This Client Alert discusses the recent amendments to the Grain and Feed Trade Association (“GAFTA”) Arbitration Rule No. 125 (“GAFTA 125”) and GAFTA 49 and the practical implications of each. The time bar for ‘Amounts Payable’ claims has now been removed from GAFTA 125. When determining the applicable time bar, all claims are now to be judged based on parity of contract. The express obligation for sellers to have cargo ready at any time during the agreed delivery period from GAFTA 49. This has the practical effect of leaving the sellers with the obligation to supply at ‘Buyers’ Call’ which is not a condition of the contract. Buyers’ do not have the right to terminate the contract if sellers breach this obligation.
Time limits for bringing claims in commodity arbitration are often relatively short. It is important to be able to identify what time limit applies to your claim, which has been difficult to do in certain circumstances.
The latest version of GAFTA 125 applicable to contracts entered into after 1 September 2018 no longer contains the contentious Rule 2.3, which set a time bar of 60-consecutive days for bringing claims for ‘amounts payable’.
Furthermore, GAFTA 49 has been amended so that there is no longer an express obligation on the sellers to have cargo ready for delivery at any time during the agreed delivery period.
GAFTA 125 and the removal of the special time bar for ‘amounts payable’ claims
The late Rule 2.3 (Amounts Payable) of GAFTA 125 stated:
2.3 Amounts Payable
Irrespective of the time limits in Rule 2.2 (a), (b) and (c) above, in the event of non-payment of amounts payable, either party may notify the other that a dispute has arisen and, within 60 consecutive days from the date of that notice, appoint an arbitrator or apply to Gafta for an appointment of an arbitrator.
The intention behind having a separate time bar for such claims was to ensure that ‘amounts payable’ claims would be dealt with expeditiously, but that the time bar would not run where it was not yet obvious that there was a dispute over the relevant invoice. However, given the uncertainty within the GAFTA community over what claims fell within the definition of ‘amounts payable’, Rule 2.3 rarely achieved its purpose. Instead, Rule 2.3 was often used in practice for tactical reasons to cause delay or in an attempt to circumvent time bars elsewhere in Rule 2, which caused uncertainty and led to unnecessary expense.
Rule 2.3 has now been removed in the latest version of GAFTA 125, which applies to contracts entered into after 1 September 2018 that incorporate GAFTA 125. The corresponding clauses in the standard form contracts have also now been removed. The other time bars contained in Rule 2.2, which are based on the parity of contract, remain unchanged. As the parity (CIF/FOB, etc.) of the contract is ordinarily easily identified, there will be less scope for confusion and uncertainty over the applicable time bar.
While the removal of Rule 2.3 is a welcome development, it is worth noting that whatever the nature of the contract and the dispute (and therefore the applicable time bar), provided the contract allows for it, it is always best practice to commence arbitration as soon as a dispute arises even when a commercial settlement is being considered. This is because a notice of commencement of arbitration stops time for the purposes of a time bar and thereby protects the claimant’s position and preserves its right to arbitration. Failure to commence arbitration in time may lead to the claim being deemed waived and absolutely barred under Rule 23. It is also important in practice to remember and diarise the one year ‘lapse’ of claim time limit.
GAFTA 49 and the removal of seller’s obligation to have cargo ready for delivery at all points in the agreed delivery period
Prior to the latest version of GAFTA 49, Clause 6 (Period of Delivery) included an express obligation on the sellers that
“The Sellers should have the goods ready to be delivered to the Buyers at any time within the contract period of delivery.” This was not a phrase found in other GAFTA FOB contracts.
This term, in theory, required the cargo to be ready for delivery from day one of the agreed delivery period no matter when the buyer’s vessel might arrive and regardless of pre-advice of vessel arrival. The practical effect of that obligation varied depending on the circumstances of the load port but generally required the cargo to be at or immediately outside the port ready for delivery without delay. The term has now been removed in the latest version of GAFTA 49. It remains the case that the contract will be at ‘Buyers’ Call’, which is normally taken to require the goods to be ready to be loaded in response to a valid vessel presentation and without delay or interruption caused by a lack of cargo. However, the phrase, ‘At Buyer’s Call’ is not a condition of the contract and so does not give rise to termination rights if cargo is provided late for the buyer’s vessel.
Since Clause 6 of GAFTA 49 requires sellers, if necessary, to continue loading beyond the end of the agreed delivery period (provided the vessel has presented within it), there is now greater potential for delay and for claims for demurrage/detention arising as a result. It makes the position of a buyer wanting to remove his vessel for non-provision of cargo more uncertain: in general, the buyer must wait for cargo, and removal of the vessel is likely to be a default by the buyer.
FOB buyers of goods in Central and Eastern Europe should take note of the latest update to GAFTA 49. If buyers wish to maintain a right to terminate based on unavailability of cargo, they should ensure that an express condition to this effect is included in their sale contracts.