Rules on Validity of ETA...
On February 17 2003 the claimant sellers in SHV Gas Supply
and Trading SAS v Naftomar Shipping and Trading Co Limited Inc (The
Azur Gaz) sold to the defendant buyers 2,700 metric tons of
butane cost, insurance and freight (CIF) to be delivered to the
Tunisian port of either La Goulette or Gabes, with Naftomar to
select one of these ports by berthing at the load port at the
latest. SHV had purchased the cargo free on board (FOB) from ERG
and, in order to mirror the terms of the ERG sale contact, SHV added
the words "Laycan:
2003" to the CIF sale contract with Naftomar. A reference to a 'laycan'
in an FOB contract means the time the vessel must arrive at the load
port, but it was not clear to Naftomar what such a term means in a
CIF sale where the sellers' obligations are to arrange the carriage,
load the goods and tender customary documents. As Naftomar needed
the butane urgently in order to comply with its obligation to
deliver to a Tunisian refinery, it insisted on adding the words
"consequently ETA Gabes February 20 am La Goulette February 19 pm"
to the contract. SHV correctly calculated this estimated time of
arrival (ETA) had everything gone well, but without making any
inquiries as to the current situation at the load port.
load port (Melilli, on the east cost of Sicily) had experienced an
unusually long spell of bad weather, and although the Azur Gaz
arrived on February 17 it was unable to berth until March 3 due to
the poor weather conditions. This was too long for Naftomar to wait
and on February 25 it cancelled the contract, relying on SHV's
failure to ship "within the agreed period", which it treated as
February 17 to 19. SHV denied that there was an agreed period for
loading and contended that there was no breach on its part,
reserving the right to claim damages for what it stated was
By the time the case reached the court, Naftomar argued it was
entitled to terminate the contract on three alternative grounds:
As a matter of
construction, the reference to "Laycan February 17-19 2003" in the
contract must, in the context, be treated as a reference to a
shipment period. SHV was in breach of its obligation to ship
within that period.
There was an
implied term that the goods would be shipped within a reasonable
time, which had expired by February 27.
SHV was in breach
of an implied undertaking that the ETAs for the vessel's arrival
at the discharge port given in the contract were reached honestly
and on reasonable grounds.
The first ground
was dismissed by Justice Christopher Clarke because he held that the
word 'laycan' did not mean 'shipment' in this context. He held that
the word had the same meaning it had when used in a charterparty and
was merely the period in which the vessel should arrive at the load
port ready to load; the Azur Gaz complied with this requirement
because it arrived at the load port within that period.
The second ground
was dismissed because, although under Section 29(3) of the Sale of
Goods Act 1979 there is (in the absence of an express provision) an
implied term that when the seller has to 'send' the goods to the
buyer it must do so within a reasonable time, the judge held that
what is considered reasonable depends on the circumstances. SHV
could not be blamed for the weather or for the berthing
difficulties, and there was no evidence that it was in any way
dilatory in shipping the cargo, given the circumstances faced.
Therefore, there was no breach.
As regards the
third ground, the issue was whether SHV were obliged to make
positive inquiries about the situation at the load port when it was
unaware of anything that might give rise to a problem. The judge
held that an ETA is not made on reasonable grounds "if an inquiry
which ought to have been made has not been made and the answer would
have invalidated the estimate". In this situation, where SHV had no
information as to conditions at the load port or any experience of
the port, it should have made inquiries and was in breach of the
implied undertaking (which amounted to a condition of the contract)
by not making such enquiries. If an enquiry of someone with
knowledge of Melilli had been made, it would have revealed that the
port was substantially inoperative on February 15, 16 and 17 and it
would then have been clear that there was no prospect of Azur Gaz
berthing immediately upon arrival on February 17.
It follows from
this that the ETAs were not based on reasonable grounds, SHV was
therefore in breach of a condition of the contract and Naftomar was
entitled to terminate the contract.