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

An appeal under section 69 of the Arbitration Act 1996 is confined to a question of law which the tribunal was asked to determine and must proceed on the award’s findings of fact. A permitted question may be refined if its substance remains unchanged. The court cannot introduce a new issue or make factual findings which do not inevitably follow from the award.

Under a GAFTA default clause, the value of goods following a buyer’s default is governed by the compensatory and mitigation principles. Where no market exists for an exact substitute transaction, the tribunal should use the market in which a reasonable seller would dispose of the contract goods. Goods already landed, customs cleared and warehoused should ordinarily be valued as and where they stand, including any market uplift then attaching to them.

The Sellers sold lentils and peas to the Buyers on C&FFO Mundra terms incorporating the GAFTA Contract No 24 Default Clause. After the Buyers failed to pay, the goods remained customs cleared and warehoused at Mundra. The GAFTA Appeal Board valued them by combining FOB Vancouver prices with notional freight to Mundra, rather than by their domestic ex warehouse value.

Cockerill J dismissed the Buyers’ section 69 appeal: [2023] 1 All ER (Comm) 321. The Court of Appeal allowed a further appeal, holding that the contracts had been varied into ex warehouse contracts: [2023] EWCA Civ 7; [2023] 2 All ER (Comm) 457.

The Supreme Court considered whether the Court of Appeal had exceeded its arbitral appellate jurisdiction by deciding an issue not placed before the Appeal Board and by making new factual findings. The cross-appeal concerned whether the Default Clause required the goods to be valued on an ex warehouse Mundra, or “as is, where is”, basis.

1. Appeal allowed on grounds (2) and (3); ground (1) dismissed. Lord Hamblen, with whom Lord Reed, Lord Hodge, Lord Briggs and Lord Leggatt agreed, held that the Court of Appeal permissibly amended the question of law by adding a reference to the circumstances found in the awards. A section 69 question must always be decided on the award’s factual findings. The amendment therefore made explicit what was already implicit and did not alter the substance of the permitted question.

2. The Court of Appeal nevertheless lacked jurisdiction to decide that the contracts had been varied. Section 69(3)(b) of the Arbitration Act 1996 requires the relevant point to have been fairly and squarely before the tribunal for determination. Variation had not been argued before, addressed by or submitted for determination to the Appeal Board. The appellate court could not introduce it.

3. A section 69 appeal concerns errors of law. The court has no jurisdiction to correct errors of fact or make its own factual findings. An implicit arbitral finding may be recognised only where it inevitably follows from the express findings. The Court of Appeal impermissibly found that discharge occurred against presentation of the original bills of lading. That finding did not inevitably follow from the awards and was critical to its conclusion that the contracts had been varied.

4. Cross-appeal allowed. The compensatory and mitigation principles govern the GAFTA Default Clause. A genuine substitute transaction may establish the default price. Where no suitable transaction exists, the “actual or estimated value” under clause 25(c) ordinarily derives from the market in which reasonable mitigation would occur. An identical substitute contract is preferable when available, but the clause permits a flexible assessment and appropriate adjustments where no identical market exists.

5. On the default date the Sellers held the contract goods customs cleared and warehoused at Mundra, where tariffs had significantly increased their domestic value. The reasonable market was therefore the ex warehouse Mundra market. A notional new purchase FOB Vancouver ignored the goods actually left in the Sellers’ hands, the commercial reality and the tariff-derived benefit. If no bulk market existed, their estimated realisable value still had to be assessed as and where they stood.

6. The awards were remitted to the Appeal Board for reconsideration on the basis of a notional bulk ex warehouse Mundra sale on 2 February 2018, or, absent an available bulk market, the goods’ estimated value as customs-cleared goods warehoused at Mundra.

1. United Kingdom Supreme Court: The Sellers’ appeal was allowed on the grounds that the Court of Appeal decided an issue not submitted to the tribunal and made an impermissible factual finding. The Buyers’ cross-appeal was allowed and the awards were remitted: [2024] UKSC 14.
2. Court of Appeal: The Buyers’ appeal was allowed. The court held that the contracts had been varied into ex warehouse contracts and remitted the damages assessment: [2023] EWCA Civ 7; [2023] 2 All ER (Comm) 457.
3. High Court: Cockerill J dismissed the Buyers’ appeal because no error of law by the Appeal Board had been established: [2023] 1 All ER (Comm) 321.
4. GAFTA Appeal Board: The Board found the Buyers in default and assessed damages by using FOB Vancouver prices plus notional freight to Mundra.