FOB Wheat Default in the Black Sea: How We Protected a Seller Against a Non-Performing Buyer Under GAFTA 49
FOB Wheat Default in the Black Sea: How We Protected a Seller Against a Non-Performing Buyer Under GAFTA 49
Our client, a commodity trading house, entered into an FOB sale of 30,000 MT (±10%) milling wheat, loading one safe port Constanta, Romania. The contract incorporated GAFTA 49 (October 2025 edition) with English law and GAFTA arbitration in London.
The parties negotiated terms over several days, agreed on quality specifications, payment terms (10% deposit within three working days of signature, balance against documents), and a delivery window of roughly two and a half weeks. The contract expressly stated that time of payment was of the essence.
The transaction appeared routine. It was not.
WHAT WENT WRONG
The buyer delayed countersigning the contract for over a week after terms had been agreed, citing internal bank approval. When the contract was finally executed, the 10% deposit did not follow. The buyer blamed compliance procedures at its bank, weekend closures, and missing documentation from third parties.
Meanwhile, the buyer had nominated a vessel that arrived at Constanta and tendered Notice of Readiness. The vessel sat at the load port, ready to load. But loading could not commence - no deposit, no delivery instructions, and the seller was being asked to load 33,000 tonnes of wheat with no payment security in place.
Eight days into the delivery period, the buyer formally withdrew the vessel from its charter and pulled the nomination. No substitute was offered. The buyer promised to "revert with alternative workable candidate in due course." None ever came.
OUR APPROACH
We identified three independent grounds of default, each sufficient on its own:
Non-payment of the deposit. The contract made time of payment of the essence - a term which, under English law, elevates the payment obligation to a condition. Breach of a condition entitles the innocent party to terminate. The deposit was never paid. This was a continuing breach of a condition, giving the seller an unqualified right to treat the contract as at an end.
Failure to present a vessel. Under FOB terms, the buyer must nominate an effective vessel and present it for loading within the delivery period. The buyer withdrew its only nomination and provided no substitute.
Extension not invoked. GAFTA 49 Clause 8 permits the buyer to extend the delivery period by up to 10 days, but only upon service of a written notice by the next business day after the delivery period expires. The mechanism does not operate automatically. No such notice was served. The right was lost.
We drafted and served a formal Notice of Default under GAFTA 49 Clause 19, setting out the contractual and legal basis for each ground and declaring the buyer in default.
THE BUYER'S COUNTER-ATTACK
The buyer responded with a nine-page letter denying default. It argued that:
the seller had waived the delivery deadline by continuing to engage in correspondence after its expiry
the deposit delay was caused by mandatory banking compliance beyond the buyer's control
the vessel withdrawal was caused by the seller's insistence on a letter of guarantee that was not contractually required.
These arguments did not withstand scrutiny.
The waiver argument failed because continued operational correspondence does not amount to an unequivocal representation that the seller would not enforce its rights. The banking argument was legally irrelevant: time of payment was of the essence, and the buyer's internal financing difficulties are not the seller's risk and the letter of guarantee was agreed in writing, even though was not a part of a contract.
We advised a short, firm rejection. The buyer's position was not engaged with further.
THE OUTCOME
The seller's position was secured. The goods were released for resale to a performing counterparty. The default notice and complete documentary record were preserved for any future GAFTA arbitration. The seller's exposure to indefinitely accumulating storage, insurance, and financing costs was eliminated.
KEY TAKEAWAYS FOR COMMODITY TRADERS
Time of the essence is not boilerplate. Under English law, it converts a payment obligation into a condition. Breach gives the innocent party an unqualified right to terminate - provided it has not been waived by subsequent conduct.
The GAFTA 49 extension is not automatic. The buyer must serve a written notice claiming extension by the next business day after the delivery period expires. Miss the deadline, and the right is gone.
Vessel nomination is a condition, not a formality. Withdrawing a nomination without a valid substitute near the end of the delivery period is a serious default under FOB terms.
Keep the correspondence record clean. In GAFTA arbitration, the email trail is the evidence. State your position clearly, reserve your rights expressly, and avoid language that could be read as waiver.
BV & Partners advises commodity traders, agricultural companies, and shipping operators on international sale contracts, GAFTA and FOSFA arbitration, charterparty disputes, and trade finance matters. The firm operates across multiple jurisdictions with particular focus on Black Sea, Mediterranean, Asia and Middle Eastern commodity flows.