Review Of PORAM Contract No. 7, Edition 2012
The PORAM Contract No. 7 is a joint contract issued by the Palm Oil
Refiners Association (PORAM), Malayan Edible Oil Manufacturers`
Association and Malaysian Palm Oil Association to be used for the FOB
sales of palm oil and palm kernel oil in bulk from any origin.
Vessel Nomination
The
pre-advice period for the nomination of vessel is minimum 14 days prior
to the vessel`s ETA at loading port. If the vessel`s nomination notice
is received by the sellers in less than 14 days prior to the last day of
the contract shipment period and thereby the buyer fails to comply with
the contract pre-advice requirements, the buyer shall be deemed to be
in default and the seller shall be entitled to terminate the contract1.
The PORAM Contract No.7 does not stipulate any requirements to be complied with by the vessel to be nominated by the buyer.
At
least 4 days before the vessel`s ETA, the buyer must furnish to seller
the following information: name of the vessel`s agents at loading port,
destination of cargo, notify party, demurrage rate, whether or not
commingling is permitted, buyer`s bank name and address if the payment
shall be made by collection.
Vessel Substitution
The
buyer may substitute the originally nominated vessel provided that the
substitute vessel`s ETA at loading port will not be earlier and not
later than that of the originally nominated vessel.
The buyer must give the vessel substitution notice to seller at least 48 hours before the ETA of the substituted vessel.
The
PORAM Contract No.7 should have also stipulated that if the substitute
vessel presents for loading earlier than the ETA 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.
Vessel Presentation For Loading
The
fitness and cleanliness of the vessel`s tanks and pipelines must be
certified by a MPOB (Malaysian Palm Oil Board) surveyor appointed by the
seller.
In the event that the vessel`s tanks and pipelines are found
to be unsuitable by the surveyors, the buyer will have the option to
substitute the vessel.
Should the commencement of loading be delayed
by more than 72 hours beyond the vessel`s ETA due to the vessel`s
failure to pass the tanks` inspection, the buyer will have to reimburse
to the seller all the additional costs incurred by the seller for the
cargo including the extra storage and heating charges.
What is
interesting at PORAM Contract No.7 is that the buyers are only required
to present a vessel for loading within the contract shipment period. It
is not a condition of contract that the buyer`s vessel to tender valid
NOR within the contract shipment period. The Clause 3 (i) stipulates
that if the buyer calls upon the seller to load the cargo, then the
seller shall have to load the cargo even if the vessel is found
unsuitable by the MPOB surveyor. In such case, the cargo samples to be
used for the quality determination will be drawn at time of shipment
from the shore tanks and not from the vessel`s tanks.
Laytime And Demurrage provisions
The
PORAM Contract No.7 is a berth sale contract. It gives the palm oil
shippers the same advantage as to voyage charterers in berth
charterparties. The buyer`s 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 laytime will
commence to run when the vessel is alongside the nominated berth and
ready in all respects to receive the palm oil cargo.
By making the
commencement of laytime subject to the vessel berthing and approval of
the vessel`s tanks by the MPOB surveyor, the PORAM Contract No.7
protects the palm oil shippers 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.
Any time lost prior to berthing
due to the shippers`/sellers` failure to have the goods ready for
loading or to provide the cargo readiness documents to the port
operators in due time shall fall outside the scope of laytime, but the
buyer shall be entitled to claim damages for detention of vessel prior
to berthing2 because the FOB sellers have an implied obligation not to prevent the buyer`s vessel from becoming an "arrived ship"3.
The
commencement of laytime will be not only in function of the time when
the buyer`s vessel is alongside the nominated berth and ready in all
respects for loading 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 14 days` pre-advice period. Until that date the
sellers are not obliged to commence loading.
If nonetheless the
buyer`s vessel arrives at loading port before the expiry of the 14 days`
pre-advice period, the seller(s) shall not be obliged to commence
loading 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.
In case of contracts for sale of parcels to be shipped by
more than one shipper, the time shall count pro rata. If one or several
shippers/sellers do not have the goods ready for loading and loading is
stopped due to non-availability of their parcels, then the pro rata
counting of laytime shall stop from the moment when all other parcels
are loaded by the shippers/sellers who had the goods ready for loading
and the time shall count separately for the shippers/sellers of
remaining parcels.
If the vessel is not allowed to berth or is
required to vacate the berth because one or several shippers/sellers do
not have the goods ready for loading, after getting the goods ready,
those shippers/sellers shall be the first to load and any time lost
thereby shall be for his/their account up to the moment he/they have
loaded all his/their goods. Thereafter, the time shall count pro rata
between the shippers/sellers who had their goods ready for loading.
Any
demurrage incurred due to loading delays caused by the shippers/sellers
who did not have the goods ready for loading shall be borne by such
shippers/sellers only.
Seller`s Obligation To Have The Cargo Ready For Loading
The
seller(s) must confirm to the buyer at least two days before the
vessel`s ETA that the cargo shall be ready to load on the ETA date.
However, the seller`s obligation to commence loading shall be subject to
the buyer`s compliance with the obligation to provide a letter of
credit conforming with the contract requirements at the latest on the
"day prior to commencement of loading", i.e. on the day prior to the
vessel`s ETA.
The PORAM Contract No.7 should have stipulated what
will happen if the buyer fails to provide a letter of credit conforming
with the contract requirements at the latest on the day prior to the
vessel`s ETA, i.e. whether the seller would be entitled to terminate the
contract or to postpone delivery of the goods until the receipt of a
letter of credit conforming with the contract requirements.
Extension Of The Shipment Period
If
the buyer will not be able to present a vessel ready for loading within
the contract shipment period, he will have the right to request
extension of the contract shipment period with an additional period of
maximum 8 days.
The buyer must give to seller notice requesting
extension of the shipment period not later than the last day of the
contract shipment period and provide evidence with the charter party or
fixture note that the vessel`s laycan at loading port was indeed within
the contract shipment period.
In case the shipment of goods is made during the extension period, the contract price will be increased as follows:
- with ½ %, if the loading is completed within 4 days after the contract shipment period;
- with 1%, if the loading is completed within 5 or 6 days after the contract shipment period;
- with 1½ %, if the loading is completed within 7 or 8 days after the contract shipment period.
In
addition to the late shipment penalty, the buyer will also have to pay
any increase in export duty at loading port occurred after the expiry of
the contract shipment period.
Provided the buyer`s vessel presents
ready in all respects for loading and tenders valid NOR during the
extension period, the seller shall if necessary complete loading even
after the 8 days` extension period. In such case, the contract price
will not be increased by more than 1½ %. For instance, if the buyer`s
vessel arrives at loading port within the 8 days` extension period but
it is unable to proceed to berth due to port congestion, the maximum
penalty that shall apply shall be 1½ % over the contract price even if
the berthing and loading shall be completed after the 8 days` extension
period.
Weight Determination
The cargo weight figure
shall be determined and certified by the independent surveyor appointed
by the seller based on the shore tanks gauging.
Extension Of Contract Shipment Period In Case Of Prohibition Or Partial Restriction Of Exports
In
case of prohibition or partial restriction of exports, the contract
shipment period shall be extended by 30 days. If the seller is unable to
ship the goods during the 30 days` extension period, the sale contract
shall be cancelled.
Extension Of Contract Shipment Period In Case Of Force Majeure Event
In case of a force majeure event, the contract shipment period shall be extended for a period not exceeding 60 days.
If
the force majeure event ends within the final 21 days of the extended
period, then a further 21 days shall be allowed after the termination of
the force majeure event.
Settlement Of Disputes
The disputes shall be referred to PORAM arbitration in Malaysia in accordance with the PORAM Rules of Arbitration and Appeal.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Biofuels Trade Review Edition No. 2.
Endnotes:
1.
See the article "The Implications of the Buyers` Non-Compliance with
the Pre-Advice Requirements in the Grain FOB Sale Contracts" published
in Commoditylaw`s Grain Trade Review Edition No.3.
2. Calculated by reference to demurrage rate.
3. See the English law case Sociedad Financiera de Bienes Raices v. Agrimpex (The "Aello"), [1960] 1 Lloyd`s Rep. 623.