Gulf Agri Trade Fzco v Aston Agro Industrial AG

A notice of default under a GAFTA contract may constitute a repudiatory breach, but that depends on the sender’s objective intention assessed from all the circumstances. The fact that the notice is premature or based on an incorrect view of contractual rights does not, by itself, establish repudiation. In GAFTA trades, however, a notice of default is ordinarily predicated on termination. Where the sender contends that it intended to continue performing, an evidential burden may fall on that party to demonstrate that intention. A tribunal may draw on its specialist trade experience when assessing the effect of the notice.

Gulf Agri Trade FZCO appealed under section 69(1) of the Arbitration Act 1996 from a GAFTA Board of Appeal award. The Board had dismissed Gulf’s claim for damages arising from Aston Agro Industrial AG’s alleged failure to ship Russian feed barley.

Gulf had sent Aston an email forwarding its sub-buyers’ demand for compensation and seeking an amicable settlement. Aston treated that communication as a premature repudiation, accepted it and treated the contract as terminated. The Board concluded that Gulf’s email was a notice of default purporting to terminate the contract, that Aston was not then in anticipatory breach, and that Gulf had wrongfully repudiated the contract. The central issues concerned the legal effect of a premature GAFTA default notice and the relevance of an accompanying hope of settlement.

1. The appeal was dismissed. The Board of Appeal had made explicit and implicit findings that Gulf’s notice was premature and unjustified, and that Gulf was therefore in breach. The first question on which leave was granted proceeded on a false premise.
2. The second question did not arise. The Board had made no finding that Gulf sent the notice under a misapprehension as to the correct date of default, and had made no finding about Gulf’s state of mind.
3. Repudiation is determined objectively. The question is whether, viewed in the circumstances known to the parties, the party’s conduct manifested an intention to abandon the contract or refuse further performance. That is a question of fact for the tribunal, based on all relevant evidence. The approach in Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 and Alfred Toepfer v Peter Cremer [1975] 2 Lloyd’s Rep 118 was reconciled with Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] AC 757 on that basis.
4. In a GAFTA trade, a notice of default is ordinarily based on termination of the contract. A specialist tribunal was entitled to find that such a notice was likelier than not to be understood as repudiatory, and that an evidential burden fell on Gulf to show that it intended to continue performing.
5. The Board found no confusion about the shipment date, no genuine negotiating purpose, and no reasonable basis for concluding that Aston could not or would not perform. It also found no circumstances showing that Gulf intended to continue performance if its default notice proved unjustified. Those findings supported the conclusion that Gulf’s notice manifested an intention to abandon the contract. The third question was therefore answered yes on the facts found.

• High Court (Commercial Court): Gulf’s section 69 appeal was dismissed. Mr Justice Aikens held that the Board of Appeal’s conclusion that Gulf had repudiated the contract was supported by its findings.
• GAFTA Board of Appeal: Appeal from the First Tier Tribunal was dismissed. The Board found that Gulf’s 4 October 2004 communication was a notice of default purporting to terminate the contract and that Gulf had wrongfully repudiated it.
• GAFTA First Tier Tribunal: Gulf’s claims for damages were unsuccessful.