UK: Update On Changes To GAFTA Contracts

Last Updated: 30 November 2017
Article by Eurof Lloyd-Lewis

It is estimated that about 80% of the world's trade in grains, rice and pulses is traded on Grain and Feed Trade Association (GAFTA) standard form contract terms. It is, therefore, essential to monitor closely any updates and amendments, as these can have significant impact on those persons trading these commodities. GAFTA has recently published new amendments to its standard form contracts, which relate to the provision of phytosanitary certificates and nomination clauses. These amendments became effective from 1 and 7 September 2017, respectively.

Phytosanitary certificates

This amendment, made to GAFTA FOB contracts 18, 49, 64, 82, 89, 106, 119 and 120, is effective from 1 September 2017. The full clause reads:

"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.

A phytosanitary certificate is an official document issued by the national plant protection organisation of the exporting country where the goods have been grown or processed. It certifies that the products covered by the certificate have been inspected according to appropriate procedures, and are considered to be free from quarantine pests and meet specified phytosanitary import requirements, and are in conformity with the certifying statement of the appropriate model certificate. The phytosanitary certificate facilitates trade, but it is not a trade document. Most buyers require their sellers to procure a phytosanitary certificate, and it regularly features in "house" terms and/or documentary instructions.

The Phytosanitary Certificate Clause is a new clause introduced by GAFTA in response to their members' specific request. This new clause has been introduced in an effort to mitigate the burden placed on sellers with no knowledge of the goods' final destination, which can result in their failure to provide contractually compliant phytosanitary certificate, thereby putting them in breach of their obligations under the sales contract. This clause will help to protect sellers who must use "reasonable endeavours" to obtain a certificate in circumstances where either the country of import changes its requirements or, at the time the contract is agreed, they are not aware of the named country of import.

Vessel nomination

This amendment, made to GAFTA FOB contracts 18, 23, 49, 64, 118, 119 and 202, is effective from 7 September 2017. The full clause reads:

"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.'

* the words in brackets are contained only in GAFTA contract 49.

Unlike the Phytosanitary Certificate Clause, which is new, the Nomination Clause has been amended. Changes to the Nomination Clause were made in the light of the Commercial Court decision in Ramburs Inc. v Agrifert SA (2015) EWHC 3548 (see our March 2016 Shipping Newsletter by linking here).

In this case, the sellers under an FOB contract for the sale of maize, appealed against a decision of the GAFTA Board of Appeal holding that the buyers had validly nominated a substitute vessel to take delivery of the cargo. The contract, which incorporated GAFTA 49, and which, pursuant to the "period of delivery" clause, expressly granted the buyers the right of substitution, stipulated the delivery period as 15 to 31 March 2013. The buyers were required to give the sellers not less than 10 days' "pre-advice" of, among other things, the carrying vessel's name, dimensions and ETA. On 20 March 2013, the buyers nominated a vessel with an ETA of 26/27 March. On 26 March, the buyers purported to make a substitution, and nominated a vessel with an ETA of 28 March. That day, the sellers rejected both nominations as false, and held the buyers in repudiatory breach of contract. The buyers disagreed, bought a substitute cargo, and claimed circa $800,000 as the market price difference.

The issues were: (i) whether the buyers were obliged to comply with the terms of the contract of sale as to nomination and pre-advice in respect of the substitute vessel; and (ii) whether, on a true construction of the contract of sale, the buyers' nomination of the substitute vessel was valid. The Court answered both questions in the sellers' favour. It held that on a true construction of the contract, where an FOB buyer nominates a substitute vessel pursuant to its right under GAFTA 49, that nomination had to comply with the terms of the contract of sale, including those as to nomination and pre-advice. The Court therefore concluded that the nomination of the vessel was not made in accordance with the contract because it did not comply with the contractual requirements for the original nomination.

The GAFTA Board of Appeal's reasoning was clear: if the initial nomination was a valid one and there was no material difference between the original nomination and the substitute, then it would be "bizarre" for the right to substitute to be subject to the same requirement for 10 days' pre-advice as the original nomination. However, in the Judge's opinion "it would be more bizarre" to interpret the contract as requiring the buyers to give detailed pre-advice information for a vessel that was never used. The Judge chose to apply the GAFTA 49 wording to the letter. As a consequence GAFTA has now amended the nomination clause to confirm that pre-advice terms for an original nomination do not apply to a substitute vessel provided that the substitute vessel arrives no earlier than the estimated time of arrival of the original vessel nominated and within the delivery period. This change clearly brings clarity and favours FOB buyers giving them greater flexibility in nominating substitute vessels.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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