Aston FFI (Suisse) SA v Louis Dreyfus Commodities Suisse SA

This is an appeal under s.69 of the Arbitration Act 1996 by Aston FFI (Suisse) SA (“Buyers”) against a GAFTA Appeal Award No. 4342 dated 23^rd April 2014 (the “Award”) made in favour of Louis Dreyfus Commodities Suisse SA (“Sellers”) pursuant to leave granted by Cooke J. on 23^rd July 2014 in respect of two questions of law arising out of the Award:

As appears from the Award, the underlying dispute arises out of a contract between Buyers and Sellers dated 7 October 2011 (the “Contract”) whereby Buyers purchased 30,000 MT (+/- 10% in their option) of “RUSSIAN MILLING WHEAT in bulk, Crop 2011 AS PER GASC TENDER TERMS”. The Contract itself provided in material part as follows:

“Quality AS PER GASC TENDER TERMS

Inspection

WEIGHT, QUALITY AND CONDITION FINAL AT TIME AND PLACE OF LOADING AS PER RELEVANT GASC TENDER. Buyer’s right to appoint a 1^st class GAFTA approved surveyor. Should there be a major discrepancy between the two analysis results carried out by the 2 surveying companies, then a first class GAFTA approved 3^rd surveyor (to be mutually agreed upon) should act as arbitrator.”

….

Loadport Agent AS PER GASC TENDER TERMS

Documents furnished by the seller

AS PER GASC TENDER TERMS

Please issue draft copy documents for buyer’s approval

Payment 100% C.A.D. Geneva within 48 hours

Special Conditions

All GASC expenses like fees for GASC Delegation, LOI to be for buyer’s account. Seller is simply selling F.O.B. Terms; including expenses for the surveyor are for seller’s account

Governing Contract

All conditions not in conflict with the above as per GAFTA 49. Arbitration, if any, in London as per GAFTA 125.”

The Contract also contained terms relating to notice, loadguarantee, laytime and demurrage/despatch all stated to be “AS PER GASC TENDER TERMS” as well as other terms relating to price and shipment period.

“GASC TENDER TERMS” (“GTT”) is a reference to a separate document of some 15 pages issued by the General Authority for Supply Commodities (i.e. GASC, which is the Egyptian State wheat procurement body) inviting tenders for the purchase of wheat by GASC and containing the terms applicable to any such purchase made by GASC pursuant to such tendering regime.

The goods under this Contract were purchased by Buyers specifically in order to fulfil their obligations under an on-sale contract (the “Sub-Sale”) which it had concluded with GASC. On behalf of Buyers, Mr Rainey QC submitted that to that extent (at least) the two contracts were intended to be “back-to-back”. However, whatever the intention may have been, the Board expressly held in paragraph 8.3 of the Award that this was not in fact the case because of differences between the two contracts.

In any event, there is no dispute that by virtue of the various references to “AS PER GASC TENDER TERMS”, relevant provisions of the GTT were, in effect, duly incorporated into the Contract. At this stage, without deciding what specific terms were duly incorporated, it is convenient to identify the terms of the GTT which are at least potentially relevant:

“Supplied Wheat should matches & compiles to the following terms & conditions:

1)

TEST WEIGHT :  min 77 KG/HL acceptable down to 76KG/HL, with deduction of a ratio 1:1 from the price and prorate less then 77KG/HL to on 77 KG/HL to 76 KG/HL.

2)

MOISTURE :  max 13 pct up to 14 pct acceptable with deduction of a ratio 3:1 from the price and prorate over than 13% PCT to 14%.

 For American origin not to exceed 13% acceptable up to 13.5% with deduction of a ratio 3:1 from the price and prorate over than 13% PCT to 13.5%.

 For Australian origin not to exceed 12% max.

3)

PROTEINS : 11% protein minimum (determined by azot procedure on dry matter basis n^x 5.7)

For Russian origin 11.5% protein minimum (determinated by azot procedure on dry matter basis n^x 5.7)

4)

Total shrunken broken grains, damaged Kernels grains, other cereals grains, extraneous matter, harmful &/ or toxic seeds, Bunted grains & ergot must not exceed 5% max, division as follows:

…

NOR

…

CASE VESSEL HOLDS FAILED INSPECTIONS BY THE INSPECTION COMPANIES APPOINTED BY “GASC” AS WELL AS THE EGYPTIAN GOVERNMENTAL COMMITTEE – IF ANY – AS WELL AS OFFICIAL SURVEYING AUTHORITY AT LOAD PORT WHEN OCCURRED COMPLETELY OR PARTIALLY TIME FROM REJECTION UNTIL PASSING RE-INSPECTION NOT TO COUNT.

…

Payment:

Payment will be cash upon confirmed, irrevocable, non-transferable and divisible L/C against presentation of the following documents:

1)

commercial invoices …

2)

certificate of origin …

3)

certificate in one original and 2 copies stating that the shipped wheat is from latest crop harvest (2010) …

4)

Full set clean on board bills of lading in three originals …

5)

Superintending Certificate with (Sublots composite analysis) In One Original And 5 Copies To Be Issued By the Inspection company nominated by the buyer indicating Quantity, Weight, Specifications, Packing, Quality, goods kind At loading Time And Indicting Also That Holds And Hatches Of Carrying Vessel Are Clean And Free From Alive And Dead Insects And Fit For Shipping Wheat.

Said Certificate Should Also Show:

•

The loaded quantity conformed to the contract conditions and specifications.

•

Determination of the sampling methodology.

•

Sample is represented completely and it had been divided into three portions, stamped by the supplier and the inspection company, one sample is kept by the supplier, the second kept with the inspection company and the third sent with the master of the carrying vessel.

•

Determine the way of inspection and indicating the apparatus that had been used in inspection.

6)

Weight Certificate …

7)

Phytosanitary Certificate …

12)

One original Certificate & two copies issued by the appointed Superintending Company by GASC, Evidencing That the vessel is capable to load and transport the cargo also it is clean, pure and free from any insects or pests or traces of other materials which might cause damage to the shipped wheat or change in its specification and that it is free from rust and iron filings.

…

14)

two copies Of certificate of quality issued by the ministry of agriculture of Russian federation federal service on veterinary and phytosanitary supervision and declaration from the beneficiary evidencing that they have already dispatch the original certificate to the applicant (GASC) to be presented directly upon vessel’s sailing.

…

Notes:

…

3)

The buyer has the right to nominate who represents him in inspection operation at loading or discharging port

4)

GASC reserves the right to appoint a superintendent company of its choice with deduction of 1$Mt from the price.

…

7)

Immediately after award supplier must submit request to have delegation from the Government and will handle all the costs and procedures and offer all Facilities needed for the travel of this delegation at loading port and in case the delegation did not travel for reason due to the supplier the payment of the Cargo will be after the approval of the government Egyptian authority at the discharging port to discharge the vessel.

…

9)

If inspection of consignment at load port states that it is not identical to GASC’s conditions and specifications (in this tender document) it will be rejected immediately on site, the performance bond will be confiscated and the contract will be cancelled.”

In passing, it is noteworthy that payment under the Contract was C.A.D i.e. cash against documents, whereas under the GTT, payment was under a letter of credit. However, in my view, this difference is not significant for present purposes because (contrary to the submissions of Mr Collett QC on behalf of Sellers) it seems relatively plain that, since the Contract identified the documents to be furnished as “AS PER GASC TENDER TERMS”, the documents that were required to be presented to obtain “cash” under the Contract were, in my view, the same documents as would have to be presented under the GTT to obtain payment under the letter of credit contemplated by the GTT.

By virtue of the words “All conditions not in conflict with the above as per GAFTA 49” included in the body of the Contract as quoted above, the terms of the standard wording contained in GAFTA 49 were also incorporated to the extent that such terms were not in conflict with “the above” by which I understand not in conflict with the terms of the body of the Contract or the GTT, as incorporated in the Contract.

Clause 19 of GAFTA 49 provides as follows:

“19.

SAMPLING, ANALYSIS AND CERTIFICATES OF ANALYSIS

The terms and conditions of GAFTA Sampling Rules No. 124 are deemed to be incorporated into this contract. Samples shall be taken at time and place of loading. The parties shall appoint superintendents, for the purposes of supervision and sampling of the goods, from the GAFTA Register of Superintendents. Unless otherwise agreed, analysts shall be appointed from the GAFTA Register of Analysts.”

Thus, the Contract incorporated the terms and conditions of GAFTA Sampling Rules No. 124 (“GAFTA 124”) at least to the extent that there was no relevant conflict. GAFTA 124 contains detailed provisions with regard to sampling and analysis. For present purposes, it is only Rules 1.2 and 10 which are directly relevant viz.

“GENERAL

1.2

Pursuant to the contract terms and for the purposes of these Rules, superintendents shall be appointed from the GAFTA Register of Approved Superintendents.

…….

It is noteworthy that unlike the main body of the Contract, the GTT do not expressly provide for any particular inspection regime of the cargo (as opposed to inspection of the carrying vessel) at the loadport. Rather, so far as the cargo is concerned, the reference to “inspection” appears in two places in the GTT viz (i) under the “payment” section, in particular sub-clause 5) thereunder; and (ii) in the Notes as quoted above in particular Notes 3), 4) and 9) as quoted above. The former is obviously important: the GTT required that in order to obtain payment under the letter of credit, it would be necessary to present 5 copies of the “Superintendent Certificate” issued by the “… inspection company nominated by the buyer …” indicating the matters there specified. An important issue in the present case is whether this inspection company was required to be one which was approved by GAFTA. I deal with this further below.

As to the facts, one of the difficulties is that the findings made by the Board are set out, in part, under sub-clause 5 headed “THE FACTS”; and, in part, under paragraph 8 headed “FINDINGS”. Drawing these two sections together, I would summarise the most relevant facts by reference to specific paragraphs of the Award (as indicated in square brackets) as follows:

In essence, it was and is Buyers’ case that they were entitled to reject the cargo and to recover damages against Sellers. (It appears that there was originally some dispute as to whether Buyers ever did in fact reject the cargo; but the Award would seem to proceed on the basis that Buyers did in fact reject the cargo and the appeal before this Court also proceeded on that basis.) That claim was upheld by the First-Tier Tribunal. However, the Board reversed that decision in the Award and held in favour of Sellers. The Board’s reasoning appears in paragraph 8 of the Award. In summary, the Board concluded as follows:

The critical part of the Award and the main ratio of the Board’s decision are set out in paragraph 8.19 of the Award:

“[The Comibassal] nomination as between GASC and Buyers was contractually compliant. However, as between Buyers and Sellers their nomination was not contractually compliant as they were not GAFTA approved surveyors. Even if they had been GAFTA approved their certificate was not contractually compliant due to the differences mentioned [in paragraph 8.18 of the Award]. As a consequence of this there was no contractually compliant quality certificate for the goods loaded. Buyers, who had nominated Comibassal to Sellers, therefore had no official analysis on which to base their rejection. By rejecting the goods, with no official analysis to back up that decision, the Buyers were in repudiatory breach of the Contract and consequently WE FIND that Buyers were in default”. [8.19]

Thus, in summary, the Board appears to have held that Buyers were not entitled to reject the cargo for two main independent reasons viz (i) contrary to the requirement under the Contract, Comibassal was not a GAFTA approved surveyor (the “surveyor point”); alternatively (ii) the Comibassal certificate was not contractually compliant (the “certificate point”). There was some forensically interesting debate before me as to which of these two alternatives was to be regarded as the true ratio of the Board’s decision; but in the event, such debate is, in my view, academic.

It is not entirely easy to fit these two points into the questions of law which are the subject of this appeal. In these circumstances, I therefore propose first to deal with each of these points in turn; and, in the light of my conclusions, then to consider the appropriate answers to the questions of law.

As to the surveyor point, it is common ground that Comibassal was not GAFTA approved. However, Mr Rainey submitted that the Board was wrong to conclude in paragraph 8.19 of the Award that this was contrary to any requirement under the Contract.

Mr Collett submitted that this is a short, one-off point of construction; and that the Board’s view that Comibassal, as the first surveyor, was required to be GAFTA-approved, should be accorded substantial weight and accepted as correct. In general, I would agree that there is much force in that submission. However, the difficulty here is that the Board does not give any reasons or explanation for its conclusion.

Notwithstanding, Mr Collett submitted that the Board’s conclusion that the Buyers were not entitled to reject the goods because Comibassal was not GAFTA-approved is to be understood as being based on the preclusive effect of Rule 10 of GAFTA 124 which I have already quoted above. Thus, Mr Collett submitted that (i) the fact that Comibassal was not GAFTA-approved constituted a non-compliance with Rule 1.2; and (ii) by virtue of Rule 10, the effect of such non-compliance was that any quality and/or condition claims by Buyers “… shall be deemed waived and barred unless the arbitrators or board of appeal as the case may be, shall in their absolute discretion determine otherwise”. On this basis, Mr Collett submitted that the Award must be upheld.

Further, Mr Collett submitted that the Board was in any event correct in its conclusion that the nomination of Comibassal was not contractually compliant for the following reasons:

As to these submissions, it was common ground that the inspection clause in the Contract contemplated the possible involvement of three surveyors. I agree. Although not expressly stated, it seems to me inherent in the first sentence that an initial survey (i.e. the first survey) would be carried out in respect of weight, quality and condition. Although the first sentence of the inspection clause states that “weight, quality and condition final at the time and place of loading as per relevant GASC tender” (emphasis added), it was also common ground (and I agree) that pursuant to the second and third sentences of the inspection clause, Buyers had a “right” to appoint a “… 1^st class GAFTA surveyor ...”and that, should there be a major discrepancy between these two analyses, then a third surveyor would be appointed to act as “arbitrator”.

To this extent, I accept Mr Collett’s submissions. However, it seems to me that Mr Rainey is right in his submission that there is no requirement in the Contract that the first surveyor must be GAFTA-approved for the following reasons:

In light of the above, I do not accept Mr Collett’s submission that the Award should be upheld on the basis of the preclusive effect of GAFTA 124 Rule 10. As already stated above, GAFTA 49 was in my view only incorporated in the Contract to the extent that such terms were not in conflict with the terms of the body of the Contract or the GTT as incorporated in the Contract. In my judgment, GAFTA 124 was similarly only incorporated to that extent. Thus, if I am right in my conclusion that the first surveyor i.e. Comibassal was not required to be GAFTA-approved, such conclusion would “conflict” with the contrary argument based upon GAFTA 124 Rule 1.2 and, to that extent, the latter would not, in my view, be incorporated or otherwise apply. It follows in my view that:

For these reasons, it is my conclusion that the Board was wrong to conclude that the nomination of Comibassal was not contractually compliant under the Contract.

As stated above, the Board concluded in paragraph 8.18 of the Award that the Comibassal certificate was “deficient and non-contractual” for the reasons there stated. There is no dispute about this conclusion. Rather, the question arises as to the consequences that flow from such conclusion. In effect, the Board considered that Buyers were only entitled to reject the cargo on the basis of a certificate which complied with the documentary requirements set out in the payment terms of the GTT; and that absent such a certificate, Buyers were, in effect, precluded from rejecting the cargo.

As to this conclusion, it seems to me relatively plain that a compliant certificate was one of the documents which had to be presented by Sellers under the Contract to obtain “cash”; and, in their turn, by Buyers under the letter of credit under the Sub-Sale. In my view, it necessarily follows that the absence of such a compliant certificate in effect prevented Sellers from obtaining “cash” under the Contract and also prevented Buyers, in their turn, obtaining payment under the letter of credit under the Sub-Sale (although the latter is not directly relevant to the present case). However, it remains to consider whether Buyers were entitled to reject the cargo under the Contract absent a contractually compliant certificate.

In considering this aspect of the case, it seems to me important to recognise at the outset that, as Mr Collett accepted, an FOB buyer will (or at least may) ordinarily have two separate rights of rejection i.e. a right to reject the documents and a right to reject the goods: see, for example, Benjamin’s Sale of Goods, 9^th Ed paras 20-113. The result is that (subject, of course, to the terms of any particular contract), an FOB buyer may be able to reject the goods even if the documents are contractually compliant. As a general proposition, I did not understand Mr Collett to suggest otherwise.

However, the main thrust of his argument was that (i) as a general proposition, where a contract prescribes a mandatory procedure for (say) inspection of the goods and also provides, in effect, that the results of such inspection as contained in a certificate are “final” as to the quality of the goods, then the buyer can only reject the goods by relying on a contractually compliant certificate demonstrating a relevant (and sufficient) disconformity of the goods; and (ii) the inspection clause of the present Contract (read with such parts of GAFTA 124 as were incorporated into the Contract) provided in effect for such mandatory procedure i.e. it contained an exclusive code for determining the quality and condition of the goods with regard to the matters specified in sub-clauses 5) and 7) of the payment provisions of the GTT.

In support of that submission, Mr Collett relied, in particular, on three main authorities viz: Agro-Export v NV Goorden [1956]1 Lloyd’s Rep 319; W N Lindsay & Co Ltd v European Grain & Shipping Agency Ltd [1963] 1 Lloyd’s Rep 437; Charles E Ford Ltd v AFEC Inc [1986] 2 Lloyd’s Rep 307. In the event, I do not consider that it is necessary to consider in detail these authorities. Without deciding the point, I am prepared to assume in Mr Collett’s favour that they support the general proposition as stated above.

However, as submitted by Mr Rainey, the exclusion of ordinary rights at common law should not be lightly inferred and require clear and unambiguous expression: see Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 per Lord Diplock at 717H; and specifically in the present context, clear words would be necessary to exclude the independent right to reject the cargo for non-conformity: see, for example, W N Lindsay & Co Ltd v European Grain & Shipping Agency Ltd per Diplock LJ at 445 and Charles E Ford Ltd v AFEC Inc per Bingham J at 314-5.

Further, I am unpersuaded that the particular terms of the Contract in the present case have the effect stated by Mr Collett. At the risk of repetition, I accept, of course, that the opening part of the inspection clause in the Contract uses the term “final”; that, as I have already stated, this must relate to what has been referred to as the “first survey”; and that the presentation of a contractually compliant inspection certificate (i.e. an inspection certificate complying with the terms of sub-clause 5) of the payment section of the GTT) is one of the documents which is required by Sellers to obtain “cash” under the Contract (and also by Buyers under the Sub-Sale). However, there is nothing in the Contract nor the GTT nor GAFTA 124 which provides either expressly or impliedly that the issuance of an inspection certificate compliant with sub-clause 5) of the payment section of the GTT is determinative of the quality of the goods such that the absence of such contractually compliant certificate would, in effect, preclude Buyers from rejecting the goods for relevant disconformity. On the contrary, it seems to me that the effect of the inspection clause in the Contract when read together with Note 9) of the GTT is that even if the inspection certificate produced by the first surveyor did not contractually comply with the terms of sub-clause 5) of the payment section of the GTT (so as to prevent Sellers from obtaining “cash” under the Contract), Buyers would be entitled to reject the cargo for relevant disconformity having regard to the totality of the evidence in relation thereto.

In summary, while I accept in principle that the independent right of an FOB buyer to reject the goods may be modified or even excluded by agreement, I do not consider that the words of the Contract in the present case have such effect.

For these reasons, and subject to any further submissions on the precise form of wording, I would answer the questions of law as follows:

It also follows that I would set aside the Award. In that event, Mr Rainey submitted that I should in effect vary the Award so as to declare that Buyers were entitled to reject and uphold Buyers’ claim against Sellers. I accept that that course has much attraction – if only because it will bring this dispute to a close and avoid further legal costs. However, it seems to me that it must be for the Board rather than this Court to decide whether Buyers were entitled to reject the cargo having regard to the totality of the evidence. Mr Rainey submitted that, in truth, the answer to that question is obvious and inevitable having regard to the findings already made by the Board. However, in my view, the proper course is to remit the matter to the Board to enable it to reach the appropriate conclusion in the light of this Judgment unless, of course, the parties can resolve any outstanding dispute by agreement. Accordingly, I would invite Counsel to seek to agree the wording of an order including any consequential matters. Failing agreement, I will deal with any outstanding matters.