Traditionally handled through separate clauses, GAFTA’s Prohibition, Force Majeure, and Strike provisions have now been revised in all CIF, C&F and FOB standard form contracts entered into since 1 June 2014, with the central notion of force majeure now singularly encapsulating all three.
At first glance, the Prevention of Shipment clause (which applies equally to FOB contracts except that the clause refers to “Delivery” as opposed to “Shipment”) merely consolidates the pre-existing provisions, but traders need to be acutely aware of the subtle differences which we set out below.
The contract will be suspended if an Event of Force Majeure (Event) prevents the sellers’ performance (partially or otherwise), provided that sufficient notice of the Event is given (within 7 consecutive days of the Event, or not later than 21 consecutive days before commencement of the shipment period, whichever is the later.)
The new Prevention of Shipment clause defines an Event as follows:
Prevention of shipment
“Event of Force Majeure” means (a) prohibition of export, namely an executive or legislative act done by or on behalf of the government of the country of origin or of the territory where the port or ports named herein is/are situate, restricting export, whether partially or otherwise, or (b) blockade, or (c) acts of terrorism, or (d) hostilities, or (e) strike, lockout or combination of workmen, or (f) riot or civil commotion, or (g) breakdown
of machinery, or (h) fire, or (i) ice, or (j) Act of God, or (k) unforeseeable and unavoidable impediments to transportation or navigation, or (l) any other event comprehended in the term “force majeure”.
Buyers have the option to cancel the unfulfilled part of the contract if the Event continues for 21 consecutive days after the end of the shipment period by serving notice on the sellers exercising the option no later than the first business day after expiry of this 21 day period.
If the buyers do not exercise this option, the contract remains in force for a further 14 consecutive days after which, if the Event has not ceased and therefore continues to prevent performance, any unfulfilled part of the contract is automatically cancelled.
If the Event ceases before the contract can be cancelled, sellers must notify buyers that this is the case and then sellers themselves are entitled to as much time as remained for shipment under the contract before the Event occurred; or 14 days, whichever is longer, to perform.
As previously, only the sellers can invoke the new “Prevention of Shipment” clause but the clause now explicitly puts the burden of proof on sellers to prove that an Event occurred which prevented performance.
We set out below the key changes in this approach that both sellers and buyers alike need to look out for:
- Force majeure is now all-encompassing, defined by reference to 12 listed impediments, including those that were previously dealt with under the Prohibition and Strike clauses. This definition now also includes an explicit reference to “acts of terrorism”
- Very significantly, the cancellation of the contract is no longer automatic in the event of a prohibition of export, blockade, hostilities or legislative act restricting export. Instead, as explained above, performance is suspended for up to 21 days following the shipment period (as long as the sellers have complied with the notice requirements), following which either i) buyers have the option to terminate; or ii) the Event continues for a further 14 consecutive days and the contract terminates automatically
- This new articulation requires the sellers’ performance of the contract to actually be prevented for the clause to operate to suspend performance, unlike the previous articulations of Force Majeure terms which allowed notice to be given if delay was “anticipated” or “likely to occur”. Therefore the bar is now set higher for sellers wishing to invoke the clause, although it is more in line with the old Prohibition clause in which a partial or total restriction was required
- The notice provisions for sellers are now less onerous, requiring notification of only the Event, and not a second notice claiming an extension of time for shipment, as was required under the old Force Majeure and Strikes clause
- Timings on termination of the contract have diminished in the new revision, with buyers able to cancel if the Event continues for 21 consecutive days after the shipment period, as opposed to 30 days under the previous Force Majeure and Strikes clauses, and now 14 as opposed to 30 consecutive days before automatic cancellation if buyers do not exercise this option. This constitutes a dramatic reduction, with the contract now terminating (at buyers’ option or otherwise) significantly earlier if the Event persists
- Sellers are now obliged to notify buyers “without delay” if the Event ceases before the contract can be cancelled, and are then entitled to the remaining time left for shipment under the contract before the Event began, or, if the time remaining is less than 14 days, the sellers are now granted 14 consecutive days to perform
The uniformity now introduced by GAFTA between the various prevention of shipment, strikes, and prohibition clauses should be welcomed by traders. The streamlined and simplified notification process should lead to fewer missed deadlines on the part of the sellers. However, both sellers and buyers alike would be well advised to familiarise themselves with the revised deadlines and notice periods under this new clause.