Introduction The Grain and Feed Trade Association ("GAFTA") contracts have traditionally dealt with the consequence of Prohibition, Force Majeure and Strikes by way of independent stand-alone clauses. As of 1 June 2014, a single consolidated clause will replace such individual clauses in both CIF and FOB contracts. This will be effective for all contracts incorporating GAFTA contracts entered into after 1 June 2014.
In this briefing we introduce the new Prevention of Shipment Clause (the “New Clause”) applicable to CIF contracts and highlight some of the aspects to look out for. The same wording is used for the FOB contracts (Prevention of Delivery clause), with the difference being in terms of Delivery rather than Shipment.
In general, an amalgamated clause is (in our view) better than separate Force Majeure and Prohibition clauses, creating a consistency in dealing with different events preventing shipment.
It is important to note that the clause is still for the Seller only: there is no possibility of a Buyer claiming Force Majeure.
A New “Prevention of Shipment” Clause
The New Clause provides as follows:1
"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".
Should Sellers’ performance of this contract be prevented, whether partially or otherwise, by an Event of Force Majeure, the performance of this contract shall to the extent of such prevention be suspended for the duration of the Event of Force Majeure, provided that Sellers shall have served a notice on Buyers within 7 consecutive days of the occurrence or not later than 21 consecutive days before commencement of the shipment period, whichever is later, with the reasons therefor.
If the Event of Force Majeure continues for 14 consecutive days after the end of the shipment period, then Buyers have the option to cancel the unfulfilled part of the contract by serving a notice on Sellers not later than the first business day after expiry of the 14 day period.
If this option to cancel is not exercised then the contract shall remain in force for an additional period of 14 consecutive days, after which, if the Event of Force Majeure has not ceased, any unfulfilled part of the contract shall be automatically cancelled.
If the Event of Force Majeure ceases before the contract or any unfulfilled part thereof can be cancelled, Sellers shall notify Buyers without delay that the Event of Force Majeure has ceased. Sellers shall be entitled, from the cessation, to as much time as was left for shipment under the contract prior to the occurrence of the Event of Force Majeure. If the time that was left for shipment under the contract is 14 days or less, a period of 14 consecutive days shall be allowed.
The burden of proof lies upon Sellers and the parties shall have no liability to each other for delay and/or non-fulfilment under this clause, provided that Sellers shall have provided to Buyers, if required, satisfactory evidence justifying the delay or non-fulfilment.”
Whilst the New Clause appears on its face to be simply a merger of the of previous Prohibition, Force Majeure and Strikes clauses, there are some important points which need to be borne in mind.
Points to look-out for
- Overriding concept of “Force Majeure” – Force Majeure is now the vehicle through which all of the causes and consequences of a prevention of shipment are dealt with. An Event of Force Majeure which previously included strikes amongst other defined events has now been widened to include prohibition of export. It also now expressly includes acts of terrorism.
- Higher threshold – in order to invoke the old Force Majeure clause, one needed to look at whether “delay in shipment is likely to occur” or if there was any “anticipated delay” as a result of Force Majeure. Under the New Clause, the seller’s performance of the contract must be “prevented” (whether partially or otherwise) by an Event of Force Majeure. This introduces a significantly more onerous threshold, bringing Force Majeure in line with the old prohibition clause which required a restriction to “prevent fulfilment” of shipment.
- Burden on seller – the New Clause makes it clear that the burden is on the seller to prove the occurrence of an Event of Force Majeure and that the seller’s performance of the contract was prevented by an Event of Force Majeure.
- Cancellation not automatic and at buyer’s option – under the old prohibition clause, cancellation of a contract by reason of prohibition was automatic. That is no longer the case. Rather, the initial right to cancel is now at buyer’s option. The old prohibition clause simply required a seller to advise the buyer without delay of the reasons preventing fulfilment of shipment, but it did not require any further notification in order to effect the cancellation of the contract. The New Clause requires that in the case of any Event of Force Majeure (which includes prohibition) that a seller serves on the buyer a notice within 7 consecutive days of the occurrence of an Event of Force Majeure or no later than 21 consecutive days before commencement of the shipment period, whichever is the later. Thereafter, if the Event of Force Majeure continues for 14 consecutive days after the end of the shipment period, then the buyer has the option to cancel the unfulfilled part of the contract by serving a notice on the seller no later than the first business day after expiry of the 14 day period.
- Seller’s second notice requiring an extension to shipment period no-longer required – the number of notices required of the seller following a force majeure has changed. The old force majeure clause required two notices to be given by the seller. The initial seven consecutive day notice (referred to above) remains the same. However, previously a seller was required to serve a second notice “no later than the last day of the contract period of shipment stating the port or ports of loading from which the goods were intended to be shipped and shipments effected after the contract period shall be limited to the port or ports so nominated”. This is no-longer required.
- Periods reduced from 30 days to 14 days – under the old Force Majeure clause, a buyer’s option to cancel only became exercisable if the shipment was delayed for more than 30 consecutive days from seller’s notice. Under the New Clause, that period has now been reduced to 14 consecutive days after the end of the shipment period. Similarly, if the Buyer does not exercise its right to cancel the contract, then as was the position under the old Force Majeure clause, the contract shall remain in force for a further period. However, that extended period is now a further 14 consecutive days only (rather than 30 consecutive days) before the contract is cancelled automatically if the Event of Force Majeure continues.
- Cessation of Event of Force Majeure - there is a new requirement that if the Event of Force Majeure ceases before the contract or any unfulfilled part is cancelled, a seller must notify the buyer without delay and the seller shall then be entitled, from date of the cessation, to as much time as was left for shipment under the contract prior to the occurrence of the Event of Force Majeure. However, if the time that was left for shipment under the contract is 14 days or less, a period of 14 consecutive days shall be allowed.
- The prohibition part of the New Clause (as before) relates to the country of origin or “territory where the ports named herein is/are situate” so that multiple origin contracts will still be likely to fall outside the clause altogether.
Conclusion GAFTA has introduced a greater degree of uniformity in dealing with situations that result in the prevention of shipment/delivery. Given the different format and requirement of the previous clauses, it is important that all users of GAFTA contracts now familiarise themselves with changes embodied in the New Clause and take care when considering giving notices/using the clause. We anticipate, over time, that less significant claims by Sellers for Force Majeure/Prohibition relief will be successful under this New Clause.
Download the PDF to view previous alerts on Force Majeure issues.