Review Of GAFTA Contract Form For FOB Sales Of Biomass, Edition 2020
The GAFTA Contract No. 202 is a contract form published by the Grain and Feed Trade Association (GAFTA) to be used for FOB sales of biomass in bulk.
Vessel Nomination
The GAFTA Contract No. 202 does not stipulate any requirements to be complied with by the vessel to be nominated by the buyers. It says just that the tankers and vessels classified as "ore/oil carriers" are excluded.
There is no pre-advice period for the nomination of vessel and no deadline for the submission of the vessel`s loading plan. These matters have to be agreed by the contracting parties.
The Sellers` Potential Liability For The Cargo Carrying Charges
In GAFTA Contract No. 202, the delivery period is a period for the presentation of vessel for loading. The buyers` vessel can arrive and tender NOR at any time within the contract delivery period, up to 24:00 hours on the last day of the delivery period, provided that the buyers have complied with the contract pre-advice requirements for the vessel nomination. This is so even in cases where the sale contract that incorporates the terms of GAFTA Contract No. 202 excludes the extension option.
In GAFTA Contract No. 202 there is no contractual time limit for the presentation of vessel for loading after the expiry of the pre-advice period, as in GAFTA Contract No. 79A. If the buyers present the vessel for loading within the contract delivery period, the sellers shall be obliged to deliver the goods even if it is necessary to complete loading in the next days following the contract delivery period and bear any cargo carrying charges accrued during these days.
If the intention of the contracting parties is that the contract delivery period be a shipment period and loading be completed before 23:59 hours on the last day of the contract delivery period, then they should stipulate this matter clearly in the sale contract and not leave this matter to implication.
In such case the sellers should stipulate a time limit for the buyers to present the nominated vessel ready in all respects for loading and tender valid NOR taking into consideration the time necessary to complete loading of the cargo quantity at the contractual loading rate before the end of the contract delivery period.
An example of such provisions can be found in the Clause 7(B) paragraph (a) of the GAFTA Contract No. 79A which stipulates that the vessel presentation at the loading port in readiness to load "shall allow at least 36/................................. consecutive hours remaining prior to the end of the contractual delivery period." More detailed provisions are in the Clause 12 of GAFTA Port Terms No. 129 (Loading Terms For United Kingdom Ports) which stipulates that:
"In the Delivery Period Clause paragraph (a) GAFTA contract 79A, the following schedule shall determine the number of consecutive hours which must remain from presentation of a contractual vessel to the end of the contractual delivery period:
For quantities up to 4000 tonne - 36 consecutive hours
For quantities between 4001 - 8000 tonne - 48 consecutive hours
For quantities between 8001 - 12000 tonne - 72 consecutive hours
For quantities in excess of 12000 tonne - 96 consecutive hours."
The vessel`s expected readiness date and laycan should allow to sellers sufficient time for the completion of loading between the next day following the expected readiness date and cancelling day and 23:59 hours on the last day of the contract delivery period. Therefore, the buyers must nominate a vessel with an expected readiness date and a laycan that will allow the sellers sufficient time to load the cargo in the days following expected readiness date or cancelling day until 23:59 hours on the last day of the contract delivery period.
The sellers should also stipulate in the sale contract the requirement that the vessel`s expected readiness date be pre-advised not later than the day before the commencement of the minimum pre-advice period before the contractual time limit for the presentation of vessel for loading.
Conditions For The Vessel Substitution
In the FOB sale contracts, the vessel substitution is usually allowed subject to the compliance with the contract requirements in respect of the vessel`s type, size, de-ballasting capacity and expected readiness date.
The substitute vessel must be a vessel of similar type and size and with similar de-ballasting rates as the originally nominated vessel to be able to load the cargo quantity nominated by the buyers within the contractual time allowed for loading. The Clause 7 of GAFTA Contract No. 202 has no provisions in this regard. Therefore, the biomass sellers using the GAFTA Contract No. 202 should stipulate in their sale contracts that the substitute vessel must comply with the same requirements as the originally nominated vessel in respect of type, size and de-ballasting capacity.
As regards the vessel`s time of arrival, this should not be earlier than the expected readiness date of the originally nominated vessel. It should not be earlier than the expected readiness date of the originally nominated vessel because the sellers` obligation to commence loading and therefore, the commencement of laytime are in function of this date. The sellers must have the goods ready for loading as from the expected readiness date of the originally nominated vessel, not sooner.
In the FOB sales of biomass based on the terms of GAFTA Contract No. 202, the buyers may substitute the originally nominated vessel provided that they give the vessel substitution notice not later than one business day before the expected readiness date of the originally nominated vessel and the substitute vessel does not arrive earlier than the expected readiness date of the originally nominated vessel.
The FOB sale contracts incorporating the terms of the GAFTA Contract No. 202 should stipulate that if the substitute vessel presents for loading earlier than the expected readiness date of the originally nominated vessel, the substitute vessel`s NOR shall not become effective and the time will not count as laytime prior to such date.
Conditions For The Vessel Presentation For Loading
The Clause 7 of GAFTA Contract No. 202 requires the FOB buyers to present the vessel at the loading port "in readiness to load within the delivery period", but it does not define the meaning of the words "readiness to load". The question of the vessel readiness to load the cargo could lead to disputes in case of the vessel`s late arrival or delayed readiness due to the provisions stipulating the sellers` obligation to complete loading even after the contract delivery period if necessary and bear any carrying charges for the cargo.
An example of such dispute was the English law case Soufflet Negoce S.A. v. Bunge S.A.1.
In that case the buyer`s vessel presented for loading on the last day of the contract delivery period, but it failed to pass the holds` inspection. The sale contract did not allow the extension of the delivery period by the buyer. On the next day the sellers had declared the buyers in default "due to the fact that the vessel was not presented ready to load within the delivery period".
The buyers brought a claim for damages for the sellers` failure to load the goods.
The question in dispute was whether the buyer`s obligation to present the vessel "in readiness to load within the delivery period" stipulated in Clause 6 of GAFTA Contract No.49 imposes an obligation on the FOB buyers to present the vessel ready in all respects for loading, as it would be necessary for the tender of a valid NOR or whether the FOB buyers are only required to present a vessel for loading. The sellers contended that the degree of readiness of the vessel should be that required for the tender of a valid NOR, i.e. vessel`s readiness in all respects to load. The buyers contended that the degree of readiness required was such that it was physically and legally for the sellers to load even if the circumstances did not justify the shipowner giving the NOR.
The English Commercial Court held that the requirement to present the nominated or substitute vessel at the loading port "in readiness to load within the delivery period" did not mean that the vessel must tender a valid NOR, but that the vessel must arrive at the loading port, be moored at a suitable berth for loading and "there are no legal or physical restrictions on the Sellers preventing them from obeying the Buyers orders".
Given that the fifth phrase of Clause 7 of GAFTA Contract No. 202 is identical with the fifth phrase of Clause 6 of GAFTA Contract No.49 whose interpretation was in dispute, the English Commercial Court`s decision is equally applicable for the interpretation of the fifth phrase of Clause 6 of GAFTA Contract No. 202.
To avoid disputes like in Soufflet Negoce S.A. v. Bunge S.A., the FOB sale contracts incorporating the terms of GAFTA Contract No. 202 should clarify whether the buyers` vessel must tender valid NOR at loading port within the contract delivery period (along with the requirements for the NOR validity) or where this is not required, whether the seller shall be entitled or not to terminate the sale contract in case of the vessel`s late arrival or delayed readiness.
Conditions For Extension Of The Contract Delivery Period
The Clause 10 of GAFTA Contract No. 202 stipulates that the buyers have the right to request extension of the contract delivery period with maximum 30 days. The buyers` right to request the extension of the delivery period is not qualified by any condition. The risk for the sellers is that they could be trapped into a contract from which they cannot escape from.
An example of such case is the English law case Nidera BV v. Venus International Free Zone for Trading & Marine Services SAE2. In that case the FOB sellers were unable to ship the goods during the contract delivery period due to a resolution published by the Ukrainian government restricting the exports of cereals.
In order to prevent the cancellation of contract by sellers after the expiry of the contract delivery period and be left to bear the vessel demurrage charges, the buyers served notice claiming extension of the delivery period with two days before the end of the contract delivery period, pursuant to the provisions of Clause 8 of GAFTA Contract No. 49 incorporated into the sale contract.
The sellers contended that the buyers` extension was invalid and ineffective.
The sellers argued that the buyers` right to request the extension of the contract delivery period is limited only to circumstances in which the buyers are unable to present the nominated vessel ready for loading within the contract delivery period. If the buyers have already presented a vessel for loading, the Clause 8 could not be invoked to give the buyers additional time to do something they have already done.
The sellers argued that the trade meaning of Clause 8 is that if the buyers fear that the nominated vessel may not be presented in readiness to load within the contract delivery period, then the buyers can claim an extension of the delivery period to enable them to present the vessel within the extension period. If the vessel does not reach at the loading port within the contract delivery period, then the buyers shall bear the carrying charges. If the vessel does reach at the loading port within the contract delivery period, then the sellers must load the goods even if it shall be necessary to complete loading after the contract delivery period. In such case, the carrying charges shall be borne by the sellers.
The English Commercial Court held that although the Clause 8 contemplates a situation where a FOB buyer needs additional time to nominate and present a vessel, it does not follow that this is the only situation in which an extension of the delivery period can be claimed. The first sentence of Clause 8 means what it says:
"where a timely notice is served, there is an unqualified right of extension under clause 8."
There is nothing in Clause 8 of GAFTA Contract No.49 to qualify or limit the buyer`s right to extension of the delivery period.
The Court decision would equally apply to the interpretation of Clause 10 of GAFTA Contract No. 202, which, except for the duration of extension period, it is identical with the Clause 8 of GAFTA Contract No.49.
Comments:
In GAFTA Contract No. 202, Clause 10 does not have corresponding provisions with the Clause 7.
The buyer`s right to request the extension of the delivery period is not qualified by any condition. The risk for the sellers is that like in the case mentioned above they could be trapped into a contract from which they cannot escape from.
It is in the sellers` interest to have a contractual link between the conditions for presentation of vessel for loading and the conditions for extension of the delivery period. For instance, if the sale contract requires the buyer`s vessel to arrive and tender valid NOR not later than 17:00 hours on the last day of the contract delivery period, the condition for extension of the delivery period should have the following provisions:
"Should the nominated vessel`s NOR not be validly tendered before 17:00 hours on the last day of the contract delivery period, the Buyers shall be in default unless they give notice to Sellers not later than the next business day following the last day of the contract delivery period that an extension is claimed. Should such extension be timely claimed, the contract delivery period shall be extended by an additional period of not more than 30 consecutive days."
Deadline For Giving Notice Of Extension
The Clause 10 of the GAFTA Contract No. 202 stipulates that the buyers must serve notice claiming extension of the contract delivery period not later than the next business day following the last day of the contract delivery period. This means that the buyers may serve the notice of extension at any time until 24:00 hours on the next business day following the last day of the contract delivery period, except in case of FOB re-sales contracts, where the deadline for giving the notice of extension is 16:00 hours on the next business day following the last day of the contract delivery period, pursuant to the provisions of Clause 203.
GAFTA Prevention Of Delivery Clause
1. Deadline For Giving Notice Of Force Majeure
In case of an event of force majeure such as
- the prohibition of export or other executive or legislative act done by or on behalf of the government of the country of origin restricting export; or
- blockade, acts of terrorism or hostilities; or
- strikes, lockout, riot or civil commotion; or
- breakdown of loading installation, fire or Act of God; or
- unforeseeable and unavoidable impediments to [inland] transportation or navigation;
that prevents the sellers` performance of their contractual obligations, the sellers must serve notice to the buyers within 7 consecutive days of the occurrence or not later than 21 consecutive days before the commencement of the contract delivery period, whichever is the later.
In such case, the sale contract shall be suspended for the duration of the force majeure event, initially up to 21 consecutive days after the end of the contract delivery period.
2. Deadline For Giving Notice Of Cancellation
If the force majeure event continues for 21 days after the end of the contract delivery period, the buyers may cancel the contract by serving a notice on the sellers not later than the first business day after the end of the 21 day period.
If the buyers do not cancel the contract, the contract shall remain in force for an additional period of 14 days. After this 14 day period, the contract shall be automatically cancelled if the force majeure event continues to prevent the sellers` performance of contract.
3. Notice Of Cessation Of Force Majeure Event
If the force majeure event ceases before the contract can be cancelled (i.e. that is before the expiry of 21 day period after the end of contract delivery period or if the contract is not cancelled by the buyer after the 21 days` period, before the expiry of 35 (21+14) days` period after the end of the contract delivery period), the sellers must notify the buyers that the force majeure event has ceased.
4. Time Allowed For Delivery After The Cessation Of Force Majeure Event
The sellers shall be entitled from the date of cessation of force majeure event to as much time as was left for delivery under the contract prior to the occurrence of force majeure event. If the time that was left for delivery under the contract is 14 days or less, a period of 14 consecutive days shall be allowed for the delivery of goods.
Buyers` Obligation To Provide Evidence Of Insurance Cover
The buyers have the obligation to provide evidence of insurance cover on the terms stipulated in the GAFTA Contract, i.e. insurance covering marine and war risks, plus strikes, riots, civil commotions and mine risks, at least 5 days prior to the expected date of the vessel readiness to load. If the buyers fail to provide such evidence to sellers at least 5 days prior to the expected date of the vessel readiness to load, the sellers shall have the right to obtain such insurance cover for the buyers` account and expense.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Biofuels Trade Review Edition No. 4.
Endnotes:
1. [2010] EWCA Civ 1102; [2009] EWHC 2454 (Comm)
2. [2014] EWHC 2013 (Comm)
3. See English law case Soufflet Negoce SA v. Fedcominvest Europe SARL, [2014] EWHC 2405 (Comm)