UK: HFW Commodities Bulletin - October, 2009

Last Updated: 3 November 2009

GAFTA Form No. 49: Readiness To Load In FOB Contracts
By John Rollason

In its recent decision in Soufflet Negoce v Bunge S.A. (13 October 2009), the Commercial Court considered the meaning of the "readiness to load" requirement in Clause 6 of GAFTA Form No. 49.

In September 2006, Soufflet agreed a FOB sale of a consignment of feed barley to Bunge. The parties incorporated the terms of GAFTA Form No. 49 into the contract. Clause 6 of Form No. 49 requires that, provided the buyers' vessel arrives at the loadport in readiness to load within the delivery period, the sellers must complete loading even after the delivery period expires. On the last day of the delivery period, Bunge's vessel arrived at the loadport and Bunge called upon Soufflet to load the cargo. Soufflet refused to load on the basis that the vessel had not been presented "in readiness to load" because its holds were unclean.

Bunge successfully claimed damages in arbitration for failure to load the cargo. The matter then went for appeal to the GAFTA Board of Appeal.

Soufflet argued that in order to comply with the requirement in Clause 6 of GAFTA Form No. 49, a vessel had to be ready in the same sense that would allow a shipowner to serve a valid notice of readiness on a charterer under the charterparty. Bunge argued that they were only under a duty to present a vessel which Soufflet could physically and legally load. The Board found for Bunge, basing its reasoning upon the "fundamental commercial dynamic" of a FOB sale contract, where risk passes from sellers to buyers upon loading. The Board found that it was for Bunge to decide whether the vessel's holds were fit to receive the cargo, and their risk, and that it would take very clear terms in a FOB sale contract to reverse this position.

Soufflet appealed to the Commercial Court and again failed. The Court affirmed the approach adopted by the GAFTA Board of Appeal that in a FOB contract the sellers' obligation to deliver the cargo arises on the buyers' request. If it is possible and lawful for the sellers to comply with the buyers' request, then the request is valid and effective and the sellers must comply. The Court found that there was nothing in the sale contract to give "readiness" the same meaning as it would have in relation to a notice of readiness under a charterparty.

This decision confirms the usual apportionment of risk between buyers and sellers in a FOB contract: risk passes to buyers on delivery and thereafter sellers have no interest in the cargo. If FOB sellers wish loading to be contingent upon a shipowner issuing a valid notice of readiness, this must be expressly stated in the sale contract.

REACH Gathers Momentum
By Matthew East

In the September 2008 edition of this bulletin, we reported on the deadline for producers, importers and traders of chemicals in the EU to pre-register substances with the European Chemicals Agency under REACH (EC Regulation 1907/2006 on the Registration, Evaluation, Authorisation and Restriction of Chemicals).

REACH requires the registration of certain chemicals by market participants. The responsibility for registration falls on the manufacturers and importers of those substances and affects any party which participates in the EU market for affected chemicals, from producers and traders to storage providers. Users and distributors of affected products are also subject to REACH.

Since 1 July 2009, REACH has required the transmission of Safety Data Sheets within supply chains for certain products. This requirement includes some products which are exempt from the registration obligations under REACH, such as crude oil.

Further deadlines are now approaching which merit consideration.

First, market participants who have imported affected substances for the first time since December 2008 may be able to take advantage of late pre-registration before 30 November 2009. However, those who imported affected substances before that date are no longer able to pre-register.

Second, the deadline for full registration for affected products traded in quantities of over 1000 tons per year is 30 November 2010. Although this deadline is still a year away, full registration will involve substantial preparatory work and requires immediate consideration by affected companies.

The first obligatory step is to join an industry consortium known as a Substance Information Exchange Forum ("SIEF"). Each SIEF will then be responsible for preparing a technical dossier required for REACH registration. Individual companies will also need to put together company specific information to be submitted with the registration.

Failure to complete full registration in time could prevent market participants from manufacturing, importing or trading affected products within the EU. However, the long lead time should allow affected companies to ensure that all the necessary steps for registration have been completed so as to avoid any interruption to their business when the deadline passes.

7th Annual GlobalGrain Conference 2009

A number of HFW's soft commodities specialists will attend this year's GlobalGrain conference, which is being held as usual at the President Wilson hotel in Geneva, from Tuesday 17 - Thursday 19 November 2009. Brian Perrott will be speaking on "Legal issues, contractual maintenance and avoiding problems before they arise".

Also attending and available to answer any queries will be Chris Swart, Damian Honey and John Rollason.

Conferences and Events

Bills of Lading Advanced
Bonhill House, London (2-3 November 2009),
Damian Honey

Derivatives and Risk Management in Shipping
Lloyd's Maritime Academy
Bonhill House, London (7-8 December 2009)
Brian Perrott

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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