Repudiation and refund eligibility

In the recent case of Ayhan Sezer v Agroinvest, there was no dispute that the Claimant buyer had repudiated the sale contract. However, the English Commercial Court had to consider two questions of law on appeal from a GAFTA arbitration: i) the identification of the “date of default” (i.e., when the repudiation occurred), and ii) the determination of whether an advance payment was refundable. Lucinda Roberts explains.

Assessment of damages for claims of anticipatory repudiatory breach: Date of breach or acceptance of the breach? Ayhan Sezer v Agroinvest [2024] EWHC 479 (Comm)

The Facts

On 2 April 2018 the Defendant seller – Agroinvest – (the Seller) concluded a sale contract (the Contract) with the Claimant buyer – Ayhan Sezer – (the Buyer) for the sale of rape meal and soyabean meal in bulk. On 23 March, prior to the conclusion of the Contract, but in accordance with the payment terms of an earlier draft thereof, the Buyer transferred an advance payment of 20% of the purchase price (USD 494,500) to the Seller (the Advance Payment). Shortly after making the Advance Payment, the Buyer stated it would be refundable if the Contract could not be concluded.

The Contract incorporated the terms of the GAFTA Contract No. 100, Clause 23 of which provided: "In default of fulfilment of contract by either party, the following provisions shall apply:-

….

(c) The damages payable shall be based on, but not limited to, the difference between the contract price and either the default price established under (a) above or upon the actual or estimated value of the goods, on the date of default, established under (b) above…” (the GAFTA Default Clause). [Emphasis added]

Certain issues prevented the conclusion of the Contract, and a dispute arose as to whether the Seller should charter a vessel for the cargo while the agreement of terms remained pending. On 4 April the Buyer requested a refund of the Advance Payment, on the basis that the parties could not agree on the business. The Seller responded on 27 April that they would advance the chartering of the performing vessel, and the same day the Buyer requested that the Seller not take such action and again asked for the refund of the Advance Payment. On 7 May the Seller replied that the Advance Payment was non-refundable and offered to deliver an alternative product at the contract price and ‘wash-out’ the Contract for a fee to be agreed.

The GAFTA Arbitration

The Buyer commenced GAFTA arbitration proceedings seeking repayment of the Advance Payment, but the Seller contended that it was entitled to retain it as compensation for its loss and damage arising from the Buyer’s conduct.

Neither party disputed that the Buyer was in anticipatory repudiatory breach of the Contract, but there was disagreement over the date of default for the purposes of calculating damages under the GAFTA Default Clause. The Buyer argued that its first request for the return of the Advance Payment on 4 April was the date of default at which damages should be calculated, whereas the Seller contested the date of default was 16 May (being the last date on which it could have shipped the goods under the Contract). However, the Seller was willing to accept that the date for calculation of damages should be the day on which it accepted the Buyer’s repudiation, being 7 May (as there was no material difference in damages between those two dates).

  1. GAFTA First Tier Tribunal (the First Tier)

The First Tier held that i) the Seller had to refund the Advance Payment to the Buyer, and ii) the date of default was the date on which the repudiation was accepted (7 May), but iii) the Seller had failed to provide it had suffered any loss.

  1. GAFTA Board of Appeal (the Board)

The Board held, on appeal, that:

  1. the Advance Payment was not refundable (it was paid in the normal course of business to secure the products and was designed to guarantee the Buyer’s performance of the Contract), and
  2. the Buyer had repudiated the Contract on 27 April. However, the date of default for the assessment of damages, being the date on which the Seller had accepted the Buyer’s repudiation.

The Commercial Court

The Buyer obtained permission to appeal the Board’s Award to the Court, on a question of law, arguing that the date of default for an anticipatory breach was the date of the repudiation (4 April), rather than when that repudiation was accepted (27 April). This followed binding precedent made in earlier decisions by the Court (Toprak v Finagrain Compagnie Commerciale [1979] and Thai Maparn v Louis Dreyfus Commodities Asia Pte Ltd [2011]), which should take precedence over subsequent obiter comments. The Buyer also contended that the Advance Payment was refundable.

The Seller responded (relying on Lord Sumption’s obiter comments in Bunge v Nidera [2015]) that the date of default was 15 May, being the last date on which it could perform its obligations under the Contract, but it accepted the GAFTA determination of the date as 7 May as the values were substantially the same on both dates.

HHJ Pearce held that Lord Sumption’s obiter comments were not identifying the date of default where there was an anticipatory repudiatory breach of contract, but rather simply stating that when a party renounces its contractual obligations, the contract is not fulfilled, and the date of default requires determination. He went on to consider when the date of default was in the case of an anticipatory repudiation of contract:

  1. The ‘date of default’ could be no later than the date of acceptance of a repudiatory breach.
     
  2. Interpreting the words ‘date of default’ as meaning the date of breach, actual or anticipatory, avoids “uncertainty as to the date of calculation of losses under the GAFTA default clause”.
     
  3. Consistency in the law – applying the same approach to actual and anticipatory repudiatory breaches – was desirable where the interpretation of the GAFTA Default Clause was open to question.

Based on the above, HHJ Pearce held that the date of default was the date on which the first anticipatory repudiatory breach occurred. He considered whether this was 27 April (as determined by the GAFTA Board of Appeal) or 4 April (as contended by the Buyer), and held that it was the former, such that the Board had erred in law in its Award. The case was remitted back to the Board for assessment of damages by reference to a date of default of 27 April 2018.

As to the nature of the Advance Payment, the Judge also disagreed with the Board. If it had been intended to be a deposit or to provide security, this would have been reflected in the Contract wording. In the absence of such wording, there was no evidence that the parties intended the Advance Payment to be irrecoverable. The Advance Payment was, he held, sufficient security to the Setter from which it could recover any losses it suffered from non-performance. As such, it was repayable to the Buyer.

Comment

As a general point, this case serves as a useful reminder of the well-established principle that the Court continues, when interpreting contractual provisions, to give primacy to the natural meaning of words which reflect the parties’ intentions. More specifically, in the context of advance payments made towards the purchase price, parties must state expressly if they intend for it to be non-refundable. As such, contracting parties are reminded to ensure that the contractual provisions they agree to are clear, unambiguous and reflect their intentions.

The case also offers clarity for parties contracting on the GAFTA standard terms, by identifying when the date of default is for the purpose of calculating loss and damage under the GAFTA Default Clause. This is of practical importance as the relevant date could have a significant impact on the quantum of recoverable damages, for example due to a fluctuating market price.