Global Coal published its SCoTA Version 8 ("V.8") on 16 September 2011, which introduces significant amendments to both the structure and clauses of the SCoTA contract. V.8 will go live for screen trading on 26 February 2012 but until then members of Global Coal are required to execute V.8 with other members with whom they wish to trade.
Please note that the below provides only a brief overview of V.8. It does not provide legal advice in respect of all issues created by V.8. SCoTA is protected by copyright and copies can be obtained from Global Coal upon agreeing to the terms of their Product Licensing Agreement.
SCoTA 8 Highlights
- V.8 aims to be a master agreement, unlike earlier versions of SCoTA. It comprises Parts 1 and 2, seven Appendices (Appendices 1, 2, 4, 5 and 7 being by way of guidance and Appendices 3 and 6 containing optional terms if elected), a form of agreement for the retrospective application of V.8 to earlier unperformed Transactions and eleven Relevant Standard Specifications ("RSS"), of which one is new.
- New delivery terms: CFR, CIF, DAP, DAT and FAS are introduced, but only one new RSS is introduced ("DAP ARA"). "DES ARA" is retained and whilst there is no RSS for any CFR or CIF delivery, V.8 foreshadows their possible introduction.
The definition of "Event of Default" is more extensive than in previous versions and needs to be viewed carefully within Clause 1. It covers both the Party and the Credit Support Provider (as defined) and identifies the following as Events of Default:
- Cross Default;
- Defaults under a Specified Transaction ("Specified Transaction" being defined in Appendix 6);
- a Party or any Credit Support Provider becoming the subject of an "Insolvency Event"; and
- Material Adverse Change.
For (1) or (2) to apply, as they are newly introduced Events of Default there must be an election under Appendix 6. An amendment to an existing Event of Default means that the period prior to expiry or termination of a Credit Support Document can be amended by reference to Appendix 6. The meaning and identification of what is or are Material Adverse Changes may also be subject to election under Appendix 6. The definitions of Credit Support Document (previously known as Performance Assurance), Credit Support Provider and Cross Default Threshold have all been amended to include reference to options under Appendix 6.
- Irrespective of how Material Adverse Change is defined under Clause 1 and Appendix 6, for it to be relied upon as an Event of Default requires a Party to "at any time believe in good faith that a Material Adverse Change has occurred..".
- Appendix 6 is divided into two parts. The first part identifies specified elections available to both parties covering the identity of any Credit Support Provider, any Credit Support Documents, additional Events of Default, alternative definitions of Material Adverse Change and amendments to the defining criteria, Vessel Assessment System Election, Automatic Early Termination, Force Majeure Termination Payment and Agreement and Acknowledgement for Australian Parties. Appendix 6 also provides for the parties to opt out of specified terms, such as, Clause 12.10 (netting off) and Clause 12.11 (application of the Close-Out Agreement). The second part is left blank, presumably to allow for further amendments.
- The Nomination, Laytime and Demurrage terms previously found in Part 2 of SCoTA 7e have been removed (with the exception of the terms as to Vessel Acceptance) and these are to be found in each RSS.
- A Seller's indemnity has been introduced as an option under Clause 12.12.2 in the form set out in Appendix 7. Its application is subject to agreement and if agreed, would apply where not all of the specified documents are available to provide to the Buyer against which payment would be made.
Clause 14 (Termination, Suspension and Illegality) has introduced three main amendments:
- Automatic Early Termination (if elected to apply to either Party under Appendix 6) in the event of specific Insolvency Events occurring to a Party or its Credit Support Provider (Clause 14.1)
- The right to withhold or suspend payments or delivery obligations by one Party upon the occurrence of specified Events of Default in respect of the other Party (Clause 14.9)
- An illegality provision which provides that where it has becomes illegal to perform a Transaction, either Party may elect to terminate that transaction and the Non-Affected Party can calculate a Transaction Settlement in respect of the terminated Transaction, in accordance with Clause 14.
- There are two main changes to the Force Majeure provisions. Firstly, it is no longer a requirement that a Force Majeure event or circumstance should not have been reasonably foreseeable at the date of the Transaction. Secondly, a Force Majeure Termination Payment must be made where any shipment is cancelled under Clause 15.5, if the relevant election has been made under Appendix 6 (see above).
- Clause 16 sets out a more practical LCIA arbitration clause providing for both Parties to be entitled to nominate their arbitrator and avoiding the earlier default response period set out under Clause 16.4. Clause 16.10 also gives the option to both parties to submit any dispute to mediation in accordance with the mediation rules published by Global Coal.
Stephenson Harwood is preparing a more detailed guide on SCoTA 8 for clients.