Review Of INCOGRAIN Contract No. 13

The INCOGRAIN Contract No.13 is a delicacy of French cuisine published by Paris Grain Trade Association (Syndicat de Paris du Commerce et des Industries des Grains) to be used for the FOB sales of grain in bulk.

Settlement Of Price For Contract Quantity Tolerance
In case of a sale of a full cargo, a margin up to 10% more or less of the contract quantity can be granted to the buyers. The buyer`s option as to cargo quantity must be declared in the vessel`s nomination notice.
In case of a sale of a cargo to be shipped in partial shipments (parcels), the margin of contract quantity shall apply only to the balance available for the last shipment.
A margin up to 2% of contract quantity shall be settled at the contract price. Any excess above 2% of contract quantity shall be settled at the market price on the Bill of Lading date.
If the sale is for a quantity between minimum and maximum limits, the margin of contract quantity shall remain at the buyer`s option for each period.

Delivery Terms And Vessel Requirements
The delivery terms are "FOB Spout Trimmed" which means that the buyers should nominate only conventional bulk carriers, i.e. single deck, self-trimming bulk carriers, because the FOB Spout Trimmed delivery is possible only if the buyer nominates and provides a vessel suitable for spout trimming, i.e. a self-trimming bulk carrier.

Vessel Nomination
The FOB buyer must give to seller a minimum 8 days` pre-advice of the expected date of vessel readiness to load and estimated quantity required to be loaded. This notice must reach to the seller not later than the ninth consecutive day preceding the end of the contract delivery period, otherwise the buyer shall be in default. The expected date of vessel readiness to load must be not later than the last day of the contract delivery period.
The buyer must give another pre-advice with minimum 4 days before the expected date of vessel readiness to load stating the exact quantity of cargo required to be loaded. This notice must reach to the seller not later than the fifth consecutive day preceding the end of the contract delivery period, otherwise the buyer shall be in default.

Conditions For The Vessel Substitution
The buyer may substitute the originally nominated vessel provided the substitute vessel will be able to load the same quantity of cargo on the expected date of berthing of the originally nominated vessel.

The Implications Of The Vessel`s Failure To Present Ready In All Respects To Load On The Expected Date Of Berthing
The buyer must present the vessel ready in all respects to load at the loading berth on the expected date of berthing pre-advised in the vessel`s nomination notice.
Should the buyer`s vessel fail to present ready in all respects to load on the expected date of berthing, the buyer shall be liable for any extra storage charges incurred by the seller for the goods after the expected date of berthing, even if the seller will manage to complete loading during the contract delivery period. If, however, in spite of the seller`s compliance with the contractual loading rate the seller will not be able to complete loading before the end of the contract delivery period due to the vessel`s late arrival or delayed readiness for loading, the contract price for the quantity of goods loaded after the delivery period shall include an additional charge to be calculated based on the number of additional days required to complete loading: i.e.
- ½ % over the contract price, if the loading is completed within 4 days after the contractual delivery period;
- ¾ % over the contract price, if the loading is completed within 5 or 6 days after the contractual delivery period;
- 1% over the contract price, if the loading is completed within 7 or 8 days after the contractual delivery period.
These charges shall apply only if the contractual loading rate has been respected. In case of loading delays caused by the seller`s failure to load the goods at the contractual loading rate, there will be no carrying charges due by the buyer to seller for the time used by the seller in excess of the laytime and the seller shall have to reimburse to buyer "all proven expenses resulting from the breach of the freight contract", i.e. demurrage and extra berth charges.

Extension Of The Delivery Period
If the buyer will not be able to present the vessel ready in all respects for loading during the contract delivery period, the buyer can give notice to the seller not later than the last day of the contract delivery period claiming extension of the delivery period with an additional period of 8 consecutive days.
Provided the buyer`s vessel presents ready in all respects for loading during the extension period, the seller shall if necessary complete loading even after the 8 days` extension period.
For the quantities loaded after the extension period, the contract price will be increased with an additional charge of 1.50%.
For the quantities loaded during the extension period, the contract price will be increased with an additional charge to be calculated based on the number of days required to complete loading, in accordance with the following scale:
- ½ % over the contract price, if the loading is completed within 4 days after the contractual delivery period;
- ¾ % over the contract price, if the loading is completed within 5 or 6 days after the contractual delivery period;
- 1% over the contract price, if the loading is completed within 7 or 8 days after the contractual delivery period.
These charges shall apply only if the contractual loading rate has been respected. In case of loading delays caused by the seller`s failure to load the goods at the contractual loading rate, there will be no carrying charges due by the buyer to seller for the time used by the seller in excess of the laytime and the seller shall have to reimburse to the buyer "all proven expenses resulting from the breach of the freight contract", i.e. demurrage and extra berth charges.
These provisions will prevent disputes like in the English law case Rich Co. International Ltd. v. Alfred C. Toepfer International GmbH (The "Bonde")<sup>1</sup>.
In that case the dispute arose out of a contract for the sale of 30,000 MT of wheat basis FOB terms.
The contract delivery period was 20 April – 20 May 1988.
The buyer failed to present the vessel ready to load within the contract delivery period and requested extension of the delivery period with 21 days.
The seller agreed with the extension of the delivery period but failed to load the goods at the contractual loading rate of 3,000 MT per day and the time used for loading exceeded the 10 days allowed for loading. Nonetheless, the seller claimed the reimbursement of carrying charges for the entire period after the expiry of the contract delivery period until the date of completion of loading. The amount of carrying charges claimed by the seller exceeded the amount of demurrage charge owed by the seller to buyer for the time used in excess of the laytime.
The buyer denied liability for the carrying charges accrued during the period of time used in excess of the 10 days allowed for loading.
The seller`s claim for the reimbursement of carrying charges was upheld by the English Commercial Court.

Nomination Of The Loading Port
In sale transactions that require the seller to nominate the loading port, the seller`s obligation to nominate the loading port within the contractual time limit is a condition of the contract. INCOGRAIN Contract No. 13 gives the FOB buyer an express right to terminate the sale contract in case of breach of the port nomination provisions by the seller.

Nomination Of The Loading Berth
The seller must nominate the loading berth upon the receipt of the vessel`s NOR.
If the loading berth is occupied by another vessel at the time of the vessel`s arrival at loading port, the buyer shall automatically be allowed a free charge extension of the contract delivery period equivalent to the period of time spent by the vessel waiting for berth. No carrying charges or other expenses shall be charged on account of this delay whether the vessel arrives within the contract delivery period or during the extension period. Furthermore, if the time allowed for loading under the sale contract is exceeded due to the time lost while the vessel was waiting for berth, the seller cannot claim dispatch money from the buyer for any time saved due to loading at a faster rate than the contractual loading rate.
These provisions will prevent situations like in the English law case Miserocchi v. Agricultores Federados Argentinos SCL and Bunge A/G (The "Sotir" and "Angelic Grace")².
In that case the buyers were required to present the vessel ready for loading at the nominated berth within the contract delivery period but their vessel could not proceed due to congestion to the nominated berth until after the expiry of the contract delivery period.
The seller claimed the reimbursement of carrying charges incurred for the goods after the expiry of the contract delivery period.
The English Commercial Court held that in case of contracts which require the vessel to present ready for loading at the nominated berth within the contract delivery period, the buyers bear the risk of delay to vessels caused by congestion at loading port.

The Seller`s Obligation To Have The Goods Ready For Loading
The seller must have the goods ready for loading on the vessel`s expected readiness date pre-advised by the buyer, not sooner, not later or at least, not later than the contractual time limit. The seller would be liable for any delay resulting from his failure of having the goods available for loading at the end of the pre-advice period³. Furthermore, if the seller does not commence loading within 3 working days following the day on which the vessel is in all respects ready to load at the loading berth, he shall be in default, save in case of force majeure.
If the seller commences loading but fails to load the goods at the contractual loading rate, the seller shall have to reimburse to buyer "all proven expenses resulting from the breach of the freight contract", i.e. demurrage and extra berth charges and shall be precluded to claim any price increase resulting from the loading delays, that is, the extra storage charges for the time used in excess of the laytime.
The seller`s obligation to commence loading shall be subject to
- the buyer`s compliance with the obligation to provide evidence of insurance cover for the goods, if requested by the sellers; and
- the buyer`s compliance with the obligation to arrange the opening of L/C not later than 5 working days prior to the first day of the delivery period.
In case of late opening of L/C, the seller shall have the right to postpone the delivery of goods until the receipt of the bank`s confirmation of L/C opening. In such case, any expenses arising from the delays in opening of L/C, e.g. demurrage charge and extra storage charges for the goods, shall be for the buyer`s account.

Weight Determination
The contract stipulates that the weight of cargo shall be ascertained on the shore weighing devices at the place of loading and the weight figure resulted therefrom shall be final.

Condition Of Goods At The Time Of Delivery
Sub-Clause III(a) has the following provisions:

"Goods must be delivered dry, without abnormal odour, without smell, free from alive parasites of the goods, and meet all current trading standards."

Any defect in the condition of goods which the seller is unable to remedy immediately shall give the buyer the right to reject the goods.

Quality Determination
Clause III provides 3 options for the determination of quality:
a) the goods must conform to a reference sealed sample; In case the goods do not conform to the sample, the buyer may either reject or accept delivery subject to a price allowance to be fixed by arbitration, depending on the extent of non-conformity.
b) the goods must conform to a type sample; If the difference is within 1%, the goods shall be accepted without a price allowance. If the difference exceeds 1%, the price allowance shall be fixed by arbitration, the buyer having the right to reject the goods in case the difference exceeds 5%.
c) the goods` quality characteristics must be within the minimum and maximum limits stated in the contract quality specifications.

INCOGRAIN Contract No.13 makes a distinction between the situation when the goods supplied do not correspond with the description of goods in the sale contract and situation when there is only a difference in quality. In the former case, the buyer shall be entitled to reject the goods. In the latter case, the buyer shall only be entitled to claim a price allowance.
The sampling of goods for the determination of quality and condition shall take place latest at the time of loading on the quay, dock area, terminal elevator or barges from which the goods will be shipped into the vessel`s holds. But the rejection of goods will only be possible before loading into the vessel`s holds. The buyer cannot reject the goods after they have been loaded into the vessel`s holds on the grounds of difference in quality and/or condition. The only thing the buyer can do after the goods have been loaded into the vessel`s holds it is to reserve his rights concerning the goods to claim later a price allowance to be fixed by arbitration.
Any claim for arbitration shall be notified to the other party not later than 7 working days after the recognition of goods (i.e. determination of quality and condition). Not later than 14 working days after the notification of the arbitration claim, the buyer shall refer the dispute to the Chambre Arbitrale de Paris and send them the cargo samples.

Payment Options
INCOGRAIN Contract No.13 provides two options for payment:
- seller sends the commercial and shipping documents through a bank for collection;
- L/C.
In case of documents sent for collection, the Clause XIII paragraph A of the INCOGRAIN Contract No.13 stipulates that the payment must be effected "without discount on first presentation". However, the sale contract and collection instruction should state the exact period of time within which the payment must be effected. The art.5(b) of the ICC Uniform Rules for Collection (ICC Publication No.522) stipulates that:

"The collection instruction should state the exact period of time within which any action is to be taken by the drawee. Expressions such as "first", "prompt", "immediate", and the like should not be used in connection with presentation or with reference to any period of time within which documents have to be taken up or for any other action that is to be taken by the drawee. If such terms are used banks will disregard them."

Force Majeure
Within 3 working days of the occurrence of an event of force majeure, the affected party must notify to the other party the reasons causing the delay of fulfillment of his contractual obligations.
If required by the other party, the affected party shall provide evidence that the occurrence of the event of force majeure prevented the performance of his contractual obligations.
The contract delivery period shall be extended with minimum 14 consecutive days if the event of force majeure occurred within the last 14 days of the contract delivery period.
If the event of force majeure occurs before the last 14 days of the contract delivery period, the delivery period shall be extended, from the cessation of the event of force majeure, to as much time that was left for delivery under the contract prior to the occurrence of the force majeure event.
Should the force majeure event continue for more than 60 consecutive days, the contract shall be considered null and void for the delivery/ies that had been postponed.

NOR and Time Counting
Clause VI paragraph 4 stipulates that the time shall count according to the general terms of the SYNACOMEX Charter Party form. This means that NOR tendering provisions of SYNACOMEX Laytime Clause would also be incorporated.

Settlement Of Disputes
The disputes arising out of or under the INCOGRAIN Contract No.13 shall be referred to arbitration arranged by the Chambre Arbitrale de Paris in accordance with their rules.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Grain Trade Review Edition No. 3.

Endnotes:

1. [1991] 1 Lloyd`s Rep. 136
2. [1982] 1 Lloyd`s Rep. 202
3. See Kurt A. Becher GmbH v. Roplak Enterprises; Roplak Enterprises S.A. v. Tradax Ocean Transportation S.A. (The "World Navigator"), [1991] 2 Lloyd`s Rep. 23.