GAFTA has substantially altered the prohibition and force majeure/strikes clauses found in the majority of their standard form contracts. All agreements entered into after 1 June 2014 which incorporate relevant GAFTA terms will be affected by this change.

GAFTA contracts have previously contained a “Prohibition” clause and a “Force Majeure, Strikes” or “Loading Strikes” clause. The revised contracts instead contain a single “Prevention of Shipment/Delivery” clause which deals with events previously covered under the separate provisions by an overarching concept of “force majeure”. This applies to all FOB, C&F and CIF GAFTA contracts.

GAFTA contracts have previously contained a “Prohibition” clause and a “Force Majeure, Strikes” or “Loading Strikes” clause. The revised contracts instead contain a single “Prevention of Shipment/Delivery” clause which deals with events previously covered under the separate provisions by an overarching concept of “force majeure”. This applies to all FOB, C&F and CIF GAFTA contracts.

Structure of the new clause

The main features of the new clause are described below with respect to an FOB contract. CIF/C&F contracts contain identical provisions, except that references to “delivery period” are replaced by “shipment period”.

In an FOB contract, the contract will be suspended if a force majeure event prevents the sellers from performing and adequate notice is served on the buyers. Notice must be given within seven consecutive days of the occurrence or not later than 21 consecutive days before commencement of the delivery period, whichever is later.

If the event continues for 21 consecutive days after the end of the delivery period, the buyers may cancel the contract by serving notice on the sellers not later than the first business day after the end of the 21 day period.

If the buyers fail to exercise the option to cancel, the contract will continue for an additional period of 14 consecutive days. After this 14 day period, the contract is automatically terminated if the force majeure event continues to prevent performance.

If the force majeure event ceases before the contract can be cancelled, the sellers must notify the buyers. The sellers are then entitled to as much time as was left for shipment before the force majeure event occurred, or 14 days, whichever is greater.

The clause expressly states that it is the sellers who bear the burden of establishing that a force majeure event has occurred.

Key differences from previous clauses

  • Prevention of export and strike are now covered by one unified concept of “force majeure”. The clause expressly lists events such as prohibition on exports, fire, breakdown of machinery and acts of terrorism in respect of FOB, CIF and C&F contracts. The express reference to terrorism is a new addition.
  • One of the most significant changes is that a prohibition on export will no longer result in the contract being automatically terminated. Instead the contract will be suspended for the duration of the force majeure event, initially up to 21 days from the end of the delivery period. Further to this 21 day period, the contract will only be terminated either by: (1) notice of cancellation from the buyers; or (2) following a further 14 consecutive days of force majeure.
  • The revised contracts do not simply adopt the old provisions on timing. Instead, the new clause contains significant changes to the notice periods, of which traders should be aware.
  • The old “Force Majeure and Strikes” clause required sellers to give two notices: one stating if it was anticipated that delay would affect the shipment and a second notice claiming an extension of time. The burden on the sellers has now been reduced by removing this second notice requirement.
  • Buyers should be aware that the deadline for exercising their option to cancel the contract has changed. Some previous GAFTA CIF/C&F contracts gave buyers an option to cancel if a strike or lockout continued for 30 days after the end of the shipment period. The relevant period is now 21 days from the end of the delivery/shipment period.
  • Some previous GAFTA contracts stated that if buyers did not give notice of cancellation, the contract was automatically extended by 30 days. The period of extension has now been dramatically reduced to just 14 consecutive days.
  • Sellers should note that when an event of force majeure has ceased before the contract could be cancelled, sellers are obliged to notify buyers without delay. This requirement is new to some contracts.

Conclusions

Traders should welcome this revision on the basis that it unifies and simplifies the force majeure notification provisions across GAFTA’s suite of standard form contracts. It is hoped this will assist traders by setting out a clear and harmonious regime resulting in fewer missed deadlines and late notifications.

In the immediate future, traders should take care to ensure that they are familiar with the new provisions, in particular, the new deadlines for buyers to cancel a contract on the basis of force majeure.