At the 2017 annual convention in Vancouver, GPC launched new standard contract terms for foreign trade in pulses called GPC Pulse Contract # 1 with the aim to make the contractual obligations in world pulse trade more certain and more transparent.
GPC Pulse Contract # 1 is a contract for full container loads (FCLs) bulk or bagged CIF / C&F terms. The contract is effective July 13, 2017. The contract terms were designed in association with GAFTA. Contract performance issues were discussed during the launch of the new contract. A panel of experts explained and clarified a number of questions that delegates raised. Two themes – What is Force Majeure and the Differences between Gafta 125 and Gafta 126 – deserve specific attention.
Jonathan Waters, General Counsel, GAFTA, provides his generic response.
1. What is Force Majeure?
Force Majeure is an exceptional event, outside the control of both parties, which prevents performance of the contract and releases both parties from their contractual obligations without either being in breach of contract.
Force Majeure clauses are common in commodity contracts – including the new GPC contract and in all Gafta standard contracts. Common examples of Force Majeure include: acts of terrorism, acts of God, strikes, riots and Government legislation prohibiting or restricting exports. An ‘Act of God’ is a phrase which covers natural disasters which are outside of human control – for example, a hurricane or a tsunami.
A party seeking to claim Force Majeure would have to prove that the event in question fell within the contractual definition of force majeure and prevented performance of the contract. In addition, if the Force Majeure clause included an obligation on the party claiming Force Majeure to give notice to their Counter Party, then the notice provision would have to be strictly observed.
If it is not, the ability to claim Force Majeure is highly likely to be lost. In Gafta contracts, there is a separate Notices clause which requires all notices to be given in writing. Oral notice, for example, given during the course of a telephone call, would be ineffective.
As a successful Force Majeure claim enables a party to, effectively, ‘walk away from a contract’, it is sometimes relied upon, incorrectly, when a party attempts to get out of an unprofitable contract. In practice, there is a high burden of proof required before a court or an arbitration tribunal will accept a Force Majeure argument.
A party who incorrectly claims Force Majeure and walks away from a contract will be at risk of a claim for damages for breach of contract. A party wishing to claim Force Majeure must seek independent legal advice before taking any action.
2. Differences between Gafta 125 and Gafta 126
Both 125 and 126 are arbitration clauses, requiring a party to submit the dispute to Gafta arbitration for resolution. Generally, claims under Gafta 126 are quicker and cheaper. On average, the cost of a 125 claim (excluding legal costs) is US$ 11,500 whereas the cost of a 126 claim (excluding legal costs) is US$ 7000. 125 claims are normally held before a Tribunal of 3 arbitrators (although, it is possible to have a single arbitrator if both parties agree (unlikely, in practice)) with a right of appeal to a Gafta Appeal Board. 126 claims, however, are held before a single arbitrator, generally appointed by Gafta, with no right of appeal. The intention of 126 is to provide a quick and final determination of a dispute.
Please note that the above is a very brief summary of the key differences. Both the Gafta 125 and 126 Rules are available, free of charge, in the Contracts section of the Gafta website (www. gafta.com).
The GPC contract requires the parties to first consider Gafta Mediation before proceeding to 126. Gafta mediation can be provided by Gafta`s General Counsel, Jonathan Waters, who is a barrister, and is available at a fixed price of approximately US$ 1250 plus 20% VAT.
Another question of general interest relates to whether or not contracts can be clubbed together for purpose of arbitration. Jonathan Waters provides opinion.
GAFTA: 'Each Contract Stands on its Own' -v- Consolidated Arbitration
Q: If there is a string of similar contracts where difference is immaterial (say different contract for each shipment position), in case of dispute will Gafta "link" these different contracts and agree to one consolidated Arbitration hearing?
A: Gafta follows the traditional principle 'Each Contract Stands on its Own'. However, in circumstances where a Claimant has a number of claims arising under a number of separate contracts (containing materially identical terms), then Gafta has the right to consolidate what would otherwise have been a number of separate hearings. The advantage to the Claimant is not only a reduction in the arbitration costs but also those of efficiency and consistency – the same Arbitrator(s) having the jurisdiction to hear all of the claims.
For information: In the above situation, if the Arbitrator(s) agree to consolidate multiple cases under one Gafta reference, then Gafta will only issue one award, making reference to the separate contracts. If the Arbitrator(s) agree to run multiple cases concurrently then the hearings and timetables will run together but separate awards will be issued for each Gafta reference. The Arbitrator(s) and Gafta will make this clear during proceedings.
Disclaimer: The opinions or views expressed in this publication are those of the authors or quoted persons. They do not purport to reflect the opinions or views of the Global Pulse Confederation or its members.
