GLENCORE GRAIN ROTTERDAM B.V. v. LEBANESE ORGANISATION FOR INTERNATIONAL COMMERCE (LORICO)

In a normal FOB sale, the buyer must provide a conforming irrevocable letter of credit before shipment. The seller is not required to procure freight-prepaid bills merely because the buyer assures payment of freight; a special agreement or reliable third-party guarantee may alter that position. A party entitled to refuse performance may rely on an existing justification even if it gave another reason, subject to qualifications where the contractual opportunity to remedy has expired and to established waiver or estoppel. Waiver or estoppel requires an unequivocal representation which the other party acted upon. There is no free-standing rule that perceived unfairness alone prevents reliance on contractual rights.

Glencore Grain Rotterdam B.V. agreed to sell wheat to LORICO on FOB terms incorporating GAFTA form 64. The buyers opened a letter of credit requiring freight-prepaid bills of lading. The sellers refused to ship, demanding pre-payment and an additional sum, initially relying on the vessel's alleged late arrival.

The GAFTA Board awarded the buyers damages. Longmore J. held that the buyers were not entitled to require freight-prepaid bills, but upheld the award because the sellers were precluded from relying on the defective letter of credit. The sellers appealed and the buyers cross-appealed. The central issues were whether the credit conformed to the sale contract and whether the sellers could rely on the buyers' breach despite having given a different reason for refusing to ship.

Lord Justice Evans delivered the substantive judgment. Sir Ralph Gibson and Lord Justice Nourse agreed.

1. Letter of credit. The sellers' appeal succeeded on the first issue. Under a normal FOB sale, the seller may require a conforming letter of credit before shipment, but is not obliged to pay freight. The buyer therefore cannot require payment under the credit to depend on the seller producing freight-prepaid bills of lading merely by assuring that the freight will be paid. The Court accepted the analysis based on Green v. Sichel (1860) 7 C.B.N.S. 747 and Pyrene v. Scindia Navigation [1954] 2 Q.B. 402. The buyers' time charter and ability to instruct the master, considered in The Nanfri [1979] 1 Lloyd's Rep. 201, did not justify the implied term.
2. Fresh agreement. Although the agreed terms of a letter of credit may supplement or vary the sale contract, no such agreement was made here. The sellers rejected the freight-prepaid requirement, and their silence did not amount to acceptance: Ficom v. Sociedad Cadex Ltda [1980] 2 Lloyd's Rep. 118; The Leonidas D [1985] 1 W.L.R. 925.
3. Breach and justification. The buyers were required to open a conforming credit by the beginning of the shipment period and failed to do so. Under the basic rule in Taylor v. Oakes, Roncoroni & Co. (1922) 127 LT 267, a party entitled to refuse performance may rely on an existing justification even if it gave a wrong reason. The qualification in Heisler v. Anglo-Dal Ltd [1954] 1 W.L.R. 1273 did not apply because the contractual time for correcting the credit defect had expired. The refusal to ship was properly characterised as anticipatory breach under Heyman v. Darwins Ltd. 1942 A.C. 356, but it was justified by the buyers' prior breach.
4. Waiver and estoppel. Waiver or estoppel requires an unequivocal representation, by conduct or otherwise, which was acted upon. Panchaud Freres [1970] 1 Ll.R. 53 did not create a separate doctrine based only on unfairness or injustice. Its acceptable basis was the common-law rule of acceptance, now reflected in Sale of Goods Act section 35, or conventional estoppel by conduct.
5. Application and order. The sellers' silence after 29 March did not represent that the freight-prepaid requirement had been abandoned. No waiver or estoppel arose. The sellers' appeal was allowed, the buyers' cross-appeal was dismissed with costs, and leave to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division) allowed the sellers' appeal and dismissed the buyers' cross-appeal: [1997] EWCA Civ 1958.
• Commercial Court, Queen's Bench Division (Longmore J.) held that the buyers were not entitled to require freight-prepaid bills of lading, but upheld the GAFTA award on the basis that the sellers were precluded from relying on the defective letter of credit.
• GAFTA Board of Appeal held that the buyers were entitled to require freight-prepaid bills and awarded them damages for the sellers' refusal to ship.