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Buyer beware – be certain of your grounds for termination

Insights / 21-09-2020

Alegrow S.A. v. Yayla Agro Gida San Ve Nak A.S. [2020] EWHC 1845 (Comm)

The Court has recently provided useful guidance as to the effect of a notice purporting to make time of the essence and whether a failure to comply with such a notice will amount to a repudiatory breach of the contract.

The case involved an appeal on a question of law arising from a decision of the GAFTA arbitration Appeal Board. The two questions for the Court were:

  1. whether the buyer was contractually entitled to demand a shipment schedule for the undelivered portion of the contractual cargo; and
  2. whether the seller was in repudiatory breach of the contract for failing to provide a shipment schedule when requested to do so. 

The background facts

Yayla Agro Gida San Ve Nak (“Yayla”) agreed to buy, and Alegrow SA (“Alegrow”) agreed to sell, a cargo of rice on a CIF basis (the “Contract”). Shipment was to take place between 1 September and 15 December 2016 (both dates inclusive). The rice had to meet various contractual specifications, including that it was from the 2016 crop. The 2016 crop was affected by heavy rainfall, meaning that the rice required additional drying/processing before shipment. This resulted in delay.

Two shipments of rice took place on 1 and 3 December 2016, with approximately half of the Contract quantity loaded. On 23 November 2016, Yayla emailed Alegrow to ask for a shipment time for the remainder of the rice, stating that the latest date for shipment was to be 31 December 2016 and that, if Alegrow were going to be late, then they should revise the latest shipment date in the Contract.

On 27 December 2016, Yayla repeated its request for an amended contract from Alegrow showing the new shipment date. Alegrow did not ship the balance of the rice by 31 December 2016 and, on 20 January 2017, Yayla asked for a shipment programme for the remainder of the rice.

Further discussions followed, then on 29 March 2017, Yayla sent an email to Alegrow demanding that it provide a shipment schedule by 30 March 2017, stating how much rice Alegrow would ship up until 15 April 2017.

Alegrow did not respond, then on 7 April 2017 Yayla served a notice of arbitration on Alegrow, stating that Alegrow had failed to perform the Contract. The notice also stated that Yayla had had to purchase substitute goods and therefore claimed damages incurred as a result.

First Tier Tribunal (“FTT”)

Yayla’s case at first instance was based on actual breach, in that time was of the essence and Alegrow had materially breached the Contract by not delivering the balance of the rice within the contracted shipment period. Amongst other conclusions, the FTT found that:

  • Alegrow was in default for not supplying the balance of the cargo but Yayla did not hold Alegrow in default and instead kept the Contract alive, granting Alegrow indulgence to perform the Contract.
  • Yayla subsequently made time of the essence by their email of 29 March 2017, when they required Alegrow to declare by 30 March 2017 the tonnage that would be shipped by 15 April 2017. With time having been made of the essence, and Alegrow failing to respond, Yayla had been entitled to bring the Contract to an end on 7 April 2017.

The FTT, therefore, found in Yayla’s favour.

Appeal Board

Alegrow appealed the FTT decision to the GAFTA Appeal Board. Again, Yayla’s position before the Appeal Board was based on actual breach, in that Alegrow had failed to ship the remaining rice, time had remained of the essence and Yayla had terminated the Contract. The Appeal Board found that:

  1. Alegrow was in breach of Contract by failing to deliver the balance of the rice by 15 December 2016, but Yayla had “waived their rights to be delivered in accordance with the original stipulated period of the Contract” by seeking an amended shipping period;
  2. Yayla’s request on 20 January 2017 for a shipment programme kept the Contract alive and time was not of the essence;
  3. Yayla’s email of 29 March 2017 was their last reminder to receive a shipment schedule and gave a final deadline of 30 March 2017. This gave Alegrow adequate time to provide a schedule and it, was, therefore in breach of the Contract when it failed to respond within that deadline.

The Appeal Board, therefore, upheld the FTT decision in Yayla’s favour.

The Commercial Court decision     

Alegrow appealed to the Court on the following questions of law:

  1. Was Yayla contractually entitled to demand a shipment schedule on 29 March 2017?
  2. Was Alegrow in repudiatory breach of the Contract in failing to provide such a shipment schedule by Yayla’s deadline of 30 March 2017?

The Court reviewed the decisions of both the FTT and the Appeal Board. As regards the FTT decision, the Court concluded that the finding that Yayla’s email dated 29 March made time of the essence and that Alegrow’s failure to deliver was a breach was unsupportable.

If and to the extent that Yayla’s email of 29 March made time of the essence, it did so only by stipulating 15 April as a reasonable date by which to ship the remaining goods.  However, the FTT had made no finding as to whether 15 April allowed a reasonable time to ship the remaining goods. In any event, even if Yayla had made time of the essence by requiring shipment by 15 April, it could not then hold Alegrow in breach for failing to provide a shipment schedule in the intervening period.

As regards the decision of the Appeal Board, the Court concluded that this decision must have been premised on Alegrow having an obligation to provide a shipment schedule, with their failure to provide this by 31 March resulting in Alegrow being in repudiatory breach. However, the Court noted that the Appeal Board had made no finding as to where any obligation to provide a shipment schedule was to be found in the Contract, or why one should be implied.

The Court, therefore, considered that the Appeal Board had reached incorrect conclusions on the two questions of law and held that:

  • Yayla was not contractually entitled to demand a shipment schedule on 29 March 2017; and
  • Alegrow was not in repudiatory breach of the Contract in failing to provide such a schedule by the Buyer’s deadline of 30 March 2017.

The Court further found that the Appeal Board did not explicitly address any case of renunciation, nor did it record Yayla’s case as being based on renunciation or allow Alegrow an opportunity to meet any case based on renunciation. As Yayla had not put a renunciation case before the Appeal Board, the Court found it inappropriate to remit the Award back to the Appeal Board for a case on renunciation to be considered.

The Court, therefore, allowed the Appeal and determined that the Award must be varied to conclude that Alegrow was not in repudiatory or renunciatory breach of the Contract.

Comment

This case is a salutary reminder of the principles for traders to consider when assessing their options following a delayed delivery. In particular, caution is necessary when seeking to make time of the essence following an initial period of indulgence when delivery has been delayed. It would be prudent to seek legal advice before purporting to terminate a contract on the basis of a delayed delivery, especially where this relies on a notice seeking to make time of the essence.

Carl Walker

Carl Walker Partner

James Rose

James Rose Managing Associate

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International trade & commodity finance / Maritime