The Seller, Fortior’s client, was selling Ukrainian wheat on DAP terms to the Buyer. The contract incorporated the Gafta 78 proforma, was governed by English law and provided for arbitration under Gafta 125 Rules.
Clause 2 of Gafta 78 provides:
“Each consignment in whole or part fulfilment of this contract to be considered a separate contract…”
The effect of the clause is that regardless of the Buyer’s failure to pay part of the price of the goods that had already been delivered under the Contract, the Seller is obliged to perform its delivery obligations in respect of future instalments under the same contract.
The clause 11(g) of Gafta 78 also stipulates:
“No obvious clerical error in the documents shall entitle Buyers to reject them or delay payment”
In our case the Seller was delivering the cargo in instalments. The first small instalments were accepted and duly paid for by the Buyer. The Seller then delivered further instalments, which represented more than 50% of the total quantity under the Contract. The Buyer accepted the cargo but refused to pay for it. The Buyer alleged that one of the invoices contained an error in the Contract’s number, and therefore it was not obliged to make payment until the error was corrected. The Seller corrected the error and resent the invoice to the Buyer, but still the payment was not forthcoming. It emerged that the Buyer had acquired a claim from one of the Seller’s creditors under a different contract. It was the Buyer’s case that they were entitled to set-off the acquired debt against the sums they owed the Seller under the Contract. It became evident that the Seller would not get paid unless they agreed to the set-off. At the same time, the Buyer was pressing the Seller to effect further deliveries. The Seller refused to deliver without being paid for the previously delivered cargo. The Buyer declared the Seller to be in default of the Contract. The Seller applied to GAFTA claiming that the Buyer was obliged to pay for the accepted goods.
The way the Seller was putting its case was seriously contested by the Buyer. The Buyer filed a counterclaim for damages which they alleged arose from the Seller’s failure to deliver the full contractual quantity of the cargo. The Buyer argued that they were not obliged to pay since (i) there were mistakes in the presented invoices, and on this basis the Buyer was entitled not to pay for the goods, (ii) they were entitled to withhold payment on the basis that the Seller had failed to comply with an agreed delivery schedule, (iii) the Buyer was entitled to set-off the acquired third-party debt against the sums due under the Contract.
However, the cornerstone of this dispute was whether the Buyer’s non-payments for accepted cargo justified the Seller’s refusal to perform further deliveries. The Buyer argued that there was nothing which allowed the Seller to refuse to perform the deliveries, since Gafta 78 clearly provides for “each consignment to be considered as a separate contract”.
The Gafta first-tier sole arbitrator found in favour of the Seller and the Buyer’s counterclaim failed. The matter then went to the GAFTA Board of Appeal. Although the Buyer initially insisted on a complete rehearing of the case, in fact the appeal was limited to its original counterclaim. The Board of Appeal found that notwithstanding the general rule under the clause 2 of the Gafta 78, the Seller was right in deciding not to make further deliveries. In reaching this conclusion the Board of Appeal accepted the legal authorities referred to by the Seller and considered that there was a significant proportion of unpaid goods and that it was likely that the Buyer would breach its contractual duties with regard to future deliveries.
As to the other issues, the Board found that the error in the invoice was clerical, and the Buyer was not entitled to withhold payment due to this error.
Danil Hristich, Senior Associate, and Sergey Platonov, Associate at Fortior Law S.A. represented the successful Seller in this case. Fortior Law S.A. is an international dispute resolution firm with its headquarters in Geneva, Switzerland. For more information, please get in touch with [email protected], [email protected] or your usual contact at Fortior.