PEC Ltd v Thai Maparn Trading Co Ltd

The Claimant Buyers (“the Buyers”) appeal pursuant to s.69 of the Arbitration Act 1996 from the decision of the GAFTA Board of Appeal dismissing the Buyers’ claim for damages. The Appeal Award (“the Award”) allowed the appeal of the Respondent Sellers (“the Sellers”) from a first tier GAFTA Award, dated 4 March 2010 which had awarded damages of US$ 14,520,000 to the Buyers.

The case concerns an FOB contract for the sale of 22,000 mt of Thai parboiled long grain rice (“the contract”). The contractual shipment period was "During April -- 07 May 2008 with min. 10 working days of pre-advice of vessel arrival." The contract incorporated the terms of GAFTA Form No. 120, clause 7 of which provides that the buyer may claim an extension of the delivery period by an additional period of up to 21 days.

The Buyers failed to provide a vessel to lift the goods during the original delivery period although they had nominated a vessel which was said to have a laycan of 25 April to 7 May 2008. The Buyers contended that the reason that no vessel was presented was because the Sellers were "in repeated anticipatory renunciatory and repudiatory breach". In support of that contention they relied in particular on the Buyers’ failure to respond to requests to confirm the load readiness of the cargo. The Board rejected this claim at para. 5.3.5 of the Award and found at para. 5.3.4 that “neither the contract nor GAFTA Form No. 120 provided for any notice to be given by Sellers regarding loadreadiness of the cargo and Sellers, consequently, were under no obligation to respond to Buyers’ requests”. The conclusion that there was no anticipatory breach by the Sellers is not challenged on appeal. It follows that, as was common ground, because the Buyers did not present a vessel within the original delivery period, the validity of the claim depends (at least) on whether they made a valid claim for an extension of the delivery period in accordance with clause 7 of GAFTA Form No. 120 (paragraph. 6.3 of the Award).

The issue on this appeal is whether one or other of the "notices" relied on by the Buyers constituted a valid claim for an extension in accordance with clause 7. It is common ground that if the appeal succeeds, the award will need to be remitted for the Board of Appeal to deal with all remaining issues.

The Board of Appeal concluded that no valid claim for an extension was made, essentially because they found that the “notices” made the grant of an extension subject to conditions which were not fulfilled. It is the correctness of that conclusion which is challenged on this appeal, an issue which turns on the proper construction of the messages in question.

The background facts are set out in section 2 of the Award which provides so far as material as set out below..:

THE CONTRACT

On 14 April Pawan Jain inter alia e-mailed Sellers that:

“ …As per concern 2200mt (5% more or less, at buyer’s option) Contract No TME-PEC- 080108 dated 8^th January 2008, vessel nominated for the same ‘MV Sunrise Ocean’ laycan time will be between 25^th April to 7 May in Thailand. Please confirm the status/schedule for 22.000MT …”

On 16 April Buyers sent the following to Sellers:

“We are pleased to advise you that against the above Letter of Credit we nominate vessel MV Sunrise Ocean or its substitute with laycan 25^th April to 7^th May 2008 and port of loading is Kohsichang, Thailand kly ensure material is ready and bag packed in out brand name triple one and red eagle”

Sellers replied the same day at 14.14 hours:

“We confirm receipt of your mail msg dated April 23 2008 and wish to advise you that we do not have cargo ready on A/C of Pawan Jain & Sons and hence, with due respect, we reject nomination of above vessel.”

The relevant “notices” are the Buyers’ message of 8^th May set out in paragraph 2.11 (“the Buyers’ message”) and Zaiwalla’s notice of 8^th May set out in paragraph 2.12 (“the Zaiwalla message”). It was common ground between the parties that, taking time zone differences into account, the messages were sent within a few minutes of each other, with the Buyers’ message being first in time.

Clause 7 of GAFTA 120 provides as follows:

“EXTENSION OF DELIVERY -- The contract period of delivery shall be extended by an additional period of not more than 21 consecutive days, provided that Buyers serve notice claiming extension not later than the next business day following the last day of the delivery period. In this event Sellers shall carry the goods for Buyers’ account and all charges for storage, interest, insurance and other such normal carrying expenses shall be for Buyers’ account, unless the vessel presents in readiness to load within the contractual delivery period.

Should Buyers fail to present a vessel in readiness to load under the extension period, Sellers shall have the option of declaring Buyers to be in default, or shall be entitled to demand payment at the contract price plus such charges as stated above, less current FOB charges, against warehouse warrants and the tender of such warehouse warrants shall be considered complete delivery of the contract on the part of Sellers."

As the Sellers submitted, the contractual delivery period is a fundamental term of an FOB contract. It defines the parties' respective obligations to deliver and take delivery of the goods. It is therefore essential that the delivery period should be defined with clarity and certainty. Clause 6 of GAFTA Form No. 120 provides this certainty (“Delivery during ... at Buyers' call”), with the clarification that provided the vessel is presented in readiness to load within the delivery period. Sellers shall if necessary complete loading after the delivery period and carrying charges shall not apply. Similarly, the parties' typed contract in the present case provides a clearly defined delivery period.

However, clause 7 of GAFTA Form No. 120 permits the Buyers unilaterally to claim an extension of the delivery period by an additional period of not more than 21 consecutive days, provided that they serve a valid notice. In order to be valid, the notice must claim an extension and be served in time. There was an issue, not dealt with by the Board of Appeal and not arising on this appeal, whether the "notices" relied on by the Buyers were served in time.

As the Sellers further submitted, in considering whether the notice claimed an extension it should be borne in mind that the effect of a valid claim for an extension is to vary both parties' contractual rights and obligations in an important respect, so that the parties need to know whether or not an extension has been validly claimed. Certainty as to the existence and duration of any extension period is as important as certainty as to the original delivery period. The Sellers need to know whether they are required to bring forward the goods for delivery despite the expiry of the original delivery period; and, if so, for what additional period up to a maximum of 21 days they need to arrange storage, insurance, etc. The Buyers need to know whether they must provide a vessel during the extended period and whether they are liable for carrying charges.

Against that background the Sellers submitted that the requirements of a valid "claim" for extension should include the following:

I do not consider that it would be appropriate to seek to set out specific legal requirements for a valid claim for an extension, although the Buyers did not dispute points (1), (3), (4) and (5). However, I accept the general point made by the Sellers that because of the contractual importance of the claim for an extension and the need for certainty, the “notice” has to be clear as to both the fact that an extension is being claimed and as to its duration. I also accept that the “notice” has to be construed as a whole.

The Board of Appeal’s reasons for concluding that the “notices” did not “claim extension” were set out in paragraph 7.3 as follows:

“The plain and unambiguous language of GAFTA No 120 clause 7 EXTENSION OF DELIVERY confers an unconditional right on the buyer to extend delivery up to a maximum of 21 days. The seller’s consent is not required. Apparently, the buyer is free to make the exercise of his otherwise unrestricted right dependent on the seller’s approval or any other condition, with the consequence, of course, that if the seller does not agree or the condition is not fulfilled the delivery period will not be extended. Buyers and their solicitors have imposed conditions on Buyer’s concession of an extension. Sellers did not fulfil the conditions and WE FIND THAT the contract period was not extended in accordance GAFTA 120 clause 7 EXTENSION OF DELIVERY. It follows that Buyers did not present a vessel in readiness to load within the delivery period and are in breach of their obligation to load the contract goods. It furthermore follows that they cannot claim damages against Sellers for non-delivery.”

The crucial part of Board of Appeal’s reasoning is their conclusion that “Buyers and their solicitors have imposed conditions on Buyer’s concession of an extension.” The Board of Appeal construed the messages as laying down conditions for an extension of the delivery period which had to be agreed or fulfilled, but were not.

In relation to the Zaiwalla message the Board of Appeal further stated that “… it is highly doubtful whether a Gafta Form No. 119 notice was a valid Gafta Form No 120 extension notice at all.” In the light of their conclusion on conditionality they did not need to decide this further point, but they clearly had at least serious doubts as to whether this was a valid notice at all given its purported invocation of GAFTA Form No. 119.

The Buyers submitted that the Board of Appeal’s construction is plainly wrong and contended as follows:

In relation to the Buyers’ message I agree with the Board of Appeal and the Sellers that this was not a valid claim for an extension in accordance with clause 7. In particular:

In relation to Zaiwalla’s message there is a stronger argument that no condition was imposed on the extension. The message is not expressed in terms of being “ready” to extend the delivery period, but states that the Buyers “hereby give you Notice under Clause 7” and that they “require” the delivery period to be extended.

If the message had stopped, there can be little doubt that it would have been a claim to an extension (leaving aside for the moment the GAFTA Form No. 119 issue). However, the message then went on to require the Sellers to confirm their intention to ship the cargo within 7 days failing which they would treat the Sellers as being default. The claim to be entitled to do so raises similar inconsistencies with an extension having been claimed as are set out in paragraph 17(3) and (4) above.

It was forcefully submitted by the Buyers that this further assertion does not undermine the clear claim for an extension made earlier in the message. Against that it has to be recognised that the trade tribunal, the Board of Appeal, concluded that the message was conditional and that deference should be paid to their view on an issue of this kind, involving as it does construction of a message passing between trading parties against the background of their prior dealings and of the trade and trade contract in question. As stated by Jackson J in Kershaw Mechanical Services Ltd v Kendrick Construction Ltd [2006] 4 All ER 79 at [57] after a consideration of the relevant case law:

“1.

The court should read an arbitral award as a whole in a fair and reasonable way. The court should not engage in minute textual analysis.

2.

Where the arbitrator's experience assists him in determining a question of law, such as the interpretation of contractual documents or correspondence passing between members of his own trade or industry, the court will accord some deference to the arbitrator's decision on that question. The court will only reverse that decision if it is satisfied that the arbitrator, despite the benefit of his relevant experience, has come to the wrong answer.”

My own conclusion, giving due weight to the views of the trade tribunal, is that, taken on its own, it is unclear whether the message is claiming an extension regardless of the Sellers’ requested response. A notice that does not make it clear that the delivery period is being extended is not a sufficient or valid notice, for reasons already stated.

In any event, I consider that the correct approach is to construe the two messages together. That was the reality facing a reasonable person in the position of the Sellers faced with these two messages coming shortly after each other. He would not reasonably construe the Zaiwalla message as superseding the Buyers’ message. There is no stated or other clear basis for so doing, nor did the Board of Appeal so find. If one construes the messages together then, having regard to my conclusions as to the proper construction of the Buyers’ message, the Zaiwalla message would be reasonably understood in the same way. The uncertainty would be resolved by concluding that it had the same aim as the earlier message, namely offering the Sellers a choice between confirming their willingness to perform and there being an extension of the delivery period, or being put in default. That would be a conditional extension.

Even if that be wrong, on any view the effect of construing the two messages together was to leave it unclear as to whether an extension was being claimed. There was one message which claimed a conditional extension and another message which may or may not have been claiming a conditional extension. Further the two messages imposed different requirements as to the response required and as to timeframe in which that was to be done. They also referred to different contracts and different extension periods. The reasonable conclusion to be drawn would be that it was entirely unclear what the Buyers were claiming and on what basis. That too would be fatal to the extension claim.

For all these reasons I agree with the Board of Appeal’s conclusion that the contract period was not extended in accordance with clause 7 of GAFTA Form No. 120.

For completeness I shall nevertheless address the further issue as to whether Zaiwalla’s reference to the wrong contract form and the wrong extension period means that their message was not a valid claim for an extension in any event.

The Buyers submitted as follows:

In the present case the Buyers submitted that it is clear that something has gone wrong with the language. The matrix of fact was that parties did not contract on GAFTA Form No. 119 for a 30 day extension, but on GAFTA Form No. 120 for a 21 day extension. So, either the message was, on its face, claiming an extension under a contract form which formed no part of the contract, or the reasonable commercial person, aware of the matrix of fact, would have understood that something had gone wrong with the drafting. He would have understood the message to mean that Zaiwalla was seeking to apply the extension provisions incorporated into the contract, whatever they were.

Just as in the Mannai decision, another case involving notices, the Court construed the notice as referring to the “12^th January” rather than, as stated, “13^th January”, so here GAFTA Form No. 119 should be construed as referring to GAFTA Form No.120 and 30 days as referring to 21 days.

The authorities make it plain that it must be clear not only that something has gone wrong with the language but also that what the language should be.

As stated by Lord Hoffmann in the passage cited above “it should be clear what the reasonable person would have understood the parties to have meant.” In the Pink Floyd case Lord Neuberger MR stated as follows at [21]:

“.. before the court can be satisfied that something has gone wrong, the court has to be satisfied both that there has been “a clear mistake” and that it is clear “what correction ought to be made” (per Lord Hoffmann in Chartbrook [2009] 1 AC 1101 , paras 22-24, approving the analysis of Brightman LJ in East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61 , as refined by Carnwath LJ in KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336) .”

As the Sellers submitted, this is not a case like Mannai where there was only one alternative date which there could be. The present case involves not merely an alleged “mistake” as to the relevant GAFTA Form but also as to the period of extension claimed. The alternative period was not fixed at 21 days but could be any period up to 21 days. The Buyers submitted that having regard to their own message the intention must have been to refer to the maximum available period, but that does not necessarily or clearly follow.

Further, there is force in the Sellers’ point that a reasonable commercial person in their position could justifiably take the view that whatever may have been intended no extension had been validly claimed. One expects experienced businessmen, let alone their lawyers, to take care to purport to exercise contractual rights in a proper manner. Why should the Sellers have to try to second guess what may have been intended? On the face of it this was a clearly invalid notice and the Sellers should be entitled to treat it as such.

This would appear to have been the view of the Board of Appeal. They emphasised that the message came from a “London city firm of lawyers” and that it was “highly doubtful” whether a GAFTA Form No. 119 notice was a GAFTA Form No. 120 notice.

For all these reasons I am not satisfied that the Board of Appeal has erred in law in failing to construe a GAFTA Form No. 119 Notice claiming a 30 day extension as a GAFTA Form No. 120 Notice claiming a 21 day extension.

I accordingly conclude that the appeal must be dismissed.