14/10/2010

SOUFFLET NEGOCE S.A. v BUNGE S.A.

What happens if a FOB buyer presents a vessel for loading but there is a dispute about the cleanliness of the holds? The buyer says that the vessel is ready to load. The seller says that cleaning is required and the vessel is not ready. Is such a vessel “presented at the loading port in readiness to load” within the meaning of standard FOB contract forms?

This was the question which confronted GAFTA arbitrators and, on appeal, David Steel J and the Court of Appeal. The answer given by the Court of Appeal is that so long as it is physically and legally possible for the seller to load, the vessel is “presented … in readiness to load” and the seller is under a duty to load. It is no concern of the seller if the holds are dirty, and it is not necessary that the vessel should be in a condition such that notice of readiness could be given under a charter party. The fact that a valid notice of readiness is required in order to operate the laytime and demurrage provisions of the sale contract does not mean that such a notice is required for other purposes (eg for determining whether the vessel has been presented in readiness to load during the delivery period). Even if the holds were not clean, the buyer is entitled to require the seller to load — since the buyer assumes the risk of loading cargo into unclean holds, the seller has no legitimate interest in the state of the holds. This is, in the Board’s words, in accordance with “the fundamental commercial dynamic of the sale” whereby the risk of loss or damage to the goods passes on shipment.

Accordingly the GAFTA Board of Appeal and David Steel J had been right to conclude that the buyer had performed its obligation and that the seller was in repudiation of the contract for having refused to load the vessel.

Stephen Males QC instructed by Reed Smith represented the successful buyer, Bunge. David Owen QC and Charlotte Tan instructed by HBJ Gateley Wareing represented the seller, Soufflet.

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