Wednesday, 12 November 2014

Commercial Court rules on buyers rights to extensions of time under GAFTA 49

November 12, 2014.
Nidera BV v. Venus International Free Zone for Trading and Marine Services SAE (Pioneer Wave) [2014] EWHC 2013 (Comm)

This recent decision from the Commercial Court provides useful guidance on the construction of Clause 8 of the popular GAFTA 49 form; in particular, on the nature and scope of a buyer’s right to extend the delivery period under that clause.

The Court held that the “clear and unqualified” words in Clause 8 mean that a buyer has an absolute right to extend the shipment period under Clause 8 of GAFTA 49, and the right would remain available to a buyer whose nominated vessel had already arrived and was presented within the delivery period.

The background facts

In late 2010, Venus (“Buyers”) bought 30,000 mt of Ukrainian yellow corn from Nidera (“Sellers”) on FOB terms, using the GAFTA 49 standard form contract with delivery 16-31 October. The Buyers nominated a vessel that tendered NOR at the load port, Yuzhny, Ukraine, on 15 October 2010. However, no berth was available and loading did not commence.

In the meantime, Ukraine had adopted a Resolution implementing a quota system over various exports including corn, and issued an Order setting a quota for corn export of 2,000,000 metric tons and prescribing an export licence application procedure. The Resolution was made before the vessel tendered NOR on 15 October, but both the Resolution and Order were only published after 15 October.

The Buyers claimed that under Clause 6 of GAFTA 49, the Sellers were obliged to have the goods ready for delivery at any time within the delivery period. Meanwhile, the Sellers asserted that the cargo had been available at the loading port from the beginning of the loading period and the delays were due to the Resolution and the Order.

The delivery period was due to expire on 31 October, but on 29 October the Buyers claimed an "extension of the shipment period to 21 November in accordance with Clause 8 of GAFTA 49".

Clause  8, so far as here relevant, reads:


[8.1] The contract period of delivery shall be extended by an additional period of not more than 21 consecutive days, provided that Buyers serve notice claiming extension not later than the next business day following the last day of the delivery period.

The Sellers argued that the Buyers’ purported extension was invalid and ineffective. Having been unable to obtain an export licence, on 2 November the Sellers cancelled the contract in reliance on GAFTA Prohibition Clause 13, on the basis that they had been prevented from performing the contract due to prohibition.

On 5 November, the Buyers advised the Sellers that the Buyers accepted the Sellers’ repudiatory and/or renunciatory breaches of contract as bringing the contract to an end.

The Buyers claimed in a GAFTA arbitration that they were entitled to damages. The Sellers denied that there was any such entitlement on the following grounds:

the Buyers’ claim for an extension to the delivery period was wrong, because GAFTA Clause 8 was not intended to apply to a situation where a vessel had already arrived and was presented within the delivery period. The extension was invalid and ineffective; and
the Sellers were entitled to rely upon the GAFTA Prohibition Clause 13.
The GAFTA Tribunal and the Appeal Board both held that the Buyers had validly extended the contract delivery period. As a result, the Sellers’ cancellation of the contract was premature, constituting a repudiatory breach of contract that had been validly accepted by the Buyers.
It was on this issue - the nature and scope of Clause 8 of GAFTA 49 and whether the Buyers’ extension was valid - that the Sellers appealed to the Commercial Court.

The Commercial Court decision

The issue was whether GAFTA Clause 8, which offered the Buyers the option to extend the delivery period, ought to be limited in its application. Could Clause 8 apply to a situation where a vessel had already arrived and was presented within the delivery period?

The Sellers’ main argument in favour of construing such a limitation into the wording of Clause 8 was that since the Buyers’ obligation under the contract was to nominate a vessel for loading (Clause 6), any extension of time sought by the Buyers would logically be an extension allowing the Buyers additional time to perform that obligation.

It followed, therefore, that any right on the part of the Buyers under Clause 8 to extend time must naturally be linked to Clause 6 and limited only to an allowance of additional time for the Buyers to present a contractual vessel within the extended delivery period.

In circumstances where the Buyers had already fulfilled their contractual obligation under Clause 6 to nominate and present such vessel for loading, Clause 8 insofar as it conferred a right on the part of the Buyers to extend the delivery period, no longer had any relevance, and could not be invoked to grant the Buyers additional time to do something they had already done.

The Commercial Court was not persuaded by these arguments. The Judge held that the Sellers’ arguments provided no sound basis for departing from what Clause 8 appears to say on its face: namely, where a timely notice is served, there is an unqualified right of extension under clause 8. The Judge accepted the Buyers’ assertions that the extension of time was valid on the basis that Clause 8 was clear and unqualified in its terms.

Although the Judge accepted that there was a link between Clauses 6 and 8, the Judge held that it could not follow that Clause 8 is solely concerned to mitigate what would otherwise be the effect of Clause 6. Significant weight was placed on the fact that the parties had used an unmodified provision in a standard form contract for use all over the world from day to day. The Court would only find that the words had limited meaning if there was compelling evidence that the limited meaning would be obvious to a trader.

The Sellers’ appeal was dismissed and leave to appeal was refused.


For traders and other frequent users of GAFTA 49, the decision offers helpful guidance on an important clause in a widely-used standard form contract. Buyers will be glad to know that they have an unqualified right to extend the shipment period under a sale contract, even if they have already nominated (and presented) a vessel for loading, to seek to prevent sellers seeking to rely on potentially temporary impediments (such as prohibition) to avoid performance of their contracts.

Article authors:

Wai Yue Loh, Ajay Ahluwalia



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