Review Of FOSFA Contract No. 51, Edition 2020

FOSFA Contract No. 51 is a contract form issued by FOSFA in conjunction with CIARA (Camara de la Industria Aceitera de la Republica Argentina) to be used for the FOB sales of Argentinian vegetable oils in bulk and FOB sales of Argentinian biodiesel (Fatty Acid Methyl Esters) in bulk.

Ship Nomination
The pre-advice period for the nomination of ship is minimum 10 days prior to the ship`s expected date of berthing (stated in the contract as the "expected date of ship readiness to load").
In the ship`s nomination notice the buyers must provide the following information: the quantity of cargo required to be loaded, ship`s name and flag, ship`s expected date of berthing, ship`s demurrage rate, ship`s agents at loading port and final country of destination for the goods.
The FOSFA Contract No. 51 does not stipulate any requirements to be complied with by the ship to be nominated by the buyers.

Conditions For The Ship Substitution
The FOSFA Contract No. 51 stipulates that if the nominated ship is unable to proceed to the loading port due to an event outside the buyers` control, the buyers can substitute the nominated ship provided that the expected bething date of the substitute ship is not earlier than the expected berthing date of the originally nominated ship and not later than 5 working days.
The buyers must give the ship substitution notice to sellers not later than 2 working days before the expected berthing date of the originally nominated ship.
The FOSFA Contract No. 51 does not allow the buyers to make more than two substitutions, unless the sellers agree otherwise.

Conditions For The Ship Presentation For Loading Vegetable Oil And Biodiesel Cargoes At Argentinian Ports
The FOSFA Contract No. 51 has no provisions concerning the conditions for presentation of ship for loading, no cleanliness warranty, no mention as to the mandatory inspection of tanks and pipelines and no reference to the FOSFA Operational Procedures.
The acceptance of ships for loading vegetable oil cargoes at Argentinian ports is subject to the prior approval of tanks by SENASA¹ inspectors and a FOSFA Member Superintendent appointed by the sellers. The ship`s NOR tendered after berthing must be accompanied by the tanks approval certificate issued by SENASA inspectors and the FOSFA Certificate of Compliance, Cleanliness and Suitability of Ship`s Tanks issued by the FOSFA Member Superintendent.
The Clause 8 of FOSFA Contract No. 51 has conflicting provisions on this matter. First, it stipulates that the Master or ship`s agents can tender the NOR once the vessel is in berth and ready in all respects to receive the vegetable oil cargo. Then it provides that:

"Should superintendents after inspection find ship`s tanks require further cleaning, time required to clean not to count as laytime."

The vessel is either ready or not ready. The Master cannot tender NOR until the vessel is declared ready in all respects to load.
The Clause 8 of FOSFA Contract No. 51 is a modified version of the Clause 7 of FOSFA Contract No. 53, but unlike the FOSFA Contract No. 53, the FOSFA Contract No. 51 is a berth sale contract. The vessel cannot tender NOR before reaching at berth and passing the tanks` inspection.
The FOSFA Contract No. 51 should have stipulated that the vessel`s NOR must be accompanied by the SENASA inspector`s certificate of approval and FOSFA Certificate of Compliance, Cleanliness and Suitability of Ship`s Tanks issued by a FOSFA Member Superintendent.
Another clause of FOSFA Contract No. 51 with conflicting provisions is Clause 9. The second sentence of Clause 9 has the following provisions:

"Should commencement of loading be delayed due to ship`s tank/s not being passed by the appointed superintendent or for any other reason for which Sellers are not contractually responsible, any extra costs incurred by Sellers shall be for Buyer`s account."

The above sentence is a modified version of the sixth sentence of FOSFA Contract No. 53 which provides that:

"Should commencement of loading be delayed by more than 72 hours after acceptance of the Notice of Readiness due to ship`s tanks not being passed by the appointed superintendent or for any other reason for which Sellers are not contractually responsible, any extra costs incurred by Sellers shall be for Buyers` account."

The problem is that the Clause 9 of FOSFA Contract No. 51 contains both the original and modified provisions. Besides the fact that by retaining the sixth sentence of FOSFA Contract No.53, the FOSFA Contract No. 51 has two different provisions on the same matter, the original provisions of FOSFA Contract No. 53 do not make sense in the FOSFA Contract No. 51, since the buyers` vessel cannot tender NOR before passing the tanks` inspection. Therefore, the sixth sentence of Clause 9 of FOSFA Contract No. 51 should be deleted.

Extension Of The Contract Delivery Period
The buyers have the right to request extension of the contract delivery period with maximum 30 days "in which to provide suitable freight". The buyers must give notice to sellers requesting extension of the delivery period not later than 16:00 hours on the last business day of the contract delivery period.

Extension Of The Contract Delivery Period And Liability For The Cargo Carrying Charges
FOSFA Contract No. 51 is a berth sale contract. The buyers` vessel must arrive at the berth nominated by the sellers and tender valid NOR within the contract delivery period, that is, not later than the last business day of the contract delivery period.
If the buyers` vessel presents ready in all respects for loading at the nominated berth within the last days of the contract delivery period, the sellers will have to load the goods even if it shall be necessary to complete loading after the expiry of the contract delivery period and bear the cargo carrying charges accrued thereafter, notwithstanding the provisions of Clause 15 which stipulate that:

"Should Buyers not have taken delivery within the delivery period specified in the contract, Buyers are to pay Sellers Carrying Charges calculated from the first day following the last day of the delivery period so specified until Bill/s of Lading date/s, as follows ..."

This matter was addressed by the English Commercial Court in the English law case Kurt A. Becher v. Voest Alpine Intertrading (The "Rio Apa")².
In that case a cargo of soybean meal pellets was sold basis FOB San Martin with a contract delivery period - July 1988. The sale contract incorporated the Argentine Centro terms, including the following clauses:

"EXTENSION OF DELIVERY: Should Buyers not tender vessel(s) in readiness to load within the specified period for delivery, the Buyers shall be in default unless the Buyers give notice to the Sellers … that an extension is claimed."

"CARRYING CHARGES: Should Buyers not load within the delivery period, … Buyers are to pay Sellers carrying charges ..."

The buyers` vessel arrived on 18th July 1988 in Zona Comun in Rio de la Plata but the Master was instructed to wait there due to congestion in the Up-River port of San Martin.
The vessel could not berth until 31 July 1988, the last day of the contract delivery period. The buyers did not claim extension of the delivery period.
The cargo was loaded between 2 and 4 August 1988 and after shipment, the sellers contended that the buyers failed "to load" within the contract delivery period and claimed the reimbursement of carrying charges incurred for the goods between 1 and 4 August 1988.
The English Commercial Court rejected the sellers` claim holding that given that the buyers fulfilled their contractual obligation under the extension of delivery clause to present the vessel ready for loading at nominated berth within the contract delivery period, there was no point to claim extension of the delivery period. Since no extension was claimed, no carrying charges were due.
The Court held that the buyers had only the obligation to present the vessel ready for loading at nominated berth within the contract delivery period and not to load the goods within such period.
Given that the Carrying Charges Clause of FOSFA Contract No. 51 is with minor modifications the  Carrying Charges Clause of Argentine Centro terms, the decision of English Commercial Court in The “Rio Apa” case is equally applicable to FOSFA Contract No. 51 which means that if the buyers` vessel is unable to proceed to berth until the final days of the delivery period due to congestion in loading port, the sellers will have to bear the cargo carrying charges accrued after the expiry of the contract delivery period, notwithstanding the provisions of Clause 15.
The Clause 15 of FOSFA Contract No. 51 is an attempt to pass the responsibility for the carrying charges incurred due to the vessel`s late presentation for loading for whatever reason, including the vessel`s late arrival, port congestion or vessel`s failure to pass the tanks` inspection, to the buyers.
The problem is that unlike the GAFTA Contracts No. 38 and 39, the FOSFA Contract No. 51 does not distinguish between the loading delays caused by the vessel`s late arrival and loading delays caused by the congestion at loading port. If the buyers` vessel arrives within the contract delivery period and cannot proceed to the loading berth due to congestion, it is not fair nor commercially reasonable to hold the buyers liable for the carrying charges<sup>3</sup>.
In order to avoid the additional cost of carrying charges after the expiry of the delivery period due to the vessel`s late arrival, the Argentinian sellers could stipulate a contractual time limit for the presentation of vessel for loading, as provided in the GAFTA Contract No. 39 (GAFTA Contract form for the FOB sales of Argentinian oilseed meals in bulk).
The GAFTA Contract No. 39 stipulates a time limit of 5 consecutive days before the expiry of the contract delivery period for the buyers to present a vessel ready in all respects for loading. If the buyers will not be able to present the nominated vessel ready in all respects for loading before the 5 days` time limit, they shall bear the cargo carrying charges accrued from the first day following the expiry of the contract delivery period until the Bill of Lading date.
Another provision that can be "borrowed" from the GAFTA Contract No. 39 is the second sentence of Sub-Clause 10(b) which stipulates that:

"Should the vessel be prevented from proceeding to the nominated port or berth of loading for reasons outside the vessel`s control, she will be considered filed provided she has reached a point where she has been instructed to wait by the Argentine Port Authorities."

What this means it is that in case of congestion at the Up-River ports, the buyers` vessel shall be considered an "arrived ship" provided that she has arrived at the place where she has been instructed to wait for orders by the Argentine Port Authorities, e.g. Recalada Pilot Station or Zona Comun in Rio de la Plata, earlier than 5 consecutive days before the expiry of the contract delivery period.

Extension Of The Delivery Period In Case Of Force Majeure Event
In case of a force majeure event, the contract delivery period shall be extended with 21 days beyond the termination of the force majeure event, unless the force majeure event continues for more than 60 days beyond the contract delivery period in which case the sale contract shall be cancelled.

Extension Of The Delivery Period In Case Of Prohibition Or Partial Restriction Of Exports
In case of prohibition or partial restriction of exports, the contract delivery period shall be extended with 21 days beyond the termination of the prohibition, unless the prohibition continues for more than 30 days in which case the sale contract shall be cancelled.

Sellers` Timing Obligations And Time Counting
The FOSFA Contract No. 51 is a berth sale contract. It gives to the Argentinian exporters the same advantage as to voyage charterers in berth charterparties. The buyers` vessel shall be considered an "arrived ship" for the purpose of commencement of laytime only after the vessel has entered at the berth nominated by the sellers.
The commencement of laytime will be not only in function of the time when the buyers` vessel tenders valid NOR at the nominated berth but also in function of the pre-advice period. The sellers` loading obligation date is on the next working day following the expiry of the pre-advice period. Until that date the sellers are not obliged to provide a free berth and commence loading.
If nonetheless the buyers` vessel arrives at nominated berth and tenders valid NOR before the expected readiness date, that is, before the expiry of the pre-advice period, the sellers or rather the port operator acting on their behalf shall not be obliged to commence loading and the NOR shall not become effective before the expiry of the pre-advice period, unless the sellers manage to have the goods ready for loading and agree to start loading earlier than the expiry of the pre-advice period, in which case the laytime shall commence to count from the time of commencement of loading.
If the buyers` vessel arrives at nominated berth and tenders valid NOR after the expiry of the pre-advice period, that is, on the vessel`s expected date of berthing, the laytime will commence to run at 6 hours after the NOR has been tendered, even if the sellers start loading sooner.
By making the commencement of laytime subject to the vessel berthing, the FOSFA Contract No.51 protects the Argentinian exporters against the potential liability for demurrage in case of time lost by the vessel waiting for berth due to congestion at the port of loading. If the vessel is prevented to proceed to berth due to congestion in the port of loading, the sellers will have no liability for the time lost by the vessel thereby.
But if the vessel is not allowed to berth due to sellers` failure to have their parcels ready for loading or to provide the cargo readiness documents to the port operators in due time, the buyers shall be entitled to claim damages for breach of contract, because the FOB sellers have the contractual obligation to have their cargoes ready for loading on the next working day following the expiry of the pre-advice period and an implied obligation not to prevent the buyers` vessel from becoming an "arrived ship"<sup>4</sup>. The measure of contractual damages for detention of vessel prior to berthing due to the late readiness of the cargo should be calculated based on the charterparty demurrage rate and pro rata.
If a FOB buyer charters a vessel to procure a number of parcels from different suppliers subject to the Conditions of FOSFA Contract No. 51 and then the buyer has to settle a demurrage claim under charterparty for the time lost by the vessel prior to berthing due to the suppliers` failure to have their parcels ready for loading, the buyer can recover the amount paid to the carrier from the suppliers on the basis of their share of liability. Each FOB supplier will be liable in damages for the portion of demurrage which is directly due to such supplier`s failure to have his parcel(s) and documents ready when the vessel was ready to proceed to berth. The buyer will have to claim damages separately from every late supplier for the share of demurrage incurred by the vessel due to such supplier.

Weight Determination
The cargo weight figure shall be determined and certified by FOSFA Approved Superintendents appointed by buyers based on the shore tanks gauging, if the vegetable oils are delivered from shore tanks or based on the weighbridge weighing, if delivered from tank cars.
The cargo weight figure determined based on the shore tanks gauging or weighbridge weighing shall be stated in the superintendents` certificate of weight and Bills of Lading and shall be the basis for the calculation of FOB price and issuance of commercial invoice, irrespective of any other weight figure resulted from the measurement of vessel`s tanks ullages.

Quality Determination
Clause 13 of FOSFA Contract No. 51 provides that the superintendents` analysis certificate based on the analysis of samples taken at the time and place of loading shall be final as to description and quality of the goods which means that no other evidence in relation to the matters certified may be relied on by the buyers subsequently to challenge the evidentiary value of the analysis certificate⁵.

Settlement Of Disputes
Disputes arising out of the sale contracts incorporating the FOSFA Contract No. 51 shall be referred to arbitration in accordance with the FOSFA Rules of Arbitration and Appeal.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Biofuels Trade Review Edition No. 1.


Endnotes:

1. Servicio Nacional de Sanidad y Calidad Agroalimentaria, i.e. National Health and Agrifood Quality Service.
2. [1992] 2 Lloyd`s Rep. 586
3. An example of such case was the English law case Miserocchi v. Agricultores Federados Argentinos SCL and Bunge AG, [1982] 1 Lloyd`s Rep. 202, where the buyers` vessels could not proceed to loading berths until after the expiry of the contract delivery period due to port congestion. The sellers shipped the parcels after the expiry of the contract delivery period and claimed reimbursement of the cargo carrying charges accrued after the expiry of the contract delivery period. The English Commercial Court held that in the absence of contrary provisions in the sale contracts, the risk of vessels` late presentation for loading falls on the buyers. Since the buyers had the obligation to present the vessels ready for loading at the nominated berths within the contract delivery period, they were held liable for the cargo carrying charges accrued after the expiry of the contract delivery period due to the vessels` late presentation for loading.
4. See the English law case Sociedad Financiera de Bienes Raices v. Agrimpex (The "Aello"), [1960] 1 Lloyd`s Rep. 623.
5. See the English law case Toepfer v. Continental Grain Co., [1974] 1 Lloyd`s Rep. 11.