UK: The HFW Bulletin: Commodities - May, 2009

Last Updated: 23 July 2009
Article by Chris S. Lockwood

Rule B: No Friend To The Commodity Trader – Until Now

By Chris Lockwood

Obtaining security for claims is very important, particularly in the current climate. Having a good claim but no ability to enforce that claim is no help to any litigant.

The economic downturn has seen a corresponding increase in Rule B attachments in New York, a procedure which has been viewed as one of the most attractive ways of obtaining security for a maritime related claim and a substitute for, for example, a ship arrest. So much so that it has been widely reported New York Judges are being overwhelmed with applications and are now looking at ways to curb the litigation as too are the banks who are incurring substantial costs in administering the procedure by monitoring thousands of transactions each day checking for named parties on the attachment lists.

Until now the basic requirement of a Rule B attachment has been that the claimant has a prima facie maritime or admiralty claim and that the defendant's property (e.g. US dollars passing through the US electronic banking system) can be found within the US Federal judicial district but that the defendant himself cannot be "found" within that same district. In a recent decision of the Appeal Court of the Southern District of New York1, and somewhat contrary to expectation, the Court has ruled that a company that registers as a foreign business with the New York State Department will obtain protection against any Rule B attachment application. For some this has been seen as changing the game and levels the playing field for those claiming security against monies that, for reasons of how international banking and dollar remittances work, are passing momentarily through the US system.

Not surprisingly, this has led to a flood of applications by foreign companies to register with the New York State Department.

To date, establishing a maritime claim within the Rules has meant that a claimant has had to show that the claim arises under a Bill of Lading or a breach of a Charterparty. Alternatively, that it relates to a maritime tort claim. But what has now been happening is that some Judges in the New York courts have been persuaded that the Rule B attachment should be extended to commodity sales, settlements and FFA Agreements. In some instances it has even been used to pierce the corporate veil and allow for the attachment of assets of "alter egos" of the defendants.

We have had some success for clients recently in obtaining Rule B attachments for maritime claims arising out of sale contracts as opposed to a claim that has arisen in connection with a Charterparty or Bill of Lading.

This is obviously good news for any commodity trader who may have sold CIF and has a claim against his buyer arising in connection with his sale contract. Previously, this has not been seen as sufficient to allow for a Rule B attachment. But recent evidence and successes we have had before the courts indicate that, with the right judge, an attachment might be possible. Not surprisingly clients are having a second look at their claims, unenforced awards and judgments to see if a Rule B attachment is now possible where none existed before.

New GAFTA FOB and CIF Australia Contracts

By Hazel Brasington

At the recent HFW sponsored GAFTA Training Course held in Melbourne (16 - 18 February 2009) the Director General of GAFTA, Pamela Kirby Johnson distributed to the 60 plus delegates a discussion draft of the new GAFTA No.18 FOB and the GAFTA No.19 Australia CIF/C&F contracts. Delegates have been invited to comment on the draft contracts and we have undertaken to provide to GAFTA consolidated comments and suggestions.

Key issues that are likely to impact upon the contracts in the Australian bulk export grain trade include the Extension of Shipment and Weighing and Sampling provisions.

The current situation that prevails at all Australian ports is that handling and loading bulk grain is carried out by bulk handling operators. Their terms of trade, in combination with operating practice, typically result in additional charges when there is any change to loading. There is a view that the fixed percentage deduction provided for in clause 10 of GAFTA No.19 will not cover, and is inflexible in relation to, the charging structure of bulk handlers. It is also possible that the bulk handlers' additional charges may not be covered by clause 8 of GAFTA No.18 because this is likely to be a dispute about what falls within "normal" carrying expenses.

In relation to weighing and sampling, it is thought that without amendment the GAFTA clauses may not be capable of fulfilment in the Australian context, which is in part due to: (1) the control of this operation by bulk handlers who have typically fulfilled these functions to the exclusion of all others; and (2) because of a lack of GAFTA certified personnel at all ports where they may be required.

Less critical issues, but which have also been noted include, the exclusion of Incoterms. Experience suggests that Incoterms are often used by Australian exporters, where they are not in conflict with a provision of the contract. Although 67A trade rules do not adopt Incoterms, they do attempt to specify (for example) the point of delivery. It is noteworthy that GAFTA No.19, clause 5 provides a warranty of quality at time and place of discharge. But what is not clear is how this is reconciled with: (1) the certificate at time of loading being "final as to quality" (clause 5) and (2) the classic CIF model of passing of risk.

In relation to insurance, it may be thought unnecessary to impose a requirement to insure with a company domiciled or conducting business in the UK. Australia is considered to have a mature and well regulated insurance market, in which many of the major global insurers who are well known to overseas buyers carry on business. In addition, it has been noted that the GAFTA insurance requirements are prescriptive and onerous by comparison to many contracts and it is thought they may be difficult for some sellers to comply with them. Additionally, the 2% margin on value is lower than has been seen in the Australian market. Further, it has been commented that allowing the party in possession of the policy to be the loss-payee on a total loss, regardless of the circumstances, may give rise to problems.

In relation to prohibition, it is noted that the GAFTA clause is triggered by an act of the government of Australia or of the territory of the port shipment. It is considered to be conceivable that a legislative act of a State government might be as relevant as that of the government of the Commonwealth.

Finally, there are other provisions that do not fit exactly with the trade in Australia and which will require any standard form GAFTA contract to be adapted to meet the local conditions. Examples include the reference to non-business days and the provisions of certain treaties.

We have tried to highlight above just some of the issues. But we welcome any additional comments, which we will be happy to pass on to GAFTA for their consideration.

Footnote

1. STX Panocean (UK) Co Ltd v Glory Wealth Shipping Pte Ltd

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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