Sharp Corp Ltd v Viterra BV [2024] UKSC 14

Viterra sold pulses C&FFO Mundra to Sharp, who failed to pay. After the goods were discharged, warehoused, and customs cleared, Sharp defaulted. The dispute concerned whether damages under the GAFTA Default Clause should be assessed by reference to a notional C&FFO value or the actual ex warehouse value of the goods where they lay.

Facts

Viterra BV (the Sellers) and Sharp Corp Ltd (the Buyers) entered into two contracts in January 2017 for the sale of pulses (lentils and peas) on C&FFO Mundra terms, incorporating GAFTA Contract No 24. The Buyers failed to pay for the goods before the vessel’s arrival at Mundra. The goods were discharged, customs cleared, and warehoused. Following continued non-payment and the imposition of import tariffs by the Indian government which increased the domestic value of the goods, the Sellers declared the Buyers in default on 9 November 2017. The Buyers refused to cooperate in releasing the goods, necessitating legal proceedings in Gujarat. The goods were eventually released to the Sellers on 2 February 2018, who then resold them to an associated company.

The Arbitration Awards

The GAFTA Appeal Board found the Buyers in default and assessed damages based on the C&FFO Mundra value calculated by adding the FOB Vancouver price plus market freight to Mundra on the default date. The Board rejected the Buyers’ argument that damages should reflect the domestic market value at Mundra.

Issues

The appeal raised issues concerning the court’s jurisdiction under section 69 of the Arbitration Act 1996, specifically whether the Court of Appeal erred in: (i) amending the question of law; (ii) deciding a question of law not asked of the tribunal; and (iii) making findings of fact not made by the tribunal.

The cross-appeal concerned whether damages should have been assessed on an ‘as is, where is’ basis, being the estimated ex warehouse Mundra value of the goods.

Judgment

The Appeal

Lord Hamblen (with whom Lord Reed, Lord Hodge, Lord Briggs and Lord Leggatt agreed) dismissed the appeal on ground (1) regarding amendment of the question of law, finding the amendment permissible as it merely tied the question to the facts found in the Awards. However, the appeal succeeded on grounds (2) and (3).

On ground (2), the Court held that the question of whether the contracts had been varied was never argued before the Appeal Board and was not a question which the tribunal was asked to determine. Lord Hamblen stated:

“The question of whether and, if so, how the contracts had been varied was neither argued before nor addressed by the Appeal Board. They were not asked to consider it, still less to determine it.”

On ground (3), the Court found the Court of Appeal had impermissibly made findings of fact, particularly regarding whether discharge was made against presentation of the original bills of lading. Lord Hamblen explained the limited circumstances for inferring tribunal findings:

“It is not enough that it is reasonable to draw such an inference… it is necessary to show that the inferred finding is one which inevitably follows from the findings which have been made.”

The Cross-Appeal

The cross-appeal was allowed. Lord Hamblen held that damages under the GAFTA Default Clause should be assessed by reference to the market in which it would be reasonable for the seller to dispose of the goods. Given that the goods were landed, customs cleared, and warehoused in Mundra at the default date, and had increased in value due to import tariffs, the appropriate market was the ex warehouse Mundra market.

“In the present case, on the default date the Sellers were left with goods which had been landed, customs cleared and stored and were situated in a warehouse in Mundra… In such circumstances the obvious market in which to sell the goods, and in which it would clearly be reasonable to do so, is the ex warehouse Mundra market.”

Lord Hamblen emphasised that the approach adopted by the Appeal Board was inconsistent with the compensatory principle and the principle of mitigation:

“the Appeal Board’s approach involves ignoring the fact that the Sellers were left with the contract goods. Their approach to damages does not involve a substitute sale of goods, still less the contract goods. It involves the notional purchase of a further consignment of goods in a different market in a different continent.”

Implications

This case provides important guidance on the assessment of damages under the GAFTA Default Clause when goods have already been shipped and discharged. It confirms that the principle of mitigation guides the identification of the appropriate market for assessing damages, and that where goods are left in the seller’s hands, their realisable value where they lie should establish the default price. The decision also reinforces the limitations on appeals from arbitration awards under section 69 of the Arbitration Act 1996, particularly that courts cannot decide questions not asked of the tribunal or make findings of fact beyond those made by the arbitrators.

Verdict: The appeal was allowed on grounds (2) and (3) but dismissed on ground (1). The cross-appeal was allowed. The Awards were remitted to the GAFTA Appeal Board for reconsideration, with damages to be assessed by reference to a notional sale of the goods in bulk ex warehouse Mundra on the default date.

Source: Sharp Corp Ltd v Viterra BV [2024] UKSC 14