A commentary on new contract wordings announced by Gafta

The Grain and Feed Trade Association, whose standard contract wordings are widely incorporated into sale and purchase contracts between parties around the world in the agri-sector, has reviewed and amended a number of its standard contracts with potentially far reaching effects for traders.

The nomination clause

First of all, changes have been made to the pre-advice requirements of the nomination clause in Gafta FOB contracts 18, 23, 64, 118, 119 and 202 effective from 7 September 2017. Gafta FOB contract 49 has similarly been revised, with changes effective from 1 September 2017.

The Gafta contracts committee decided to review this clause in part due to the English High Court’s decision in Ramburs -v- Agrifert [2015] EWHC 3548.

In Ramburs the High Court overturned a decision of the Gafta board of appeal concerning the substitution of a vessel. The contract between the parties in that case was concluded on Gafta 49 terms. It stipulated a delivery period of 15 to 31 March 2013 and a pre-advice of the performing vessel’s characteristics no less than 10 days before the vessel’s arrival.

The buyers nominated a vessel to sellers on 20 March, but subsequently substituted that vessel on 26 March 2013 – the right of substitution being expressly provided for at clause 6 of Gafta 49. The substitution provided an ETA of a day later than the original nomination and also comfortably within the contractual delivery period.

Sellers rejected the substitution on the basis that by 26 March 2013 it was too late to tender a fresh pre-advice notice timeously. Sellers therefore terminated the sale contract on the basis that the substitution was advised too late. Buyers then contracted to buy replacement cargo and claimed the price difference from sellers.

The Gafta board of appeal found in favour of buyers, saying it would be ‘bizarre’ if the same 10 days pre-advice requirement rules for an original nomination would apply to a substituted vessel.

The High Court disagreed. Andrew Smith J was unimpressed by the idea that the equal application of unambiguous contract terms to a substitute vessel would be ‘bizarre’. He considered it would be more odd for a party to only have to provide pre-advice information in advance for a vessel which ultimately would not in practice be used. So where the High Court had made clear it intended to apply the Gafta wording to the letter, it behoved Gafta to change its wordings if it wanted to allow traders greater flexibility in substitute vessel nominations.

And so, in spite of Mr Justice Andrew Smith’s comments, Gafta has now revised the nomination clause to confirm that pre-advice terms for an original nomination do not apply to a substitute vessel. The revised vessel nomination clause states (the words in brackets are only contained in Gafta contract 49):

nomination of vessel: buyers shall serve not less than …consecutive days’ notice of the name and probable readiness date of the vessel and the estimated tonnage required. (The sellers shall have the goods ready to be delivered to the buyers at any time within the contract period of delivery.) The buyer has the right to substitute any nominated vessel. Buyer's obligations regarding pre-advice shall only apply to the original vessel nominated. No new pre-advice is required to be given in respect of any substitute vessel, provided that the substitute vessel arrives no earlier than the estimated time of arrival of the original vessel nominated and always within the delivery period. Provided the vessel is presented at the loading port in readiness to load within the delivery period, sellers shall if necessary complete loading after the delivery period and carrying charges shall not apply. Notice of substitution to be given as soon as possible but in any event no later than one business day before the estimated time of arrival of the original vessel. In case of re-sales a provisional notice shall be passed on without delay, where possible, by telephone and confirmed on the same day in accordance with the notices clause. In any month containing an odd number of days the middle day shall be accepted as being in both halves of the month, except for pricing purposes the middle day shall be considered to be in the first half of the month.’

Phytosanitary certificates

Amendments to Gafta contracts 18, 49, 64, 82, 89, 106, 119 and 120 effective from 1 September 2017, have been made following requests from members, introducing a completely new clause dealing with phytosanitary certificates. The clause states:

phytosanitary certificate: where the provision of a phytosanitary certificate has been agreed between the parties, Sellers shall use their reasonable endeavours to supply, at their own cost, a phytosanitary certificate in circumstances where: (a) After the date on which the contract has been entered into the named country of import changes its phytosanitary requirements or (b) As at the date on which the contract has been entered into Sellers are not aware of the named country of import’

This call from Gafta members came as a result of a steady rise in phytosanitary requirements being introduced by certain jurisdictions that could not be observed by the issuing authority. Those sellers entering into contracts incorporating this new clause would be well advised to also ensure consistency in the payment provisions of their contracts – preferably by omitting any reference to a phytosanitary certificate as a document to be issued as a condition of payment.

These new clauses demonstrate the active management of Gafta’s contract wordings in response to judicial decisions and changing market conditions.

Both nomination and phytosanitary certificate clauses will be included in all relevant contracts entered into on these standard forms from now onwards.