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  • QA 105
    Question:
    In shipping, if the buyer fails to declare the destination in time, what redress does the seller have?
    Background:
    In May we sold two containers of coffee for shipment first half July 2006 from origin but the buyer failed to declare the destination. We only received a destination on the 4th of July, making it impossible for us to obtain shipping space because of a shortage of feeder vessels. We believe we can consider ourselves released from this contract but the buyer is insisting we honour it: after all, the market is up… What is your view?
    Asked by:
    Anonymous
     
    Answer:

    Failure to declare a destination frustrates a contract because sellers cannot fulfil their obligations. Both the European (ECC) and US (GCA) standard contracts therefore stipulate that buyers must declare the destination not less than 14 (ECC) or 15 (GCA) calendar days before the first day of the contractual shipping period. 

    However, both parties to a contract are obliged to work towards its successful completion. They are partners in the transaction who must exercise due diligence to ensure its successful completion. This also means a seller should not simply sit and wait until he can declare the buyer in default simply because no declaration has been received! Your question does not make it clear whether you made any enquiries in this respect, or whether you allowed events simply to unfold. You also do not indicate against which standard form of contract this business was concluded so we will consider both options (ECC and GCA) separately.

    ECC Article 10 © (footnote 1) stipulates that sellers have the following options if no declaration of destination has been received within the stipulated period:

    (a) Give the buyer three clear working days' notice to make a declaration of destination. Should the buyer fail to do so then sellers have the right to declare the buyer in default with a claim for damages. Where sellers give the three days' notice but fail to declare the buyer in default with damages against them, then the contract is deemed to be discharged without allowance;

    or

    (b) Accept the situation without contacting the buyer. In this event the contract is also deemed to be discharged without allowance.

    It would appear from your question that you did nothing and, if this is so, then option (b) is applicable, meaning that the late declaration of July 4th was given under a contract which had been terminated and consequently of no validity. Of course, if they so wish, the parties can always agree to resurrect a contract…

    GCA on the other hand states under Port of Entry/Destination that, in the absence of a timely declaration, sellers may ship to New York. What this means in fact is that where a buyer fails to declare the destination in time, this GCA clause offers the seller the choice whether to make shipment or not, always provided that such shipment is made within the contracted period. The underlying philosophy is to give a shipper an alternative if the buyer totally refuses to cooperate.  See footnote 2.

    Claims for damages: Any claim for damages would have to be formally lodged within 45 days from the last day of the contractual shipping period (ECC contract) or, within one year from the date a dispute arises in the case of the GCA contract - see footnote 3. Note however that arbitration proceedings (Chapter 07 of the Guide) always take into account whether the parties exercised due diligence, i.e. they tried as best possible to avoid the contract being frustrated. Arbitrators would of course note the buyer's failure to fulfil his obligations but, most likely, they might also wish to know what attempts, if any, the seller made to safeguard the contract. It is not for us to speculate as to the outcome of such a hearing other than to warn that proceeding to arbitration may not always achieve the expected result. There is no guarantee the arbitrators will necessarily find in your favour and, for example, they might apportion blame instead…

    To be frank however, it is quite unusual to see buyer and seller argue in this fashion. You wanted to sell this coffee, the buyer wanted to buy it and the only damage suffered might be loss of interest, some additional storage costs and, perhaps, some cash flow issue on your side. Reasonable people will find a way out of this - they will try to reach an amicable settlement and it is our recommendation that you do so as well. See QA 006 in the Archive for some relevant comment in this respect.

    Footnote 1.
    ECC Article 10 deals with the declaration of the port of destination. Relevant clauses are:

    10 © Where a declaration of destination has not been received within the time limit as stipulated under Article 10 (a) or (b), provided that 3 clear working days' notice be given within the following 7 calendar days to the buyers at their place of business, the sellers shall have the right to declare the buyers to be in default with damages failing which the contract shall be deemed to be discharged without allowance unless the parties agree otherwise.

    10 (d) Any delay on the part of the buyers to comply with Article 10 (a) or (b) shall authorize the sellers to ship by first available vessel after receipt of buyers' declaration, even if the shipment be made after expiry of the contractual shipping period. Should the delay cause any loss to the sellers they shall be entitled to  claim damages.

    10 (e) The 3 clear working days' notice period refers to working days at the buyers' place of business.

    Footnote 2.
    The shipper will then ship to New York and, if the buyer refuses to honor the documents, the goods are sold in the open New York market. The shipper then sends an invoice to the original buyer for any loss. If the buyer refuses to settle the shipper then goes to arbitration and wins a judgment that will be relatively easy to enforce in the US, based on New York Law. When a buyer refuses to give a destination, contract performance becomes secondary to legal action. New York is a coffee market with major liquidity and the assumption is that just about any coffee can be sold there whereas, with the exception of Japan and Canada, little coffee is traded on the CGA contract to non-US destinations. The entire procedure is a last resort obviously but it gives possible finality to an argument that otherwise could go on forever.

    Foot note 3.
    This presupposes that you will have formally notified the buyer that you consider him to be in default. See also topic 04.05.09 for more on this and see chapter 4 of the Guide for a full review of both the European and the GCA contracts. These can also be downloaded from www.ecf-coffee.org and www.green-coffee-assoc.org respectively.

    Posted 19 July 2006

    Related chapter(s):
    Related Q & A:
    QA 006