Commercial Court 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: February 17-19 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.

Unfortunately, the 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 Naftomar's repudiation.

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.

                                                                               (Ince & Co)