The “Date of Default” in GAFTA And Fosfa Contracts

The determination of damages in cases of contractual breach remains one of the most significant issues in international commodity trading. The standard form contracts issued by GAFTA (the Grain and Feed Trade Association) and FOSFA (the Federation of Oils, Seeds and Fats Associations) contain a distinctive contractual mechanism known as the Default Clause, which sets out the consequences of non-performance and governs the calculation of damages. In recent years, the scope and operation of this clause have continued to be clarified by the English courts, most recently in the 2024 decision in Ayhan Sezer v. Agroinvest.

The Default Clause in GAFTA and FOSFA Contracts

The GAFTA and FOSFA standard forms, which have long provided the framework for international trade in grains, oilseeds and feedstuffs, are notable for their comprehensive provisions on default. Under GAFTA Form No. 100, for example, the Default Clause specifies that in the event of a party’s failure to perform, damages are calculated as the difference between the contract price and either the “default price” established by reference to prevailing market quotations on the date of default, or the actual or estimated value of the goods on that date.

This mechanism differs markedly from the approach under English common law and the Sale of Goods Act 1979. Whereas damages at common law are usually assessed at the date of breach or at the time when repudiation is accepted, the GAFTA and FOSFA Default Clauses introduce the concept of a self-contained contractual date which crystallises the financial consequences of non-performance. The “date of default” is therefore a contractual construct, and its definition and application have been shaped by judicial interpretation.

Toprak v. Finagrain

The Court of Appeal, in a leading judgment by Goff LJ, Toprak Mahsulleri Ofisi v. Finagrain Compagnie Commerciale Agricole [1979] 2 Lloyd’s Rep 98. held that default means no more than a failure to carry out the contract on the due date. It was not necessary for the innocent party to accept a repudiation before default was established.

The Court further clarified that once a date of default has been fixed, it cannot be altered unilaterally. A modification can only occur where there is a bilateral element: either a request for performance by the defaulting party which is relied upon by the innocent party, or an indulgence by the innocent party which is relied upon by the defaulter. Successive breaches, absent these elements, do not generate new dates of default.

Bremerhandel v. Vandenavenne

In Bremer Handels GmbH v. Vandenavenne Izegem PVBA [1978] 2 Lloyd’s Rep 109, decided shortly before Toprak, the House of Lords considered the FOSFA Default Clause.  It was held that the date of default was the first business day following the last day on which performance could have taken place. This interpretation gave effect to the commercial expectation that the innocent party should have an immediate opportunity to cover or resell in the market once performance became impossible.

Alegrow v. Yayla

In Alegrow S.A. v. Yayla Agro Gida San. Ve Nak. A.Ş. [2020] EWHC 1845 (Comm), Delays in shipment and a lack of communication led to Yayla’s ultimatum on 29 March 2017, requiring Alegrow to provide a shipment schedule by the next day, failing which it would treat the contract as terminated. Alegrow did not respond, and Yayla commenced arbitration before GAFTA on 7 April 2017.

The First Tier Tribunal (FTT) and subsequently the GAFTA Appeal Board held that Yayla’s notice had made time of the essence and that Alegrow’s failure to respond by 31 March amounted to repudiation, thereby fixing the date of default at that point. Alegrow appealed to the Commercial Court.

The Court allowed the appeal, finding that the Board had erred in law. First, it held that Yayla had no contractual entitlement to demand a shipment schedule on 29 March 2017; no such obligation was found in the contract or could be implied. Secondly, the Court clarified the principles governing when time can be made of the essence in commodity contracts. While time may be made essential by notice where no period is specified, any such notice must allow a reasonable period for performance, and it cannot revive past breaches once waived.

Applying those principles, the Court concluded that if time had been made of the essence on 29 March, the relevant period for performance ran until 15 April, meaning any breach could only have occurred thereafter. Since no finding had been made that Alegrow could not perform within that period, there was no repudiatory breach as of 31 March. At most, Alegrow’s silence could have been analysed as renunciation, but the Board had not made the necessary findings for that conclusion.

The Court therefore varied and remitted the award, holding instead that Yayla had renounced the contract by prematurely terminating and commencing arbitration. 

Ayhan Sezer v. Agroinvest

The most recent and significant development is the decision of the Commercial Court in Ayhan Sezer Yag Ve Gida Endustrisi Tic. Ltd. v. Agroinvest SA [2024] EWHC 479 (Comm). The dispute arose under a GAFTA 100 contract for the sale of rape meal and soybean meal. The buyer, having made an advance payment, subsequently indicated that it would not perform and sought the return of the advance. The seller resisted, leading to arbitration and subsequent appeal.

Two issues came before the Court: whether the advance payment was refundable and, critically, what constituted the correct date of default. The GAFTA Board of Appeal had held that the advance was non-refundable and that the default date was the date on which the repudiation was accepted. The Commercial Court disagreed on both points. It held that in the absence of express contractual wording designating the advance as a non-refundable deposit or security, the payment was recoverable. More significantly, the Court concluded that in cases of anticipatory repudiation, the date of default may precede acceptance of the repudiation.

Relying on Toprak and on Thai Maparn Trading Co. Ltd. v. Louis Dreyfus Commodities Asia Pte Ltd [2011] EWHC 2494, the Court held that the “date of default” under the clause is the date on which the anticipatory breach occurs. Applying that reasoning to the facts, the Court found the GAFTA Board had erred in law by using 7 May (acceptance date) instead of the breach date. Judge Pearce agreed that Ayhan Sezer’s 27 April 2018 message was the first unequivocal renunciation of the contract – by then the buyer’s intention not to perform was unmistakable. Therefore, 27 April 2018 was determined to be the true “date of default” – the date of breach – for the purpose of calculating damages.

For GAFTA contracts, repudiatory conduct can now crystallise liability even before acceptance, thereby fixing damages at an earlier and potentially less favourable market level.

A failure to perform will crystallise damages on the date of default, and only very limited circumstances will allow that date to be displaced. With the addition of the Ayhan Sezer decision, parties must now be alert to the possibility that repudiatory conduct may fix the damages date earlier than previously assumed.

Conclusion

The concept of the “date of default” remains central to GAFTA and FOSFA dispute resolution. The recent jurisprudence affirms that the “date of default” is a contractual construct anchored to the first failure to fulfil the bargain, not to the innocent party’s later election to accept repudiation. Bremerhandel, Toprak, Alegrow, and most recently Ayhan Sezer cases show that once a party either misses performance when due or clearly renounces in advance, the default crystallises and the damages clock starts. The Commercial Court’s intervention in Ayhan Sezer is especially consequential for anticipatory breaches, confirming that repudiation can fix the default date before acceptance by the innocent party.