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course/TFC Apr 2019 - Day 2 slides.pptx

Gafta GPD Trade Foundation Course

23rd – 26th April 2019

London

Day Two

@Gaftaworld

Introduction to Shipping

Roger Rookes

Gafta Arbitrator

@Gaftaworld

Introduction

Our business is the movement of goods from one place to another by sea.

Many different roles are involved, not just inland at the origin and destination but also specifically for the shipment of goods:

exporters / importers / brokers and associated stevedores, superintendents, agents, fumigators, customs officials, health inspectors etc.

Other speakers will deal specifically with some of these roles.

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Predominantly, our goods are moved in bulk, but also in bags and/or in containers.

There are thousands of commercial vessels:

- bulk carriers

- general cargo ships (tween deckers)

- container ships

- ro-ro

- tankers (both mineral and vegetable oil)

- gas carriers

- specialist vessels (e.g. heavy lift)

Introduction (2)

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DIFFERENT TYPE OF BULK CARRIERS

Restricted number of ports / commodities

Iron Ore + Coal

Iron Ore + Coal + Grain + Sulphur + Coke + Petcoke + Phosrock +Bauxite + Alumina +…

Iron Ore + Coal + Grain + Sulphur + Coke + Petcoke + Phosrock + Bauxite + Alumina + Steel + Mineral Concentrates + Salt + Rice + Tapioca + Sugar + Pig iron + Potash +Cement + Clinker + Scrap Large number of ports / commodities

+…

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Ship’s particulars

Main particulars

(WATER) DRAFT

Freeboard

Beam

Air Draft

Water line to top of hatch-cover

Keel

Water line

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Ships’ particulars II

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What to think about when fixing a vessel…

Tramp or liner?

Size:

Contract quantity

Grain capacity

Gear

Port limits (access, draft, aircraft, cargo equipment)

Water - fresh, salt, brackish

Vessel size (LOA, Beam, max draft, height to hatch coamings, DWT, airdraft)

Class

P&I cover

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Stowage Factors

Safe stowage

TPC or TPI

Commodity	cu.ft/mt	cu.m/mt
Wheat	45/50	1.27/1.42
SBM	50	1.42
Maize	50/53	1.42/1.5
Barley	52/55	1.47/1.56
Steel billets	18	0.51

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The container revolution (1)

Historically, containers for shipping goods were not one standard size

Goods were loaded in a variety of items, such as sacks, barrels and other boxes, making the loading operation a bit like a jigsaw puzzle

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The container revolution (2)

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The container revolution (3)

The first standard-sized shipping container was introduced in the 1950s

Having a uniform container had several advantages:

Increased speed of loading

Better security of cargo

Reduced cost of loading

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The container revolution (4)

Container Types

Dry

Refrigerated

Specialized

Flat Rack

Open Top

Tank

Container sizes

Standard width = 8 feet

Heights

Standard = 8 feet

High Cube = 9 feet 6 inches

Lengths

Standard = 20, 40 & 45 feet

Others = 10, 30, 48 and 50 feet

Industry measurement

1 TEU = 1 twenty foot equivalent unit

1 FEU = 1 forty foot equivalent

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The movement of goods

The shipping documents should record the history of the movement:

- Mate’s Receipt or Bills of Lading

- Certificate of Origin

- Certificates of Weight / Quality etc

- Phytosanitary and Fumigation Certificates

- Insurance Certificate

Who issues them? What terms do they show?

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Timeline of a transaction & key parties

With seaborn bulk trade it all starts with a buyer and a seller each located in different countries and needing logistical arrangements to complete their trade.

These services include:

Storage

Transportation

Insurance

Brokerage

Supervision

Freight forwarding

Laboratory analysis etc

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Broker (commodity)

Put together Buyer & Seller and helping them confirm a trade.

Broker (shipping)

Assists either Seller (CIF or C&F) or Buyer (FOB) to find vessel

Bank

Finances the operation

Usually draft and confirm contract

Helps negotiate charterparty terms

Drafts charterparty or contract

Cargo side: CAD, L/C, prepayment, performance bond etc

Insurer

Usually via a broker

Either:

CIF: Marine and storage policy

FOB/C&F: Sellers interest policy

Operators/Execution

Freight: Operators

Cargo: Execution

Take over contract and charterparty

Typically take over ancillary service providers

Timeline of a transaction & key parties

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Warehouse/silo

Receive, store & deliver goods on board vessel

Stevedores

Where mandatory

Superintendent

Supervise loading & discharge

Issue warehouse receipt

Check quantity through SMA (stock monitoring agreement) or CMA (collateral management agreement)

May operate cranes if required

In port or where goods handling is needed

Carry out sampling

Ascertain weight, quality & condition

Issue certificates

Vessel master

Usually First officer or First Mate

Supervises whole loading operation

Issues Mate’s receipts (before B/L)

Laboratory

Runs analysis of samples against contract specifications

Other service providers

Fumigation

Execution staff

Check certificates

Bank

Check documents against L/C

Phytosanitary sampling analysis

Certification of origin

Issue certificates of above

1st tier issues

Cargo underwriters

Average adjusters

P&I

2nd tier issues

Legal services

Mediation

Arbitration

Transactional process in the shipping of goods. From negotiation and loading through to discharge at destination.

The example attached in the following slides includes reference to the physical contract for the goods, the associated charterparty to transport the goods and then payment for the goods under a letter of credit.

With the example used there are in fact three specific contracts which make up the transaction.

The first is the Physical Contract for the goods.

The second is the Contract governing transport, in this case the Contract of Carriage (Charterparty).

And the third is the contract and obligations surrounding the payment terms associated with a Documentary Letter of Credit (L/C).

We have attempted to make the example relatively uncomplicated and consequently the Buyer is also the end receiver. Clearly however, there are many permutations associated with the transaction of goods and their delivery. The commentary given within the slides is not intended to be comprehensive enough to cover all eventualities but nevertheless it does give an indication of the elements of a transaction that the participant in this course will need to consider in greater detail.

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Goods remain in silo/warehouse for ultimate receiver

Seller’s Stevedores complete loading at Seller’s load port

Buyer presents vessel to Seller

Buyer agrees Charterparty with Vessel Owner

Seller collates docs inc;

Invoice, Quality cert, Phyto,

B/L

Master signs B/L - Receipt to Sellers for goods loaded

Superintendent provides quality cert & any other relevant quality docs to Seller

Seller presents all required docs to Buyer’s bank for payment

Buyer opens L/C on Buyer’s Bank

Bank checks docs against L/C & pays Sellers if all in order

Vessel arrives at Destination

Stevedores unload the goods into storage on behalf of Buyer

Physical contract negotiated

Parties

Broker

FOB Seller

FOB Buyer (end receiver)

Physical contract timeline

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Contract of carriage (Charterparty) timeline

Charterparty will include amongst many other things; cancelling dates, laydays, despatch & demurrage rates.

Buyers’/Charterers’ Freight Forwarding team, will monitor all aspects of the charter from the initial charter fixture, through to discharge of the vessel.

Payment terms will depend on whether ‘Voyage’ or

‘Timecharter’

Many of the parties responsibilities and liabilities rests with the type of charter

Parties

Broker

FOB Buyer

(end receiver)

Vessel owner

Charterparty negotiated. FOB buyer becomes the ‘Charterer’

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Shipping documents

Diane Galloway

Gafta Arbitrator

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Bills of lading and their functions

What is a B/L?

A document issued by or on behalf of the carrier, to a person (usually shipper), who has contracted with the carrier for the carriage of the goods to the place of delivery.

Usually negotiable and transferrable

Parties:

Carrier, shipper, consignee/ holder

A vital document as relied upon by all parties to the transaction

3 functions:

Receipt for the goods – proof of loading in good condition by the seller

Evidence of the contact of carriage – ship owner / bill holder

Document of title – the ‘key to the cargo’

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The overview of contracts

Sale/Purchase Contracts

Banking Contracts

Carriage Contract

Insurance Contract

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Bills of lading: a transferable contract

Transfers rights to delivery of the goods

Transfers contractual rights against the shipowner

Sale contract risk passes on shipment – so buyer looks to shipowner if goods arrive damaged

Buyer is entitled to a “reasonable contract of carriage” for the goods under the sale contract

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What will you see on bills of lading 1?

Front contains specifics:

Ports of loading and discharge

Carrying vessel and any incorporated charterparty

Shipper/consignee/notify party / “To Order”

Signature box

Issue date / shipped on board date

Whether freight is paid [why important?]

“shipped” in “apparent good order and condition”

“weight, measure, quantity, quality…unknown”

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What will you see on bills of lading 2?

Reverse contains standard terms – few terms  C/P bill – lots of terms  Liner bill

Reverse will also have any endorsements

Other terms are incorporated by operation of law (e.g. Hague Visby Rules)

Often issued in triplicate:

Now, as is commonplace, GAFTA contracts require the full set to be delivered to the shipper – reduces the risk of the originals falling in the wrong hands.

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Types of bills of lading

Clean/Claused Bills

Short Form Bills

Freight PrePaid/Freight Payable as per C/P

Combined Transport Bills / Through Bills

Charter Party Bills – contrast Charterers’ Bills

Straight Bills

Switch Bills

Spent Bills

Liner Bills

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Common issues

Identity of the carrier – usually shipowner

Who should sign the bill of lading? Master or Agent

Incorporation of charterparty terms into bill of lading contracts

Is the charterparty incorporated or which charterparty is incorporated (if more than one)?

Which terms?

Who can ask the carrier for the goods at the discharge port?

Delivery of cargo without production of bills of lading/misdelivery

Change of voyage and deviation

Discrepancies in loaded quantities

Ante or post dated bills of lading [why important?]

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Mates Receipts

What is a Mates Receipt?

A document drawn up prior to the B/L – shipper’s interim receipt when good are delivered to the ship owner

Why use a Mates Receipt?

It contains details of the goods loaded and any qualifications

It shows entitlement to the B/L - evidence of ownership, but not a document of title/not negotiable

Sometimes used to obtain payment

Important distinctions between Bs/L and Mates Receipts

NOT a document of title

NOT evidence of a contract of carriage

Does NOT transfer rights against the carrier

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LoIs – Letters of Indemnity

Contractual agreement to indemnify a party if they do what you are requesting

Examples:

Discharge without Bs/L

Rain LoIs

Missing documents

Take care: LoIs carry with them huge (potential) liabilities

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Invoices

Addressed to buyer, describing the goods

Contract price: good practice to invoice separately for demurrage etc

Usually includes any contractual allowances

Should give payment instructions (where/when)

Specific requirements in UCP600 for letter of credit sales

[Payment terms: talk tomorrow]

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Certificates 1

Contract should state exactly what is required and from whom

GAFTA contracts have requirements to incorporate weighing and sampling rules

Certificates are part of “Shipping Documents”

Inconsistencies and defects? What are the remedies (i) if deviation is slight? (ii) if deviation is significant?

Documentary duties are important: (i) buyer will usually pay against the shipping documents (ii) compliance with the contract terms will be demonstrated by the shipping documents and the certificates may be “final” (binding) between Buyer and Seller. The Seller will usually want to retain control of the documents until payment is made.

When must shipping documents be presented under the sale contract to the buyer?

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Certificates 2 (“phytos”)

What are phytosanitary certificates and who issues/what are they for?

Why are they a problematic issue in practice? (strict obligation to provide the document but unknown destination/changes in regulations).

What do the GAFTA contracts say now?

Obligation is one of best endeavours where there is a change in regulation or country of import unknown to seller at date of contract;

Not application to all GAFTA contracts;

How does this apply to FOB contracts or CIF with a range of destinations?

Should FOB buyers now include a range of possible destinations in all contracts to overcome this?

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Case Studies

Case Study 1:

You are a CIF seller. Your execution department wishes to present two original B/Ls to the Buyer via the Bank and send one directly to the Buyer. Is this sensible or possible?

Case Study 2:

Your CIF buyer wants to discharge against an LOI because documents are not yet available at the discharge port. The relevant contract is GAFTA 100. What should you do?

Case Study 3:

You bought on CIF Ravenna terms and the Seller presents a B/L for destination “Main Italian Ports”. What should you do?

Case Study 4:

You are a CIF Buyer. Seller presents a B/L stating: “400MT off loaded due to wetting after loading” and “wheat is dusty and seems old”. Is this a clean B/L?

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Refreshments

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Case study session: Shipping documents

Diane Galloway

Gafta Arbitrator

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Ascertaining the goods and the vessel

Diane Galloway

Gafta Arbitrator

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Nomination

Definition of FOB Contract

"The Seller must at his own expense put the goods on board a ship which has to be nominated or designated by the Buyer. The Seller is not bound to reserve shipping space in advance nor to bear any expense of shipment which arises after the goods have been put on board.”

GAFTA FOB contracts have a “Delivery Period”, which is for the arrival of the Buyer’s vessel at the loadport.

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Buyer’s duties are to give:

Effective Shipping Instructions (i.e. present a performing vessel at the agreed load port)

So that Sellers can deliver goods in accordance with the terms of the contract i.e. place, quantity, time

Adequate Notice (i.e. Nomination)

Either agreed period of time e.g. 10 consecutive / 3 business days, or other sufficient period of time according to circumstances (if contract is silent).

Substitution

Usually the buyer has a contractual right to substitute a nominated vessel provided replacement vessel fulfils all the requirements of the contract. (Cargill v Continental (1989))

Restricted in some contracts due to practical & administrative problems.

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Seller’s duties

Deliver goods on board when required by Buyer during agreed period;

No obligation to have goods available during entire period (Tradax v Italgrani (1986)).

Deliver at agreed rate (e.g. tons per day) or otherwise reasonable rate in customary manner.

Usually Seller will pay damages for the delay to the vessel if he does not deliver at the agreed rate, usually demurrage.

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Service of Nomination Notice

See for example GAFTA 64, clause 6.

Nomination is a Notice to be served under the contract. Check provisions carefully (notices clause, how many days, what information).

Local time of sender applies to service. Notice valid via broker.

Usually the period of notice is expressed as a number of days or hours preceding the estimated date of arrival (eta) and readiness to load.

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Content of Nomination. 1

Name of the vessel

GAFTA 64 clause 6 – name of vessel is required.

"T.B.N." vessels (to be nominated) By definition, the designation of a vessel yet to be nominated is not valid.

Nomination of m/v "Santa Celia" “OBN” (or better name) or sub vessel - must consider any contractual right of substitution.

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Content of Nomination. 2

Estimated tonnage required (usual in practice to simply re-state the contract tolerance – 30,000 mt +/- 10% - but is this sufficient?)

Probable readiness date: Readiness, not simply arrival.

Contracts often require updates – e.g. “Master to provide 10/7/3/1 day notices of eta to seller”.

Further information: Ship's Agents, Superintendent, Documentary requirements, Rate of Demurrage...?

Nomination must be honestly or reasonably given –

No Mickey Mouse vessels

No fanciful eta’s

But no need to have fixed vessel

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Substitution Content of Nomination. 3

New express terms with regard to substitution in many GAFTA contracts;

Problem was whether new nomination needed new pre advice and whether there was enough time for this;

“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”.

“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”.

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Failure to Nominate

Failure to nominate at all or failure to nominate correctly gives rise to breach:

Seller may reject a defective nomination, or refuse to load a vessel not nominated correctly.

Seller may declare Buyer in default if there is no valid nomination in time BUT note extension clauses.

Subject to the particular contract, Buyers may substitute with effective nomination.

Contrast:

(a) 7 day notice required, 3 days notice given. Seller does not have to load until full 7 days elapses, even if vessel tenders NOR (Notice of Readiness) earlier;

(b) 7 day notice required, no extension, only 4 days left in Delivery Period. Too late for any valid nomination. Seller could declare default.

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APPROPRIATIONS

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CIF / C&F contracts

Performance of a CIF / C&F contract:

Seller to make shipment of goods of contract quantity and description at the agreed time;

Seller to provide a contract of carriage (usually Bill of Lading) to the agreed destination;

Seller to present contractual shipping documents.

Risk of loss or damage to the goods passes on shipment

Title to the goods? GAFTA contracts are silent …

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Functions of the Appropriation

Advise Buyer of performance - Expectation of documentary details, arrange finance, likely day of physical receipt of goods, carrying vessel details to arrange discharge, onward transmission to sub-buyers;

Notification of Insurance risk (important in C&F contracts SoGA 1979 s. 32)

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Service of Notice. 1

Appropriation is a notice to be served under the contract. Check provisions carefully.

Usually the period is stipulated in the contract as a number of days following the date of the Bill of Lading. E.g. GAFTA 100 - 10 days.

In relation to the original notice from the Shipper, this period cannot be extended by non-business days.

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Service of Notice. 2

After the service period has expired....

In relation to re-sellers, an appropriation is still in time if received after 16.00 hours on a business day and passed on by 16.00 hours on the next business day.

If received before 16.00 hours, the appropriation must be passed on the same calendar day.

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Service of Notice. 3

Notice to Broker / Agent named in the contract is valid and binding between Seller and Buyer.

Valid notice of appropriation cannot be withdrawn without Buyer's consent. [contrast vessel nomination on FOB contract…]

Invalid appropriation may be replaced if time available.

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Content of Appropriation. 1

Name of vessel Must be accurate – not open to substitution. Use of “or better name” only valid for genuine errors in transmission;

Presumed weight shipped Must be specific. No tolerance e.g. 1,000 mt 10% “Shipped” means “on board”.

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Content of Appropriation. 2

Bill of Lading date:

The Notice must include the date, or presumed date, of the Bill of Lading.

The term "presumed" is used to protect the Seller because, at the time of appropriation, he may not have yet sighted the B/L.

For this reason, the B/L date is not binding in the appropriation and the Seller cannot be penalised if the actual B/L date is different when it comes to presenting the documents.

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Content of Appropriation

However, the actual Bill of Lading date on the documents is binding and if it proves that the Notice of Appropriation was out of time, the Buyer can reject the documents. This can arise when the actual B/L date is earlier than the presumed date mentioned in the appropriation.

UNDER USUAL RESERVES “UUR” only protects the Seller from genuine errors in transmission repeated in good faith.

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Case Studies

Case Study 1

GAFTA 100, Notice of Appropriation given by Seller, rejected as defective by Buyer, Seller gives new notice for same vessel but it is now 12 days after the B/L date. What should the Buyer do?

Case Study 2

GAFTA 100, Seller presents all shipping documents within 10 days of B/L date, but gives no Appropriation. Valid?

Case Study 3

GAFTA 64, Delivery Period September 2018, pre advice of 10 days required. It is 26th September 2018. Can the Seller declare default?

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Lunch

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Introduction to Charterparties

Nicholas Walser,

Partner

Gateley PLC

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Types of contract

There are different types of contract designed to be used for the carriage of goods by sea

The most common examples are:

Contracts of Affreightment (COAs)

Charterparties

Bills of lading/sea waybills

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FOB

SELLER

BUYER

SHIP OWNER

SALE CONTRACT

CHARTERPARTY

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CIF

SELLER

BUYER

SHIP OWNER

SALE CONTRACT

Bill of lading

CHARTERPARTY

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Charterparties (1)

A contract between a shipowner commonly described in the contract as “owner” and a “charterer”

Use of the whole (or part) of the ship

Three main types:

Bareboat (demise)

Time

Voyage

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Charterparties (2)

Bareboat/Demise – you hire the ship and nothing else:

No crew, no spares, no bunkers. Shipowner is giving you the ship “bare”

Time/Voyage – essentially a contract for carriage services

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Time/voyage charterparties

Time charterparties: Use of the ship for a specified period of time within trading limits

Voyage charterparties: Use of the ship for a specified voyage or voyages

Which one you use will depend on your trading patterns:

Time: A trader wanting to lock in shipping costs for numerous shipments

Voyage: A purchaser at the end of a FOB string, for example

Other commercial needs, e.g. flexibility makes time charters more attractive, but at a cost

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Time charterparties - overview

Owner provides the ship, crew, spares, food, water etc. But no bunkers. Ship under charterers’ orders against an indemnity

Charterer pays “hire” for the use of the ship and the provision of its services, plus separately buys bunkers

Who bears the risk of delay? It depends on how the charter period is defined

Simple time period – charterers bear the risk, because they pay for the time used up to redelivery. They will pay damages for late redelivery

“Trip time charter”. Hybrid – time defined by however long the voyage takes. Owners at risk – floating warehouse

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Voyage charterparties - overview

Owner provides ship, crew and all fuel

Charterer pays “freight”

When is freight earned? Can you deduct from freight?

Who bears the risk of delay?

Normally the charterer:

Laytime and demurrage terms.

The voyage is not defined by time, BUT the Owners cannot unlawfully deviate and normally must prosecute the voyage with due despatch.

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Time versus voyage?

Owners

Charterers

Pro: Insulated from market rises

Con: Cannot take advantage of falls

Pro: Offers flexibility in use of the ship: Multiple shipments/destinations/cargoes

Pro: Possible ability to mitigate delay by a change in ship orders

Pro: Ability to “trade” the ship to make money

Time Charter

Pro: Guaranteed rate of income

Con: Cannot take advantage of market rises

Pro: Continuous operation of the ship reduces risks

Pro: Indemnity for vessel employment

Pro: Fewer delay risks

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Owner

Pro: Ship not tied up for long periods

Pro: Greater control over the ship

Pro: Mitigate risk of delay via demurrage

Pro: Ability to take advantage of market opportunities when open at the end of the voyage – backhaul cargoes

Charterer

Pro: Short term commitment reduces market exposure

Pro: Less control over the ship

Pro: Not exposed to movements in bunker costs

Pro: Ability to lay off cost of delay (demurrage) under sale contract

Time versus voyage?

Voyage Charter

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Bareboat charterparties

Shipowner provides only the ship

Charterer provides crew/bunkers/stores/maintenance

Charterer is responsible for liabilities that arise during the charter period

Favoured by ship owning companies who want to invest in, but do not want to operate, the ship

Advantage for the charterer: Essentially using a ship as if owned, but do not have capital/credit tied up in it

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COAs

Strictly speaking not contracts for carriage of goods but a contract for a series of voyages

Will normally specify a stated quantity by a stated number of shipments over a defined period

Each shipment governed by the terms of an agreed c/p form, but terms of COA prevail in event of conflict

Benefit to sellers/buyers: gives them control over a vessel but they don’t have to pay “hire” when not using the vessel

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Slot Charterparties

Chartering a guaranteed number of container spaces, holds or tanks (“slots”) on a vessel

Another “hybrid” contract on either a time or voyage basis

Operated by liner companies calling at a series of load ports

Often seen in containerised trade and vegoil trade – ship is subject to multiple CPs with each Charterer loading cargo into separate tanks

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Negotiating the CP

Recapitulation (“fixture recap”) – sets out the main terms. Nearly always will incorporate more detailed terms:

A standard form e.g. Gencon, NYPE etc and/or a previous CP; AND

Rider clauses

What happens if terms are inconsistent with one another?

Negotiating the CP. When are the parties bound contractually?

Note: Arbitration clause

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Questions

Q1: You own a vessel and want a steady income stream over the financial year. What type(s) of charterparty are likely to provide it?

Q2: You are an end user purchasing soybeans from Brazil, FOB. You buy one cargo every two months. What kind of charterparty is likely to suit you best?

Q3: When negotiating a charterparty, when would you say a binding fixture is likely to come into existence? How do you stop yourself becoming bound inadvertently?

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Charterparty chains

Owner

(Registered Owner)

Head Charter

Charterer

Disponent Owner

Sub-charter

Sub-charterer

Charterer

Disponent Owner

Sub-sub-charter

Sub-sub-charterer

Charterer

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Refreshments

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Laytime, demurrage and dispatch: An introduction

Nicholas Walser,

Partner

Gateley PLC

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Agenda:

What is laytime, demurrage and dispatch in the voyage charterparty context?

Why is it relevant to sellers and buyers under sale contracts?

Commencement of laytime under a voyage charterparty.

Common issues in sale contracts. Is the law on voyage charterparties relevant?

Suggestions

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What is laytime, demurrage and dispatch in the voyage charterparty context?

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What is laytime, demurrage and dispatch in the charterparty context?

An aspect of English maritime law relating to voyage (not time/”time trip”) charterparties

Laytime (“lying alongside time”): the period of time agreed between the parties (charterer and shipowner) during which the shipowner will make and keep the ship available for loading or discharging without the charterer paying additional freight

Demurrage: an agreed amount payable to the shipowner in respect of delay once the laytime has expired, for which the shipowner is not responsible (i.e. liquidated damages). What the shipowner has actually “lost” (if anything) is irrelevant

Dispatch: an agreed amount payable to the charterer if the charterer uses less than the agreed loading/discharging time

Damages for detention: A loss caused by delay flowing from breach of a different term (i.e. something other than the laytime/demurrage clause(s)) of the charterparty

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Why is it relevant to sellers and buyers under sale contracts?

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Why is it relevant to sellers and buyers under sale contracts?

CIF/C&F seller: Responsible for making the contract of carriage (voyage/time charter/bill of lading terms) but buyer is likely to control the discharge process

FOB buyer: How does the buyer protect against the seller delaying at the loading port?

To try and protect a charterer if s/he incurs demurrage liability under the voyage charter

However, you can also make money with careful drafting!

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Commencement of laytime under a voyage charterparty

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Commencement of laytime under a voyage charterparty (1)

The ship must have arrived at the destination specified in the charter.

The ship must be ready and in a fit condition to load/discharge cargo.

Notice of readiness (“NOR”) must have been given to the charterer.

The charter may (and often will) contain provisions about all the above and will also likely contain “interruptions” and “exceptions” to laytime.

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Destination: berth, dock or port charter? Is the ship at the immediate and effective disposition of the charterer?

Condition:

Is the ship physically ready e.g. “grain” ready?

Is the ship legally ready e.g. in free pratique?

3. Commencement of laytime under a voyage charterparty (2)

@Gaftaworld

Notice of readiness:

The notice that the ship has “arrived” and is ready to load/discharge. Effect of phrases in the charter such as e.g. “WIBON”, “WIPON” and “reachable on arrival”.

Compliance with the terms of the charter e.g. clause 6(c) “Gencon” ’94.

What if the NOR given is invalid?

3. Commencement of laytime under a voyage charterparty (3)

@Gaftaworld

Interruptions and exceptions to laytime:

Interruption: periods of time where laytime does not run because outside the definition of laytime.

Exception: periods of time within the definition of laytime but excluded by an exceptions clause.

E.g. “any time lost through bad weather not to count as laytime” is an exception. However laytime defined in terms of “weather working days” means that a non-weather working day is an interruption.

A causal connection is required for an exception (i.e. that bad weather caused the loss of time).

An exceptions clause will only interrupt demurrage if it says so! However laytime/demurrage will not run whilst delay is caused by the fault of the shipowner.

3. Commencement of laytime under a voyage charterparty

@Gaftaworld

Common issues in sale contracts

@Gaftaworld

Common issues in sale contracts (1)

Does the sale contract say anything about laytime/demurrage? E.g. GAFTA 100 clause 14

No automatic right to, or liability for, demurrage under a CIF/C&F contract

No implied duty on a CIF/C&F buyer towards the seller to have the goods discharged at all

Although FOB seller owes buyer a duty to load the goods and must do so within the shipment period, seller can use the whole period. Cf. GAFTA 64 clauses 6 and 7

@Gaftaworld

Common issues in sale contracts (2)

Is a laytime/demurrage clause in a sale contract an “indemnity”

i.e. a clause by one party (e.g. a CIF buyer) to keep the other (e.g. a CIF seller) harmless against loss (e.g. demurrage incurred by the CIF seller under the charter because of delays by the buyer at the discharge port) or is it a clause which operates “independently” of the position under the charter?

The default position under English law is that the laytime/demurrage clause in a sale contract operates independently of the positon under the charter (and likewise of any other sale contracts in the “string”).

@Gaftaworld

Common issues in sale contracts

Should you use the phrase “demurrage as per charterparty”?

What if the “charterparty” is a time charter or a time trip charter?

What about laytime? When does it start?

What about loading/discharge rates?

Application of “charterparty law” to “sale contract law”?

@Gaftaworld

5. Suggestions

What do you want to achieve?

Does a standard clause deal with it?

What is the position under the charter?

What if the charter is not drawn up?

Do I need to use the words “laytime”, “demurrage” and “dispatch”?

“Cesser” clauses (for a CIF/C&F seller who is also a charterer)?

@Gaftaworld

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course/Day One Slides.pdf

@Gaftaworld

Gafta GPD Trade Foundation Course

23-26 April 2019 London

Day One

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Welcome and introduction

Jaine Chisholm Caunt

Director General

Gafta

@Gaftaworld

Housekeeping • Course Materials: Available via Dropbox –

Please access via the link that was sent to you. • Fire: There will be a fire alarm test on Friday

morning. • Mobiles: Switch to silent mode, but please feel

free to use social media! @Gaftaworld #TFC2019

• Networking details & programme are in delegate packs

@Gaftaworld

Basic principles of contracting

Jonathan Waters

LLB, LLM, MCIARB, CMC Registered Mediator, Barrister

General Counsel

Gafta

@Gaftaworld

English Contract Law

@Gaftaworld

Why English Law? (1) It is what you have

agreed to! It reflects what the

trade wants Gafta Domicile Clause

Legal effect of Domicile Clause?

DOMICILE This contract shall be deemed to have been made in England and to be performed in England, notwithstanding any contrary provision, and this contract shall be construed and take effect in accordance with the laws of England. Except for the purpose of enforcing any award made in pursuance of the Arbitration Clause of this contract, the Courts of England shall have exclusive jurisdiction to determine any application for ancillary relief, (save for obtaining security only for the claim or counter-claim),the exercise of the powers of the Court in relation to the arbitration proceedings and any dispute other than a dispute which shall fall within the jurisdiction of arbitrators or board of appeal of the Association pursuant to the Arbitration Clause of this contract. For the purpose of any legal proceedings each party shall be deemed to be ordinarily resident or carrying on business at the offices of The Grain and Feed Trade Association, (Gafta), England, and any party residing or carrying on business in Scotland shall be held to have prorogated jurisdiction against himself to the English Courts or if in Northern Ireland to have submitted to the jurisdiction and to be bound by the decision of the English Courts. The service of proceedings upon any such party by leaving the same at the offices of The Grain and Feed Trade Association, together with the posting of a copy of such proceedings to his address outside England, shall be deemed good service, any rule of law or equity to the contrary notwithstanding.

Gafta 48: Clause 25

@Gaftaworld

• …“deemed to have been made in England” • …“and to be performed in England”

• …“construed and take effect in accordance with the laws of England”

Contract… Contract shall be…

• …“shall have exclusive jurisdiction” English courts…

• No appeal to English courts on point of law. • Impact on Gafta’s ability to arbitrate • May cause enforcement issues e.g.: “Arbitration at Gafta in England according to the law of

Ethiopia.” ($7.5m dispute) • Ethiopian law – Ethiopia not a signatory to UN Convention on enforcement of arbitration awards

Be aware of Gafta 125 (Arbitration Rules)

What if you include a jurisdiction that is not England?

Why English Law? (2)

@Gaftaworld

• Fraud/corruption on increase in international arbitrations

• Safe place to arbitrate • Infrastructure (courts for ancillary relief) and

professional firms

Fraud London

• Ancilliary relief (Gafta 48, 26 (c.)): obtaining security

• Commercially savvy – sympathetic to arbitration

Security Judiciary

• Highly beneficial, settled case law • Although English law, arbitration hearing can take

place anywhere if parties agree • Brexit?

Precedent Global

Why English Law? (3)

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Contract Formation

@Gaftaworld

Why Gafta Contracts? • 80% of world trade in grain: Gafta contracts • ‘Tried and tested’ • Backed up by internationally renowned Gafta dispute

resolution service • Reflect what the trade wants

• International Contract Committee (ICC) • Flexible: Parties are free to amend (and most do!) • English Law

@Gaftaworld

What is a Contract? (1)

• In English Law a verbal Commodity Contract is legally binding (Sale of Goods Act S4)

• Why is it preferable to have a written agreement?

A legally binding agreement – (whether written* or spoken)

*written can include emails, texts & even WhatsApp

@Gaftaworld

6 elements required to establish a valid contract:

Offer By one party to the other

Acceptance Unconditional

Consideration Commonly the price

Intention to create legal relations

Presumed in commercial contracts

Capacity Presumed in commercial contracts

Legality Sanctions

All must be present! If one is missing – no contract

@Gaftaworld

Context

• Speed of market – parties often agree main terms but leave others to be agreed later – lack of clarity?

• Also, complications can arise due to brokers, different jurisdictions and using a language in which the parties may not be fluent

@Gaftaworld

• A statement of willingness to contract on specified terms made with the intention that, if accepted, there will be a binding contract

• Must be sufficiently clear/ detailed • Is not the same as an “invitation to treat” (which is an invitation to

make an offer) • Can be withdrawn any time up until acceptance • Are tenders offers?

Offer

How is a contract made? (1)

@Gaftaworld

How is a contract made? (2) When does a contract become binding? • A contract will not be concluded and legally binding until the offer is accepted unconditionally

o When can an offer be withdrawn? o Offers with time limits (e.g. price shall remain £ x for 7 days)? o Acceptance must be unconditional agreement to the terms of the offer without qualification (“meeting of the

minds”) o Acceptance must be communicated o Silence is generally not acceptance but conduct may be

• An attempt to introduce new terms is not an acceptance but a counter-offer o a counter-offer is a rejection of the offer, a party cannot later accept the initial offer o mere requests for information are not counter-offers

• The “battle of the forms” – the last shot approach

Acceptance…

“We agree to your offer of 5,000mt of Ukrainian Corn, but for good orders sake send us a full confirmation note”

Is this Acceptance? Or is it a counter offer?

@Gaftaworld

How is a contract made? (3)

• Essential to formation of contract • English law will not enforce a gratuitous promise (a promise which is not supported

by consideration) – there must be a “bargain”

• In practical terms it is the price that a party pays in return for goods • No requirement for consideration to be of market value. Courts are not concerned

with whether parties have made a good or a bad deal!

• Phoenix Consortium purchase of Rover Group from BMW for £10

Consideration

@Gaftaworld

How is a contract made? (4)

• What if the existence of a contract is disputed? o Particularly relevant if contract is verbal or there have been

subsequent variations to a standard contract

• Past business dealings o Custom/practice?

• Evidence to show there was a contract o Emails?

Intention to create legal relations

• The legal ability to enter into a contract • Compare with authority to contract

o Does the signatory have the authority to enter into the contract on behalf of the counterparty?

• Broker/ agents authority to contract? • “XXX shall have the authority to negotiate and

conclude the contract.” • Enforcement action: S504 Turkish Code of Obligations

XXX had to have “special authority”. Turkish courts did not enforce award.

• Sanctions • Prevention of Shipment • Phytosanitary certificates

Capacity

Legality/vitiating factors

@Gaftaworld

How is a contract made? (5) Incorporation • Inclusion of terms

o Gafta incorporated terms: insurance (Gafta 72), weighing (Gafta 123), sampling (Gafta 124), arbitration (Gafta 125): all form part of contract

o Notice of terms needs to be given o Terms must be in a document intended to be contractual o Reasonable steps must be taken to bring it to the attention of the party

• Confirmation Notes (Proper reference to correct Gafta Contract?)

Addendum • In 1 Gafta Arbitration Hearing, there were 9 attachments to the contract. All were disputed and none

were signed! Arbitrators had to decide whether the 9 documents formed part of the contract • May cause an issue on enforcement

@Gaftaworld

Basic contractual obligations and contractual terms

Jonathan Waters

LLB, LLM, MCIARB, CMC Registered Mediator, Barrister

General Counsel

Gafta

@Gaftaworld

Having established there is a contract, what is contained within it?

@Gaftaworld

Seller • Provides goods • Goods conform with contract • Puts goods on board ship

Buyer • Arranges shipping/insurance • Gives proper notice to seller (e.g. vessel,

port)= pre condition of contract. Failure: seller under no obligation to perform

Legal title and risk pass on delivery to ship

‘all inclusive price’ Seller

• Makes shipping arrangements • Delivers goods • Ships goods • Arranges insurance

Buyer • Nominates port • Takes delivery – meets cost of unloading/

import licences/ customs duties • Pays for goods on receipt of shipping documents

Risk passes on delivery – legal title passes later

FOB – Free on Board CIF – Cost Insurance Freight

Basic Contractual Obligations (Summary)

@Gaftaworld

Contractual Terms (1) • Contents of a contract are called terms • A term is something which imposes a contractual duty

(obligation) • The phrase covers conditions, warranties and innominate

(intermediate) terms

Important to distinguish as classification determines the remedy in the event that a counter party defaults

@Gaftaworld

• Specifically agreed • Oral or in writing

Express

• Not specifically agreed but put into in the contract by statute (Sale of Goods Act 1979) or by the courts/arbitrators

• Implied by Courts/arbitrators to make ‘commercial sense’/reflect intention of parties/reflect custom and practice

• The Moorcock (1889) • Importance of statutory implied terms

Implied

Contractual Terms (2) Main terms will be set out in the written contract • Gafta standard contracts

o Parties free to vary (and often do)

@Gaftaworld

Sale of Goods Act 1979: Statutory Implied Terms

• Of critical importance in context of defaults • S12. Seller has the legal title to the goods • S13. Goods must correspond to description • S14. Goods must be of satisfactory quality. Test is objective. What would a reasonable (business) buyer

regard as satisfactory having regard to price, description and other relevant factors • S14. Goods must be fit for intended purpose • S15. Goods supplied in bulk most correspond with sample

• Act can be excluded (exclusion clause): Air Transworld Limited v Bombardier (2012): Check the contract carefully (particular Counterpartys standard form contract which may have been incorporated)

@Gaftaworld

Terms Conditions

• A major (or fundamental) term: goes to the very heart of the contract

• Breach entitles innocent party to repudiate

• Repudiate: terminate contract and sue for damages

Warranties

• A minor (less important) term • Breach entitles innocent party to

damages ONLY and the contract continues

• Most terms in a contract are warranties

Distinction is critical! Termination for breach of condition is a breach of contract if the condition is actually a warranty!

@Gaftaworld

Identifying a Condition or Warranty

• Important to identify, in the contract, which terms are conditions and which are warranties

• Generally, in a business contract courts will give effect to what the parties have agreed

• But not always…!

@Gaftaworld

What was the outcome?

The Parties: • Schuler – a tool manufacturer • Wickman – a tool sales company Scenario: • Wickman granted the sole right to sell Schuler tools • Condition of contract – Wickman had to send a sales person to each named company

once a week to solicit sales • Wickman failed to make some visits • Schuler terminated the contract

Schuler vs. Wickman 1974

@Gaftaworld

Schuler vs. Wickman 1974 – The Outcome • HELD Schuler and Wickman had not intended the

word ‘condition’ to be used in a strict legal sense • The outcome – termination – would be

unreasonable • The term was a warranty and termination by

Schuler was a breach of contract

@Gaftaworld

Intermediate Terms

• Intermediate term is neither a condition or a warranty!

• Traditional Approach – causes inflexibility/unfairness

• Minor breach of condition gives rise to termination

• Major breach of warranty does not

@Gaftaworld

Hong King Fir Shipping vs. Kawasaki 1962

• New approach: Intermediate term

• Courts may be prepared to disregard the ‘label’ (i.e. ‘condition’ or ‘warranty’)

o Has the innocent party been substantially deprived of whole benefit of the contract by the breach?

• If innocent party substantially deprived – termination and damages

@Gaftaworld

Which Approach? • For courts to decide • Courts generally take the view that if parties have specifically negotiated a

term as a condition then this is what they intended and will uphold this • Statutory implied conditions will always be conditions (unless excluded) • Case law has established that certain terms will be conditions (e.g. opening L/C,

timing, appropriations, nominations, delivery, provisions relating to tender of documents, failure of FOB Buyer to nominate and provide a vessel) and certain terms will be warranties (failure to pay demurrage/carrying charges)

• Always take legal advice before alleging a breach of condition and terminating contract – if you get it wrong you are in breach of contract

@Gaftaworld

The Goods, Description Quality and Condition An Overview

@Gaftaworld

Sale of Goods Act 1979 (Refresher)

• Implied terms

• What type of term – condition, warranty or intermediate?

• Why is it important to distinguish between these?

• Context: Gafta arbitration – many contractual disputes re description and quality

@Gaftaworld

Description – (S13) • Clause 1 – Gafta 49 • Goods must be sold as described (i.e. correspond with their description) –

examples from Gafta arbitration cases o “Brazilian Yellow Maize” o “Ukrainian Third Grade Feed Corn” o “Free from Insects” o “Wheat” – is this clear enough? o “White Flour” – flour was yellow on arrival but of satisfactory quality: Is this a misdescription? o “Organic” – what does this mean? o “Grade A Banana Skin Pulp” – What if Grade B is delivered?

What are the consequences for a misdescription?

@Gaftaworld

Satisfactory Quality Clause 5 – Gafta 49 • Quality includes: natural characteristics of

the commodity (size, shape, chemical composition) and condition (burnt, wet, mouldy, infested)

• Goods deemed to be of satisfactory quality if they meet the standard that a reasonable (business) person would regard as satisfactory, taking into account any description, the price and other relevant circumstances

Circumstances include: • Fitness for all the purposes for which goods of

the kind in question are commonly supplied (human or animal consumption) ̶ Appearance and finish ̶ Safety ̶ Durability ̶ Price

• Important to define quality in contract • Satisfactory quality on delivery to vessel for

reasonable time thereafter (unless contract provides otherwise)

@Gaftaworld

Certificate Final (1) Mechanism for dealing with issues such as description and quality. • Gafta 48 – Clause 5 “Certificate of inspection at the time of loading shall be final as

to quality” • Parties agree that a third party will make a determination. Buyer has assurance that

goods have been supplied in accordance with contract. Seller has protection against buyer latter alleging goods were defective

• Certificate is generally final and binding • Buyer has no right to challenge findings (fraud is an exception) – clause is pro-Seller • But Buyer may argue that wording of certificate allows a challenge to be made

Precise wording is critical!

@Gaftaworld

Certificate Final (2) • Certificates are only final in relation to the matters they are intended to

cover (eg “quality”). They are not final in respect of any other matters not expressly required to be certified in the contract – final as to “quality” would not be final as to “description”

• In such cases the buyer is not precluded from bringing a claim if the goods did not match their description

• Bow Cedar case. ‘Weight and quality’ final at loading as per certificate of independent surveyors. Dispute arose regarding description. Sellers argued there could be no claim. Buyers argued that clause only related to ‘weight and quality’ and a claim for misdescription could still be made. The courts agreed

@Gaftaworld

Excluding the Sale of Goods Act • S55. Sales of Goods Act – Allows parties to exclude statutory implied terms • Exclusion Clause must be reasonable (Unfair Contracts Terms Act 1977) • Air Transworld Limited V Bombardier 2012 • Aircraft alleged to be in breach of Sale of Goods Act – did not correspond with

description not of satisfactory quality and unfit for purpose • Exclusion Clause – excluded liability under Sale of Goods Act

• “Buyer…waives and releases all other warranties, obligations, representations or liabilities express or implied…including but not limited to…any implied warranty or merchantability or of fitness for a particular purpose…”

• Exclusion Clause Valid

@Gaftaworld

Refreshments

@Gaftaworld

Gafta Contracts: An introduction

Jonathan Waters

LLB, LLM, MCIARB, CMC Registered Mediator, Barrister

General Counsel

Gafta

@Gaftaworld

Overview of Gafta 49: Some Key Terms (1) (FOB: Delivery of Goods, Central and Eastern Europe)

• Sellers/ Buyer (make sure counterparty is correctly identified) • Brokers Clause 1 Goods – description is a condition (Sale of Goods Act 1979) (Statutory Implied Terms)

o “Brazilian Yellow Maize” o “Lithuanian Milling Wheat” o “Free from Live Insects” o “White Flour”

@Gaftaworld

Overview of Gafta 49 (2) Clause 2 Quantity – note ‘tolerance level’ “5% more or less at buyers option”. (25,000MT i.e. 10% tolerance. 22,500MT or 27,500MT)

• If more than 1 delivery, each delivery is treated as a separate contract – Clause 3 Price – Fixed or a price ref to Futures market Clause 5 Quality – a condition (Sale of Goods Act 1979) (Statutory Implied Terms) Need to decide when Quality will be determined – e.g. at loading or at discharge. Scale of allowances if not met. Clause 6 Period of Delivery

• FOB contract – buyers to give notice of name/ probable readiness of vessel. Sellers to have goods ready to be delivered within contract period of delivery

• Buyers right to substitute vessel • Note: reference to notice (refer to clause 14)

@Gaftaworld

Overview of Gafta 49 (3) Clause 7 Loading

• Name of port • Sellers to declare port if range given • Vessel to be clean and fit • Load in “accordance with custom of port” (incorporation) • Bill of Lading is proof of delivery

Clause 8 Extension of delivery • Buyer can serve notice to extend period by “an additional period of not more than 10

consecutive days” • “Consecutive days” meaning? • “Notice” – how is it served?

@Gaftaworld

Overview of Gafta 49 (4) Clause 9 Insurance

• Note risks to be included • “First Class underwriters and/ or approved companies” • Note: Some contracts incorporate Gafta Insurance Rules 72 – incorporation 14.1(b)

insurer to be domiciled/ carrying on business in UK or who will accept British domicile as an address for service

• Insurance Act 2015 • Insured to fairly present risk • Failure – insurers remedy must be proportionate – avoid policy, require additional term,

charge higher premium

@Gaftaworld

Overview of Gafta 49 (5) Clause 10 Payment/ Interest

• Cash against documents – Buyer pays when Seller presents the specified documents • Letter of Credit: Failure to provide workable letter by date specified = Breach of

Condition

Clause 12 Duties/ Taxes

Clause 13 Prevention of Delivery • Force Majeure • What is it? • Note Ice Provision

@Gaftaworld

Overview of Gafta 49 (6) Clause 14 Notices • Form: Critical • Communicated “rapidly in legible form” • Telex, telefax, email, letter (delivered by hand on date

of writing) • Problem areas:

o Incorrect form o Incorrect period (time) o Non receipt (burden of proof on sender) o Sent to correct individual (Glencore v Conqueror

Holdings 2017) o Notice to brokers: deemed to be good notice

• Wording required: o Is ‘Gafta extension’ sufficient? In one case a

‘notice’ (message) was sent making no reference to the shipment period and did not contain the word ‘extension’

• Wording must be clear to the recipient o Not for recipient to ‘second guess’

• Counterparty need to know extension being claimed • Failure to give notice – no extension and shipment

period will not be extended beyond expiry date. Recipient can reject claim damages

Notices are Conditions!

@Gaftaworld

Clause 16 Weighing • Rule 123 Incorporation (Gafta Weighing Rules)

Clause 17 Sampling • Rule 124 Incorporation (Gafta Sampling Rules) • Samples at time/ place loading • Parties appoint superintendent from Gafta • Register of Analysts

Clause 18 Default • Critical • Measure of damages for breach of contract

Overview of Gafta 49 (7)

@Gaftaworld

Overview of Gafta 49 (8) Clause 19 Circle Clause 20 Insolvency • Notice of insolvency (inability to meet debts)

to be served • Failure to serve, termination • Practical considerations Clause 21 Domicile • Critical • English Law/ English Courts to apply

Clause 22 Arbitration • Critical • “Any and all disputes” to Gafta Arbitration • Make sure it is included Clause 23 international conventions • Incoterms excluded

Clause 24 Phytosanitary Certificate • Assists Sellers where Buyers ‘Game Play’

Anything else? Optional clauses (Gafta 131) ? Sanctions?

@Gaftaworld

• Buyer and Seller have been trading with each other since 2013 • Buyer telephones Seller and tells Seller he wishes to buy 25,000 metric tonnes of soyabean meal at $476

per metric tonne • Seller agrees. No other terms are discussed • 3 days later, Seller sends a ‘contract confirmation’ by SMS including a summary of the agreed trade ‘as per

sellers standard contract terms’

Scenario

Case Study

• Is there a contract? • Does the fact that the trade was agreed over the telephone have any legal or practical

consequences? • What is meant by a ‘contract confirmation’? • Does the wording ‘as per sellers standard contract terms’ have any relevance? • Is it relevant that the parties have been trading since 2013?

Questions

@Gaftaworld

Lunch

@Gaftaworld

Responsibility and risk

Martin Sage ADM Trading

Gafta Qualified Arbitrator

@Gaftaworld

What do we mean by Risk and Responsibility?

• Potential negative consequence of an event • Which party bears the risk i.e. the loss • CIF/FOB: Risk passes “as from shipment” • Not the same as title • Title – ownership, not possession

@Gaftaworld

Categories of Risk

• Risk in the Goods (physical/ quality, etc.) • Shipment Risks (loss, delay, damage) • Documentary Risks (validity, duty to tender, duty to pay, value,

scope, liabilities) • Legal Risks (country/political)

@Gaftaworld

What is a Contract?

A promise or set of promises which the law will enforce.

Today, specifically FOB and CIF contracts, and where you buy on FOB terms and sell CIF

@Gaftaworld

FOB

What are the parties’ primary duties?

@Gaftaworld

FOB Buyer To give effective shipping instructions: • Nominate and present a suitable vessel at the port of loading

in sufficient time • Provide required information (e.g. quantity to be loaded, ETA,

flag, demurrage rate, etc.) • Give documentary instructions – type, number, content.

** Consequence of failure…?

@Gaftaworld

FOB Seller

• Deliver contract-compliant goods (description/quality/quantity)

• Load goods on board the ship nominated by the Buyer (when, where, how fast)

• Provide the required documents (doc instr., letter of credit, export formalities, conforming docs)

** Consequence of failure..?

@Gaftaworld

CIF

What are the primary functions?

@Gaftaworld

FOB • Who is responsible for insuring the goods on board? • What is the risk?

• Who is responsible for paying the freight? • What is the risk?

• If goods are damaged on board before payment and the Master clauses the B/L, who is responsible?

@Gaftaworld

CIF Seller will provide documents which prove he has: • Shipped goods of the contractual description • Appropriate goods to the Buyer • Insured them for the intended voyage at the contract value • Shipped under a reasonable ctr of carriage within the agreed time

period and paid freight to the agreed destination. OR procure documents from someone who has done so.

**What risks do you see ?

@Gaftaworld

Risk in the Goods

Conformity with the terms of the Contract

@Gaftaworld

Risk in the Goods

Conformity with the terms of the Contract:

• Description – what does SoGA say? • Specification – what does the Contract say? • Condition – what does the Contract say? • Sampling and analysis – Certificate final? • Sale of Goods Act: Satisfactory, fit for purpose

@Gaftaworld

Shipment Risks • Time for performance – FOB and CIF • Suitability of vessel

- Shipment and classification clause - Reasonable contract of carriage

• Safe port/safe berth • Safe stowage • Laytime and detention • Impediments to performance

@Gaftaworld

Shipment Risks • Insurance

- Type of cover (All Risks, WA…HSSC, SRCC, G/A…) - Value of cover - market value? - Suitable insurers - jurisdiction - Where claims are settled – service of process

* Cargo damage and recovery – Ctr/ B/L / Insurance..? * Act as prudent uninsured – mitigate loss!

@Gaftaworld

Documentary Risks

• What documents are listed in the printed forms? • Buyer to give documentary instructions

- Can Seller supply them? (Phyto regs) - Can Buyer obtain additional documents if needed? - Are Seller’s documents sufficient to obtain payment?

**Consequences of missing or defective documents?

@Gaftaworld

Documentary Risks

• The Bill of Lading - Receipt for goods shipped - Document of title - Evidence of a contract of affreightment

**Are Mates Receipts acceptable?

@Gaftaworld

Documentary Risks

• Payment: - CAD: Where? When? How? (Security of docs) - Letter of Credit: Is it workable?

(timing/revocable/confirmed/variation of terms) • Import:

- Can Receiver import the goods? (Political/Country risk)

** Consequence of non payment…?

@Gaftaworld

Legal & Political Risks

• Sale of Goods Act • Conformity with domestic legislation (export/import) • Sanctions/Prohibitions/Restrictions… • Transfer of title • Potential conflict with other important documents –e.g. Charter

Party, Bill of Lading, Letters of Credit • Jurisdiction and Arbitration Proceedings

@Gaftaworld

Execution Risks Notices: • Appropriation – form, content and timing • Nomination – content, timing (preadvice), substitution • Extension - timing • Prevention – circumstances, content and timing • Default – circumstances, timing • Arbitration – type of claim, time limit, renewal, proceedings

@Gaftaworld

Market Risks

• Who is responsible for market risk? • What happens if a Seller defaults? • What happens if a Buyer defaults? • What about loss of profit?

@Gaftaworld

Instruction for Supervision

Chris Ranschaert SGS

ISSUING INSTRUCTIONS : Ensuring clarity and best practice

London, 23/04/2019

Ing. Chris Ranschaert

SGS Group Management – Agricultural, Food & Life

RULES AND CODE OF CONDUCT FOR SUPERINTENDENTS

 Introduction • Intended for superintendents listed on the GAFTA Register

of Approved Superintendents. • If Superintendents act contrary to the provision of these

Rules they may be subject to disciplinary action

 The Superintendent’s operations • Primary business activities are in the profession of

inspection • In accordance with the agreed contract terms • “When a Superintendent issues reports and certificates…

they shall reflect the actual and true findings”

 Minimum requirements for Superintendent companies • Accreditation ISO 17020, certification ISO 9001 or GTAS

audited

RULES AND CODE OF CONDUCT FOR SUPERINTENDENTS

 Rapid decision taking if the inspection company informs. Price negotiations possible. It puts you in a position of strength.

 It provides protection to your purchase. Only contractual goods will be shipped.

 The nomination of a GAFTA recognized inspection company acts as a deterrent to suppliers. It has a psychological effect. It acts to prevent problems.

 Independence. The word of an independent inspection company counts.

 Possibility of falling back on samples for arbitration settlement.

 Securization. Better insurance premium. Good reputation to the product in importing countries.

RULES AND CODE OF CONDUCT FOR SUPERINTENDENTS

 Being the representative of the principal at the moment of loading or discharging “the eyes and ear

 Compliance with the rules • All operations it carries out shall comply with the appropriate

rules and the contract terms

 Sampling • According to GAFTA Sampling Rules 124 • Can be done during loading or during discharge

 Quality & Condition • Need for submitting samples for testing to a laboratory on the

 Cleanliness inspection of the transport elements or stores • LCI : load compartments to be empty, clean, without

unsuitable odors, free from residues and vermin • 3 preceding cargoes carried as declared by master +

cleaning methodology.

RULES AND CODE OF CONDUCT FOR SUPERINTENDENTS

 Weighing • According to GAFTA weighing rules N° 123

– Method as per contract or as per customs of the port – Establish the method of weighing + create & keep records – Weighing operations at appropriate place and time – Information needed

» Apparatus used » Approval by the authorities » Info concerning calibration & verification

 Phytosanitary/Veterinary/Radioactivity/Health certificates • Usually issued by national authorities • Alternatively by the superintendents on basis of testing

 Subcontracting • Only to other superintendent on the GAFTA register

ACCEPTING INSTRUCTIONS FROM THE CLIENT

 DUTY OF THE PRINCIPAL

• It is the duty of the principal to give instructions in due time and these instructions must be clear and unambiguous, including sufficient detail to enable the superintendent to carry out and perform the inspection in accordance with the requirements of the contract and according to the expectations of the principal

• An instruction is a directional message describing the task that is to be performed.

• In due time • “As usual”

ACCEPTING INSTRUCTIONS FROM THE CLIENT

 DUTY OF THE SUPERINTENDENT

• It is the superintendent’s function to act on his Clients / Principals behalf, ensuring that the consignment is in sound condition, sampled and weighed correctly, accurate reporting, and if needed making reserves against the concerned parties

• The duty of a Superintendent is to look after the best interests of the parties to a contract and to act with neutrality, honesty and integrity at all times.

• To be the ears & eyes of the client

ACCEPTING INSTRUCTIONS FROM THE CLIENT

 Instructions should be in writing

 The superintendent will acknowledge and confirm the order, detailing the scope of work

 The file administrator will then create a work order for the inspector and for the lab

ACCEPTING INSTRUCTIONS FROM THE CLIENT

 Details of the parties – buyer/seller/receiver and their representatives

 24 hour contact number  Commodity : correct description.  GAFTA contract N° with parity  Quantity – any tolerances – (more or less / min or max)  Quality – Including testing methods  Name of the vessel  Place of Inspection  Time of arrival (e.g. ETA).  Name of vessel agents and contact telephone number.

ACCEPTING INSTRUCTIONS FROM THE CLIENT

 What certificates required; Hold Inspection, Weight, Quality, Fumigation,…

 Any specific statements you need to have on your certificate, e.g. FFHC, Free from, etc... Be aware that some of these statements require analysis.

 Destination. Important to be aware of potential quality issues.  Who is the Principal (i.e. who will pay for the service)  Who can be contacted after hours…  Copy of the (relevant parts of) LC

SOME ISSUES

 “free from…” certificates • Free from : not in the sample • “Substantially free” or “practically free” : Fit for purpose • Free from dead insects….

 SLM : Sound, Loyal and Merchantable : Organoleptic/condition

 “fit for…” certificates • IFIA minimum testing requirments

 Health certificates (no definition) • Animal origin : sanitary/veterinary certificate authorities • Plant origin : see “fit for…”

 Misrepresentation or non-sense certificates • E.g. fumigation certificates, certifying non fumigation

http://www.google.be/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://www.zazzle.com/not_fit_for_human_consumption_tee-235828857982213166&ei=WQ0uVYiNLc2tuQTXgYHICw&bvm=bv.90790515,d.c2E&psig=AFQjCNF_LTRQbY4t2uWbG5zWw0CTixJhGg&ust=1429167764294358

http://www.google.be/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://www.de-jaeger.be/?attachment_id=155&ei=gQwuVafqLMijugSQ2IDwAQ&bvm=bv.90790515,d.c2E&psig=AFQjCNGfw4YweFXAzRtv9jCCVFcg3u6_Zg&ust=1429167610051731

CERTIFICATES : HOT TOPICS

 We provide services and NOT guarantees or insurances

 A bad quality cargo will stay a bad quality cargo

 Obligation of means

 Obligation of results : Guarantee Services

CERTIFICATES : HOT TOPICS

 Certificates and reports can only record the facts as ascertained by the superintendent

 The statements made in the reports and the certificates must be substantiated

 The findings in reports and certificates are only valid for the time and place of inspection (E.g. pre-shipment)

 Certificates are worded in such way that no confusion or any risk of misleading a party, who might receive them at a later time, is made

 Certificates state the methods applied for sampling, weighing and testing (USDA/ISO…)

Supervision, Sampling and Analysis GAFTA COURSE 23/04/2019

Chris Ranschaert

SGS Group Management SA, Agriculture, Food & Life

GAFTA CONTRACTS

 The Superintendent shall ensure the samples are drawn and sealed as required by the Sampling rules 124.

 The Superintendent will supervise the weighing of the contract goods in accordance with the custom of the port or as contracted : According to the Weighing rules 123.

GAFTA CONTRACTS

 Contractual Provisions concerning “Sampling and Analysis”  Where parties have agreed to trade on GAFTA contracts, the requirements for

supervision and sampling at Ports of Loading and Discharge are contained within the standard GAFTA Sampling and Analysis clause, which reads: For ports of loading: “SAMPLING, ANALYSIS AND CERTIFICATES OF ANALYSIS- • Terms and conditions of GAFTA Sampling Rules No.124, are deemed to be

incorporated into this contract. • Samples shall be taken at time and place of loading. • The parties shall appoint superintendents, for the purposes of supervision and sampling

of the goods, from the GAFTA Register of Superintendents. • Unless otherwise agreed, analysts shall be appointed from the GAFTA Register of

Analysts.”

GAFTA

 For ports of discharge:

“SAMPLING, ANALYSIS AND CERTIFICATES OF ANALYSIS- • Terms and conditions of GAFTA Sampling Rules No.124, are deemed to be

incorporated into this contract. • Samples shall be taken at the time of discharge on or before removal from the

ship or quay, unless the parties agree that quality final at loading applies, in which event samples shall be taken at time and place of loading.

• The parties shall appoint superintendents, for the purposes of supervision and sampling of the goods, from the GAFTA Register of Superintendents.

• Unless otherwise agreed, analysts shall be appointed from the GAFTA Register of Analysts.”

GAFTA 124 SAMPLING RULES VERSION 01/09/2018

GAFTA SAMPLING

 CONDITION AND QUALITY

• Quality results basically from its growth, harvesting and, in some cases, it’s processing

– Protein, moisture, admixture, fiber content...

• Condition Is said to be determined by factors that affect it during transportation or storage

– Contamination by pesticides, weevils, (sea)water

GAFTA SAMPLING : 1 SCOPE

 For all contracts the rules apply (incorporated in the contracts)

 Sampling the goods

 Preparation of the goods

 Distribution of samples

 Analysis methods

 Tests

 Certifcation

GAFTA SAMPLING : 1 SCOPE

 Grains, feedstuffs,pulses for human consumption/feed, fishmeal, rice, related to GAFTA contracts in bulk, bags or containers.

GAFTA SAMPLING : 2 DEFINITIONS

 “Cargo Superintendent” : Indepence  “INCREMENT SAMPLES”: Samples taken direct from the

consignment of maximum 1 kilo in weight, or if taken mechanically, weight appropriate to the equipment.

 “BULK (AGGREGATE SAMPLE)”: Is the accumulation, combined total, of all the increment samples.

 “CONTRACTUAL SAMPLES”: Samples reduced from the bulk sample sealed into up to al least 3 kilograms containers each, in as many containers as required by the rules

 “ANALYSIS SAMPLES”: Samples are reduced from the contractual samples, by the laboratories, to quantities appropriate for analysis tests.

 Sample Containers: A container is defined as bottles, jars or tins with close fitting lids of bags, including PE, cotton or other suitable types of construction, which are securely tiedNEW

01/09/2018

GAFTA SAMPLING : 3 GENERAL TERMS

 3. Superintendent from the GAFTA register

 Parties are responsible to provide detailed instructions !!

 In case of absence of a superintendent

 “Sealed”

GAFTA SAMPLING : 4 METHOD OF DRAWING

 Sampling points

• Mutually agreed • Safety first • Natural light or lightening

 How much increments ?

GAFTA SAMPLING : 4 METHOD OF DRAWING

 As many as practicle and physically possible

Consignment size Tons 0-5000 5001-10,000 10,001 - 25,000 >25,000

Lot size Tons 500 1000 2500 5000

No. of increments per lot number min 20 min 30 min 40 min 50

Min bulk aggregate sample per lot Kilos 20 30 40 50

Max weight of increments Kilos 1 1 1 1

GAFTA SAMPLING : METHOD OF DRAWING

 An example

• Ship of 8000 MT • 8 lots of 1000 MT • Min 30 increments/lot of max 1 kg, but min 30 kg • 8 x 30 kg (8 bulk aggregate samples) = 240 kg of samples • Let’s say loading 400 MT/hour = 1 lot in 2,5 hour = 1 increment every 5 min

100

EXAMPLE 12000 MT

101

EXAMPLE 12000 MT

102

Example 12000 MMT

103

GAFTA SAMPLING : EXAMPLES

 Example: Four shipments (arbitration samples for each 5000 MT)  2,500 mt / 5,500 mt / 10,000 mt / 35,098 mt grain vessels, FOB terms:

2,500 5,500 10,000 35,098 (excess <250mt)  1 analysis 3 kgs in 1 bag 2 bags of 3 kg 2 bags of 3 kg 7 bags of 3 kg  1 arbitration 3 kgs in 1 bag 2 bags of 3 kg 2 bags of 3 kg 7 bags of 3 kg  1 spare 3 kgs in 1 bag 2 bags of 3 kg 2 bags of 3 kg 7 bags of 3 kg

 Total. 3 bags of 3 kgs 6 bags of 3 kgs . 6 bags of 3 kgs 21 bags of 3 kgs

104

GAFTA SAMPLING

 EQUIPMENT

 Sampling equipment (scoop, spear…) must be clean, dry, free from any possible contamination

105

GAFTA SAMPLING

http://www.google.com/imgres?imgurl=http://www.enasco.com/prod/images/products/8C/B01514WAt.jpg&imgrefurl=http://www.enasco.com/whirlpak/Sampling+Equipment/Solid_Dry+Sampling/?&sort=za&page=1&usg=__AuZrEElpFtkPI3O-yIgQ_C6knBA=&h=100&w=100&sz=2&hl=nl&start=9&tbnid=z_pdKLQkP7wYSM:&tbnh=82&tbnw=82&prev=/images?q=sampling+equipment+SCOOP&um=1&hl=nl&lr=&sa=G&tbs=isch:1&um=1&itbs=1

106

GAFTA SAMPLING

107

GAFTA SAMPLING

108

GAFTA SAMPLING

109

SAMPLING

Cross belt sampler

110

AUTOMATIC SAMPLER

111

GAFTA SAMPLING : METHOD OF DRAWING

 4. METHOD OF DRAWING SAMPLES

• Security and integrity of intermediate samples • Division of bulk aggregate samples • Reduction to the contractual sets • Possibility to pre reduce (25 %) • Sample containers shall be full • Sealed

• Bulk at loading : moving stream – nearest practicle point • Bulk at discharge : from the hold (safety !!) or nearest practicle point

(moving stream)

http://www.google.be/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://www.wagtechprojects.com/products/Heavy-Duty-Boerner-Divider-.html&ei=AhcuVeWgH5KLuASsp4GoAg&bvm=bv.90790515,d.c2E&psig=AFQjCNHQuhgeb7f45HGwhw7MGlNPpv1fhQ&ust=1429170286987955

112

DIVIDING

113

DIVIDERS

DIVIDERS / SIEVES

114

GAFTA SAMPLING

115

GAFTA SAMPLING

 Sampling from bags

 Increment samples shall be drawn uniformly, by a piercing spear from the top, middle and bottom of each bag : (if not possible by scoop – from the ends and middle of the bags in rotation)

 The more bags the more representative your sample

<100 bags - sample 20 bags <1000 bags – sample 50 bags

>1000 bags – sample 0,5 % or min 50 bags

116

GAFTA SAMPLING – ROAD & RAIL

 Contracts for ROAD AND RAIL TRANSPORT

 At loading : • GRAINS : (wagons or vehicles) : increment samples

to be taken by spear from 3 sampling points from each wagon or vehicle.

• FEEDINGSTUFF (wagons or vehicles) : increment samples to be taken from moving stream at outlet filling hopper by hand scoop

 At discharge : • Grain and feeding stuff increment samples by hand

scoop from moving stream at outlet wagons or vehicles

117

GAFTA SAMPLING : 4 METHOD OF DRAWING

 SAMPLING for products in BULK: • At loading of vessel:

– at the nearest practicable point to the vessel – Concurrently with the loading, from a moving stream – From conveyor, ex-silo, ex-vehicle/truck: across the

whole moving stream – If loading by grab: from the quay or barge, from the bulk,

excluding the run • At discharge of vessel:

– From various parts of the hold in a fair proportion, excluding the run. Not considered safest point !

– If not possible (or not safe) draw increment samples at the nearest practicable point to the hold, preferably from a moving stream

– By hand scoop or other mutual agreed equipment

118

GAFTA SAMPLING

Sender..................................................................................................................................................... M.V........................................................................................................................................................ From...................................................................................................................................................... To.......................................................................................................................................................... Commodity............................................................................................................................................. Bags/Bulk..............................................................................................................................................

Marks................................................................................................................................................... . Shipper/Seller/Buyer.......................................................................................................................... ..

Set No.................................................. Sample No............................................................................... Date and Place of Sealing....................................................................................................................

Quantity represented by this sample……………………………………………………………… Part Total Quantity of……………………………………………………………………………… Purpose of Sample……………………………………………………………………………………

*Arbitration (Quality/Rye Terms), Natural Weight/Analysis……………………………………. • *delete as appropriate • D/O Receiver

Quantity • B/L No. • Seals

119

GAFTA SAMPLING  6. CONTRACTUAL SAMPLES FOR ANALYSIS AND

ARBITRATION

 Arbitration Samples : 3 kg/5000 tons

 Sets of Samples : as the contract requires (3 kg / 5000 tons)

 Eg : Grain, Pulses, Seeds and Rice (exp. Malting Barley) – One set for each 5000 tons

» Sample 1: Analysis » Sample 2: Arbitration » Sample 3: Spare

Each sample packed in appropriate and sufficiently strong material that maintains the quality and condition of the sample with consideration to the type of test / analysis to be performed

 Eg : Feedstuff : 4th sample for second/third analysis

NEW 01/09/2018

120

GAFTA SAMPLING

 7. STANDING IN PROVISIONS (several receivers on a hold)

 8. DISPATCH of samples, RETENTION and analysis INSTRUCTIONS • Reduction of samples at origin • Within 14 consecutive day’s • If failed : any claim, rejection : deemed to be waived and barred.

 9. RETENTION OF SAMPLES

• 3 months (GMP+ = 6 months !)

121

GAFTA SAMPLING SECTION 2 : ANALYSIS

 1. Scope

 2. Analysis samples • Reduced from the contractual samples

 3. Analysts

 4. General • Certificates • Notices clause • Non compliance with the rules

 5. Methods of analysis (form N° 130)

122

WHEAT

http://www.google.com/imgres?imgurl=http://www.khalilpakistan.com/wheat.bmp&imgrefurl=http://www.khalilpakistan.com/Products.html&usg=__oh7HVovsqOhgC9ZD8QsXhjFy8M0=&h=500&w=500&sz=733&hl=nl&start=1&tbnid=7h5Nxbmd0EDLBM:&tbnh=130&tbnw=130&prev=/images?q=WHEAT&hl=nl&sa=G&gbv=2&tbs=isch:1&itbs=1

123

WHEAT

124

WHEAT

 Grain (Agricultural Commodities) are not a uniform commodity

 Representative sampling and assessment

 Soil & Climate – Fertile soil & temperate climate

 Grading - Based on Protein content (9-14%), based on Kernel texture (hard, semi hard, soft), based on Colour (white, amber, red)

125

UNCERTAINTY

Lot Sample Analysis

Total error

Sampling error Analytical error

Sample preparation

Sampling preparation error

126

GAFTA SAMPLING DIFFICULTIES

 Increase of particle size from center to periphery

127

GAFTA SAMPLING RULES : 2018

 6.8.3. Mycotoxins : cf Aflatoxin in Corn

 6.8.4. GMO

 SPECIFIC INSTRUCTIONS SHALL BE GIVEN TO THE SUPERINTENDENTS TO TAKE ADDITIONAL SAMPLES

 1 extra sample representing the total quantity for feedings stuffs and / or grain, Corn = 10 kg

 WHY ?

NEW 01/09/2018

128

DIFFERENT KIND OF VARIABLES

 Continuous & discontinuous variables • Continuous variable e.g. protein, moisture, oil content,…

– Each kernel has a certain value – Normal distribution – Gauss

– 2 (-1 +1) sigma : 68 % – 4 (-2 +2) sigma : 95 % – 6 (-3 +3) sigma : 99 %

http://upload.wikimedia.org/wikipedia/commons/8/8c/Standard_deviation_diagram.svg

129

EXAMPLE : CONTINEOUS VARIABLES

 20 samples tested for oilcontent

 Average: 42.375

 Standard dev. 1.12 • 68 % between 41.255 and 43.495 • 95 % between 40.135 and 44.615

42.5 42.3 43.6 43.7 41.8 42.6 42.8 42.4 40.3 42.4 40.8 41.4 43.8 42.9 43.7 40.4 44 41.1 42.6 42.4

-0.05

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0 5 10 15 20

Chart2

0.0000000031
0.0000026967
0.0005106645
0.020910188
0.185139425
0.3544529532
0.1467361107
0.0131351224
0.0002542436
0.0000010641

Sheet1

10.3	0.0641033895	12.375	mean
10.4	0.0753216252	1.1205614194	sdev
10.8	0.1325828746
11.1	0.186357504
11.4	0.2438248879	0.0320308402
11.8	0.3121028643
12.3	0.3552234603
12.4	0.3559314105
12.4	0.3559314105
12.4	0.3559314105
12.5	0.3538117814
12.6	0.3489149386
12.6	0.3489149386
12.8	0.3313126434
12.9	0.3190135877
13.6	0.1958681243
13.7	0.1769560155
13.7	0.1769560155
13.8	0.1586018308
14	0.1243992682









0.4	5.5467790262	0.0000000031
0.5	6.9334737828	0.0000026967
0.6	8.3201685393	0.0005106645
0.7	9.7068632959	0.020910188
0.8	11.0935580525	0.185139425
0.9	12.480252809	0.3544529532
1	13.8669475656	0.1467361107
1.1	15.2536423221	0.0131351224
1.2	16.6403370787	0.0002542436
1.3	18.0270318352	0.0000010641

Sheet1

Sheet2

Sheet3

130

AN EXAMPLE

131

EXAMPLE : DISCONTINEOUS VARIABLES

• Discontinuous (discrete) variables – On/Off variables: e.g. damaged grains, GMO,… – Binomial distribution / Poisson distribution

132

AN EXAMPLE

 1000 balls : 980 white + 20 black (= 2%) Sample 10 balls

– Chance to find 0 black balls: 81.71 % – 1 16.67 – 2 1.53

Sample 100 balls – Chance to find 0 black balls: 13.26 % – 1 27.06 – 2 27.34 – 3 18.22 – 4 9.02 – 5 3.53

0.05

0.1

0.15

0.2

0.25

0.3

0 1 2 3 4 5 6

Chart4

0.1326195559

0.2706521549

0.2734139116

0.182275941

0.0902079912

0.0353468047

0.0114215866

Sheet1

5901 20.31 20.22 20.27 0.78
5902 19.71 19.68 19.70 -0.99
5903 20.32 20.30 20.31 0.92
5904 20.42 20.52 20.47 1.42
5905 20.10 20.01 20.06 0.13
5906 19.90 19.87 19.89 -0.40
5907 19.97 19.77 19.87 -0.45
5908 20.57 20.58 20.58 1.74
5909 20.25 20.21 20.23 0.67
5910 19.57 19.44 19.51 -1.58
5911 20.42 20.50 20.46 1.39
5912 20.26 20.29 20.28 0.81
5913 19.96 19.95 19.96 -0.18
5914 20.08 20.08 20.08 0.21
5915 19.57 19.49 19.53 -1.50
5916 20.50 20.62 20.56 1.70
5917 19.61 19.66 19.64 -1.18
5918 19.96 19.96 19.96 -0.17
5919 19.40 19.47 19.44 -1.80
5920 20.44 20.41 20.43 1.28
5921 18.83 18.47 c 18.65 -4.24
5922 19.89 19.83 19.86 -0.48
5923 20.43 20.39 20.41 1.23
5924 20.03 20.15 20.09 0.24
5925 19.50 19.48 19.49 -1.63
5926 19.75 19.78 19.77 -0.77
5927 19.60 19.58 19.59 -1.32
5928 19.91 19.97 19.94 -0.23
5929 20.04 19.94 19.99 -0.07
5930 19.99 20.06 20.03 0.03
5931 19.80 19.90 19.85 -0.51
5932 19.46 19.49 19.48 -1.68
5933 19.95 19.98 19.97 -0.15
5934 19.38 19.44 19.41 -1.88
5935 19.96 19.92 19.94 -0.23
5937 20.03 20.04 20.04 0.07
5939 20.27 20.25 20.26 0.76
8
5940 20.32 20.28 20.30 0.89
5941 20.40 20.40 20.40 1.20
5942 19.39 19.35 19.37 -2.00
5943 20.29 20.25 20.27 0.80
5944 21.59 21.64 g 21.62 4.98
5945 19.97 19.90 19.94 -0.25
5946 20.48 20.56 20.52 1.57
5947 20.04 20.00 20.02 0.02
5948 20.09 19.76 c 19.93 -0.28
5949 19.98 19.90 19.94 -0.23
5950 23.22 23.30 g 23.26 10.09
5951 19.10 19.40 c 19.25 -2.37
5952 19.74 19.90 19.82 -0.60
5953 19.68 19.70 19.69 -1.01
5954 20.01 20.03 20.02 0.02
5955 19.82 19.84 19.83 -0.57
5956 20.42 20.26 20.34 1.01
5957 20.30 20.38 20.34 1.01
5958 19.88 20.01 19.95 -0.21
5959 19.70 19.76 19.73 -0.88
5960 20.16 20.26 20.21 0.61
5961 20.55 20.62 20.59 1.77
5962 21.48 21.54 g 21.51 4.65
5963 20.00 20.00 20.00 -0.04
5964 20.14 19.97 20.06 0.13
5965 19.89 19.95 19.92 -0.29
5966 20.15 20.08 20.12 0.31
5967 20.34 20.38 20.36 1.08
5968 19.82 19.89 19.86 -0.49
5969 18.57 18.97 c 18.77 -3.87

Sheet2

5901 20.31 20.22 20.27 0.78
5902 19.71 19.68 19.70 -0.99
5903 20.32 20.30 20.31 0.92
5904 20.42 20.52 20.47 1.42
5905 20.10 20.01 20.06 0.13
5906 19.90 19.87 19.89 -0.40
5907 19.97 19.77 19.87 -0.45
5908 20.57 20.58 20.58 1.74
5909 20.25 20.21 20.23 0.67
5910 19.57 19.44 19.51 -1.58
5911 20.42 20.50 20.46 1.39
5912 20.26 20.29 20.28 0.81
5913 19.96 19.95 19.96 -0.18
5914 20.08 20.08 20.08 0.21
5915 19.57 19.49 19.53 -1.50
5916 20.50 20.62 20.56 1.70
5917 19.61 19.66 19.64 -1.18
5918 19.96 19.96 19.96 -0.17
5919 19.40 19.47 19.44 -1.80
5920 20.44 20.41 20.43 1.28
5921 18.83 18.47 c 18.65 -4.24
5922 19.89 19.83 19.86 -0.48
5923 20.43 20.39 20.41 1.23
5924 20.03 20.15 20.09 0.24
5925 19.50 19.48 19.49 -1.63
5926 19.75 19.78 19.77 -0.77
5927 19.60 19.58 19.59 -1.32
5928 19.91 19.97 19.94 -0.23
5929 20.04 19.94 19.99 -0.07
5930 19.99 20.06 20.03 0.03
5931 19.80 19.90 19.85 -0.51
5932 19.46 19.49 19.48 -1.68
5933 19.95 19.98 19.97 -0.15
5934 19.38 19.44 19.41 -1.88
5935 19.96 19.92 19.94 -0.23
5937 20.03 20.04 20.04 0.07
5939 20.27 20.25 20.26 0.76
8
5940 20.32 20.28 20.30 0.89
5941 20.40 20.40 20.40 1.20
5942 19.39 19.35 19.37 -2.00
5943 20.29 20.25 20.27 0.80
5944 21.59 21.64 g 21.62 4.98
5945 19.97 19.90 19.94 -0.25
5946 20.48 20.56 20.52 1.57
5947 20.04 20.00 20.02 0.02
5948 20.09 19.76 c 19.93 -0.28
5949 19.98 19.90 19.94 -0.23
5950 23.22 23.30 g 23.26 10.09
5951 19.10 19.40 c 19.25 -2.37
5952 19.74 19.90 19.82 -0.60
5953 19.68 19.70 19.69 -1.01
5954 20.01 20.03 20.02 0.02
5955 19.82 19.84 19.83 -0.57
5956 20.42 20.26 20.34 1.01
5957 20.30 20.38 20.34 1.01
5958 19.88 20.01 19.95 -0.21
5959 19.70 19.76 19.73 -0.88
5960 20.16 20.26 20.21 0.61
5961 20.55 20.62 20.59 1.77
5962 21.48 21.54 g 21.51 4.65
5963 20.00 20.00 20.00 -0.04
5964 20.14 19.97 20.06 0.13
5965 19.89 19.95 19.92 -0.29
5966 20.15 20.08 20.12 0.31
5967 20.34 20.38 20.36 1.08
5968 19.82 19.89 19.86 -0.49
5969 18.57 18.97 c 18.77 -3.87

Sheet3

2027	20.27	12.66875
1970	19.7	12.3125
2031	20.31	12.69375
2047	20.47	12.79375
2006	20.06	12.5375
1989	19.89	12.43125
1987	19.87	12.41875
2058	20.58	12.8625
2023	20.23	12.64375
1951	19.51	12.19375	0	0.1326195559
2046	20.46	12.7875	1	0.2706521549
2028	20.28	12.675	2	0.2734139116
1996	19.96	12.475	3	0.182275941
2008	20.08	12.55	4	0.0902079912
1953	19.53	12.20625	5	0.0353468047
2056	20.56	12.85	6	0.0114215866
1964	19.64	12.275
1996	19.96	12.475
1944	19.44	12.15
2043	20.43	12.76875
1865	18.65	11.65625
1986	19.86	12.4125
2041	20.41	12.75625
2009	20.09	12.55625
1949	19.49	12.18125
1977	19.77	12.35625
1959	19.59	12.24375
1994	19.94	12.4625
1999	19.99	12.49375
2003	20.03	12.51875
1985	19.85	12.40625
1948	19.48	12.175
1997	19.97	12.48125
1941	19.41	12.13125
1994	19.94	12.4625
2004	20.04	12.525
2026	20.26	12.6625
2030	20.3	12.6875
2040	20.4	12.75
1937	19.37	12.10625
2027	20.27	12.66875
2162	21.62	13.5125
1994	19.94	12.4625
2052	20.52	12.825
2002	20.02	12.5125
1993	19.93	12.45625
1994	19.94	12.4625
2326	23.26	14.5375
1925	19.25	12.03125
1982	19.82	12.3875
1969	19.69	12.30625
2002	20.02	12.5125
1983	19.83	12.39375
2034	20.34	12.7125
2034	20.34	12.7125
1995	19.95	12.46875
1973	19.73	12.33125
2021	20.21	12.63125
2059	20.59	12.86875
2151	21.51	13.44375
2000	20	12.5
2006	20.06	12.5375
1992	19.92	12.45
2012	20.12	12.575
2036	20.36	12.725
1986	19.86	12.4125
1877	18.77	11.73125

	20.0588059701
	0.6183005114

Sheet3

133

SAMPLING FOR MYCOTOXINS

 Non-uniform distribution Aflatoxine (ppb)

Aflatoxine avg. 10 ppb

0 0 0 0

0 200 0 0

0 0 0 0

134

IMPORTANT FACTS ABOUT SAMPLING

 Lessons to learn

• Perform correct, representative sampling, with high amount of increments and use a boerner or riffle divider for sample division to make the composites.

• Don’t go for anything less than GAFTA rules ! • Lab portion for homogenization as high as practically possible,

should never be less than ca. 500 g, preferably 1 kg or more

135

SAMPLING & CERTIFICATES

 GAFTA sampling

 The superintendent shall ensure the samples are drawn and sealed as required by the Sampling rules 124.

 Included in the certificate

 Sampling: “Representative sampling of the cargo was performed at regular intervals throughout entire loading/discharging at the nearest practicable point of the vessel (as applicable) as per GAFTA 124 sampling rules. One composite sample of the total consignment proportionally mixed was submitted for analysis in a reputable laboratory and we report the average actual result as follows: XXX”

136

SAMPLING & CERTIFICATES

 Sampling from a ship’s hold, pile in stock or a silo’s cell • Not representative sampling • Also for packed goods • GAFTA Sampling Rules : taken at the time and place of loading

GAFTA 123 WEIGHING RULES VERSION 2010

London 23/04/2019

Chris Ranschaert

SGS Group Management SA – Agriculture, Food & Life –

138

WEIGHING – WHY WEIGH ?

 WEIGHING: THE OBJECTIVE • The value of a consignment in bulk is determined by its

grade and weight.

 DETERMINATION OF COMMERCIAL WEIGHT • Payment of material costs depend directly on the results

obtained, • Weight is to be determined by weighing upon scales that

are known to be accurate within the limits of tolerance stated in scale specifications

• Weighing tolerances must be in accordance with the legal requirements for accuracy of commercial weigh scales.

• All weighing differences should be within acceptable tolerances.

139

WEIGHT CONTROL : ASCERTAINMENT OF WEIGHT

 WEIGHING SCALES

 Only scales that have been calibrated against a known national standard can be used. Owners of such scales are responsible for ensuring that periodical calibrations are performed by a competent person and they must be in possession of the stamped and signed calibration certificates. For simplicity:

 Accuracy of the scale at time of static calibration must be <0.05%

 Accuracy of the scale when in dynamic working condition must be <0.1%

 Commercial scales should be calibrated at least every two years or when necessary as per local rules. Many country calibrations are valid for one year.

140

WEIGHT CONTROL

 Any weighing – weighbridge or mechanical automatic hopper scales. • Prior to the commencement of loading and/or discharge, the

weighing equipment should be balanced and/or zeroed when empty .

 Non-Automatic weighing machines • Weighbridge- Road vehicles • Weighbridge – Rail wagons

 Automatic weighing equipment • Non-continuous automatic weighing.

– Within this classification are many bulk weighing machines which in turn are classified as either non-continuous weighing such as mechanical electronic hopper machines in Silos

• Continuous automatic weighing machines – Equipment which requires no human intervention., or continuous

weighing machines such as continuously totalizing conveyor weighers (Belt weighers)

141

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

 GAFTA 123 WEIGHING RULES

 Effective 01 September 2010

 For all contracts incorporating the terms and conditions of the Grain & Feed Trade Association (GAFTA), unless mutually agreed otherwise.

142

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

 GENERAL

 Weighing to be done by

• Dock authorities • Public sworn weighers / superintendents • Recognized weighers by local public • Customs of the port

 Full access  All goods being loaded or discharged are to pass through the weighing

equipment in a secure route.

 Calibration certificate to be available and valid

143

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

 Weighing equipment : clean and empty

 All sweepings and/or spillage to be uplifted and weighed, or an allowance mutually agreed

 All printouts or tickets of any weighing shall be at the disposal

 If any discrepancies • checks not be able to be made, or denied, • found to be at fault • parties to the contract are to mutually agree upon the loaded/discharged

weight. • arbitration

144

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

 DISCONTINUOUS WEIGHERS (MECHANICAL OR AUTOMATIC HOPPER SCALES)

• Weighing equipment should be balanced and/or zeroed when empty • The right to secure the weighing equipment • Static checks, where appropriate, to be performed • Checking on a 2e scale with same commodity

145

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

146

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

147

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

Hopper scale Train unit

Load cells

148

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

 CONTINUOUS TOTALISING AUTOMATIC WEIGHING INSTRUMENTS (BELT WEIGHERS)

 Belt weighing is not considered a wholly accurate method of weighing.  In the absence of other systems OK  Weighing equipment can be test calibrated for accuracy  Uninterrupted continuous flow.  any effects of variation in the continuous flow can be accurately recorded.  Method of weighing shall be stated on the weighing certificate.

149

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

150

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

 DRAFT SURVEYS

 Not wholly accurate methods of establishing weights

 Not acceptable for contractual purposes, unless both parties to the contract explicitly accept this method in writing

151

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

 DAMAGED GOODS

 Weight shall be determined on the basis of an analysis made of the samples of the damaged and undamaged part of the goods.

 Damage segregation

152

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

 WEIGHBRIDGE - ROAD VEHICLES & RAIL WAGONS

 Weighing equipment should be balanced and/or zeroed when empty

 Checked during the operation  Static checks, where appropriate, to be performed  All road vehicles over a weighbridge should be

weighed gross and tare.  Double axle and Tri-axle weighing will not be

accepted.

153

WEIGHT CONTROL : GAFTA 123 WEIGHING RULES

 BAGS

154

WEIGHT CONTROL

 Why Losses

 We have studied two forms of loss that are particularly relevant in the case of bulk grain and or oil seed shipments .

 1) Apparent Losses • These could be errors or inaccuracy of measurement during draft

surveys, on weighbridges, or in silo weightings.

 2) Real Losses • These include loss due to spillage or dust, plus any loss of

moisture content in the cargo, which could be affected by delays in the voyage, high or low ambient air or sea temperature and differing relative humidity's..

• Loss of weight in bulk grains may occur by the simple process of evaporation or drying out and respiration This is due to the inherent nature of grain.

155

WEIGHT CONTROL

 SUMMARY OF WEIGHT LOSSES

• 1. Normal "in service" inaccuracy of loading/discharging scales.

• 2. Natural loss of cargo due to variation of moisture, heat transfer, inherent nature of the cargo

• 3. Real losses of grain between silo and vessel at loading, and between vessel and silo scale at discharge, i.e.

sweepings/dockage, and -including "Shrinkage".

156

THE CUSTOMARY TRADE LOSS

 Accuracy of measurement of bulk cargoes. • Must be accurate as practical within acceptable confidence limits. • Due to complexities in accurate measurement differences of

0.5% are regularly termed the “Customary Trade Loss” or ”Shrinkage Allowance” in grain as well other bulk cargoes.

 Two forms of loss are particularly relevant in bulk cargoes. • Apparent Loss. Due inaccuracies in scales/draft survey • Real Losses. Due handling losses, spillage or dust,

moisture loss. • A third form of loss, not recognized, could include the

manipulation of scales, figures or calibrations.

 All and any loss in bulk commoditiy shipments should be under the ”Customary Trade Loss’ of 0.5%

157

LOSS ?

158

WEIGHT SHORTAGES : POSSIBLE CONTRIBUTING FACTORS

SHORTAGES

Scale calibrationMethods

Lack of EquipmentPeople

Bad handling of transportation

Natural Losses and Real losses

Length of Chain

SecurityNon Ethical Players

Weather conditions

Improper calibration

Dynamic to static effects

‘Unknown’ technical issues

External factors

Frequency of calibration

Cost of security

Lack of focus on security

Lack of coordination with port authorities

Silo /Plant operation and lack of security in silo / plant areas

Weigh (filtered dust)

Non-standardization of D/S method or lack of implemenation

Scales to D/S differences

Absence of implementation of standardized working

procedures

Geography

Number of origins

Simultaneous loading

Laptop, hydrometer, water paste, tapes

External documents (barge, vessel data)

Cargo

Handling

Equipment

Moisture

Training Cost

Expertise

Corruption

Internal audits

Overtime

Leakage

Customary trade losses

Money

Frightened to loose a job

Compensate bonus losses

Client pressures

Commercial consideration

Maintain good relations

Doing the best for clients

Multiple handling

Theft

Lack of port security

159

@Gaftaworld

Break

@Gaftaworld

Sampling Exercise & Feedback

@Gaftaworld

Evening networking Dinner venue

The Crypt, Ely Place, Holborn Time

17:30 – 21:00 Directions: Metropolitan/Circle Lines from Great Portland Street Station to Farringdon Station, then a 5 minute walk to Ely Place.

Central Line from Oxford Circus Station to Chancery Lane Station, then a 5 minute walk to Ely Place

@Gaftaworld

Summary Jonathan Waters

LLB, LLM, MCIARB, CMC Registered Mediator, Barrister

General Counsel

Gafta

Gafta GPD�Trade Foundation Course
Welcome and introduction�
Housekeeping
Basic principles of contracting�
English Contract Law
Slide Number 6
Slide Number 7
Slide Number 8
Contract Formation
�Why Gafta Contracts?�
Slide Number 11
Slide Number 12
Slide Number 13
Slide Number 14
Slide Number 15
Slide Number 16
Slide Number 17
Slide Number 18
Basic contractual obligations and contractual terms�
Slide Number 20
Slide Number 21
Slide Number 22
Slide Number 23
Slide Number 24
Slide Number 25
Identifying a Condition or Warranty
Slide Number 27
Slide Number 28
Intermediate Terms
Slide Number 30
Which Approach?
Slide Number 32
Sale of Goods Act 1979 (Refresher)
Description – (S13)
Satisfactory Quality
Certificate Final (1)
Certificate Final (2)
Excluding the Sale of Goods Act
Refreshments�
Gafta Contracts: An introduction�
Slide Number 41
Slide Number 42
Slide Number 43
Slide Number 44
Slide Number 45
Slide Number 46
Slide Number 47
Slide Number 48
Slide Number 49
Lunch�
Responsibility and risk� ��
What do we mean by Risk and Responsibility?
Categories of Risk
What is a Contract?
FOB
FOB Buyer
FOB Seller
CIF
FOB
CIF
Risk in the Goods
Risk in the Goods
Shipment Risks
Shipment Risks
Documentary Risks
Documentary Risks
Documentary Risks
Legal & Political Risks
Execution Risks
Market Risks
Instruction for Supervision
�ISSUING INSTRUCTIONS : Ensuring clarity and best practice��
RULES AND CODE OF CONDUCT FOR SUPERINTENDENTS
RULES AND CODE OF CONDUCT FOR SUPERINTENDENTS
RULES AND CODE OF CONDUCT FOR SUPERINTENDENTS
RULES AND CODE OF CONDUCT FOR SUPERINTENDENTS
ACCEPTING INSTRUCTIONS FROM THE CLIENT
ACCEPTING INSTRUCTIONS FROM THE CLIENT�
ACCEPTING INSTRUCTIONS FROM THE CLIENT
ACCEPTING INSTRUCTIONS FROM THE CLIENT
ACCEPTING INSTRUCTIONS FROM THE CLIENT
SOME ISSUES
Slide Number 83
Slide Number 84
CERTIFICATES : HOT TOPICS
CERTIFICATES : HOT TOPICS
Slide Number 87
GAFTA CONTRACTS
GAFTA CONTRACTS
GAFTA
GAFTA 124 SAMPLING RULES
GAFTA SAMPLING
GAFTA SAMPLING : 1 SCOPE
GAFTA SAMPLING : 1 SCOPE
GAFTA SAMPLING : 2 DEFINITIONS
GAFTA SAMPLING : 3 GENERAL TERMS
GAFTA SAMPLING : 4 METHOD OF DRAWING
GAFTA SAMPLING : 4 METHOD OF DRAWING
GAFTA SAMPLING : METHOD OF DRAWING
EXAMPLE 12000 MT
EXAMPLE 12000 MT
Example 12000 MMT
GAFTA SAMPLING : EXAMPLES
GAFTA SAMPLING
GAFTA SAMPLING
GAFTA SAMPLING
GAFTA SAMPLING
GAFTA SAMPLING
SAMPLING
AUTOMATIC SAMPLER
GAFTA SAMPLING : METHOD OF DRAWING
DIVIDING
Slide Number 113
GAFTA SAMPLING
GAFTA SAMPLING
GAFTA SAMPLING – ROAD & RAIL
GAFTA SAMPLING : 4 METHOD OF DRAWING
GAFTA SAMPLING
GAFTA SAMPLING
GAFTA SAMPLING
GAFTA SAMPLING SECTION 2 : ANALYSIS
WHEAT
WHEAT
WHEAT
UNCERTAINTY
GAFTA SAMPLING DIFFICULTIES
GAFTA SAMPLING RULES : 2018
DIFFERENT KIND OF VARIABLES
EXAMPLE : CONTINEOUS VARIABLES
AN EXAMPLE
EXAMPLE : DISCONTINEOUS VARIABLES
AN EXAMPLE
SAMPLING FOR MYCOTOXINS
IMPORTANT FACTS ABOUT SAMPLING
SAMPLING & CERTIFICATES
SAMPLING & CERTIFICATES
GAFTA 123 WEIGHING RULES
WEIGHING – WHY WEIGH ?
WEIGHT CONTROL : ASCERTAINMENT OF WEIGHT�
�WEIGHT CONTROL�
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL : GAFTA 123 WEIGHING RULES
WEIGHT CONTROL
WEIGHT CONTROL
THE CUSTOMARY TRADE LOSS�
LOSS ?
WEIGHT SHORTAGES : POSSIBLE CONTRIBUTING FACTORS
Slide Number 159
Break�
Sampling Exercise & Feedback�
Evening networking
Summary�

__MACOSX/course/._Day One Slides.pdf

course/TFC Apr 2019 - Day 4 Slides.pptx

Gafta GPD Trade Foundation Course

23rd – 26th April 2019

London

Day Four

@Gaftaworld

Dispute resolution

Jonathan Waters

LLB, LLM, MCIARB, CMC Registered Mediator, Barrister General Counsel

Gafta

@Gaftaworld

Dispute Resolution

Methods of solving disputes:

Discussion and Negotiation

Mediation by a neutral third party

Arbitration

Courts (litigation)

@Gaftaworld

What is Arbitration?

Resolution of a dispute outside the courts in private

Parties agree to refer dispute to a panel of one or more arbitrators

Parties agree to be contractually bound by decision of the arbitrators which is legally binding

Courts reluctant to intervene

@Gaftaworld

Advantages

Neutral

Confidential

Cost-effective

Quick

Flexible

Enforceable

Limitations

Confidentiality (adverse press may be an advantage!)

Complexity (may not always lead to cost-effectiveness/speed)

May not be allowed to use lawyers at hearing (may also be an advantage!)

Arbitration

@Gaftaworld

Examples of Disputes

Breach of contract (was there a contract?)

Failure to ship

Failure to pay

Quality, condition, description of goods

Assessment of damages

@Gaftaworld

Arbitration Agreement

All other terms, conditions and rules not in contradiction with the above, contained in Form No:

“….. Of the Grain and Feed Trade Association, including the Arbitration Form No. 125 (of which the parties admit that they have knowledge and notice) apply to this contract, the details given above shall be taken as having been written into such Form in the appropriate place”.

@Gaftaworld

Preliminary Issues

Incorporation of Form 125 into contract

Issues arising in practice:

Relevant law

Jurisdiction

@Gaftaworld

Form 125

Arbitration

Appeal

Two-tier system

@Gaftaworld

First Tier Hearing

Sole arbitrator, or

Panel of 3

526 new cases in 2018 (984 in 2017)

Cases are becoming more complex, factually and legally

Aggregate award of damages - $32m (Average award $290k)

Largest single award value of $19.1M (2016)

Lawyers tend to be used ‘pre-hearing’

Right of appeal

@Gaftaworld

125: Overview (1) New Rules Effective 1 September 2016

Rule 2: Claimant serves notice on Respondent

Rule 2: must do so within prescribed time limits (generally one year)

Rule 3: panel of 3 arbitrators appointed (or sole, if parties agree)

All arbitrators must be neutral

Generally:

Claimant appoints arbitrator

Respondent appoints arbitrator

Gafta appoint chair

@Gaftaworld

125: Overview (2)

Rule 4: Procedure

Claimant makes submission and pays a deposit

Respondent submits defence

Claimant has option to reply

Tribunal determines timetable/case management

Generally, paper based

Lapse of claim after 1 year

Hearing if requested. Legal representation not allowed (unless parties agree)

@Gaftaworld

125: Overview (3)

Rule 8: Tribunal decides if it has jurisdiction

Rule 9: Awards (Judgement)

In writing

Sets out decision and reasons for it including remedies and costs

Gafta sends to parties (after payment of fees/expenses incurred by tribunal and Gafta)

@Gaftaworld

Remedies

Damages (may require consideration, establishing market price on day of default to establish loss):

Interest

Costs

Non-monetary awards: (very rare)

Rectification

Specific performance

@Gaftaworld

Appeals

Rule 10: right of Appeal

Lodging an Appeal:

Within 30 days of date of award

Appellants pay a deposit

Rule 11: Appointment of Board of Appeal

Oral hearings (may be granted on request of either party. Again, no legal representation before the Board unless the parties agree)

Appeal takes form of new hearing

Board can confirm, vary, amend, set aside award

2018 – 28% of first tier cases are appealed (of which in 65% the outcome didn’t change)

2018 34 Appeals

@Gaftaworld

Enforcement

Rule 24: Gafta defaulters procedure – posting on Gafta website/circular to members (‘name and shame’)

Suspension/Termination of membership

Application to the Courts

New York Convention

@Gaftaworld

Access to the Courts

Arbitration Act 1996

Challenge jurisdiction (S67)

Serious irregularity (S68)

Exceeds powers

Failure to deal with issues

Irregularity in conduct

Point of Law (S69)

Reality: very little change of a successful Appeal against any Arbitration Award

S68: Since 2015, only 1 successful Appeal (out of 112 cases)

S69: Since 2015 only 5 successful Appeals (out of 162 cases)

@Gaftaworld

Expedited Disputes – Rule No. 128

Sole Arbitrator

Fixed Timetable

No Appeal

@Gaftaworld

The Concept of Mediation

@Gaftaworld

What is mediation?

How does mediation work?

What are the advantages of mediation?

What is the role of the mediator and what skills are needed?

The Concept of Mediation

@Gaftaworld

What is mediation?

Managed negotiation

Without prejudice/confidential

Voluntary participation

No judgment or other decision

Designed to lead to a binding settlement agreement

The mediator is the key to the process, but does not decide the outcome

Flexible options for settlement, including new business

Can also be used to set terms, e.g. pricing under a long term contract

@Gaftaworld

Role and Skills of the Mediator (1)

The mediator is NOT a judge

Independent

Suitable qualifications/experience. Perhaps a lawyer, or a commercial person (or both)

Controls the procedure: Open sessions and separate meetings

Will listen to what both parties say about:

Their views of the dispute

Their commercial interests

The mediator will not repeat everything one party says to the other party – they will only pass on what he is asked to

@Gaftaworld

To make the parties see reality:

Comment on strengths and weaknesses of both parties’ cases.

Convey an impression of the way in which the arbitrators might see certain aspects of the case on both sides.

Cut through emotion to get to the issues.

To bring a new dynamic to the negotiations:

Fresh impetus to settle.

Perhaps get around obstructive lawyers or other advisers.

Role and Skills of the Mediator (2)

@Gaftaworld

What can mediators not do?

Decide the case for the parties

Provide legal advice to the parties

Force a settlement on the parties

Stop a time bar from expiring – you may need to commence Gafta arbitration before you mediate

Cannot make orders, e.g. a freezing order or a disclosure order

Cannot give publicity to an outcome. Settlement will be private

@Gaftaworld

Gafta Mediation Rules 128

At any time

With parties agreement

Process completed within 45 days

Arties submit written opening statement (5 days in advance)

Legal representation allowed

Confidential/ without prejudice

Cost: £950

@Gaftaworld

Ask the Arbitrator

Jane Libre

Gafta Arbitrator

@Gaftaworld

Refreshments

@Gaftaworld

Revision session Please feel free to ask any questions you may have in preparation for the exam

@Gaftaworld

Exam

Rules:

Access the exam via the link in your email.

You have 1 hour

Please do not talk during the exam

When you have finished, hand your paper to the Chair

Remember to put your name on your paper!

@Gaftaworld

Lunch & end of course networking

@Gaftaworld

__MACOSX/course/._TFC Apr 2019 - Day 4 Slides.pptx

course/TFC Apr 2019 - Day 3 slides.pptx

Gafta GPD Trade Foundation Course

23rd – 26th April 2019

London

Day Three

@Gaftaworld

Insurance

Jonathan Waters

LLB, LLM, MCIARB, CMC Registered Mediator, Barrister General Counsel

Gafta

@Gaftaworld

Brief Overview (1)

Why Insure?

Responsibility to Insure

CIF - Seller

FOB - Buyer

Purpose of Insurance

Contract

Compensation for loss or damage to goods on payment of a premium

@Gaftaworld

Brief Overview (2)

Insurance Act 2015

Pre contract – insured to disclose material circumstances which insured knows/ ought to know and carry out reasonable search of records

Disclose information clearly, signpost material information

Act in good faith

Breach

Avoid policy and keep premiums

Avoid claim, repay premium

Amend terms to reflect the policy that would have been entered into

Increase premium

@Gaftaworld

Gafta 49, clause 9 (FOB)

Note risks to be insured against

Contractual Obligations (1)

@Gaftaworld

Gafta 48, clause 13 (CIF)

Note risks to be insured against

Contractual Obligations (2)

@Gaftaworld

Gafta 48, Clause 13

Contractual Obligations (3)

@Gaftaworld

Contractual Obligations (4)

Incorporation of Gafta Form 72

Law of incorporation

@Gaftaworld

Claims

Notice

In accordance with Policy – check notification requirements and time limits

Proof of loss

Duty to assist

Insurer suing in your name – implications?

@Gaftaworld

Payment terms

Brian Perrott

Partner

HFW

@Gaftaworld

Introduction

Are payment terms merely about receiving money for the goods?

Measure of security

Passing of title

@Gaftaworld

Competing interests of the parties

Buyer wants:

To take delivery of the goods he has contracted to buy (quantity and quality)

Pay as late as possible

Seller wants:

To receive payment as soon as possible

Retain physical possession and legal title pending payment

@Gaftaworld

Key risks of the parties

Buyer risks:

Paying for goods but either:

Never receiving them or

Receiving goods of a lesser quantity/quality than paid for

Seller risks:

Shipping goods/transferring title to the goods but not getting paid

@Gaftaworld

Main considerations of the parties

Seller:

When is money received?

When are documents released?

When is control of the goods lost?

Buyer:

When is money paid away?

When is title obtained?

When are the goods and documents under my physical control?

@Gaftaworld

Most common forms of payment

Pre-payment

Letter of credit

Cash against documents

Open account

Note: additional/alternative forms of security,

i.e. performance bonds and bank guarantees etc.

@Gaftaworld

Pre-payment i.e. cash in advance

Most secure for Seller

Least secure for Buyer

Possible solution to the credit risk: ask Seller or Seller’s parent to put up a guarantee or performance bond

@Gaftaworld

Open account/credit terms

Least secure for Seller

Most secure for Buyer

Seller may consider:

Bank or parent company guarantee

Retention of title aka Romalpa clause

Credit risk insurance

@Gaftaworld

Cash Against Documents

The seller presents documents

Stated place for presentation

The buyer checks the documents and pays for compliant documents

The documents are then released to the buyer

@Gaftaworld

Cash Against Documents - Advantages

From the Seller’s point of view:

Enhanced security if a bank is chosen as the place of presentation

Knowledge that it is possible to agree that the documents (and goods) are not released until payment is received

From the Buyer’s point of view:

Payment to a reputable intervening bank

Documents released immediately

@Gaftaworld

Cash Against Documents - Disadvantages

From the Seller’s point of view:

The risk remains that the Buyer will not take up the documents

The Seller is still relying on proper performance by the Buyer – the bank undertakes no obligation of its own so there is no security of payment

From the Buyer’s point of view:

No real disadvantages

@Gaftaworld

Cash Against Documents - Clauses

Areas to consider when agreeing a cash against documents form of payment:

Which documents are to be presented?

Where?

When?

Fax copies or originals?

What are the documents to say? Documentary instructions. What if discrepant? Can documents be amended and re-presented?

When is payment to be made for the documents?

@Gaftaworld

Why use a Letter of Credit

L/Cs provide payment security to seller:

The Buyer’s bank guarantees it will make payment so long as the Seller presents certain conforming documents

It is a separate self standing contract known as the autonomy principle - the Seller is guaranteed payment by a third party

@Gaftaworld

Key Terminology

The parties:

The Applicant

The Beneficiary

The Issuing Bank

The Advising Bank

The Confirming Bank

The Nominated Bank

@Gaftaworld

Structure of a Credit Transaction (1)

Seller and Buyer agree contract – payment by L/C

Buyer requests its Issuing Bank to issue L/C – Bank’s own irrevocable undertaking to pay Beneficiary on compliance with conditions. Buyer agrees to indemnify bank and gives pledge over documents

L/C issued and sent to Seller’s local bank (Advising Bank)

Advising Bank examines L/C and informs Seller (adds own undertaking if Confirming Bank)

@Gaftaworld

Structure of a Credit Transaction (2)

5. Seller ships goods to Buyer

6. Seller presents documents under L/C to Advising Bank, also called if nominated as paying bank, Nominated Bank

7. (a&b) Documents checked, if in order payment made and documents forwarded to Issuing Bank

8. Documents checked and reimbursement made to Confirming Bank (if any)

9. (a&b) Documents released against payment from Buyer (or other arrangements)

10. Buyer uses documents to obtain possession of goods

@Gaftaworld

Documentary Letter of Credit

Look at the contract terms to see what has been agreed – when is the L/C required to be in place – is it for one shipment or is it for all shipments?

Often there are delays in the negotiation of an L/C – beware of the consequences of failing to put up an L/C by the first day of the shipment period – and L/C must fully conform to contract to be valid

Where possible, pre-negotiate the wording of the L/C to avoid problems at a later stage

@Gaftaworld

Key terms to be included in L/C

An Issuing bank will often have their own standard terms, and the Seller and Buyer will want particular terms, but the following are important to bear in mind:

Expiration

Amount (to allow for tolerance)

Documents to be presented

Currency

LOI

Force Majeure

@Gaftaworld

Types of Letter of Credit (1)

Irrevocable/revocable

Revocable: Issuing bank can cancel

Irrevocable: cannot be cancelled but only expire

Article 3 UCP 600 : all L/Cs deemed to be irrevocable

Transferable Letter of Credit

Beneficiary may transfer to a second beneficiary provided L/C is stated to be transferable

Distinguish from assignment of proceeds

Sight Credit or Usance Credit

Article 6 UCP 600 – L/C must indicate if available for payment at “sight” or upon deferred terms

@Gaftaworld

Types of Letter of Credit (2)

Confirmation/Silent Confirmation

Sellers/Beneficiaries sometimes request an Advising Bank to confirm the credit, without authority from the Issuing Bank

Back-to back Credits

Risks for Seller and banks in case discrepancies between the documents in different credits

Revolving Letters of Credit

“Cumulative” or “non-cumulative”

@Gaftaworld

Types of Letter of Credit (3)

Stand-by Letters of Credit

Called on only if the Buyer/debtor defaults in performance of underlying contract – similar to a demand guarantee

Guarantees customer's ability to perform under the terms of a contract

Does not cover the direct purchase of merchandise

Not meant to be drawn on (generally) – but can be

Red Clause Letters of Credit

Percentage in value of the letter of credit in advance of the payment for account and risk of the Issuing Bank

Common means of pre-financing

@Gaftaworld

Role of Banks (1)

UCP 600

Duty of an issuing bank

UCP article 14(a): “Must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation”

Bank's undertaking is autonomous from the sale contract

Verify that documents presented by beneficiary comply with those stipulated by the applicant

Consistency

75% of documents are rejected in the first presentation

@Gaftaworld

Role of Banks (2)

Compliance

Article 14 sets out in the sub-articles the standard for the examination of documents

If documents are rejected

Seller retains control of the cargo and may re-present conforming documents if there is still time before the expiration date of the credit try to get waiver from counterparty

Bank's security

Until the bank is reimbursed, it retains the document (valuable cargo)

@Gaftaworld

Role of Banks (3)

Time frame

UCP article 14(b): “a maximum of five banking days following the day of presentation to determine if a presentation is complying.”

Payment

At sight

Deferred payment credit

@Gaftaworld

Approving/requesting changes to a Letter of Credit (1)

A Letter of Credit can only be amended under the UCP 600 with the agreement of:

1. The issuing bank

2. The confirming bank (if any)

3. The beneficiary

An issuing bank is irrevocably bound by an amendment as of the time it issues the amendment

The original Letter of Credit remains in force for the beneficiary until it communicates its acceptance of the amendment to the bank

@Gaftaworld

Approving/requesting changes to a Letter of Credit (2)

If the beneficiary is silent, a presentation that complies with the amendment will be deemed to be notification of acceptance by the beneficiary of such amendment

Partial acceptance of an amendment is not allowed and will be deemed to be notification of rejection of the amendment

A provision in a proposed amendment that the amendment shall enter into force unless rejected within a certain time shall be disregarded

@Gaftaworld

To confirm or not confirm a Letter of Credit?

Provides more security for the Seller but also at the additional expense

Consider where the original issuing Bank is located and whether that provides sufficient security?

@Gaftaworld

Approving/Requesting changes to a confirmed Letter of Credit?

A confirming bank may extend its confirmation to an amendment and will be irrevocably bound as of the time it advises the amendment

BUT

A confirming bank may choose to advise an amendment without extending its confirmation and, if so, must inform the issuing bank and the beneficiary without delay

@Gaftaworld

Fraud

Banks deal in documents not goods.

Banks disclaim responsibility for genuineness of documents.

Fraud entitles a bank to decline payment where a Seller fraudulently presents to the confirming or issuing bank documents containing whether expressly or by implication material representations of fact which are untrue and untrue to the Seller’s knowledge.

Time at which to assess beneficiary’s knowledge or conduct is the time of tender of the documents to the bank.

@Gaftaworld

Fraud (continued)

Unlikely that you will obtain injunctive relief.

Bank owes no duty to its customer to police or conduct any form of investigation into the documents. Onus is on customer to draw fraud clearly and unequivocally to the bank’s attention.

@Gaftaworld

Letters of Credit – Practical Points

GAFTA’s guide on Letters of Credit.

Course notes include Buyer’s and Seller’s check lists.

@Gaftaworld

Refreshments

@Gaftaworld

Case study session introduction: Payment terms Please review the Payment Terms case study document

@Gaftaworld

Exceptional circumstances

Jonathan Waters

LLB, LLM, MCIARB, CMC Registered Mediator, Barrister General Counsel

Gafta

@Gaftaworld

English Contract Law

Once a contract has been entered into, English law expects performance. However, there may be situations when the parties are prevented from performing due to no fault of their own.

Common to have a clause in a contract allowing for termination without further liability/obligation when an event arises outside of the parties control (i.e. doesn’t apply if parties have otherwise been in breach of contract)

Such clauses are commonly called ‘Force Majeure’ and are very often overlooked when contract negotiated

Beware: Force Majeure events may be on increase (climate change) but term is often abused e.g. Counter Party attempting to get out of an unprofitable contract!

@Gaftaworld

Prohibition of export

Blockade

Act of Terrorism

Hostilities

Strike/Lockout

Riots

Breakdown of Machinery

Fire

Ice

Act of God

Unforeseeable/unavoidable impediments to transport or navigation

Any other event comprehended by ‘Force Majeure’

Gafta Clause

Event of Force Majeure (Gafta 49 Clause 13)

@Gaftaworld

Note:

List of Force Majeure events is wide/non-exhaustive

Parties are free to add to examples/delete examples (e.g. GPC Contract)

Intention is to cover most commonly experienced problems

Burden of proof: On seller: “He who asserts must prove”

@Gaftaworld

Prohibition

Prohibition of export by:

Any 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 of named in the contract are situated

@Gaftaworld

Prohibition (2)

Example: Bad Harvest in Russia

Insufficient product for domestic market. Therefore:

Cap on exports contractually promised (e.g. only allow 40% of contract quantity)

Limitations as to time period for exporting (e.g. only allow exports in certain months): August to December

Prohibition is outside of either Parties control

@Gaftaworld

How does the clause work in practice? A summary

No immediate cancellation of contract, which is suspended

Time is given for the problem to be resolved provided notice given as per the contract

If problem continues, there is an option to cancel provided that notice is given

If no notice is given to cancel, contract automatically comes to an end after an additional period of time

Ultimately, neither party has liability to other for delay/non-performance

@Gaftaworld

Notices

Gafta 49, clause 14

Critical get it right

Served

In time

By letter or by fax, or by email or by other electronic means

Rapid communications in legible form

Contested receipt – burden of proof on sender (prove to arbitrators)

What if notice is given verbally?

@Gaftaworld

First: Sellers notify Buyers – performance suspended with reasons. Notice within 7 days of occurrence or no later than 21 days before start of the shipment period, whichever is the later

Second: Buyers have option to cancel unfulfilled part of contract if Force Majeure continues for 21 consecutive days after end of shipment period. Notice must be served on Seller on first business day after 21st day

If Buyer does not cancel, contract remains in force for further 14 days, after which if Force Majeure continues, contract automatically cancels

Notices: Time Limits (1)

@Gaftaworld

Third: if Force Majeure ceases before contract is cancelled, sellers must notify buyers “without delay”. Sellers can then ship goods in accordance with any remaining time left under contract prior to occurrence of Force Majeure. If time is <14 days, 14 consecutive days is allowed

Notices: Time Limits (2)

@Gaftaworld

Relationship with Frustration

English Law Concept

Frustration: An external, unforeseeable, event without fault of either party, which makes contractual performance impossible

Contract terminates – parties exempt from further performance

Rare for frustration to be applied by English courts

In practice, most commercial contracts will contain Force Majeure clauses – right to terminate on occurrence of specified event(s) (e.g. Prevention of Shipment): Possible to argue Frustration if event is not covered by Force Majeure

@Gaftaworld

Differences between Frustration and Force Majeure

Force Majeure allocates risks in advance, within the contract

If the ‘event’ falls within the Force Majeure clause, there is no frustration – contract has already allocated risk and consequences

Frustration terminates the contract. Force Majeure doesn’t always terminate, but effectively suspends for a specified period of time

Remedy for Force Majeure is contractual. Allocation of loss for frustration is statutory – Law Reform (Frustrated Contracts) Act 1943

@Gaftaworld

Sanctions

New

Optional Clause

Gafta 131

Parties to comply with/must not put other party in breach of sanction

Breach: termination of contract without further liability

@Gaftaworld

Imposition of New Tariffs/ Duties

Increase in cost

Volatility in markets

Generally, Buyer pays import tax, Seller pays export tax: Check contract!

Contracts may become less profitable/ unprofitable – increased risk of Default

@Gaftaworld

If New Tariffs/Duties Imposed

Does contract contain a price review clause?

Force Majeure?: Only if it falls within the definition:

Increase in cost is not normally Force Majeure. Courts are not sympathetic.

Frustration?: Very unlikely (for same reasons as Force Majeure)

Economic Duress? Forcing a party to agree to a demand they would not otherwise have agreed to – innocent party has no option but to agree (more than ordinary commercial pressure)

@Gaftaworld

Lunch Group photo will be taken prior to lunch.

@Gaftaworld

Exceptional Circumstances Exercise

Jonathan Waters

LLB, LLM, MCIARB, CMC Registered Mediator, Barrister General Counsel

Gafta

@Gaftaworld

Is it Force Majeure?

Australia – contract of goods by rail

Adverse weather caused severe floods / storm damage

Railway line closed

Seller could not deliver to load port using that line

Scenario 1

@Gaftaworld

Is it Force Majeure?

Argentina

Truck drivers’ strike – roads blockaded. Cargo unlikely to reach the port

Sellers were unable to load ship & after 8th day of blockade sent a notice by SMS to Buyers claiming Force Majeure

The notice is not received

Buyers sue for damages for breach of contract

Scenario 2

@Gaftaworld

Is it Force Majeure?

Sellers agree to sell 10,000 MT of banana skin pulp to buyers at a fixed price

5 days after contracting, the UK government imposes an immediate new export tax on all banana skin pulp leaving the UK

The new tax makes the contract unprofitable, the seller now wants to sell the banana skin pulp within the UK market and claims Force Majeure

Scenario 3

@Gaftaworld

Breaches, default and damages

Jonathan Waters

LLB, LLM, MCIARB, CMC Registered Mediator, Barrister General Counsel

Gafta

@Gaftaworld

What happens if it goes wrong ?

The other party is in breach of contract

What do you do?

What do you get in damages?

@Gaftaworld

Rules and procedures

Gafta Default Clause

Damages

@Gaftaworld

Default

Total breakdown of the contract, i.e. a breach of a condition.

Examples:

Failure of CIF seller to ship goods/procure goods afloat in time

Failure of FOB buyer to nominate a vessel in time

Failure of CIF buyer to open letter of credit in time

@Gaftaworld

Default

When can I put party in breach in default?

Clear evidence of breach.

Be careful! Risk of acting too early - "jumping the gun“.

@Gaftaworld

GAFTA Default Clause

Innocent party is entitled to recover in damages from the defaulting party the difference between the contract price of the goods and the market price of the goods on the date of the default

Gafta No. 100 Clause 23: “DEFAULT – In default of fulfilment of contract by either party, the following provisions shall apply:- (a) The party other than the defaulter shall, at their discretion have the right, after serving notice on the defaulter to sell or purchase, as the case may be, against the defaulter, and such sale or purchase shall establish the default price.”

@Gaftaworld

Basis of damages under Default Clause

Gafta No. 100 – Clause 23 (b) and (c):

“(b) If either party be dissatisfied with such default price or if the right at (a) above is not exercised and damages cannot be mutually agreed, then the assessment of damages shall be settled by arbitration

(c) The damages payable shall be based on, but not limited to, the difference between the contract price and either the default price established under (a) above or upon the actual or estimated value of the goods, on the date of default, established under (b) above”

@Gaftaworld

Establishing the default price

Difference between contract price and current market price at the date of default (Sale of Goods Act 1979)

No obligation on innocent party to sell or purchase as per Default Clause procedure – instead, can pursue a claim in arbitration and produce to the arbitrators evidence of what the market price of the contract goods would have been at the time of default

Procedure: send notice => sell or purchase => notify paying party of price achieved

@Gaftaworld

Default Clause;- Loss of Profit

Gafta No. 100 – Clause 23 (d):

“In no case shall damages include loss of profit on any sub contracts made by the party defaulted against or others unless the arbitrator(s) or board of appeal, having regard to special circumstances, shall in his/their sole and absolute discretion think fit.”

A feature of all Gafta contracts, CIF and FOB

@Gaftaworld

Date of Default

Gafta No. 100 – Clause 23 (f)

“Default may be declared by Sellers at any time after expiry of the contract period, and the default date shall then be the first business day after the date of Sellers’ advice to their Buyers. If default has not already been declared then (notwithstanding the provisions stated in the Appropriation Clause) if notice of appropriation has not been served by the 10th consecutive day after the last day for appropriation laid down in the contract, the Seller shall be deemed to be in default and the default date shall then be the first business day thereafter.”

Sellers may declare themselves in default – to establish default date as early as possible in a rising market

Otherwise, first business day after “deemed default”

NB – Not always "10th consecutive day" – different periods in different GAFTA Contracts: make sure you rely on right contract!

@Gaftaworld

Summary: Time scale for buyer to terminate Contract under GAFTA 100

NB Different time periods under different GAFTA Contracts

Shipment period – clause 6

Any extension to Shipment period – Clause 10

Appropriation period 10 days – clause 11

Default period 10 days – Clause 23

Default date + day

-Clause 23

@Gaftaworld

Damages for breach of contract: Principle

Damages are compensatory

i.e. an actual loss that can be proved.

Bunge v. Nidera (2015)

@Gaftaworld

Damages: starting points

There must be a contract. Liability for damages does not arise if there have been negotiations but no contract has been concluded.

There must be a breach. Until one party is in breach of its obligations to the other, no question of a claim in damages can arise.

What has been breached? Condition, warranty, innominate term?

@Gaftaworld

Available Market

Difference between contract and market price.

Not restricted to regulated markets, exchanges

‘A state of affairs where there are sufficient traders actually or potentially in touch with each other to allow a seller or buyer to trade in goods if they wish to do so.’

Time: there must be a buyer or seller on the day required.

Geography: the place where performance should have been made.

@Gaftaworld

No Available Market

Assess the true value of the goods at the time of the breach

In practical terms, the best measure of the actual value of the goods is often their resale price or the actual cost of obtaining substitute goods

Price of “nearest equivalent” may be a reasonable comparison

Costs of adapting goods to satisfy another customer and costs of transporting goods to place of resale can also be recovered

@Gaftaworld

Losses on sub-sales (lost profits)

Often irrelevant where there is an available market

Require “special knowledge” on behalf of the contract breaker

“Special knowledge” can operate for and against the contract breaker – actual loss may be less than what would be payable by reference to the market movement.

Expressly excluded by GAFTA terms unless special circumstances (Arbitrators' discretion)

@Gaftaworld

General Damages

Damages which “naturally result … in the ordinary course of events” (section 50(2))

What is foreseeable to a “Reasonable Person” in the market?

“Reasonable person” - a trader of ordinary skill and competence, with knowledge of his market, how it operates and the pressures of supply and demand within it

No need to foresee:

actual breach

precise sequence of events

financial extent of loss

@Gaftaworld

Liquidated damages / penalties

Liquidated damages are recoverable under English law but penalties are not

Common example of liquidated damages: demurrage

Liquidated damages represent a “genuine pre-estimate of loss”

Where the amount of the payment has been determined with the intention of deterring the other party from breaching his contract, this will be treated as a “penalty” and the Court (or arbitrators) will not enforce it

@Gaftaworld

Special Damages

Recoverable if contract breaker had actual knowledge of special circumstances affecting the innocent party’s position

Section 54 Sale of Goods Act 1979:

“Nothing in this Act affects the right of the buyer or the seller to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover money paid where the consideration for the payment of it has failed.”

@Gaftaworld

Causation / Remoteness

Innocent party cannot recover losses which have not been caused by the breach

An independent act of a third party which occurs between the breach and the loss can “break the chain of causation” and prevent a recovery of damages

Remoteness of damages – are losses not only caused by breach but reasonably foreseeable as such at time of entering into the contract?

@Gaftaworld

Mitigation

No damages can be recovered for losses caused by the innocent party’s own action or failures to mitigate

“Duty to Mitigate”, i.e. to take all reasonable steps to minimise loss

Strong incentive to accept substitutes

Onus of proof is on the defendant to show that the claimant ought reasonably to have taken certain steps to mitigate his loss.

@Gaftaworld

How to mitigate

The Claimant is not required to take any step “which a reasonable and prudent man would not ordinarily take in the course of his business”

He must consider an offer of substitute performance by the contract breaker

Innocent party is under a duty to mitigate from the time when he discovers or ought to have discovered that the defendant has broken his contractual obligation. He has a reasonable time to decide how to mitigate

@Gaftaworld

Interest

Right to recover interest: Section 54, Sale of Goods Act 1979

Contractual interest (GAFTA 100, Clause 12 (h)

@Gaftaworld

Bunge v. Nidera (2015)

@Gaftaworld

Issues to be considered

Gafta Contract – Gafta 49

Interpretation of Clause 18 – Default

Gafta Arbitration: First Tier and Appeal

Role of the Courts

Assessment of Damages

@Gaftaworld

Background

Gafta Contract: English Law

Presumption: Parties bound by what they agree

Damages: “compensatory principle”/mitigation

Default Clause:

Provides certainty

Mechanism for calculating damages

Clear guidelines

Ease of application by arbitrators

Cost effective enquiry

Common in other sectors too e.g. ‘the parties acknowledge that it is difficult to quantity damages and have agreed that X shall levy a cancellation fee against Y as liquidated damages and not as a penalty’

Penalty clauses

A clause penalising / deterring a party from breaching contract. Damages are out of proportion to any potential loss

Generally, not enforceable

@Gaftaworld

Facts

B sold 25,000 MT Russian Milling Wheat to N.

Delivery 23-30 August 2010

Contract Incorporated Gafta 49

5 August 2010: Russian Government – Temporary ban of Wheat export 15 August – 31 December (i.e. would take effect during delivery period)

9 August 2010: B prematurely cancelled contract – Prohibition Clause (now replaced by Prevention of Shipment)

Premature: should have waited to see if the ban remained in place

11 August 2010: N treated cancellation as breach of contract (no evidence that ban would definitely come into existence and, if it did, that it would last for that period)

12 August 2010: B offered to reinstate the contract on same terms. N rejected this.

N brought arbitration claim – damages of $3m. Difference between contract and market price on 11 August 2010 (Default Clause)

@Gaftaworld

Arbitration

First Tier

B in Default

No damages. Why?

Contract would have been cancelled anyway (after 15 August 2010 when ban took effect), so no loss

Appeal Board

B in Default

N entitled to damages

$3m – difference between contract and market price as per Default Clause

Application to Courts (Arbitration Act 1996)

High Court

Court of Appeal

Upheld Appeal Board

Referred to Supreme Court

@Gaftaworld

Supreme Court

Default Clause not a ‘complete code’ for assessing damages: Court could not overlook the fact that contract could never have been performed

Default Clause: mechanism for determining market price for assessing damages but did not deal with effect of subsequent events

Overruled court of appeal and agreed with First Tier. There was no loss

Compensatory Principle

No damages if no loss

Mitigation?

@Gaftaworld

Lawyers

Will scrutinise contracts!

Look for ‘ways out’ of contract without breaching it

Need to understand the contract and your obligations

If in doubt – take advice! Particularly before alleging a Default

@Gaftaworld

Summary – Know Your Contract

If you do not understand your contract the risk is that you have an unknown level of potential liability

Knowing and understanding the contract you trade on reduces risk

Understanding what the contract clauses actually mean reduces risk

Communicate with your counterparty

Communicate internally – across the desk

Don’t leave things to chance, collect regular updates from those in the chain

Manage the contract by an attitude of ‘no surprises’

@Gaftaworld

Refreshments

@Gaftaworld

Q&A Panel Discussion

Chair:

Sophie Webber, Head of Training & Events, Gafta

Panellists:

Jonathan Waters, General Counsel, Gafta

Brian Perrott, Partner, HFW

@Gaftaworld

Networking Event 18:00 – 21:00 The London Eye and Troia Restaurant. Details can be found in your delegate pack.

@Gaftaworld

__MACOSX/course/._TFC Apr 2019 - Day 3 slides.pptx

course/all the reading in course is here.pdf

Trade Foundation Course

Briefing Papers

Introduction.

The documentation contained in this briefing paper is not intended to provide participants on the Trade Foundation Course with an exhaustive commentary.

The twelve separate sections highlighted will enable the reader to gain a broad appreciation of the topics and those areas of trade relevance, to be covered in much greater detail during the course.

Contents Page

Topic Area 1. Basic principles of contracting 3

Topic Area 2. Basic contractual obligations (FOB/ CIF) and contractual terms 4

Topic Area 3. Responsibility and risk 6

Topic Area 4. Certification of Contracts - Instruction for supervision 7

Topic Area 5. Shipping documents 8

Topic Area 6. Ascertaining the goods and the vessel 9

Topic Area 7. Charterparties, laytime, despatch and demurrage 10

Topic Area 8. Insurance 11

Topic Area 9. Payment terms 12

Topic Area 10. Exceptional circumstances 13

Topic Area 11. Breaches, default and damages 14

Topic Area 12. Dispute resolution 16

Topic Area 1. Basic principles of contracting

A Contract is a legally binding written or spoken agreement made between a willing buyer and a willing seller. The Key elements of which are: - (i) an Offer by one party to the other, (ii) an unconditional Acceptance, (iii) a Consideration, normally identified as the Price, (iv) an Intention to create a legal relationship, (v) Legality – Sanctions/Prevention of Shipment, (vi) Capacity – legal ability to enter into a contract.

Parties can agree the main terms of a contract but leave others to be agreed at a later date.

Gafta Contracts are used extensively in the world trade in grain. Underpinning those contracts is a standard clause, inserted in those contracts, known as the Domicile clause which has the effect of incorporating English Law, as the law under which the contract shall be made and performed.

For example; - Gafta 48. Clause 26 Domicile; - “This contract shall be deemed to have been made in England and to be performed in England, notwithstanding any contrary provision, and this contract shall be construed and take effect in accordance with the laws of England……”

Consequently, English courts have exclusive jurisdiction over the contract and if disputes arise, then there is a well-documented arbitration procedure contained within the same contract.

Establishing a Contract. The basic constituents but All must be present; -

An Offer: A statement of willingness to contract on specified terms made with the intention that, if accepted, there will be a binding contract. The offer must be sufficiently clear and detailed but can be withdrawn any time up until acceptance.

Acceptance: A contract will not be concluded and legally binding until the terms of the offer are accepted unconditionally and without qualification. Acceptance must be communicated and importantly, ‘silence’ under English Law is not generally considered as acceptance, whereas ‘conduct,’ may well be.

An attempt to introduce new terms is not an acceptance but a counter-offer. A counter-offer operates as a rejection of the initial offer. However, a party cannot, at a later date, then go back to accept the initial offer if negotiations fail over the detail of the counter offer. Subject of course to the other parties’ agreement.

Consideration: Essential to the formation of a contract. English law will not enforce a gratuitous promise – there must be a “bargain”. In practical terms, it is the price that a party pays in return for goods. The Courts are not concerned with whether the parties have made a good or a bad deal!

Capacity: The legal ability to enter into a contract. Compare with authority to contract (does the signatory have the authority to enter into the contract on behalf of the counterparty?)

Intention to create legal relations: What if the contract is disputed? (particularly relevant if the contract is verbal or there have been subsequent variations to a standard contract) Needs to be evidence to show there was a contract. (n.b presumed in commercial contracts)

Miscellaneous Points: Inclusion of relevant terms – Incorporation of insurance (Gafta 72), weighing (Gafta 123), sampling (Gafta 124), arbitration (Gafta 125): all form part of a contract.

Contractual document Terms must be in a document intended to be contractual and reasonable steps must be taken to bring it to the attention of the other party.

Topic Area 2. Basic contractual obligations (FOB/ CIF) and contractual terms

In a Grain Trade context with specific regard to Gafta contracts, there are two principle contracts that require mention.

FOB (Free on board) Seller provides goods that conform with the contract and places those goods on board ship. The buyer arranges shipping/insurance and gives proper notice to the seller of vessels arrival which is a pre-condition of contract without which the seller is under no obligation to perform. The Legal title to the goods and the risk passes on delivery to vessel.

CIF (Cost Insurance Freight) Seller organises freight and insurance, ships and delivers the goods. Buyer nominates the port, takes delivery and meets the cost of unloading/ import licences/ customs duties. The buyer then pays for the goods on receipt of shipping documents. Risk passes on delivery, but legal title passes later

Contractual Terms; The contents of a contract are called terms. A term imposes a contractual duty /obligation, on the parties to the contract. The terms of a contract are designated as conditions, warranties and innominate (intermediate) terms. It is important to distinguish the difference as classification determines the remedy in the event that a counter party defaults.

Gafta has a number of standard contracts which the parties are free to vary and amend as they see fit. The terms can be expressly agreed either orally or in writing. Terms can also be implied. An implied term is one that is not specifically agreed but ‘included’ in the contract by statute, for example the Sale of Goods Act 1979, or by customs and practice.

Sale of Goods Act 1979: Statutory Implied Terms. Of critical importance in context of defaults

The main relevant sections of the Sale of Goods Act 1979 include S12 Seller has the legal title to the goods. S13 Goods must correspond to the ‘description’. S14 Goods must be of satisfactory quality. Although this test is objective it rests on what a reasonable buyer would regard as satisfactory, considering price, description and other relevant factors. S14 the goods must be fit for their intended purpose. S15 Goods supplied in bulk must correspond with the sample.

Distinction between Terms; - Conditions A major (or fundamental) term: goes to the very heart of the contract. A breach entitles the innocent party to ‘repudiate’ - terminate the contract and sue for damages.

Warranties A minor (less important) term. A breach entitles the innocent party to damages only and the contract continues. Most terms in a contract tend to be warranties.

Intermediate Terms Intermediate term is neither a condition or a warranty. In the past a traditional approach caused inflexibility and unfairness. For example, a minor breach of a condition would give rise to a termination whereas a major breach of a warranty would not. The approach is to consider the impact of the breach and the effect is that the right to terminate will depend upon the seriousness of the breach.

The Goods, Description, Quality and Condition

Statutory implied terms emanating from the Sale of Goods Act 1979 are key components of Gafta Contracts. The Act contains numerous sections but those covering Description – (S13) and Satisfactory Quality – (S14) are frequently addressed in contractual disputes.

Description, Section 13 of the Sale of Goods Act 1979 states: - "Where there is a contract for the sale of goods by description, there is an implied condition that the goods correspond with that description". If there is any difference in description between the contract and the goods, the buyer is entitled to reject the goods and to claim damages.

Satisfactory Quality, Section 14(2) of the Sale of Goods Act 1979: - Under English Law there is an implied condition that the goods supplied must be of a satisfactory quality taking into account any description, price and other relevant circumstances.

Included within Section 14 is an implied term related to Fitness for Purpose – (S14.3)

“If a Seller sells goods in the course of business to a buyer who has expressly or by implication, made known to him the particular purpose for which the goods have been purchased there is an implied condition that the goods supplied are suitable for that purpose.”

The condition is not implied when the buyer does not rely on the sellers' skill and judgment or where it is unreasonable for the buyer to do so.

Defining quality in contracts - Certification

Certificate Final is a recognised mechanism for dealing with issues such as description and quality. Parties agree that a third party (surveyor/superintendent) will make a determination. Buyer has assurance that goods have been supplied in accordance with the contract. Seller has protection against buyer later alleging goods were defective

Certificates are generally final and binding where the buyer has no right to challenge findings (fraud is an exception). Although the clause is perceived as pro-seller the buyer may argue that wording of the certificate allows a challenge to be made.

It is important to understand that issued certificates are only final in relation to the matters they are intended to cover (e.g. “quality”). They are not final in respect of any other matters not expressly required to be certified in the contract – final as to “quality” would not be final as to “description”

In such cases the buyer is not precluded from bringing a claim if the goods did not match their description

Topic Area 3. Responsibility and risk

Risk; - The obligation to bear the loss, which in commodity contracts usually passes “as from shipment”. It is not to be confused with “title” to the goods which refers to ownership rather than possession.

We will look at two Gafta contract areas from a buyers’ and sellers’ perspective and categorise the associated risks, specifically in respect of FOB and CIF contracts.

FOB Buyer – Principal Obligations;

To give effective shipping instructions including – nominating and presenting an appropriate vessel at the port of loading in sufficient time and to give accurate documentary instructions.

FOB Seller – Principal Obligations;

To provide contract-compliant goods loaded on board the vessel nominated by the buyer, and to provide the buyer with the required documentation.

CIF Seller - Principal Obligations;

Seller to provide documents which show the goods have been obtained with the correct contract description and insured for the intended voyage on a vessel the seller has fixed and paid to carry the goods to the agreed destination, or, sellers had purchased documents from another party who had already done so.

Risks associated with the Goods

Ensuring the goods conform with the terms of the Contract: including description, specification, condition, sampling and analysis. Sale of Goods Act: satisfactory, fit for purpose.

Risks associated with Shipment

Ensuring that the timings for performance such as nomination and delivery periods conform under the contractual obligation. Providing a suitable vessel regarding classification on a contract of carriage including loading /discharge at a safe port / safe berth. Ensuring the goods are safely stowed. Awareness of factors impacting on Laytime obligations. The type and value of insurance cover.

Documentary Risks

What documents are required under the contract? Buyer to provide documentary instructions to the seller. Can the seller supply them? Are seller’s documents sufficient to obtain payment?– a critical part of the contract process.

The Bill of Lading receipt for goods shipped, document of title, evidence of a contract of affreightment.

Payment: CAD: where? When? How? Letter of Credit: is it workable? Can Receiver import the goods?

Legal Risks Sale of Goods Act - Conformity with domestic legislation, transfer of title, potential conflict with other important documents –e.g. Charter Party, Bill of Lading, Letters of Credit Jurisdiction and Arbitration Proceedings

Topic Area 4. Certification of Contracts - Instruction for supervision, sampling, analysis and fumigation

Superintendents’ Roles and Responsibilities

A superintending company is an organisation whose primary business activity is associated with the inspection, supervision and sampling of contracted goods. They are appointed by (or on behalf of) buyers and/or sellers – in accordance with the terms and conditions of the relevant contract.

They operate in accordance with agreed contract terms, sampling & weighing rules, Code of Practice and the Code of Conduct of GAFTA. They undertake inspections, verifications, examinations, quality and condition assessment, sampling and measurements, of goods traded.

Rules and Code of Conduct for Superintendents; - Intended for Superintendents listed on GAFTA’s Register of Approved Superintendents. Minimum criteria for Superintendent companies – Accreditation ISO/IEC 17020 (type A), certification to ISO 9001 or GTAS certification.

All operations shall comply with appropriate rules and the contract terms “When a Superintendent issues reports and certificates relating to its operations they shall reflect their actual and true findings”

A Superintendent found to have acted contrary to the provision of these Rules may be subject to disciplinary action. Can only subcontract to other Superintendents on the GAFTA Register.

Responsibilities of those involved in the contract certification; -

Principal. To give instructions in due time, which must be clear and unambiguous. An instruction is a directional message describing the task that is to be performed. Instructions should be in writing and provide sufficient details to enable performance of the inspection in accordance with requirements of the contract and expectations of the principal and include;

Details of the parties – buyer / seller / receiver and their representatives

Place of inspection, Name of vessel and Time of Arrival (ETA) Name of vessel agents and contact telephone number, GAFTA contract No, Quantity – any tolerances (+/-, min / max)

Details of the Commodity and its correct description. Certification of the Quality – including testing methods and any special sampling requirements. 24-hour contact phone number.

Superintendent. When accepting instructions, the Superintendent must acknowledge and confirm the details received. He / she must make sure that they understand what certificates are required and the quality criteria attached to the instructions.

Equally important is that any statements applying to the goods such as “free from …”, “Sound Loyal & Merchantable”, “fit for ….” may require analysis.

A Superintendent is there to act on the Clients’ / Principals’ behalf.

They are present to certify that the consignment is sampled and weighed correctly, that the reporting is accurate and if needed, make reserves against the parties involved in the contract.

Superintendents are there to look after the best interests of the parties to a contract and act with neutrality, honesty and integrity at all times.

Topic Area 5. Shipping Documents

Common Shipping Documents would include the following; -

Bill of lading (B/L) is a document issued by or on behalf of the carrier, to the shipper, who has contracted with the carrier for the carriage of goods. A Bill of Lading has 3 functions; -

(i) Receipt for Goods Shipped. The bill of lading tendered under a CIF or FOB contract on Gafta terms must show that the goods comply with the contract, including, description of the goods, their quantity and condition - in which case it will be considered a “clean” bill of lading. A “claused” bill of lading (i.e. one which indicates that the goods have not been shipped "in apparent good order and condition") will not be accepted by a bank to obtain payment under a letter of credit on standard UCP 600 terms.

(ii) Evidence of a Contract of Carriage. Very rarely will the bill of lading, between the original shipper and the vessel, be the contract of carriage. In the case of bulk goods, the contract of carriage will usually be the charterparty. However, a buyer under a CIF contract and a shipper or previous buyer/seller of the goods who is not the charterer of the vessel, then the bill of lading counts as conclusive evidence of the terms of the contract of carriage.

(iii) Document of Title. When making out a bill of lading for signature by the master of the vessel it is normal in the box headed "consignee" to specify "to Order". This provides maximum flexibility to the shipper under which the bill of lading is tendered. Correspondingly the buyer will normally require a bill of lading made out to order endorsed on the back by the shipper. A bill of lading made out in this way operates as a document of title.

B/L: a transferable contract. By reason of the triple function covered by the Bill of Lading, the shipper of the goods and subsequent holders of the bill, acquire valuable rights against the carrier. These rights are necessary since, under a contract on CIF or FOB terms the seller is under no obligation to ensure that the goods arrive at their destination, undamaged or indeed at all. In most cases the holder of the bill of lading (or its insurer) will only have a remedy against the carrier, who is usually the registered owner of the vessel.

Conversely the shipper of goods under a bill of lading incurs certain responsibilities towards the carrier. In its capacity as seller under a CIF contract or under an FOB contract, the shipper will transfer its rights under the bill of lading to its buyer when the shipping documents are taken up.

In a sale contract, risk passes on shipment – so buyer looks to the shipowner if goods arrive damaged.

Mates Receipts. A document drawn up prior to the B/L – operates as a shipper’s interim receipt for goods delivered to the ship owner.

LOIs – Letters of Indemnity. Contractual agreement to indemnify a party if they carry out a request. Examples: Discharge without B/Ls, rain LOIs, missing documents.

Invoices. Should contain buyers address, description of the goods, contract price including any contractual allowances and payment instructions, together with specific requirements under UCP600 for letter of credit sales.

Certificates. Certificates are part of “Shipping Documents”. The buyer will usually pay against compliant shipping documents of which any certificates may be “final” and binding. The seller will usually want to retain control of the documents until payment is made.

Topic Area 6. Ascertaining the goods and the vessel

This includes, Nomination of FOB vessel, pre-advice, substitution and under a CIF contract the Appropriation of goods shipped.

Definition of FOB Contract "The Seller must at his own expense put the goods on board a ship which has to be nominated or designated by the Buyer. The Seller is not bound to reserve shipping space in advance nor to bear any expense of shipment which arises after the goods have been put on board “. GAFTA FOB contracts designate a “Delivery Period”, which is for the arrival of the buyer’s vessel during a specified period at the load port.

Buyer’s duties are to give: Effective Shipping Instructions (i.e. present a performing vessel at the agreed load port) So that sellers can deliver goods in accordance with the terms of the contract i.e. place, quantity, time. Adequate Notice (i.e. Nomination) Either agreed period of time e.g. 10 consecutive / 3 business days, or other sufficient period of time according to circumstances (if the contract is silent). Substitution. Usually the buyer has a contractual right to substitute a nominated vessel provided the replacement vessel fulfils all the requirements of the contract.

Seller’s duties include: To deliver goods on board when required by the buyer during the agreed period; There is no obligation to have goods available during the entire period. Goods to be delivered at an agreed rate (e.g. tonnes per day) or otherwise at a reasonable rate in a customary manner. Usually the seller will pay damages for any delay to the vessel if the seller does not deliver at the agreed rate, usually referred to as demurrage.

Nomination (Service); See for example GAFTA 64, clause 6. Nomination is a Notice to be served under the contract. Check provisions carefully (notices clause, how many days, what information). A Notice is valid via a broker. Usually the period of notice is expressed as a number of days or hours preceding the estimated date of arrival (eta) and readiness to load.

Nomination (Content); GAFTA 64 clause 6 – name of vessel is required. "T.B.N." vessels (to be nominated) Estimated tonnage and Probable readiness date not just arrival date: Further information may include, Ship's Agents, Superintendent, Documentary requirements. Nominations must be honestly and reasonably given but there is no requirement to have a vessel fixed.

Failure to nominate at all or failure to nominate correctly gives rise to a breach: Seller may reject a defective nomination or refuse to load a vessel not nominated correctly. Seller may declare buyer in default if there is no valid nomination in time notwithstanding any extension clause.

If the contract period has expired, buyers may claim extension (10 days under GAFTA 64) in exchange for payment of carrying charges to the seller. If extension period expired, sellers may declare buyers in default.

Appropriation on CIF / C&F contracts is a performance obligation on the seller, where the seller has to make shipment of goods of contract quantity and description at the agreed time; Seller has to present contractual shipping documents including a contract of carriage (usually Bill of Lading) to the agreed destination and any necessary insurance documents. The function of the appropriation is to advise the buyer of performance. Appropriation is a notice to be served under the contract usually within a number of days following the date of the Bill of Lading.

Topic Area 7. Charterparties, Laytime, Despatch and Demurrage.

A Charterparty Is a contract between a shipowner described in the contract as the “owner” and a “charterer” for the use of the whole (or part) of a ship.

There are three main types of Charterparty: Time, Voyage, Bareboat (demise).

Time charterparties – The shipowner provides the ship, crew, spares, food, water etc. But no bunkers. The ship is subsequently placed under charterers’ orders against an indemnity. The charterer pays “hire” for the use of the ship and the provision of its services but is separately responsible for the cost of purchasing bunkers.

Voyage charterparties – The shipowner provides the ship, crew and all fuel. Charterer pays an agreed amount for the “freight”, normally expressed in bulk cargoes as cost per tonne.

Bareboat Charterparties – The shipowner provides only the ship. Charterer provides crew / bunkers / stores / maintenance. Charterer is responsible for all liabilities that arise during the charter period.

Contract of Affreightment (COA). Strictly speaking this is not a contract for the carriage of goods but a contract for a series of voyages involving bulk cargoes. The contract will normally specify a stated quantity by a stated number of shipments over a defined period.

Standard form charterparties, E.g.: Voyage: Gencon. Time: NYPE. Bareboat: Barecon.

Laytime, demurrage and despatch:

Laytime (“lying alongside time”): This is the period of time agreed between the parties (charterer and shipowner) during which the shipowner will make and keep the ship available for loading or discharging without the charterer paying additional freight.

Despatch: an agreed amount payable to the charterer if the charterer uses less than the agreed loading/discharging time.

Damages for detention: A loss caused by delay flowing from a breach of a different term - something other than the circumstances applying to the laytime/demurrage clause of the charterparty.

Commencement of laytime under a voyage charterparty; The ship must have arrived at the destination specified in the charter and must be ready and in a fit condition, both legally and physically, to load/discharge the cargo. The notice of readiness (“NOR”) must also have been given to the charterer which signifies that the ship has “arrived”.

Interruptions / exceptions to laytime: Interruption: periods of time where laytime does not run. Exception: periods of time within the definition of laytime but excluded by an exceptions clause. E.g. “any time lost through bad weather not to count as laytime”.

Under English law the laytime/demurrage clause in a sale contract operates independently of the position under the charter.

Topic Area 8. Insurance

Insurance is a way of managing risk and is a requirement under most Gafta contracts. It involves a separate contract which secures compensation for loss of or damage to goods on payment of a premium. The insurance contract effectively transfers a risk but at a price and the responsibility for insuring the goods, depends upon the type of contract.

CIF: Cost Insurance Freight. Seller is responsible. C&F: Cost and Freight. Seller to provide goods and transportation. Buyer to arrange insurance. FOB: Free on-board. Buyer arranges freight and insurance

There are various types of Insurance cover available. GAFTA Insurance Terms Form No. 72 contains 8 Sections detailing the impact of relevant insurance risks.” Insurance cover shall be provided in the proportions and manner agreed pursuant to the sale contract, including whenever incorporated by reference the clause(s) set out in the following sections.”

Section 1 – Cargo Clauses (All Risks) - The cover is limited to “maritime perils” which is defined in the Marine Insurance Act 1906 (England and Wales) Section 3(2) as “the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seisures, restraints, and detainments of princes and peoples, jettisons, barratry, and any other perils, either of the like kind or which may be designated by the policy.”

Section 1 – Cargo Clauses (All Risks) - Clause (No. 5) reads “This insurance is against all risk of loss or damage to the subject matter insured but shall in no case be deemed to extend to cover loss, damage or expense proximately caused by, Delay, Or inherent vice Or nature of the subject matter insured Claims recoverable hereunder shall be payable irrespective of percentage.”

Section 2 – Cargo Clauses With Average (WA) “Average” here is used to mean “loss”. “With Average” cover, is similar to All Risks but more restrictive in the cover it offers. The restriction to the cover offered is that the loss must exceed a specified amount of the total value of the goods - referred to as the “franchise” - before it will be paid.

Section 2 – Cargo Clauses Free from Particular Average (FPA) Particular in this sense means partial and only covers total loss in the majority of cases. This is the most restrictive type of cover available.

Incorporated within GAFTA Insurance Terms Form No. 72 is a Transit Clause which deals with the operations of loading and unloading and identifies the period when the goods are insured and when the cover stops. The terms also refer to Constructive Total Loss (CTL), where the goods are abandoned because their actual loss is unavoidable.

Seaworthiness Admitted Marine Insurance Act 1906 S. 39(1) In a voyage policy there is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured. The “Seaworthiness Admitted” clause.

Insurance Certificate is required under most Gafta Contracts. It is exchangeable for the policy and must identify the Insurer and the insured value.

Claims Some contracts of insurance make it a term, that the insurer’s liability is contingent on claims being notified within a short period. Time limits apply.

Subrogation Recovery by Insurer - An underwriter who pays a claim is subrogated to all the rights and remedies of the assured.

Topic Area 9. Payment Terms

Payment terms are not just about receiving money for the goods. Payment covers security, passing of title and a balancing of risk. However, there are competing interests of the parties - Buyer wants: To take delivery of the goods he has contracted to buy (quantity and quality) and then pay as late as possible. Seller wants: To receive payment as soon as possible and retain physical possession and legal title pending payment.

Key risks of the parties: Buyer risks paying for goods but either never receiving them or receiving goods of a lesser quantity / quality, than paid for. Seller risks shipping the goods and transferring title to the goods but not getting paid.

Most common forms of payment; Pre-payment, Letter of Credit, Cash against documents, Open Account.

Cash Against Documents. The seller presents documents for payment at a stated place. The buyer then checks the documents and pays accordingly as long as the documents are compliant. The seller then releases the documents to the buyer.

Documentary Letter of Credit L/C. Provides payment security in a contract to the seller. The buyer’s bank effectively guarantees it will make payment so long as the seller presents certain conforming contractual documents. It is a separate self-standing contract where the seller is guaranteed payment by a third party.

An understanding of the Key Terminology associated with L/Cs is essential i.e. who and what are the following; - The Parties, The Applicant, The Beneficiary, The Issuing Bank, The Advising Bank, The Confirming Bank, and The Nominated Bank?

Structure of a Credit Transaction

Seller and buyer agree a contract with payment by L/C. Buyer requests its Issuing Bank to issue an L/C – Bank’s own irrevocable undertaking to pay the Beneficiary (the seller) on compliance with conditions. Buyer agrees to indemnify the issuing bank and gives a pledge over documents. The L/C is then issued by buyers issuing bank and sent to seller’s local Advising Bank to be examined. The Advising Bank confirms the details with the seller and adds its own undertaking if it is to be the Confirming Bank. Seller then ships goods to buyer. Seller then presents the documents under the L/C to the Advising Bank, also called if nominated as the Nominated Bank (the paying bank). The Nominated Bank checks the documents and if in order, payment is made to the seller and the documents forwarded to the Issuing Bank where the documents checked again, and payment made to the Confirming Bank. The contractual documents are then released to the buyer against payment from the buyer and then the buyer uses those documents to obtain possession of the goods

Types of Letter of Credit; Revocable: Issuing bank can cancel Irrevocable: cannot be cancelled but only expire. Sight Credit or Usance Credit: L/C must indicate if available for payment at “sight” or upon deferred terms. Stand-by Letters of Credit: Called on only if the Buyer/debtor defaults in performance of the underlying contract. Confirmed L/C: Seller asks Advising Bank to confirm the credit without the authority from the Issuing Bank.

UCP 600 – The Uniform Customs and Practice for Documentary Credits: Is a set of agreed rules that apply to financial institutions which issue Letters of Credit. Many banks and lenders are subject to this regulation.

Topic Area 10. Exceptional Circumstances

English Contract Law; - Once a contract has been entered into, English law expects performance. However, there may be situations when the parties are prevented from performing due to no fault of their own. Unplanned events impacting on the execution of the contract are covered by the term ‘Force Majeure’.

Gafta Prevention of Shipment/Delivery Clause is a consolidated clause dealing with issues surrounding Prohibition, Force Majeure and Strikes. An event of Force Majeure would include; Prohibition of export, Blockade, Act of Terrorism, Hostilities, Strike/Lockout, Riots, Breakdown of Machinery, Fire, Ice Act of God. Proving an event of Force Majeure rests with the seller.

An example of a Force Majeure Event; Prohibition of export means any executive or legislative act done by or on behalf of the government of the country of origin where the port or ports named in the contract are situated. e.g. Bad Harvest in Russia leading to insufficient product for the domestic market, leading to a cap on exports.

Impact: No immediate cancellation of contract but the contract is suspended. Time is then given for the problem to be resolved as long as the correct contractual notices have been issued. If the problem persists, there is an option to cancel provided that again relevant notices are given and in time. If no notice is given to cancel, then the contract automatically comes to an end after an additional period of time. Ultimately, neither party has liability to the other for delay/non- performance.

Notices under this clause are very important to get right. They need to be served in time, to the correct party and conform to the process as laid down in the clause.

Notices: Time Limits: Sellers notify buyers that performance has been suspended with reasons. Notice within 7 days of occurrence or no later than 21 days before start of the shipment period, whichever is the later.

Frustration is a concept of English Law. In this context it is an external, unforeseeable, event without fault of either party, which makes contractual performance impossible. At which time the contract terminates, and the parties are exempt from further performance. However, it is rare for frustration to be applied by English courts

In practice, most commercial contracts will contain Force Majeure clauses – the right to terminate on occurrence of a specified event(s) (e.g. Prevention of Shipment)

Differences between Frustration and Force Majeure. Force Majeure allocates risks in advance, within the contract. If the ‘event’ falls within the Force Majeure clause, there is no frustration – the contract has already allocated risk and likely consequences. Frustration terminates the contract. Force Majeure doesn’t always terminate, but effectively suspends for a specified period of time.

The remedy for Force Majeure is contractual. Allocation of loss for frustration is statutory – Law Reform (Frustrated Contracts) Act 1943

Sanctions. A New Optional Clause exists within GAFTA Form 131 where the parties to the contract, agree to insert a clause that obliges the party not to put other party in breach of any sanctions. If a breach occurs, then the non- defaulting party may terminate the contract without further liability.

Topic Area 11. Breaches, default and damages

What happens when it all goes wrong, and your counterparty commits a breach of contract?

A protocol exists which is covered by the Gafta Default Clause which highlights a process of establishing a potential claim for damages. If a Default occurs, then the contract incorporating the relevant default clause will provide the actions to be undertaken by the innocent party and the timing of those actions following a breach.

Gafta Contract No. 100 Clause 23: states that the innocent party is entitled to recover in damages from the defaulting party the difference between the contract price of the goods and the market price of the goods on the date of the default

“(a) The party other than the defaulter shall, at their discretion have the right, after serving notice on the defaulter to sell or purchase, as the case may be, against the defaulter, and such sale or purchase shall establish the default price.”

Gafta No. 100 – Clause 23 (b) and (c):

“(c) The damages payable shall be based on, but not limited to, the difference between the contract price and either the default price established under (a) above or upon the actual or estimated value of the goods, on the date of default, established under (b) above”

There is no obligation on the innocent party to sell or purchase as per the Default Clause procedure – instead, they can pursue a claim in arbitration and produce to the arbitrators’ evidence of what the market price of the contract goods would have been at the time of default.

Gafta No. 100 – Clause 23 (d):

“(d) In no case shall damages include loss of profit on any sub contracts made by the party defaulted against or others unless the arbitrator(s) or board of appeal, having regard to special circumstances, shall in his/their sole and absolute discretion think fit.”

A feature of all Gafta contracts, CIF and FOB

GAFTA No. 100, Clause 23 (e): Quantity for measure of damages

"(e) Damages, if any, shall be computed on the quantity appropriated if any but, if no such quantity has been appropriated then on the mean contract quantity, and any option available to either party shall be deemed to have been exercised accordingly in favour of the mean contract quantity."

Gafta No. 100 – Clause 23 (f): Time limits for claiming default

Damages are compensatory: There are two types of compensatory damages: “Expectation losses” –to be put in the same position as if the contract had been properly performed; and “Reliance losses” – wasted expenditure.

To claim Damages there must be a contract and there must be a breach and the measure of any damages is governed by the Sale of Goods Act 1979:

Sections 50(2), 51(2) and 53(2)

“The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the [buyer’s/seller’s] breach of contract.”

Sections 50(3), 51(3) and 53(3)

“Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract and the market or current price of the goods” at the relevant time.

Frequently where there is no available market, the best measure of the actual value of the goods is often their resale price or the actual cost of obtaining substitute goods.

Recoverable Damages

General Damages: Damages which “naturally result … in the ordinary course of events” (SOGA section 50(2)) – in other words that which is foreseeable to a “Reasonable Person” in the market!

Liquidated damages are recoverable under English law, but penalties are not

Special Damages are recoverable if the defaulter had actual knowledge of special circumstances affecting the innocent party’s position.

Interest: Section 54, Sale of Goods Act 1979

Non - Recoverable Damages

Losses on sub-sales (lost profits). Expressly excluded by GAFTA terms unless there are special circumstances (Arbitrators' discretion)

Causation / Remoteness: Innocent party cannot recover losses which have not been caused by the breach. An independent act of a third party which occurs between the breach and the loss can “break the chain of causation” and prevent a recovery of damages.

Duty to Mitigate i.e. to take all reasonable steps to minimise loss. In any default situation no damages can be recovered for losses caused by the innocent party’s own action or failures to mitigate.

Topic Area 12. Dispute Resolution

In the event a dispute arises during the execution / delivery of a contract there are several methods available to facilitate a remedy. They include, Discussion and Negotiation, Mediation by a neutral third party, Arbitration, the Courts (litigation).

Arbitration; - Resolution of a dispute outside the courts in private where the parties agree to refer the dispute to a panel of one or more arbitrators. The parties agree to be contractually bound by the decision of the arbitrators which is legally binding. The advantages of arbitration include Neutrality, Confidentiality, Cost-effectiveness, Speed, Flexibility, Enforceability.

Possible Examples of Disputes; - Breach of contract (was there a contract?), Failure to Ship, Failure to pay.

Arbitration; - An agreement to arbitrate is included as a standard term in all Gafta Contracts and specifies the rules associated with arbitration in Arbitration Form No 125. The rules incorporate the relevant law and matters of jurisdiction, as well as the process associated with the Gafta two tier system of arbitration.

Two Tier System; - Involves an initial arbitration at first tier overseen either by a sole arbitrator or by a panel of three arbitrators known as a tribunal. Second tier involves a possible appeal overseen by an Appeal board of five arbitrators.

Procedure; Gafta Form 125, details the procedure to be observed in claiming arbitration and the process to be undertaken by both Claimant and Respondent. There are strict time limits for claiming arbitration

The Tribunal; - Generally, the Claimant appoints an arbitrator, the Respondent appoints an arbitrator and Gafta appoint the chair. The three appointed arbitrators must be neutral and have no connection to the case. The Tribunal determines the timetable and case management.

Submissions; - To establish the Tribunal, the Claimant pays a deposit and makes a submission detailing his view of the case. The Respondent then submits his defence and the Claimant then has a last right of reply. The Tribunal then determines if it has jurisdiction i.e. an ability to hear the case, and if so, then proceeds to make an award (judgement) The award is made in writing and sets out the decision along with reasons and includes remedies and costs.

Remedies would potentially include damages which may require consideration such as ascertaining a market price on the day of default to establish loss. The Tribunal has the power to award interest on any sums outstanding and the costs associated with the arbitration.

Appeals; - there is in the Gafta two tier system a right of Appeal which must be lodged within 30 days of the date of the arbitration award at first tier. Appellants pay a deposit and a Board of Appeal is appointed by Gafta. The Appeal takes the form of a new hearing of the case and the Board can confirm, vary, amend, or set aside the original award.

Enforcement; Most trading nations, but not all, have signed up to the New York Convention on the enforcing of arbitral awards.

Access to the Courts; - will only be granted by the courts under Gafta’ s two tier system, in the event of a serious irregularity during the arbitration / appeal, or the Tribunals’ / Appeal Boards’ failure to deal with the issues presented or under a point of law.

Gafta Simple Disputes – Rules No. 126; - this enables the parties to appoint a Sole Arbitrator under a fixed fee and fixed timetable. However, there is no right of appeal on the award issued.

Gafta Mediation Rules No. 128 Managed negotiation. Designed to lead to a binding settlement agreement. The mediator is NOT a judge. The Gafta mediator is Gafta’s General Counsel, Jonathan Waters. Controls the procedure: open sessions and separate meetings.

Introduction.
Topic Area 1. Basic principles of contracting
Topic Area 2. Basic contractual obligations (FOB/ CIF) and contractual terms

Distinction between Terms; -
The Goods, Description, Quality and Condition
Defining quality in contracts - Certification

Topic Area 3. Responsibility and risk

FOB Buyer – Principal Obligations;
FOB Seller – Principal Obligations;
CIF Seller - Principal Obligations;
Risks associated with the Goods
Risks associated with Shipment
Documentary Risks

Topic Area 4. Certification of Contracts - Instruction for supervision, sampling, analysis and fumigation

Superintendents’ Roles and Responsibilities
Responsibilities of those involved in the contract certification; -

Topic Area 5. Shipping Documents

Common Shipping Documents would include the following; -

Topic Area 6. Ascertaining the goods and the vessel
Topic Area 7. Charterparties, Laytime, Despatch and Demurrage.
Topic Area 8. Insurance
Topic Area 9. Payment Terms

Structure of a Credit Transaction

Topic Area 10. Exceptional Circumstances
Topic Area 11. Breaches, default and damages

Gafta No. 100 – Clause 23 (b) and (c):
Gafta No. 100 – Clause 23 (d):
Sections 50(2), 51(2) and 53(2)
Sections 50(3), 51(3) and 53(3)
Recoverable Damages
Non - Recoverable Damages

Topic Area 12. Dispute Resolution

hi I have 12 questions need answer for them please

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