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Who Bears the Risks of International Trade?

The apportionment of risk in international trade is a common source of dispute and, in one such case, the High Court has come to the aid of a shipping company which was left holding a $17.5 million compensation bill after a poor harvest in the Ukraine led to tight restrictions on the export of grain.

The company had entered into three contracts to deliver a total of 158,000 metric tonnes of Ukrainian feed corn to a customer. It had used its best endeavours to obtain the necessary export licences from the Ukrainian government but had been thwarted by the restrictions. It purported to cancel the contracts but the customer treated this as a repudiatory breach.

An arbitration panel subsequently found in favour of the customer and ordered the company to pay default damages of $17,536,000. However, in upholding the company’s appeal against that decision, the Court found that the panel had erred in its interpretation of the contracts.

On their true construction, it was not necessary for there to be a ‘total ban’ on grain exports in order to relieve the company of its obligation to obtain the licences. It would be sufficient if the company could establish that the restrictions had caused its inability to perform the contracts. The panel was directed to reconsider the matter in the light of the Court’s ruling.