON BUYER

Summary

The English Court of Appeal held that, under an FOB contract based on the GAFTA 49 Form, the expression “in readiness to load” did not import from the context of charterparties the technical rules about Notices of Readiness. It simply meant “physically and legally possible for Sellers to load”, that is, without abnormal hindrance. Therefore, an FOB seller was not entitled to refuse to load because the holds of the vessel nominated by the buyer were unclean. Rather, the risk of goods being damaged by shipment in unclean holds fell on the buyer.

This note has been contributed by Ken To-ching Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and pupil barrister in Hong Kong.

Background

In a written contractual confirmation, Soufflet Negoce SA (“Soufflet”) agreed to sell and Bunge SA (“Bunge”) agreed to buy 15,000 metric tons of Ukrainian Feed Barley, “free from alive insects and foreign smell” FOB stowed/trimmed Nikotera, Ukraine. It was also agreed that weight, quality and condition were to be “final” at load port as per surveyor’s certificates “Seller’s option and costs”.

Under the heading “Shipping Terms”, provisions were made for laytime which expressly required the tender of a valid Notice of Readiness, and it was stated that “All other terms and conditions as per relevant C/P”. Soufflet would have to pay demurrage to Bunge if it took more than 3 days to load the cargo, but it would earn dispatch “as per Charter Party rates” if it took less than 3 days to load the cargo. All other terms and conditions, not inconsistent with these terms, were to be “as per GAFTA 49”, a standard form contract for the delivery of goods from Eastern Europe in bulk or bags on FOB terms.

Clause 6 of GAFTA 49 states that: “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.”

Bunge chartered a vessel for the purpose of the FOB contract, and the shipowners presented a Notice of Readiness to Bunge on the last day of the delivery period under the FOB contract. On the same day, Bunge’s surveyors issued a certificate of cleanliness for the vessel.

However, Soufflet’s surveyors issued a certificate stating that “hoppers partly covered with coal powder (traces) at holds” and that the vessel’s cargo holds and hatches were not suitable for receiving and carrying the cargo. The Regional State Grain inspectorate also found the same and, on the next day, Soufflet declared Bunge to be in default, claiming that the vessel was not presented ready to load.

The first-tier arbitration held that, as the vessel’s holds were not ready to receive cargo, Bunge was not entitled to sue Soufflet for damages for non-delivery. On appeal, the GAFTA Board of Appeal held that “in readiness to load” in Clause 6 of GAFTA 49 meant “physically and legally possible for Sellers to load” (Agricultores Federados Argentinos v Ampro SA [1965] 2 Lloyd’s Rep 157). As the risks of loss or damage passed to an FOB buyer on loading the goods onto the vessel, such buyer was taken to have assumed the risk of the goods being damaged by loading into unclean holds. Thus, Soufflet could not excuse itself for non-delivery because the holds were not clean. On further appeal to the Queen’s Bench, David Steel J agreed with this conclusion.

Soufflet further appealed to the Court of Appeal, contending that “in readiness to load” under Clasue 6 of GAFTA 49 required Bunge to nominate a vessel with clean holds.

Judgment

The Court of Appeal dismissed the appeal, with Longmore LJ delivering the leading judgment.

Longmore LJ noted the elaborate set of rules that had been developed in the charterparty context to determine whether a vessel was ready to load. These included the holds being in a state in which they could receive cargo. However, properly interpreted, the phrase “in readiness to load” in the contractual confirmation in this case did not require a Notice of Readiness to be given. It was not clear enough to incorporate the shipping rules into an FOB sale contract. Similarly, even though the sale contract expressly incorporated the technical rules relating to Notice of Readiness for the purpose of calculating laytime and demurrage, it did not mean that those rules were incorporated for all uses of the phrase “in readiness to load” in GAFTA 49. Rather, the implied intention of the parties was that a valid Notice of Readiness was only relevant for calculating laytime and demurrage, and for no other purposes.

This conformed with the view of the Board of Appeal that under an FOB contract, the buyers assumed the risk of loading cargo into unclean holds. It was usually provided for in sales of this kind that quality conditions were to be final as per certificates issued at loading port by a GAFTA approved survey. Therefore, the state of the holds was not something with which the seller should concern itself, unless there were provisions in the contract entitling the seller to inspect the holds.

Thus, Bunge was entitled to damages from Soufflet for its breach of contract in failing to load the cargo before the expiry of the shipment period.