A dispute over damages for buyer’s default under GAFTA contracts for pulses sold C&FFO Mundra. The Supreme Court held the Court of Appeal exceeded its jurisdiction under section 69 of the Arbitration Act 1996 by deciding unraised questions and making factual findings, but allowed the cross-appeal on the correct basis for assessing damages.
Background
This case arose from two GAFTA arbitration appeal awards concerning the sale of Canadian lentils and peas by Viterra BV (‘the Sellers’) to Sharp Corporation Ltd (‘the Buyers’) on Cost & Freight free out (‘C&FFO’) Mundra terms. The contracts, dated 20 January 2017, were governed by GAFTA Contract No 24 and included a bespoke Non-Payment Clause entitling the Sellers to resell the goods if the Buyers failed to pay.
The Buyers elected to pay cash against documents but repeatedly failed to make payment. The goods were shipped from Vancouver, arrived at Mundra on 19 June 2017, and were discharged and customs cleared. The Buyers issued a letter of indemnity confirming that the cargo would remain in the custody of Mundra Port. In September 2017, the parties entered addenda extending payment terms, but the Buyers again failed to pay. On 9 November 2017, the Sellers declared the Buyers in default. On 8 November 2017 and 21 December 2017, the Government of India imposed substantial import tariffs on yellow peas (50%) and lentils (30.9%) respectively, significantly increasing the domestic market value of the goods. The Sellers eventually obtained possession of the goods on 2 February 2018 following proceedings in the Gujarat High Court, and resold them to an associated company.
The GAFTA Appeal Board found the Buyers in default, set the date of default as 2 February 2018, and assessed damages on a C&FFO Mundra basis using the FOB Vancouver price plus freight — rejecting the Buyers’ contention that damages should reflect the domestic Indian market value of the goods.
The Issue(s)
The Appeal
The appeal concerned the jurisdiction of the court on appeals from arbitration awards under section 69 of the Arbitration Act 1996. Three specific grounds were raised:
- Whether the Court of Appeal erred in amending the question of law for which permission to appeal had been given;
- Whether the Court of Appeal erred in deciding a question of law (variation of the contracts) which the Appeal Board was not asked to determine and on which it made no decision;
- Whether the Court of Appeal erred in making findings of fact on matters on which the Appeal Board had made no finding.
The Cross-Appeal
The cross-appeal raised whether damages under the GAFTA Default Clause should have been awarded on an ‘as is, where is’ basis — i.e. the estimated ex warehouse Mundra value of the goods — rather than on a C&FFO Mundra basis.
The Court’s Reasoning
Ground 1: Amendment of the Question of Law
Lord Hamblen, delivering the unanimous judgment, held that the Court of Appeal’s amendment — adding the words ‘in the circumstances as found by the Appeal Board in the Awards’ — was permissible. This did not change the substance of the question of law but merely made explicit what is implicit in any appeal under section 69, namely that questions of law are considered on the basis of the findings of fact in the award:
Any question of law for which permission to appeal is sought under section 69 falls to be considered ‘on the basis of the findings of fact in the award’ (section 69(3)(c)). The amendment was expressly stating what is implicit in any arbitration appeal. It did not change the substance of the question of law.
Ground 2: Deciding an Unraised Question of Law
The Court of Appeal had concluded that the contracts had been varied so as to become contracts for the sale of goods ex warehouse Mundra. Lord Hamblen held this was impermissible. The question of variation was never argued before or addressed by the Appeal Board:
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.
Section 69(3)(b) requires that the question of law be one ‘which the tribunal was asked to determine’. Lord Hamblen endorsed the approach in Safeway Stores v Legal and General Assurance Society Ltd that the point must have been ‘fairly and squarely before the arbitrator’, adding the qualification that it must have been before the tribunal ‘for determination’. Since the variation point was not before the Appeal Board, it was not a question for which permission to appeal could be given, and the Court of Appeal could not introduce it.
Ground 3: Impermissible Findings of Fact
The Court of Appeal found as fact that cargo had been discharged against presentation of original bills of lading and that a missing word in the Buyers’ LOI was ‘discharge’. Lord Hamblen held these were findings of fact that it was not open to the Court of Appeal to make. Addressing the standard for inferring findings from the award, he stated:
it is necessary to show that the inferred finding is one which inevitably follows from the findings which have been made.
The finding that discharge was made against presentation of original bills of lading was not relevant to any issue addressed by the Appeal Board and did not inevitably follow from the findings made. Several aspects of the factual record were inconsistent with this inference, including the Addenda providing for bills of lading to be released after receipt of the first instalment, and a without prejudice email referring to presenting original documents after payment.
The Cross-Appeal: Basis for Assessing Damages
Lord Hamblen undertook a thorough analysis of the GAFTA Default Clause and its relationship with the compensatory principle and the principle of mitigation. He emphasised that sub-clause (c) of the Default Clause ‘covers the same territory as sections 50(3) and 51(3) of the Sale of Goods Act’ and reflects deemed mitigation — the assumption that the injured party will sell or purchase in the available market.
Where there is no available market for a true substitute transaction on identical contractual terms, the guiding principle is mitigation:
the proper approach is to be guided by that principle and to consider the market in which it would be reasonable for the Sellers to sell the goods.
Lord Hamblen held that where the goods had been landed, customs cleared and stored at Mundra, and had significantly increased in value due to tariff imposition, the obvious and reasonable market was the ex warehouse Mundra market. He drew on Benjamin’s Sale of Goods, the decisions in Muller, Maclean & Co v Leslie & Anderson, F E Napier v Dexters Ltd, and Aryeh v Lawrence Kostoris & Son Ltd, all recognising that where goods have arrived at their destination, the destination market is the relevant one for assessing damages.
The Appeal Board’s approach of calculating a notional C&FFO Mundra price from FOB Vancouver plus freight was held to be erroneous because it ignored the reality that the Sellers were left with customs-cleared goods in Mundra that had increased in value:
the approach of the Appeal Board 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.
Lord Hamblen further held that the Sellers’ approach was inconsistent with the compensatory principle as it left out of account the uplift in value arising from the tariff imposition, and inconsistent with the Board’s own reasoning on other aspects of damages, including the date of default and the reimbursement of discharge costs.
Practical Significance
This decision is of considerable importance in several respects. First, it firmly reinforces the limits on judicial intervention in arbitration appeals under section 69 of the Arbitration Act 1996. Courts may not decide questions of law that were not before the tribunal for determination, and may not make findings of fact — even apparently ‘obvious’ inferences — unless they inevitably follow from the tribunal’s express findings.
Second, the decision provides authoritative guidance on the assessment of damages under the widely used GAFTA Default Clause. Where goods have been shipped and are situated at the destination at the date of default, the relevant market for establishing their value is the market at the destination — not a hypothetical reconstitution of the original shipment terms from the port of origin. The guiding principle is mitigation: what market would it be reasonable for the seller to sell the goods into, given where and how they are situated.
Third, the judgment clarifies that the compensatory principle requires account to be taken of the actual value of goods left in the seller’s hands, including any uplift in value (such as from tariff changes), regardless of the cause of that uplift. The decision ensures consistency between actual mitigation under sub-clause (a) and deemed mitigation under sub-clause (c) of the Default Clause.
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 of damages on the basis that the value of the goods under paragraph (c) of the Default Clause falls to be measured by reference to a notional sale of the goods in bulk ex warehouse Mundra on 2 February 2018.
