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Contract Not Automatically Cancelled by Export Ban

ship2In a guideline case for those engaged in international trade, a shipping company is facing a $3 million bill after failing to convince the Court of Appeal that a contract for the bulk transport of milling grain was automatically cancelled when the Russian Government announced the imposition of an export ban.

The company had contracted to transport 25,000 metric tonnes of milling grain during a week-long shipping window. The Russian Government later announced a temporary ban on the export of certain agricultural products, including milling grain. The embargo embraced the dates of the shipping window and, six days before the ban was due to take effect, the company informed the buyers that, in its view, the contract had been automatically terminated.

However, the buyers responded by treating the company’s conduct as a repudiation of the contract, which they accepted. On the following day, the company offered to reinstate the contract on its original terms but the buyers declined to do so and launched arbitration proceedings, claiming damages of over $3 million.

In a decision which was later confirmed by the Board of Appeal of the Grain and Feed Trade Association, arbitrators ruled in favour of the buyers on the basis that such export bans were often modified or withdrawn soon after their imposition and the announcement of the embargo had not prevented the company from meeting its obligations under the contract.

The Board’s decision to award the buyers damages to represent the difference between the contract price of the goods and their market value when they would have been shipped was subsequently upheld by the High Court.

In dismissing the company’s challenge to that decision, the Court of Appeal found that, on a proper interpretation of the contract, the mere announcement of the export ban was insufficient to automatically cancel the agreement. The company had failed to show a clear causal link between the embargo and its inability to perform its obligations. In the circumstances, the company had repudiated the contract by incorrectly treating it as having been automatically cancelled.