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On appeal from: [2013] EWCA Civ 1628

The Supreme Court unanimously allowed the appeal concerning the construction of the GAFTA Prohibition Clause and Default Clause and, potentially, the application of The Golden Victory [2007] 2 AC 353 in calculating damages for anticipatory breach in sale of goods contracts between the appellant and the respondent. GAFTA Form 49 is the standard form of FOB sale contract of the Grain and Feed Trade Association for goods delivered from central or Eastern Europe in bulk or bags.

The respondents entered into a contract with the appellants for the purchase of 25,000 tonnes of Russian milling wheat crop which incorporated GAFTA 49. On the 5 August 2010 Russia introduced a legislation embargo on exports of wheat from its territory and the appellant notified the respondents and purported to declare the contract cancelled under GAFTA 49’s Prohibition clause; the respondents maintained that they were not entitled to cancel the contract and treated the purported cancellation as a repudiation. Arbitration under the GAFTA rules began and it was agreed that the appellants were in breach of the contract. The only issue still left unresolved concerned damages. The GAFTA Appeal Board accepted that the contract would have been cancelled because of the embargo on exporting but stated that the respondents were entitled to $3,062,500 in damages in light of the Default clause, sub clause (c). After their appeal was rejected by the Court of Appeal, the appellants took their case to the Supreme Court.

In giving the lead judgment, Lord Sumption stated that the fundamental principle of the common law of damages is the compensatory principle. In calculating the damages it must first be established what the difference is between the contract price and the market price of the goods at the time they ought to have been delivered. Secondly, any other relevant contingencies must be considered if they would have reduced the value of performance, applying The Golden Victory [2007] 2 AC 353. Lord Sumption reasoned that the GAFTA 49 Default Clause provides a complete code for determining the market price or value of the goods that falls to be compared with the contract price. However, it does not deal at all with the effect of subsequent events which would have resulted in the original contract not being performed in any event, to which the common law still applies. Consequently following the common law principle, the respondents in fact lost nothing and should therefore receive only nominal damages in the sum of $5.

For judgment, please download: [2015] UKSC 43
For Court’s press summary, please download: Court’s Press Summary
For a non-PDF version of the judgment, please visit: BAILII

To watch hearing, please visit: Supreme Court website