Our German Desk
The decision in Ayhan Sezer v Agroinvest [2024] EWHC 479 (Comm) clarifies that where there has been an anticipatory repudiatory breach of contract, the “date of default” is the date of the breach and not the date of acceptance of the breach by the innocent party.
While the case considered the GAFTA standard form default clause, it is relevant to the construction of similar clauses in other standard form contracts.
Facts
On 2 April 2018, Ayhan contracted to purchase rape meal and soybean meal from Agroinvest. The contract incorporated the standard terms of the GAFTA 100. Clause 23 provided:
“In default of fulfilment of contract by either party…the damages payable shall be based on…the date of default”.
On 4 April 2018, Ayhan wrote to Agroinvest to advise that as it was clear parties could not agree on certain matters, the money already paid (“advance payment”) should be returned.
On 27 April 2018, it then instructed Agroinvest to “definitely not attempt to charter a vessel or any action to send these goods to us; you would cause huge and terrible happenings”.
On 7 May 2018, Agroinvest gave notice accepting Ayhan’s message as a repudiation of the contract.
There was no dispute that Ayhan had repudiated the contract. The central issue was what the “date of default” was for the purpose of clause 23, which was relevant to the calculation of damages.
Ayhan contended before the GAFTA Board of Appeal (Board) that the date of default was 4 April 2018, when it first wrote to Agroinvest.
Agroinvest argued the date of default was 16 May 2018, the last possible day in which it could have performed its obligations under the contract. It was, however, content to proceed on the basis the date of default was 7 May 2018 (as held by the First Tier Tribunal), the date it accepted Ayhan’s repudiation, as nothing turned on the difference between 7 May and 16 May for the calculation of damages.
The Board held the date of default was 7 May 2018. Ayhan appealed the decision to the Commercial Court of England and Wales.
Issue for Determination
The issue before the Court was whether the date of default was:
- The date of the repudiatory breach;
- The date of acceptance of that breach; or
- The last date for performance under the contract.
Ayhan argued the date of default ought to have been 4 April 2018, being the date it asserted it repudiated the contract, not the date the repudiation was accepted. It relied on Thai Marparn Trading Co Ltd v Louis Dreyfus Commodities Asia Pte Ltd [2011] 2 Lloyd’s Rep 104 and Toprak v Finagrain Compagnie Commerciale [1979] 2 Lloyd’s Rep 98.
By contrast, Agroinvest relied on the obiter dicta comments of Lord Sumption in the case of Bunge v Nidera [2015] 2 Lloyd’s Rep 469, in which he deemed the date of default as being the date on which the contract should have been fulfilled. Agroinvest argued that the last date of fulfilment was 16 May 2018, the last permissible day the contract could have been performed in accordance with its terms. This notwithstanding, Agroinvest maintained that it had no objection to the Board’s determination that 7 May 2018 was the date of default, the difference being immaterial.
Judgment
The Court held the true date of default is the date the Board deemed Ayhan in repudiatory breach, namely 27 April 2018 (it found the earlier message of 4 April 2018 had not amounted to a repudiation). It remitted the matter back to the Board for the assessment of damages. Its reasoning was as follows:
- The case of Toprak did not assist Ayhan, as the Court in that case was only concerned with an actual breach of contract. The case did not amount to authority for the proposition that that date of default for an anticipatory repudiatory breach is the date of breach itself, as opposed to the date of acceptance of that breach. The Court accepted that Thai Marparn was concerned with an anticipatory breach and provided authoritative support for Ayhan’s position.
- By contrast, Bunge v Nidera did not assist Agroinvest’s case. The Court concluded Lord Sumption’s obiter dicta remarks were simply to state that the date of default is tied to contractual obligations, and that if those contractual obligations are renounced, there is non- fulfilment of the contract and the date of default will need to be determined. Lord Sumption was not purporting to identify the date of default in the case of anticipatory breach.
- While the Court acknowledged that both arguments have merit, on balance, where the construction of a clause is arguable, it is desirable to adopt a policy of consistency. If the date of default were to be the date of acceptance, it would allow the innocent party to pick and choose a date for the purpose of assessing its losses. To interpret the “date of default” to mean the date of the breach, whether or not that breach is anticipatory, has the benefit of avoiding uncertainty.
Our Comment
While the judgment clarifies the position under the GAFTA contract, it will be authoritative for other contracts that adopt similar wording.
It is worth noting that the arguments were finely balanced in this case, with the desire for consistency being the deciding factor. A court could conceivably reach a different conclusion if the context, factual background, or particular wording of the default clause rendered it necessary to do so. Parties should always carefully consider if standard form wording is appropriate for their purposes and how a default clause may be construed having regard to this recent decision of the Commercial Court.
If you have any questions about contractual default or anticipatory breach, please get in touch with our Trade & Transport Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
