Review Of FOSFA Contract No. 82, Edition 2016
The FOSFA Contract No. 82 is a joint contract form issued by FOSFA and
GAPKI (Gabungan Pengusaha Kelapa Sawit Indonesia, i.e. Indonesian Palm
Oil Association) to be used for the FOB sales of crude palm oil in bulk.
Price Settlement For Quantity Tolerance
A margin up to 2% more or less of the contract quantity can be granted to buyers at contract price.
If
the contract covers multiple shipments, the margin on the mean contract
quantity that can be granted to buyers shall not be affected thereby,
that is, the margin/tolerance shall apply on the unshipped balance only.
Vessel Nomination
The
pre-advice period for the submission of the vessel`s nomination notice
is minimum 14 days prior to the expected date of the vessel readiness to
load, except in case of a string of FOB back-to-back contracts, where
the vessel`s nomination notice must reach to the first seller not later
than 10 days before the expected date of the vessel readiness to load.
The vessel`s laycan at loading port shall not exceed a spread of 7 days, which shall be within the contract delivery period.
If
the vessel`s nomination notice is received by the sellers in less than
14 days (10 days in case of a string) before the expected date of the
vessel readiness to load, the sellers shall not be entitled to reject
the nomination, provided that the buyers nominate the vessel with at
least 15 days (11 days in case of a string) before the end of the
contract delivery period. This means that even if the buyers nominate
the vessel in less than the required number of days stipulated in the
sale contract as the pre-advice period, the sellers can accept the
vessel`s nomination, provided that the time left from the vessel`s
nomination date until the end of the contract delivery period is minimum
15 days (11 days in case of a string) to cover the contractual
pre-advice period, because the sellers` obligation to commence loading
will be on the 15th day after the vessel`s nomination date (11th day in
case of a string), not sooner.
Any time lost by the vessel in the
event of a presentation for loading before the expiry of the pre-advice
period shall be for the buyers` account. If the vessel`s Master tenders
NOR before the expiry of the 14 days` pre-advice period (10 days`
pre-advice period in case of a string), the vessel`s NOR shall not
become effective to start the laytime prior to the expiry of the 14
days` pre-advice period (10 days` pre-advice period in case of a
string), unless the sellers agree to load earlier in which case the
laytime shall start to count from the time of commencement of loading.
The FOSFA Contract No. 82 does not stipulate any requirements to be complied with by the vessel to be nominated by the buyers.
Conditions For The Vessel Substitution
The
buyers may substitute the originally nominated ship provided that the
expected readiness date of the substitute vessel will not be earlier
than that of the originally nominated vessel and not later than 10 days,
unless otherwise agreed by the sellers, and that the expected readiness
date of the substitute vessel falls within the contract delivery
period.
The buyers must give the vessel substitution notice to
sellers not later than 2 business days before the expected readiness
date of the originally nominated vessel.
What the Clause 7 of FOSFA
Contract No. 82 does not say it is that the substitute vessel must
comply with the requirements stipulated by the sellers in the sale
contract in respect of size and de-ballasting capacity.
The FOSFA
Contract No. 82 should have also stipulated 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.
The FOSFA Contract No. 82 should have also stipulated what will
happen if the substitute vessel does not present ready for loading
within the 10 days` time limit after the expected readiness date of the
originally nominated vessel.
NOR And Commencement Of Laytime
The
vessel`s Master may tender NOR only upon the vessel is ready in all
respects to receive the palm oil cargo, i.e. after the vessel`s tanks
and pipelines had been inspected and approved for loading by FOSFA
Member Superintendents. However, if the loading port is congested and/or
the berth is not available at the time of the vessel`s arrival at the
loading port, the vessel`s Master can give NOR upon arrival at the
anchorage place. Any demurrage incurred thereby by the vessel shall be
equally divided between the buyers and sellers.
The laytime will commence to run upon the expiry of 6 hours` Notice time after the NOR has been tendered.
If
the vessel presented by the buyers for loading fails to pass the tanks`
inspection upon berthing, the time lost from rejection until approval
of tanks by superintendents shall not count as laytime. Furthermore, if
the commencement of loading will be delayed by more than 72 hours after
the time of the sellers` acceptance of NOR due to the vessel`s failure
to pass the tanks` inspection, any extra storage charges incurred by the
sellers shall be for the buyers` account.
Extension Of The Delivery Period
The buyers have the right to request extension of the contract delivery period with maximum 15 days "in which to provide suitable freight".
The
buyers must give notice to sellers requesting extension of the delivery
period not later than the 16:00 hours on the last business day of the
contract delivery period.
If the buyers will be unable to present a
suitable vessel ready in all respects for loading before the expiry of
the extension period, they have the option to request delivery in
storage tanks at loading port provided they give a minimum 4 business
days pre-advice to sellers. In such case, the buyers shall make the
payment against the presentation by the sellers of the superintendents`
Certificate of Analysis, Certificate of Origin and warrant or delivery
order issued by the port storage installation.
Extension Of The Contract Delivery Period And Liability For The Cargo Carrying Charges
The newly introduced Clause 12 in FOSFA Contract No. 82, Edition 2016 stipulates 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 ..."
However, FOSFA Contract No. 82 leaves open two possibilities:
- nomination of a vessel with a late laycan;
-
nomination of a vessel with an early laycan, when the vessel arrives
within the laycan but she cannot proceed to berth due to congestion.
Scenario with a late laycan
Clause
3 of FOSFA Contract No. 82 requires that the vessel`s laycan at loading
port to be within the contract delivery period, but it does not
stipulate a time limit for the buyers to present the nominated vessel
ready in all respects for loading.
In ERG Raffinerie Mediterranee SPA v. Chevron USA Inc.1,
the contract delivery period for a FOB sale of gasoline was 27 - 30 May
2004. The time allowed for loading was 36 hours with a 6 hours` Notice
period. The buyers nominated a vessel with a laycan 29/30 May 2004. The
English Court of Appeal held that by nominating a vessel with a laycan
in the last two days of the contract delivery period, the buyers turned
the contract delivery period into a period for the presentation of
vessel in which the vessel could arrive and tender NOR at any time up to
24:00 hours on the last day of the contract delivery period.
Therefore
the FOB sale contracts incorporating FOSFA Contract No. 82 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 load the cargo quantity at the
contractual loading rate before the end of the contract delivery period.
The vessel`s laycan at loading port should allow to sellers sufficient
time for the completion of loading between the next day following the
last day of laycan (i.e. cancelling day) and 23:59 hours on the last day
of the contract delivery period. Therefore, the buyers must nominate a
vessel with a laycan that will allow to sellers a sufficient time to
load the goods in the days following the cancelling day until the end of
the contract delivery period.
Scenario with the early laycan when the vessel arrives within the laycan but she cannot proceed to berth due to congestion
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. 82 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. 82 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 12.
Unlike
FOSFA Contract No. 51, FOSFA Contract No. 82 does not require the
vessel to arrive at the berth to tender NOR. If the ship arrives at the
loading port within the laycan but she cannot proceed to berth due to
congestion, the Master can tender NOR upon the ship`s arrival at the
usual anchorage place and thereby the buyers will comply with their
contractual obligation to present the vessel ready for loading within
the contract delivery period, notwithstanding the subsequent delays
incurred by the vessel due to congestion.
However, in the event that
the vessel upon being called to berth fails to pass the tanks`
inspection and loading is thereby delayed by more than 72 hours, the
Clause 7 of FOSFA Contract No. 82 stipulates that "any extra costs incurred by Sellers shall be for Buyers account".
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.
Settlement Of Disputes
Disputes
arising out of the sale contracts incorporating the FOSFA Contract No.
82 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. 2.
Endnotes:
1. [2007] 2 Lloyd`s Rep. 542; [2007] EWCA Civ. 494.
2. [1992] 2 Lloyd`s Rep. 586