R G Grain Trade Llp (UK) v Feed Factors International Ltd

On an appeal under section 69 of the Arbitration Act 1996, a contractual certificate-final regime may be altered by provisions giving the buyer a right to obtain a second analysis. Where that right is exercised, the second analysis may be final and binding under the incorporated trade rules. A clause providing allowances for specified quality warranties does not, without clear words, exclude rejection for every other quality deviation. Whether rejection is available depends on whether the relevant term is a condition, warranty or innominate term, applying the consequences of the applicable classification.

The sellers appealed an Appeal Award of the GAFTA Appeal Board, which awarded the buyers damages and dismissed the sellers’ claim for the balance of the price. The dispute concerned sunflower expeller sold under a contract incorporating GAFTA No. 119 and GAFTA Sampling Rules No. 124.

The sellers’ superintendent certified the cargo as complying with the specifications. The buyers had appointed their own supervisor and obtained a Salamon and Seaber analysis showing deficiencies in protein and fibre. They rejected the documents and goods. The appeal raised two questions: whether the sellers’ certificates were final and binding, and whether the buyers were entitled to reject despite clause 5 of GAFTA No. 119.

1. Second analysis. The sellers’ superintendent’s certificate was final where the buyers did not appoint their own supervisor and did not invoke a second analysis. However, the contract altered that regime when the buyers appointed their own supervisor, because sampling then had to be undertaken conjointly. The reference to a second analysis, appearing after the buyers’ supervisory right, was properly construed as conferring a right on the buyers.
2. That right would have no meaningful purpose if the sellers’ certificate remained final in every case. Accordingly, when the buyers called for a second analysis, the certificate-final regime no longer applied and rule 5 of GAFTA Sampling Rules No. 124 was engaged. Under rule 5.1.6, the Salamon and Seaber analysis was final and binding. The appeal on that issue was dismissed.
3. Clause 5 and rejection. Clause 5 of GAFTA No. 119 concerned the specified warranty as to combined oil and protein and sand or silica. Its allowance provisions did not clearly establish a general exclusion of rejection for all other quality deviations, including fibre.
4. The Board nevertheless erred in law by assuming that failure to meet a quality specification gave an automatic right to reject unless an allowance scale existed. The relevant term had to be classified as a condition, warranty or innominate term. If innominate, rejection would depend on whether the breach deprived the buyers of substantially the whole benefit of the contract.
5. The rejection issue was remitted to the Board for reconsideration, including the alternative case concerning merchantable or satisfactory quality and the appropriate allowance or damages if rejection was unavailable.

• GAFTA first-tier arbitrators: The sellers’ claim for the balance of the purchase price succeeded.
• GAFTA Appeal Board: The buyers’ damages claim succeeded and the sellers’ claim was dismissed.
• High Court (Commercial Court): The court held that the Salamon and Seaber analysis was final and binding, but remitted the buyers’ entitlement to reject for reconsideration.