STATE TRADING CORPORATION OF INDIA LTD -V- M GOLODETZ LTD (1989)

In this case US sellers (Golodetz) agreed with Indian buyers (STC) for the sale of 12,600
tons of South Korean sugar C&F an Indian port, for shipment in December 1985. The
contract was concluded on 12 December. Payment was to be by way of a letter of credit
covering 100% of the value of the goods. The contract required Golodetz to provide a
performance bond covering their performance and it also contained a “counter-trade”
provision whereby within six months Golodetz would purchase unspecified goods from STC
to the value of 60% of the contract value of the sugar. In respect of this counter-trade
obligation Golodetz were to put up a performance bond guarantee (PBG) for 3% (of the
60%). They were to give immediate instructions to their bank for the opening of the counter-
trade PBG.

The contract was not well drafted. In particular it incorporated STC’s Standard Terms for
Sugar Contracts, but these were not appropriate for contracts for immediate shipment as
they envisaged future shipment and provided for a staged timetable for opening the sellers’
performance bond and the buyers’ letter of credit. The form of performance bond provided
for in the Standard Terms was wholly inappropriate to used as a pro forma for the counter-
trade PBG.

Golodetz appropriated goods already afloat on mv “SARAH D” when the contract was
concluded. At that stage Golodetz’ performance bond had been put up, but STC’s the letter
of credit had not been opened, and Golodetz had not put up the counter-trade PBG. Within a
few days “SARA D” was involved in a collision and she and her cargo were lost. Golodetz,
having pressed STC for the L/C, called a default. STC denied that they were liable. On the
contrary, said STC, it was Golodetz who were in default. They (STC) were not obliged to
provide their L/C until Golodetz had first provided the counter-trade PBG.

The arbitrators found in favour of Golodetz. The High Court found in favour of STC and,
finally, the Court of Appeal found in favour of Golodetz. The Court of Appeal said that with
regard to the L/C it was a condition of the contract that this should be opened immediately.
STC’s obligation in this respect was not dependent on Golodetz first providing the counter-
trade PBG. Golodetz’ only obligation was to apply for the counter-trade PBG promptly and in
any event their obligation was not a strict condition but an intermediate obligation. This was
because the counter-trade PBG was for a relatively small sum and it did not relate to the
sugar contract but rather to future business yet to be concluded.

NOTE

The case is interesting because it shows that there can be cases where not providing a
performance bond or similar third party guarantee of performance on time is not a default. It
is also interesting because it demonstrates the difficulties that arise where the parties:-
Incorporate one party’s Standard Terms and Conditions into the contract without
giving proper thought to the consequences.
[Such Standard Terms and Conditions are rarely neutral. Exporters’ Standard Terms
and Conditions will often be pro-seller, whereas importers’ Standard Terms and
Conditions will often be pro-buyer. Gafta contracts, by way of contrast achieve a fair
balance between competing interests in this respect.]

©The Grain and Feed Trade Association Updated: August 2012

 Fail to appreciate the practical difficulties and potential legal difficulties associated
with selling goods afloat.
Fail to appreciate that security for payment/performance by third parties (e.g. banks)
takes time to arrange.
Fail, when such security is to be provided by both sides, to make it clear in what form
such security is to be provided.
Fail to agree in what order such mutual security is to be provided.
Fail, in such circumstances, to agree whether one side’s providing such security is to
be a condition precedent to the other side’s performance obligations.

©The Grain and Feed Trade Association Updated: August 2012