Sharp Corp Limited v Viterra BV (previously known as Glencore Agriculture BV)

Under a GAFTA default clause, damages are ordinarily assessed by reference to a notional substitute contract on the same terms as the parties’ bargain, save as to price. The assessment must reflect the nature of the bargain lost at the date of default. A standard C&F contract is not automatically valued by reference to landed goods on an “as is where is” basis, nor by an FOB price plus freight where the contract has been varied. If the bargain has become an ex-warehouse sale of specific goods, the valuation must reflect that variation, including its payment and risk terms. On a statutory appeal, the legal question may be refined where its substance remains unchanged and the refinement stays within the scope of the permission granted.

Sharp Corp appealed under section 69 of the Arbitration Act 1996 from two GAFTA Appeal Board awards concerning buyers’ default under contracts for lentils and peas sold C&F free out Mundra. The Board assessed damages by reference to the estimated C&F free out value at Mundra, calculated from FOB prices plus freight. Mrs Justice Cockerill dismissed the appeal in [2022] EWHC 354 (Comm).

Before the Court of Appeal, the central issue was whether paragraph (c) of the GAFTA Default Clause required valuation by reference to the goods’ market value at Mundra or the theoretical cost of a replacement C&F shipment. By the default date, the goods had been discharged, customs cleared, stored and made subject to revised instalment payment terms.

The appeal was allowed and the Awards were remitted to the Appeal Board for reconsideration. Popplewell LJ gave the leading judgment, with which Phillips LJ and Asplin LJ agreed.

1. Paragraph (c) of the GAFTA Default Clause is directed to the compensatory assessment of the innocent party’s loss of bargain. Consistently with Bunge SA v Nidera BV [2015] UKSC 43, the usual measure is the value under a notional substitute contract on the same terms as the parties’ contract, save as to price. The assessment must reflect the nature of the bargain lost. Paragraph (c) is not simply concerned with the same market or transaction as paragraph (a), which addresses an actual mitigation sale.

2. The relevant bargain is the bargain existing at the date of default. If the original contract has been varied, the notional substitute must reflect the varied terms. The LOI and Addenda had changed the arrangement so that the goods were discharged, customs cleared and stored at Mundra, with instalment payment terms and the Buyers subject to restrictions on taking delivery. The bills of lading had become exhausted as documents of title on delivery, applying Barber v Meyerstein (1870) LR 4 HL 317.

3. The contracts had therefore ceased to be ordinary C&F contracts. They were, in substance, contracts for the sale of the specific goods ex warehouse Mundra, subject to the agreed instalment terms, although risk had passed to the Buyers on shipment. The appropriate valuation was a notional bulk sale ex warehouse Mundra on 2 February 2018, with those payment terms and risk passing to the buyer at the date of contract. The analogous reasoning in Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd [1986] 1 AC 785 supported that conclusion.

4. The alleged “windfall” arising from increased value after customs clearance did not alter the result. That increase resulted from the parties’ contractual variation and was part of the bargain to be valued at the default date. The question of law could properly be refined within the scope of the permission granted under sections 69(4) and 69(7)(c) of the Arbitration Act 1996.

• Court of Appeal (Civil Division): In [2023] EWCA Civ 7, the appeal was allowed and the Awards were remitted to the GAFTA Appeal Board.
• High Court, Commercial Court: In [2022] EWHC 354 (Comm), Cockerill J dismissed the appeal from the Appeal Board’s awards but granted permission to appeal.
• GAFTA Appeal Board: The Board awarded damages, assessing the goods’ value by reference to C&F free out Mundra prices estimated from FOB value plus freight.