GAFTA has announced several changes to its standard form contracts, effective from 1 June 2014.
A key revision is to the previous ‘Prohibition’ and ‘Force Majeure, Strikes’ clauses, now covered in one ‘Prevention of Shipment’ clause.
This revision is intended to relate to all CIF and FOB contracts (with the exception of contracts for UK produced cakes and for transhipment or re-shipment of grain in bulk). Here, we take a look at the CIF version. FOB contracts adopt identical wording, with the attention on delivery rather than shipment.
Key changes on prohibition:
I) The stand-alone ‘Prohibition’ clause has been deleted, with ‘prohibition of export’ now defined within the new ‘Prevention of Shipment’ clause as an event triggering force majeure. Prohibition of export and executive or legislative acts of the government are now one of twelve instances in which the force majeure clause can be invoked.
II) There are now two cases in which a party can argue prohibition by way of legislative or executive acts: a) where it is an act done by or on behalf of the government of the country of origin and b) where it is an act done by or on behalf of the government affecting the territory where the port or ports named in the contract are situated.
III) Most significantly the consequences of a prohibition of export under the new clause no longer results in the automatic cancellation of the contract – the so-called deeming provision. Instead, the contract is suspended provided that the seller complies with the strict notice provisions set down within the ‘Prevention of Shipment’ clause.
IV) In the event of a prohibition of export, the seller is required to provide notice within ‘7 consecutive days of the occurrence’ or ‘not later than 21 consecutive days before the commencement of the shipment period, whichever is later…’. In this regard, the new clause is much more prescriptive. A seller’s failure to comply with such notice requirements will result in the seller being in default of the contract if it is unable to perform as a result of the prohibition on export. This analysis applies equally to the other 11 specified instances falling within the ‘Prevention of Shipment’ clause.
V) Where a seller complies with the particular notice requirements and the event giving rise to force majeure continues for a period of 21 consecutive days after the end of the shipment period, the buyer will have an option to cancel the unfulfilled portion of the contract by serving notice on the seller ‘not later than the first business day after expiry of the 21 day period’.
VI) Where a buyer chooses not to exercise its option to cancel, the contract will remain in force for an additional period of 14 consecutive days. If, after this period lapses, the event of force majeure has not ceased the unfulfilled portion of the contract will give rise to an automatic cancellation.
VII) Lastly, where the prohibition ceases before the contract is cancelled under the clause, a seller is required to notify its buyer promptly that the prohibition has ceased. The seller is then entitled to the remaining time that was left over under the original shipment period prior to the prohibition event occurring, to effect shipment. This is subject to the proviso that, where such time is 14 days or less, a period of 14 consecutive days will be granted to the seller to effect shipment.
VIII) The burden of proof under the new clause falls squarely with the seller.
IX) Blockades and hostilities, two hangovers from the previous ‘Prohibition’ clause, will now fall into two distinct events constituting a force majeure event. Accordingly they are two of the twelve instances in which the force majeure clause can be invoked.
Key changes on force majeure and strikes:
I) ‘Strike, lockouts and combination of workmen’ is one of the twelve instances in which the force majeure clause can be invoked. In this regard strikes now constitute a force majeure event and accordingly fall under the same umbrella as prohibition.
II) Provisions relating to notice are the same as prohibition, as set out above.
III) A buyer now has the option of cancelling the contract or any unfulfilled portion after a period of 21 consecutive days, rather than 30. If a buyer chooses not to exercise the option to cancel, the contract is no longer automatically extended for a period of 30 consecutive days; rather it remains in force for an additional period of 14 consecutive days. Once this period has ceased, any unfulfilled part of the contract is automatically cancelled.
IV) As above, the burden of proof lies with the seller to evidence delay or non-fulfilment.