The Supreme Court sheds more light on the assessment of damages for default in a contract of sale.

Sharp Corp Ltd v Viterra BV (previously known as Glencore Agriculture BV) [2024] UKSC 14

Facts: This is an appeal on a question of law under section 69 of the Arbitration Act 1996. The question arose out two awards (“the Awards”) issued by a GAFTA Board of Appeal in relation to two cargoes of lentils and peas (“the Goods”) shipped in Vancouver, Canada. The Goods had been sold C&F free out Mundra, India, by Viterra BV (“Sellers”) to Sharp Corp Ltd (“Buyers”). The carrying vessel arrived in Mundra in June 2017. By that time, the Buyers had not paid for the Goods, so both parties agreed to discharge, customs clear and store the Goods in a warehouse ashore, subject to a contractual undertaking from the Buyers that they would not take them out of without the Sellers’ written consent. The parties decided to vary the contracts and signed two Addenda to provide that the Buyers would pay for the Goods in instalments. Shortly after the Goods cleared customs, the Indian Government imposed import tariffs of 50% on peas and 30.9% on lentils with immediate effect, which eventually increased the Goods’ value in the domestic market. Eventually, the Buyers failed to pay the instalments and were put in default on 9 November 2017. On 2 February 2018, the Buyers eventually agreed to release the cargo to the Sellers, and filed a consent order provided for the Sellers to obtain possession of the Goods. The case was brought to arbitration in London, where a GAFTA Appeal Board found the Buyers liable for damages to be assessed under the Default Clause of the GAFTA Form No 24, paragraph (c) of which provides that, where no substitute sale is made, damages should be assessed based on “the actual or estimated value of the goods” on the date of default in that market.

The question of law was whether, under paragraph (c) of the Default Clause, damages should be assessed by reference to: A. the market value of Goods at the discharge port of Mundra, where they were located on the date of default; or B. the notional cost on the date of default of buying the Goods in position FOB Vancouver, plus the market freight rate for transporting them to Mundra. In addressing the said question, the Court relied substantially on the dicta of Lord Sumption in Bunge SA v Nidera BV, [2015] 3 All E.R.

The Court of Appeal found that the contracts had been varied for they were no longer on C&FFO Mundra terms and instead became ex warehouse Mundra. Accordingly, it held that damages should be assessed on the basis of the new pricing terms. The Sellers appealed to the Supreme Court on grounds that the Court of Appeal had exceeded its jurisdiction under section 69 of the Act. The Buyers cross-appealed on grounds that, if the Sellers’ appeal succeeded, damages should be assessed “as is where is”, i.e. on the basis of the price obtainable for the goods in the Indian internal market at the time.

Held: Since there was no evidence of an available market for a substitute transaction on C&FFO Mundra terms, the issue which then arose is by reference to what market the estimated value of the goods should then be established. The Sellers contended that it should be the FOB Vancouver market with appropriate adjustments being made to arrive at a C&FFO Mundra price, as the GAFTA Appeal Board accepted. The Buyers contended that it should be the ex warehouse Mundra market. The proper approach is to be guided by the principle of mitigation and to consider the market in which it would be reasonable for the Sellers to sell the goods. On the date of default the Sellers were left with goods, which were landed, customs cleared and stored in a warehouse. The goods had also significantly increased in value because of the imposition of customs tariffs. In such circumstances, the obvious market in which to sell the goods, and in which it would clearly be reasonable to do so, was the ex warehouse Mundra market on 2 February 2018. Accordingly, the Supreme Court found that the GAFTA Appeal Board had erred -among other questions of law- in the assessment of damages.

This publication does not constitute legal advise.

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