Tricon Dry Chemicals LLC v Global Petro Converge – SMA 4391, 17 Jul 2020
PURCHASE CONTRACTS – FORCE MAJEURE – TIME IS OF THE ESSENCE CLAUSE – LOSS OF PROFITS – CALCULATION OF DAMAGES
Tricon Dry Chemicals, LLC (“Tricon”) initiated the arbitration against Global Petro Converge FZE of Sharjah, United Arab Emirates (“Global”) for breach of two contracts, both dated May 16, 2018 when Global failed to ship 2 cargoes. Tricon asserted that Global defaulted and failed to perform its obligations under each contract and claimed US $ 57,104.26 plus interest, attorneys’ fees, and the cost of arbitration.
Both agreements specified a shipment window of May-June 2018. Delivery time was to be 3-4 weeks upon confirmation of Letter of Credit from Tricon’s Bank/Freetime at port of discharge, fourteen days from Date of Arrival.
Both contracts included the “Tricon Sales Terms and Conditions,” which stated in relevant part:
4) Time is of the essence: Seller acknowledges that the delivery date is of great importance to Buyer and that a failure to deliver within the stated period will substantially impair the value of this Contract to Buyer. Seller acknowledges that in the event that Seller fails to perform its obligations in a timely manner, Buyer may incur substantial costs and losses, including but not limited to market losses, customer claims, vessel costs and expenses, costs of cover as well as other expenses and damages.
7) Force Majeure: Force majeure means an event or circumstance reasonably beyond the control and without the fault or negligence of the Party claiming Force Majeure… The affected party will immediately give written notice to the other stating: the nature of the Force Majeure event, its effect on the obligations of the affected party, the estimated date the contingency is expected to be removed, and shall include together with the notice sufficient supporting evidence of the events. The Party affected by the event of Force Majeure shall endeavor mitigate in good faith to remove or eliminate it as soon as reasonably possible.
Tricon arranged irrevocable Letters of Credit to purchase the material on May 22 and 23, 2018 respectively, and delivery was expected to be 3-4 weeks later. Tricon and Global agreed that time was of the essence in the performance of the contracts. All parties understood if the products were not delivered in a timely fashion, it would have consequences to Tricon’s business and cause losses.
Tricon representatives requested confirmations of the shipment schedules over the next two weeks with no replies. Finally, Tricon received a response from Global dated June 13, which stated:
“Regret to inform you on the delays that has occurred due to the Ramdan [sic] observation in Saudi Arabia, during this period the jobs are badly effected and delayed…we are still waiting for the loading schedule…”
In a follow-up phone call with Tricon, Global representatives indicated the Saudi port would not be open until after June 24, so loading was delayed. Tricon requested the shipments be scheduled as soon as possible and set the latest date of shipment as June 30.
As the delays continued, communications between the parties deteriorated. By July 18, Tricon ascertained Global would not or could not fulfill either purchase contract and was forced to make alternative arrangements with its customers.
On August 1, Tricon’s attorneys gave Global two alternatives to resolve the contract failures. The first option required Global to pay a total of US $ 42,500 for damages and breach of contract. The second option allowed the parties to novate the breached contracts, revise pricing, and require delivery of cargos no later than August 10, 2018.
Global replied that both options were unacceptable, claiming force majeure due to changes of export laws in Saudi Arabia and claiming the “… Holy Month of Ramadan and then the longer EID Holidays… [played] … an efficient role in delaying the commitment [to Tricon].” The matter was referred to arbitration under a sole arbitrator.
The arbitrator ruled the contracts clearly provided that the Tricon shipments were to be delivered within the May-June 2018 window. Tricon acted in good faith, promptly opening the irrevocable Letters of Credit and repeatedly trying to perform the contracts. Global knew delivery within the shipment period was of utmost importance to Tricon, and clause 4, “Time is of the Essence,” clearly communicated this.
Further, the arbitrator rejected Global’s claim of force majeure. Clause 7 required Global to “immediately give written notice” to Tricon of “the nature of the Force Majeure event, its effect on the obligations of the affected party, the estimated date the contingency is expected to be removed, and it had to give sufficient supporting evidence of the event.” Global was also charged with “endeavor[ing] to mitigate in good faith to remove or eliminate it as soon as reasonably possible.” The arbitrator found that Global gave no notice of force majeure during the delivery period and submitted no evidence proving force majeure events; further, Global did not seek alternatives to perform the contracts. Regarding the latter, the arbitrator relied upon Phillips Puerto Rico Core, Inc. v Tradax Petroleum, LTD., 782 F.2d 314, 319 (2d Cir. 1985) wherein it is stated, “the non-performing party must demonstrate its efforts to perform its contractual duties despite the occurrence of the event that it claims constituted force majeure.”
Tricon was awarded US $ 74,114.08 for damages, interest, legal expenses, and arbitration costs due to breach of contracts. The damages included lost profits for which the arbitrator relied upon Kenford Co. v. County of Erie. 67 N.Y.2d 257. 261 (1986) and Bagley v. smith, 10 N.Y. 489, 497 (1853). In the former it was stated, “loss of future profits as damages for breach of contract have been permitted in New York under long-established and precise rules of law.” Whereas in the latter it was stated, “[t]he loss of profits is one of the common grounds, and the amount of profits lost, one of the common measures of damages to be given upon a breach of contract.”