When a buyer defaults, sellers often assume damages are straightforward. They rarely are. The gap between what sellers claim and what GAFTA tribunals award is where most of the money gets lost — and it's almost always a problem of evidence, not law.
A buyer fails to open a letter of credit on time. Or refuses to take delivery. Or simply goes silent. The seller, understandably, wants compensation. He has a contract. He has a loss. He has GAFTA arbitration.
What he often doesn't have is a properly documented damages claim.
GAFTA 49 — the standard FOB grain contract — contains a default clause that sets out exactly how damages are to be calculated. Most sellers read it once and assume they understand it. The tribunal reads it differently.
"In the event of default by either Buyer or Seller, the other party may at their option sell or purchase, as the case may be, against the defaulter, and the defaulter shall be liable for any loss on such resale or purchase respectively..."
The key phrase is against the defaulter. This means the innocent party must act — promptly and in the market — and prove that their resale or repurchase was conducted at arm's length, in good faith, and at the best available price.
Sellers who simply claim the difference between the contract price and some reference market price, without an actual resale transaction, often find their damages calculation rejected or heavily reduced.
1. No prompt resale. After a buyer defaults, sellers sometimes wait — hoping the buyer will come back, or waiting for a better market. GAFTA tribunals expect the innocent party to mitigate promptly. Delay needs justification. Without it, the damages period is cut.
2. Resale to a related party. If the seller's resale is to a subsidiary, affiliate, or connected trader, the tribunal will scrutinise the price. A resale that isn't demonstrably arm's length may be disregarded entirely, leaving the seller with only the market price at the time of default.
3. Poor documentation of costs. Sellers routinely forget to claim — or fail to document — storage costs, insurance during the delay, re-inspection costs, and any additional freight incurred. These are real losses. Tribunals will award them if properly evidenced; they won't invent them.
If you didn't resell against the defaulter — or couldn't for logistical reasons — you'll need market evidence. GAFTA published prices, exchange data, and contemporary broker quotations all carry weight. A vague assertion that "the market was lower" does not.
The timestamp matters too. Damages are typically assessed at or around the time the default occurred, not when you eventually disposed of the cargo. If you waited three months and the market moved in your favour, don't expect to claim as if it hadn't.
GAFTA tribunals have discretion to award interest on unpaid damages. Sellers frequently fail to claim it, or claim it without specifying the rate and period. Interest on a six-figure claim over eighteen months is not a rounding error. Claim it, document it, justify the rate.
The moment a buyer defaults, start the clock on your mitigation obligation. Resell promptly, document everything — the transaction, the costs, the market at the time — and don't leave interest as an afterthought. A strong underlying case won't survive weak damages evidence.