Содержание
This article will discuss how the Gafta extension of the delivery/shipment clause works. We will also examine whether the discount applies to the whole shipment or only to a portion loaded outside the original delivery period. Extension of delivery period clauses are contained in the most commonly used Gafta proforma. These are contracts 48, 49, 64, and 100. In this article, I use Gafta 48 for illustration.
General rules for extending the delivery period under Gafta
A typical extension clause in Gafta CIF and CFR contracts reads as follows:
Let’s break down the clause into parts. The first part answers the questions about how and when the extension applies:
It follows from the text that:
- The provisions on extension apply only if the shipment period is 31 days or less.
- The extension does not apply automatically. The seller must send a notice to extend it.
- The notice of extension shall be sent no later than the next business day after the end of the shipment period.
- The extension is a seller’s right, so it does not require the buyer’s consent.
- The original delivery time is extended by no more than 8 days.
- The number of days the shipment period is extended needs not be stated in the notice.
The second part concerns the effects of clause invocation. There are two points to be made here.
The first one is the issue of the discount. It depends on how many days the shipment period is extended:
- 1-4 days–0.50%
- 5-6 days–1%
- 7-8 days– 1.50%
As a general rule, the discount is applied to the total contract value. However, sometimes sellers say that most of the cargo was loaded on time and only a small remainder was loaded within the extension. Consequently, the discount should only be applied to the part loaded outside the original shipment period. This sounds logical, but the position is contrary to the Gafta provisions. At the same time, there are cases where it is true that a discount only applies to a part of the cargo. This will be discussed in more detail below.
The second point concerns the consequences when the seller has activated the extension clause but has not loaded the cargo even within the extended shipment period. In this case:
- The end of the shipment period is not the original date, but the date including the 8-day extension. For example, if the initial shipment period was until 12 April, then with the extension, it would be 20 April;
- The contract amount will be calculated taking into account the discount. For example, the original amount was 1 million, and it will end up being 1 million – 1.5%, i.e. 985,000.
This is relevant for calculating losses, which are usually calculated as the difference between the contract price and the market price at the date of default.
When does the discount apply to part of the cargo?
Let’s imagine that a contract calls for 120,000 tonnes of corn to be shipped during a year, ten thousand tonnes a month. The seller fails to deliver in August and demands an extension. In this case, the discount applies to the August shipment because each shipment is considered a separate contract and separate rights and obligations arise for each shipment.
Take another example. The contract calls for the shipment of 50,000 tonnes of wheat in January on CIF terms. The seller loaded 40,000 tonnes by 30 January and issued bills of lading. Then seller requests an extension, loads the remainder, and issues another set of bills of lading for the loaded portion. Finally, the seller sends two sets of bills of lading to the buyer and states that there were two separate deliveries under the contract, one of which was on time. Therefore, no discount applies to the first delivery. What happens in this case? Before answering the question, there are a few things to consider.
Firstly, partial deliveries are prohibited under English law unless otherwise provided for in the contract. However, on rare occasions, the parties may agree to partial deliveries by their conduct.
Secondly, issuing two (or more) sets of bills of lading for different parts of the cargo can be considered a significant breach of contract. As a result, the buyer can terminate the contract, refuse to accept the cargo and claim damages. The general rule under English law is that a bill of lading must be issued for the entire loaded cargo.
The seller’s position can only be correct under certain conditions. For example, if the seller has issued the first batch of bills of lading and the buyer has accepted and paid for part of the cargo without objection. In such a case, the buyer has, by his action, waived his right to terminate the contract and agreed to partial deliveries. In such a case, the discount will only apply to the part to be loaded.
If you require legal assistance regarding the Gafta extension clause, please contact me by e-mail, Telegram, or WhatsApp.
