Seagrain LLC v Glencore Grain BV

For a contractual prohibition clause to operate, an executive or legislative act must be of a nature that itself expressly or implicitly relates to restricting exports. It is not enough that a government measure has the collateral effect of delaying or disrupting customs clearance. The clause is construed in its contractual and commercial context, as a frustration or exemption clause, rather than by importing the purposive approach used for treaty free-movement rights. A measure that merely makes clearance slower does not prevent export or fulfilment, although delay may become relevant where its extent takes performance outside the contractual period. The deeming machinery also requires sufficient clarity for the restriction to be notionally written into the contract. Whether a particular measure qualifies remains fact-sensitive and is ordinarily for the specialist trade tribunal.

Seagrain agreed under GAFTA 48 to sell wheat of Ukrainian or Russian origin for shipment to Israel in August 2010. Russian wheat was subject to an export ban, so performance depended on Ukrainian wheat. Ukrainian customs letters required sampling and testing, including analysis at a Kyiv laboratory. Seagrain claimed that these measures restricted export under clause 18 and cancelled the contract. The GAFTA Board of Appeal rejected that case, and Blair J dismissed the appeal under section 69 of the Arbitration Act 1996: [2013] EWHC 1189 (Comm).

The Court of Appeal considered only whether an executive act had to be of a nature that itself restricted exports, or whether an effect on contractual performance was sufficient. The separate causal-connection question was not heard.

Disposition. The appeal was dismissed unanimously. Beatson LJ gave the reasons, with Gloster LJ and Rimer LJ agreeing. The appeal was determined on the executive-act question alone. The separate causal-connection question, discussed in Bunge SA v Nidera BV ([2013] EWHC 84 (Comm)), was left open.

1. The Prohibition Clause listed four triggering events: prohibition of export, blockade, hostilities, and an executive or legislative act by or on behalf of the relevant government. The fourth category, read in that context, required an act of a nature that itself expressly or implicitly related to restriction of exports. It did not cover every governmental act having a collateral effect on exports. The judge’s reference to an act in the nature of a formal restriction did not confine the clause to formal bans.
2. The clause operated in a C&F contract requiring the seller to ship customs-cleared goods. It was a contractual frustration or exemption clause, a characterisation supported by Bremer Handelsgesellschaft MBH v Vanden Avenne Izegem PVBA ([1978] 2 Lloyd's Rep 109). Such a clause was construed in its commercial context and generally narrowly. Belgium v Spain ([2002] 1 CMLR 26) was distinguishable because it concerned the purposive construction of treaty free-movement rights.
3. A measure making customs clearance more onerous or slower might delay export, but did not itself stop export or prevent contractual fulfilment. A broad construction would create automatic discharge for collateral delays and cut across the contract’s separate delay and force majeure provisions. The deeming machinery also required sufficient clarity for the restriction to be notionally written into the contract. The laboratory-testing requirement lacked that clarity: [2013] EWCA Civ 1627, paras [33]–[37].
4. The sellers bore the burden of proving a qualifying act and providing proof justifying cancellation. The Board had not required an outright ban. It found only possible delays and difficulties, no evidence of the other alleged governmental measures, and no prevention of fulfilment. Given the fact-sensitive nature of such questions, the specialist trade tribunal was entitled to determine them in light of its experience, consistently with Andre et Cie v Cook Industries Inc ([1986] 2 Lloyd's Rep 200) and Thomas P Gonzalez Corp v Muller’s Muhle Muller GmbH and Co KG (No. 2) ([1980] 1 Lloyd's Rep 445). The Board and Blair J were therefore justified in rejecting the sellers’ case.

• Court of Appeal (Civil Division) — unanimously dismissed Seagrain’s appeal: [2013] EWCA Civ 1627.
• High Court of Justice, Queen’s Bench Division, Commercial Court — Blair J dismissed Seagrain’s appeal under section 69 from GAFTA Appeal Award 4277: [2013] EWHC 1189 (Comm).
• GAFTA Board of Appeal — rejected the claimed application of the Prohibition Clause and found the sellers in default and liable in damages.