The Legal Nature Of The The Port Nomination Provision In FOB Sale Contracts

If the sellers do not know at the time of concluding the FOB sale contract with the buyers at which port they will be able to deliver the cargo, they can indicate a range of ports out of which they will subsequently nominate the actual port of loading. The buyers and shipowners would need to know the loading port in due time before the contract delivery period in order to be able to comply with the requirements of the port operators. This is the reason why the contracts for sale of full cargoes should stipulate a deadline for the nomination of the loading port. An example of such provision is the Clause 7 of the ANEC Contract form No.42 which stipulates that the loading port must "be declared at the latest 30 days before first day of Delivery Period".
In such case, the seller`s obligation to nominate a loading port within the contractual time limit is considered a condition of the contract, because the buyer`s compliance with the obligation to nominate a suitable vessel is dependent upon the timely nomination of the loading port by the seller.
The seller`s failure to comply with such obligation shall entitle the buyer to terminate the contract and claim damages. An example of contract clause covering this matter is the Clause IV of INCOGRAIN Contract No. 13 that gives the FOB buyer an express right to terminate the sale contract for breach of the port nomination provisions. The clause provides that:

"In the event of a sale calling for a compulsory nomination of the port of shipment, Sellers, under penalty of default, shall notify the name of one single port not later than the first day of the shipment period. If this day falls on a Saturday, a Sunday, a public holiday or another non-working day, the expiry date of the fixed period shall be brought forward to the preceding working day. However, Buyers may require this nomination to be made as from the fifteenth day of the month preceding a monthly shipment period, or fifteen consecutive days prior to the beginning of a shipment period other than a monthly period. In this case, Sellers must thenceforth under penalty of default definitely nominate the loading port within two working days following the date of the request."

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Grain Trade Review Edition No. 9.