29 Nov 2014

5 things to avoid when you draft the agricommodity sale contract (English Law incorporated).

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When it comes to sales contract preparation, there are certain mistakes / omissions we shouldn’t do to keep ourselves on the safe side and to make our contract works properly, as initiated during business conduction stage. Herewith, we would go through some of them.

1. To insert quality specifications into “Description of goods” clause.

By doing this, we, as sellers, exposure ourselves to default, because even minor discrepancy of the factual quality results (comparing to those which were agreed about) will entitle buyers to reject the shipment  on the grounds that shipped commodity does not correspond to the agreed specifications. Another words, it means that wrong commodity was shipped (not the one buyers intended to buy). “Description of goods” clause is the essential condition of the contract, therefore, if it is not complied with, consequences might be very tough.  In order to avoid them, we have to take quality parameters out of the  “Description of goods” clause and put them under “Quality and condition” or “Quality parameters” clause as the case may be.

2. When making a FOB contract, to give variety of loading places without specifying what party shall choose the exact one.

FOB sellers may face serious difficulties when buyers present the vessel to the loading place, other than sellers expected (although within the agreed range). When the variety of loading places is mentioned in the contract, it worth adding to the text that sellers are those who have to choose the only one (provided FOB sale was done basis 1 safe berth 1 safe port).  If not so specified, buyers are free to make this choice at their sole discretion. Sale of goods Act 1979 gives them this right, unless contract stipulates the contrary.

3. When we sell on FOB basis, we have to make sure that we are entitled to receive despatch for the saved time (if any).

The only lay-time settlements arise between FOB parties concern port of loading. Usual CIF remark: “Demurrage / despatch are as per relevant Charter Party” can leave sellers without despatch and shippers / loading terminal without bonuses for properly done job. It will happen when FOB buyers get into freight contract with free despatch condition. In such case pure reference tot he Charter Party would prevent sellers from receiving premium for quick loading. To earn despatch, sellers have to take reasonable care of stipulating in the contract: “Despatch half demurrage”. Even if reference to the Charter Party still exists, contract will prevail and entitle sellers to obtain earned money.

4. To incorporate unspecified GAFTA / FOSFA form.

If we want to apply GAFTA / FOSFA terms to the sale contract, merely making reference to the name of association is not enough. Exact number of contract form must be specified, as well as it worth mentioning that GAFTA / FOSFA form valid at the time of contract shall apply. This will make sure that any possible updates of the referenced forms (after contract signing), with which parties do not agree, would not complecate contract execution and / or cause any disputes.

5. To put contrary terms into the contract.

Whichever party prepares the contract, it has to run the terms conflict test (that is how I call it) to exclude any possibility of contradiction within the text. It would be tremendous loss of money, time and efforts to prove what part of the text prevails. To solve these disputes, parties would probably refer to Arbitration to find a way out, spending a lot of money for legal, while they could have avoided same by clarifying contract and keeping it free from ambiguous conditions.

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