Review Of GAFTA Contract No. 49, Edition 2020
The GAFTA Contract No.49 is a contract form published by the Grain and Feed Trade Association (GAFTA) to be used for FOB sales of grain in bulk by the grain traders from the Central and Eastern Europe, particularly by the grain shippers from the Black Sea region.
Vessel Nomination
The Clause 6 of GAFTA Contract No. 49 does not stipulate any requirements to be complied with by the vessel to be nominated by the buyers. There is no pre-advice period for the nomination of vessel and no deadline for the submission of the vessel`s loading plan.
The Sellers` Potential Liability For The Cargo Carrying Charges
The buyers must nominate the vessel with the minimum pre-advice period agreed in the sale contract.
The sellers must have the goods ready for loading as from the expected date of the vessel readiness to load originally pre-advised by the buyers in the vessel`s nomination notice.
Provided the buyers have complied with the contract pre-advice requirements, they may present the vessel for loading at any time within the contract delivery period, even on the last day. 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.
These provisions are obviously unfair for the Black Sea shippers and led to disputes in cases involving vessel`s late nomination or late presentation for loading. The 2010 English law case Soufflet Negoce S.A. v. Bunge S.A.1 is a relevant example.
The case was a dispute arising out of a contract for the sale of 15,000 MT of feed barley.
The sale contract stipulated that the cargo of 15,000 MT of feed barley was to be loaded by the sellers "at the rate of 5,000 MT per WWD of 24 consecutive hours SSHEX even if used", which meant that loading was to be completed in about three days.
The contract delivery period was 9 – 22 October 2006, without the possibility of extension. When the nominated vessel presented for loading on 22 October, the last day of the contract delivery period, it was rejected by the government and private surveyors appointed by the sellers on the ground that the holds and hatches contained residues of coal. Nonetheless, the buyers called upon the sellers to load the barley cargo based on the provisions of the Clause 6 of the GAFTA Contract No.49 incorporated into the sale contract which oblige the sellers to complete loading even after the contract delivery period, if necessary.
What probably happened there was that the sellers did not wait for the vessel and delivered the goods to another buyer before even the vessel`s arrival. Had the sellers waited for the buyers` vessel, they would have incurred the cargo carrying charges accrued on the next days following the contract delivery period that would have made the sale less profitable for the sellers. Based on these considerations, the sellers refused to deliver the goods.
In the Court proceedings that followed, the sellers contended that:
"If a vessel could be presented which was not ready to load in all respects, the Buyers although not wanting to commence loading until the vessel was rendered fit to load would be able by presenting an unfit vessel to trigger an extension of the delivery period during which the seller would be saddled with the carrying charges2."
This is just one case that shows the difficulties that the Black Sea shippers have in the FOB sales based on the terms of the GAFTA Contract No. 49.
Another example is the English law case Ramburs Inc. v. Agrifert S.A.3.
The case was a dispute under a contract for the sale of a cargo of 25,000 MT of maize.
The contract delivery period was 15 – 31 March 2013, without the possibility of extension.
On 20 March 2013, the FOB buyers served a notice nominating the vessel M/V "Puffin" giving an ETA at loading port of 26/27 March 2013, that is, less than 10 days before the vessel`s ETA at loading port.
On 26 March 2013, the FOB buyers sent another notice nominating the vessel M/V "Sea Way" in place of the vessel M/V "Puffin", giving an ETA date of 28 March.
The sellers rejected both nominations for the buyers` failure to comply with the contract pre-advice requirements4. In the rejection notice, the sellers contended that:
"[...] the nominated vessel should have arrived at a loading port at such time so as to enable us to ship the cargo within the shipment period.
Second, as regards your purported substitution [...] it is obvious that even if the vessel arrives at the loading port on 28th March which is highly unlikely, the Sellers will not be able to complete the loading within the shipment period ending 31/03/2013 12:00 P.M. given the loading rate of 8,000 mts per weather working day SSHINC."
Comments:
In the GAFTA Contract No. 49, the delivery period is a period for the presentation of vessel for loading. The buyers` vessel can arrive and tender NOR at any time up to 24:00 hours on the last day of the delivery period. This is so even in cases where the sale contract that incorporates the terms of GAFTA Contract No. 49 excludes the extension option.
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, as in Ramburs Inc. v. Agrifert S.A. case.
The FOB sale contracts incorporating GAFTA Contract No. 49 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, Edition 2020 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 should allow to sellers sufficient time for the completion of loading between the next day following the expected readiness date 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 that will allow the sellers sufficient time to load the cargo in the days following expected readiness date 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 commodity contracts, the vessel substitution is usually allowed subject to the compliance with the contract requirements in respect of the vessel`s size, de-ballasting capacity and expected readiness date.
The substitute vessel must be a vessel of similar 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 6 of GAFTA Contract No.49 has no provisions in this regard. Therefore, the sellers using the GAFTA Contract No.49 should stipulate in their sale contracts that the substitute vessel must comply with the same requirements as the originally nominated vessel in respect of 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 based on the terms of GAFTA Contract No.49, 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 commodity sale contracts incorporating the terms of the GAFTA Contract No.49 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 6 of GAFTA Contract No.49 requires the FOB buyers to present the vessel at the loading port "in readiness to load within the delivery period".
The question of the vessel readiness to load the grain cargo could lead to disputes in case of the vessel`s late arrival 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.
In the English law case Soufflet Negoce S.A. v. Bunge S.A.5 the sale contract stipulated that the cargo of 15,000 MT of feed barley was to be loaded by the sellers "at the rate of 5,000 MT per WWD of 24 consecutive hours SSHEX even if used", which meant that loading was to be completed in about three days.
The contract delivery period was 9 – 22 October 2006, without the possibility of extension. When the nominated vessel presented for loading on 22 October, the last day of the contract delivery period, it was rejected by the government and private surveyors appointed by the sellers on the ground that the holds and hatches contained residues of coal. Nonetheless, the buyers called upon the sellers to load the barley cargo based on the provisions of the Clause 6 of the GAFTA Contract No. 49 incorporated into the sale contract which oblige the sellers to complete loading even after the contract delivery period, if necessary.
The sellers refused to load the goods. The sellers` refusal to load the goods was treated as repudiatory by the buyers who brought a claim in arbitration for damages for the sellers` failure to load the goods.
One question in dispute was whether the 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 fifth phrase of the Clause 6 of GAFTA Contract No.49 has the following provisions:
"Provided the vessel is presented at the loading port in readiness to load within the delivery period, Sellers shall if necessary complete loading after the delivery period and carrying charges shall not apply."
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.
David Steel J. held that the phrase "the vessel is presented at the loading port in readiness to load within the delivery period" means 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". There is no requirement for the tender of a valid NOR.
The English Court of Appeal held that:
"The phrase "in readiness to load" does not expressly say that a Notice of Readiness must have been (or at least be capable of being) given. If that was the intention the form would have said so and not left it to implication."
"The fact that the holds may have needed some cleaning on arrival does not mean that the Sellers can throw up the sale contract on the basis that no vessel has arrived during the period fixed for delivery."
"If the state of cleanliness of the holds were to be a legitimate concern of the Sellers, it would probably be necessary to have some provision entitling the Sellers to inspect the holds6 in addition to whatever rights the Buyers might have under the charter but no such provision appears in this contract."
The problem with the Court decision in Soufflet Negoce S.A. v. Bunge S.A. is that in the major grain exporting countries the state of cleanliness of the holds is a legal requirement. The port authorities require the inspection of holds after berthing and in some countries even before berthing. The port authorities` permit for the vessel to start loading will be subject to the approval of holds by the surveyors and/or government inspectors so that even if the buyers call upon the sellers to load the port authorities will not allow them to do that.
To avoid disputes like in Soufflet Negoce S.A. v. Bunge S.A., the FOB sale contracts should define the meaning of the words "readiness to load" and stipulate that if the buyers` vessel fails to pass the inspection of holds and hatch covers, then the vessel shall not be considered ready for loading. An example of such provisions can be found in the GTA Voyage Charter – AusGrain 2015 which stipulates that:
"the Vessel will not be ready if the result of any survey or inspection […] is that the Vessel is not ready and available for immediate loading."
In the FOB sale contracts incorporating the terms of GAFTA Contract No.49, the sellers should stipulate that the buyers must present the vessel ready in all respects in all the holds required for loading under the contract and that the buyers` vessel must tender valid NOR at loading port within the contract delivery period.
Conditions For Extension Of The Contract Delivery Period
The Clause 8 of GAFTA Contract No.49 stipulates that the buyers have the right to request extension of the contract delivery period with maximum 10 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 SAE7. 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, on the basis 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 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.
Comments:
In the GAFTA Contract No.49, the Clause 8 does not have corresponding provisions with the Clause 6.
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 buyers` 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, ..."
Deadline For Giving Notice Of Extension
The Clause 8 of the GAFTA Contract No.49 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.
Case study: Soufflet Negoce SA v. Fedcominvest Europe SARL, [2014] EWHC 2405 (Comm)
The case was a dispute under a contract for the sale of 38,000 MT of feed barley on FOB terms, which incorporated the terms of GAFTA Contract No.64.
The contract delivery period was 10 November – 10 December 2010.
The buyers` vessel encountered unexpected delays on the approach voyage to the loading port and could not arrive within the contract delivery period. The buyers tendered notice claiming extension at 17:09 hours on the next business day following 10 December 2010.
The sellers contended that the buyers` notice of extension was late because it was served after 16:00 hours and therefore, it was deemed to have been received the following day.
When the buyers` vessel arrived at loading port, the sellers refused to deliver the goods. The dispute went to arbitration to GAFTA.
The question in dispute was whether the provision in GAFTA Notices Clause that notices received after 16:00 hours are deemed to have been received the following day apply to all contracts or only in case of resales/repurchases.
The GAFTA Board of Appeal held that the FOB buyers had until midnight on 13 December (the next business day following the last day of contract delivery period) to serve notice claiming extension. Therefore, the notice served by the buyers at 17:09 hours on 13 December 2010 was valid.
The requirement to serve notice by 16:00 hours was applicable only in case of contracts that are themselves resales/repurchases. Since the contract in dispute was not itself a resale/repurchase, the deadline for giving notice did not apply in that case. The relevant paragraph of the Award is quoted below:
"the provision "resales/repurchases" [in GAFTA Notices Clause] could only apply in cases where the goods had been resold on similar terms, and this is well understood by the Trade. If Buyers had resold the goods to Saudi Arabian receivers on FOB terms then they would, on the facts of this case, have been in a position where they would have been passing on a Notice of Extension received from their buyers."
The English Commercial Court upheld the GAFTA Board of Appeal Award and held that the deadline for giving notice do not apply to all contracts but only in case of resales/repurchases.
The Court decision would equally apply in case of any other contract containing the GAFTA Notices Clause, including GAFTA Contract No.49.
Comments:
In case of FOB resales contracts, the buyers must serve the notice of extension by 16:00 hours on the next business day following the last day of the contract delivery period.
Where there are no resales contracts, the buyers must serve the notice of extension not later than 24:00 hours on the next business day following the last day of the contract delivery period.
To avoid uncertainty, the FOB sellers could insert in the sale contract the requirement that the buyers give notice of extension to sellers not later than 16:00 hours on the next business day following the last day of the contract delivery period. An example of such requirement is in the Clause 9 of GAFTA Contract No.38 which has the following provisions:
"Should Buyers not tender vessel(s) in readiness to load within the specified contract period for delivery, they shall be in default unless they give notice to Sellers not later than 16:00 hours on the next business day following the last day of the contract period for delivery that an extension is claimed, notwithstanding cases of resale`s and/or provisions of the non-business day clause."
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 vessel readiness to load. If the buyers fail to provide such evidence to sellers at least 5 days prior to the expected date of 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 Grain Trade Review Edition No. 3.
Endnotes:
1. [2010] EWCA Civ 1102
2. See Soufflet Negoce v. Bunge SA, [2009] EWHC 2454 (Comm)
3. [2015] EWHC 3548 (Comm)
4. The English High Court held that the sellers were right in doing so and that when an FOB buyer nominates a vessel pursuant to the provisions of the Clause 6 of the GAFTA Contract No.49, he is required to comply with the terms of the contract of sale as to nomination and pre-advice notwithstanding the provisions of Clause 6 of the GAFTA Contract No.49, Edition 2012 stipulating that the sellers must have the goods "ready to be delivered to the Buyers at any time within the contract period of delivery". The Court held that: "It is true that the sellers are to have the goods "ready to be delivered to the Buyers at any time within the contract period of delivery", but that does not mean that they would not be interested in receiving information about when the vessel that was to carry the cargo would probably be ready. Similar considerations apply to the pre-advice provisions in the confirmation of contract: for example, the sellers might want the dimensions and draft of the vessel to arrange a safe berth."
5. [2010] EWCA Civ 1102
6. For an example of such provisions, see the Clause 8 of SYNACOMEX 2000 grain charterparty which stipulates that: "At loading port Shippers/ Charterers or their Agents have the privilege to inspect Vessel`s holds and reject the notice [of readiness] when holds are not clean, dry, odourless and in all respects ready to receive the cargo."
7. [2014] EWHC 2013 (Comm)