Type: Client Alerts
Introduction The Grain and Feed Trade Association ("GAFTA") contracts have traditionally dealt with the consequence of Prohibition, Force Majeure and Strikes by way of independent stand-alone clauses. As of 1 June 2014, a single consolidated clause will replace such individual clauses in both CIF and FOB contracts. This will be effective for all contracts incorporating GAFTA contracts entered into after 1 June 2014.
In this briefing we introduce the new Prevention of Shipment Clause (the “New Clause”) applicable to CIF contracts and highlight some of the aspects to look out for. The same wording is used for the FOB contracts (Prevention of Delivery clause), with the difference being in terms of Delivery rather than Shipment.
In general, an amalgamated clause is (in our view) better than separate Force Majeure and Prohibition clauses, creating a consistency in dealing with different events preventing shipment.
It is important to note that the clause is still for the Seller only: there is no possibility of a Buyer claiming Force Majeure.
A New “Prevention of Shipment” Clause
The New Clause provides as follows:1
"PREVENTION OF SHIPMENT
“Event of Force Majeure" means (a) prohibition of export, namely an 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 named herein is/are situate, restricting export, whether partially or otherwise, or (b) blockade, or (c) acts of terrorism, or (d) hostilities, or (e) strike, lockout or combination of workmen, or (f) riot or civil commotion, or (g) breakdown of machinery, or (h) fire, or (i) ice, or (j) Act of God, or (k) unforeseeable and unavoidable impediments to transportation or navigation, or (l) any other event comprehended in the term "force majeure".
Should Sellers’ performance of this contract be prevented, whether partially or otherwise, by an Event of Force Majeure, the performance of this contract shall to the extent of such prevention be suspended for the duration of the Event of Force Majeure, provided that Sellers shall have served a notice on Buyers within 7 consecutive days of the occurrence or not later than 21 consecutive days before commencement of the shipment period, whichever is later, with the reasons therefore.
If the Event of Force Majeure continues for 21 consecutive days after the end of the shipment period, then Buyers have the option to cancel the unfulfilled part of the contract by serving a notice on Sellers not later than the first business day after expiry of the 21 day period.
If this option to cancel is not exercised then the contract shall remain in force for an additional period of 14 consecutive days, after which, if the Event of Force Majeure has not ceased, any unfulfilled part of the contract shall be automatically cancelled.
If the Event of Force Majeure ceases before the contract or any unfulfilled part thereof can be cancelled, Sellers shall notify Buyers without delay that the Event of Force Majeure has ceased. Sellers shall be entitled, from the cessation, to as much time as was left for shipment under the contract prior to the occurrence of the Event of Force Majeure. If the time that was left for shipment under the contract is 14 days or less, a period of 14 consecutive days shall be allowed.
The burden of proof lies upon Sellers and the parties shall have no liability to each other for delay and/or non-fulfilment under this clause, provided that Sellers shall have provided to Buyers, if required, satisfactory evidence justifying the delay or non-fulfilment.”
Whilst the New Clause appears on its face to be simply a merger of the of previous Prohibition, Force Majeure and Strikes clauses, there are some important points which need to be borne in mind.
Points to look-out for
Conclusion GAFTA has introduced a greater degree of uniformity in dealing with situations that result in the prevention of shipment/delivery. Given the different format and requirement of the previous clauses, it is important that all users of GAFTA contracts now familiarise themselves with changes embodied in the New Clause and take care when considering giving notices/using the clause. We anticipate, over time, that less significant claims by Sellers for Force Majeure/Prohibition relief will be successful under this New Clause.
Download the PDF to view previous alerts on Force Majeure issues.
1. Note however that whilst Contracts 47, 49 and 78 are also based on the CIF clause, the wording is slightly different to reflect their specific contents.