ASAP Agri continues its joint series with leading firm AGA Partners, offering practical legal insights from real-world disputes to help our clients navigate legal risks in commodity trade.

This time, Dmytro Izotov (Senior Associate) and Viktor Pasichnyk (Associate) of AGA Partners, together with Inna Stepanenko, Chief Analyst at ASAP Agri, examine a complex arbitration over DAP delivery by railway – where the stakes included delayed approvals, contractual misunderstandings, and a dramatic shift in awarded damages.

Inna Stepanenko: Are there any trends regarding DAP contracts you have observed recently?

Dmytro Izotov: Yes. We have observed a decrease in the number of disputes arising from DAP contracts over the last year. Two years ago, more than 30% of the disputes we handled concerned DAP contracts; now their share is around 25%. This is explained by the increase in sea exports, due to Ukraine's ability to secure a safe route for shipments through the Black Sea despite Russia’s withdrawal from the Grain Deal. As a result, land exports via Ukraine’s western border have become less attractive.

However, DAP contracts remain an important tool, especially for exporters to the EU who have no grain terminals, fleets and other infrastructure that make selling on CIF/FOB terms more viable.

Inna Stepanenko: What types of disputes usually arise from DAP contracts?

Viktor Pasichnyk: The most frequent types are the same as for CIF and FOB contracts – non-payment and non-delivery. However, DAP contracts tend to involve more disputes concerning non-acceptance, often due to specific transportation regulations. This is especially true for contracts that stipulate cargo delivery by railway.

Inna Stepanenko: Can you tell me more about these railway delivery regulations?

Viktor Pasichnyk: Of course. Ukrainian Railways, the state-owned rail transport monopoly, has a set of quite complex rules for international cargo delivery. Cargo deliveries are arranged via Mesplan – a cargo transportation management system, which requires the following procedure:

1. The consignor submits cargo transportation plans to Ukrainian Railways;
2. The seller notifies the buyer of the submitted cargo transportation plans and requests that the buyer arrange for the consignee to confirm readiness to accept the goods at the place of delivery;
3. The buyer instructs the consignee to confirm its readiness to accept the goods at the place of delivery to the respective foreign railway authority;
4. Ukrainian Railways submits a request to the respective foreign railway for approval of the transportation plans;
5. The foreign railway approves the transportation plans if the consignee has confirmed acceptance or rejects them in the absence of such confirmation;
6. Depending on the foreign railway’s confirmation, Ukrainian Railways either approves the plans and allocates wagons or rejects the plans and refuses to proceed with the transportation of the goods.

So, the consignee’s confirmation is crucial – without it, delivery is impossible.

Inna Stepanenko: What was the most interesting dispute you have recently handled related to these issues?

Dmytro Izotov: One notable case involved a dispute between a leading Ukrainian agricultural company and a major Swiss trading house. The conflict arose from a DAP contract for the sale of 6 KMT of Ukrainian sunflower oil, with delivery specified by railway to the Mostyska/Medyka station on the Ukrainian-Polish border.

According to the contract and its addendum, the goods could only be dispatched after the consignee confirmed their acceptance to the Polish railway and the transportation plans were subsequently approved in the Mesplan system. The contract also explicitly required the buyer to “actually procure the acceptance” of the seller’s transportation plans.

The seller submitted six transportation plans via the Meslan system. The consignee approved only two and failed to confirm the remaining four. As a result, the Polish railway refused to validate the unconfirmed plans. Consequently, Ukrainian Railways rejected those plans, leaving the seller unable to proceed with delivery within the agreed timeframe.

Despite this, even after the delivery period had expired, the seller offered the buyer an opportunity to arrange approval of new transportation plans. However, the buyer did not make use of this chance and continued to assert that the seller was at fault for partial non-delivery of the goods. As it became clear that the buyer had no intention of performing its obligations, the seller declared the buyer in default and initiated FOSFA arbitration to recover damages for the buyer’s non-acceptance of the goods.

Inna Stepanenko: What were the findings of the arbitral tribunal?

Viktor Pasichnyk: The first-tier arbitral tribunal upheld the seller’s claim, concluding that the buyer was obligated to procure the consignee’s confirmation of readiness to accept the goods, and had repudiated the contract by failing to do so. The tribunal determined that the default date was the date on which the seller accepted the buyer’s breach (approximately one month after the contractual delivery period had expired) and awarded the sellers around USD 2 million in damages.

Inna Stepanenko: Was there anything else particularly interesting in this case?

Viktor Pasichnyk: Yes. The buyer appealed the award to the FOSFA Board of Appeal. While the board upheld the first-tier tribunal’s finding that the buyer was liable for default damages, it took a different view on the date of default. The appeal board ruled that the default occurred on the first day after the expiry of the contractual delivery period. This conclusion was based on a recent English case of Ayhan Sezer v. Agroinvest, which was decided after the initial award.

To summarize, in the Ayhan Sezer case, the court clarified that a breach of contract occurs at the moment the contract is actually broken, not when the other party formally accepts the breach. So, even though the seller in our case attempted to keep the contract alive by offering additional opportunities to arrange new delivery plans, this did not change the fact that the breach had already taken place.

The board of appeal, therefore, determined that the default date was the actual date of breach – when the buyer put the seller in a groundless default immediately after the delivery period expired, not when the seller formally accepted this breach.

As a result, the awarded damages were significantly reduced – from around USD 2 million to approximately USD 600,000.

Inna Stepanenko: What are the broader implications of Ayhan Sezer v. Agroinvest for commodity trading?

Dmytro Izotov: It’s a very relevant question. The most immediate impact is that the number of cases in which the date of default would be considered to be the date of its acceptance will be much smaller, especially if that acceptance occurs long after the initial breach.

Practically speaking, this gives the breaching party greater control over the potential damages they might face. The innocent party can no longer delay acceptance of a breach in hopes for a better market price or more favourable conditions.

In today’s legal landscape, when facing a repudiation, the innocent party must act promptly: either accept the breach and proceed with a resale or conclude a substitute transaction. If, instead, the innocent party attempts to preserve the contract through negotiations, it assumes the market risk – and any negative price movements or losses that occur as a result of delay in reselling or securing a substitute transaction may not be recoverable.