Reed Smith Client Alerts

On 1 September 2017, the Grain and Feed Trade Association (Gafta) introduced an amendment to its nomination clause in some (but not all) of its fob contracts. The result: an fob buyer is no longer required to give new contractual pre-advice in order to validly substitute its nominated vessel. This client alert discusses an fob buyer’s right to substitute a vessel across a number of different terms and commodities, and the contractual effect of amending the usual English law position. It also touches on the other contractual amendment introduced by Gafta: a phytosanitary certificate clause.

Buyer’s Right to Substitute

Gafta’s contract amendment to its nomination clause effective 1 September 20171 favours fob buyers and makes late vessel substitutions much easier for the buyer. Gafta’s amendment to its nomination clause is a response to the practical view of the trade: soft commodities buyers often struggle to understand what prejudice would be suffered by an fob seller by the buyer substituting one suitable vessel for another, even at a very late stage. There is often no real prejudice suffered by sellers when an fob buyer wishes or is forced to substitute a vessel. An obvious exception would be Argentinian grain contracts, which are often subject to strict port requirements requiring vessels to wait before proceeding upriver to the terminals. Accordingly, Gafta Contract No. 38 is not affected by these amendments.

Substitution of vessels is a fertile ground for mistakes, disputes, terminations and delays. It is important to get any substitution right in terms of both timing and information given to avoid disputes.