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Oficina 2 – A CISG e outros modelos contratuais no mercado de granéis e commodities PALESTRANTE: FREDERICO FAVACHO.

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Presentation on theme: "Oficina 2 – A CISG e outros modelos contratuais no mercado de granéis e commodities PALESTRANTE: FREDERICO FAVACHO."— Presentation transcript:

1 Oficina 2 – A CISG e outros modelos contratuais no mercado de granéis e commodities PALESTRANTE: FREDERICO FAVACHO

2 LEGAL DEPARTMENT - BRAZIL 2 What are Commodities? Commodities are a range of primary resources that can be traded in quantifiable amounts and have minimum quality standards. The establishment of such basic parameters means that the commodities can be traded in large volumes or numbers in international commodity exchanges, with traders being reasonably certain that the commodities being traded are not deficient.

3 LEGAL DEPARTMENT - BRAZIL 3 Commodities may be divided into a number of classifications: agricultural commodities agricultural commodities (corn, coffee, cocoa, pork bellies, frozen orange juice, etc), energy commoditiesenergy commodities (oil, gas, etc) and metal commoditiesmetal commodities (gold, silver, iron ore, copper, etc). innominate commodities Commodities may be divided into a number of classifications: agricultural commodities agricultural commodities (corn, coffee, cocoa, pork bellies, frozen orange juice, etc), energy commoditiesenergy commodities (oil, gas, etc) and metal commoditiesmetal commodities (gold, silver, iron ore, copper, etc). innominate commodities

4 LEGAL DEPARTMENT - BRAZIL 4 Commodity Market This market is comprised of a number of international commodity exchanges, notable ones being the Chicago Mercantile Exchange, the New York Mercantile Exchange and the London Metal Exchange. Officials of each exchange act to regulate transactions, amongst their responsibilities being the duty to ensure that the commodities traded meet minimum quality and quantity standards.

5 LEGAL DEPARTMENT - BRAZIL 5 Trade Associations Trade associations operating commodities market developed rules as to: the contracts to be used how transactions were to be effected clearing and settlement systems arbitration

6 LEGAL DEPARTMENT - BRAZIL 6 Standardization and Variation Contracts have evolved over many years to reflex the way in which international trade is customarily conducted Are regularly updated and amended to take account of legal decisions made by the Courts or changes in circumstances in the trade generally or in a particular sector To those who have been closely involved to the development of these contracts, the intentions behind the clauses and the interpretation to be given to the wording are well understood. Each contract is complete in itself. It sets out in details the precise terms on which any two parties can enter into an international transaction in relative safety of knowing that all the likely essential elements and points of potential controversy have been covered Parties are free to use the general basis of the contracts but to add, delete or amend any of the clauses at will

7 LEGAL DEPARTMENT - BRAZIL 7 Standard Terms and Inconterms Trade terms are key elements of international contracts of sale since they tell parties what to do with regards to the carriage of the goods from the seller to the buyer and the export and import clearance They also explain the division of costs and risks between the parities But trade terms constitute only a part of the contract of sale Inconterms are a set of standard trade terms, limited in their application to defining the rights and obligations of parties to contracts Inconterms will not apply to Contract unless specifically incorporated.

8 LEGAL DEPARTMENT - BRAZIL 8 Standard Contract Forms Standard Contract Forms can be considered into three sections: Contract Specific Terms Standard Performance Terms and What if clauses

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12 LEGAL DEPARTMENT - BRAZIL 12 Key elements –None of the parties at fault –Impossible to perform or radically different to what agreed Examples –Performance of contract becomes illegal (e.g. sanctions) –Destruction of the subject matter Effect –Contract comes to an end automatically –No positive act required Frustration

13 LEGAL DEPARTMENT - BRAZIL 13 –Difficult question: whether a contact is frustrated by delay often a question of degree requires abnormal delay more likely if delay exceeds period of performance Nature of goods taken into account (eg concrete blocks vs soyabeans) –Limited role where contract provides for catastrophic events e.g. force majeure clauses –FM clause may exclude the doctrine of frustration depends on how catastrophic the event is depends on how clear the words used are Frustration

14 LEGAL DEPARTMENT - BRAZIL 14 –Literally means “superior force” –As a matter of English law, it is purely a creature of contract. There is no general or implied concept of force majeure –Clause operates only in the contractually specified circumstances e.g. war, strike or riot act of God Break down of plant or machinery Unavailability of raw materials Force Majeure

15 LEGAL DEPARTMENT - BRAZIL 15 –Effect depends entirely on nature/wording of clause: may excuse performance while the FM event continues, but can excuse performance after FM event has ended if problems are caused by FM event may only excuse performance from notice of FM event being given, but can excuse performance from commencement of FM event –If a party wishes to rely on a force majeure clause, it must follow the provisions strictly. –It is vital that a party considers the risks and drafts/negotiates the FM clause with these in mind Force Majeure

16 LEGAL DEPARTMENT - BRAZIL 16 Specific example: FOSFA 4 FOSFA 4: “25. STRIKES, ETC/FORCE MAJEURE… (b) For delivery from any other origins – Should Sellers be prevented from loading the goods on board Buyers’ ship or should Buyers be prevented from taking delivery by reason of fire, strikes, lockouts, riots, civil commotion or any cause comprehended in the term Force Majeure, at the port/s of loading or elsewhere preventing transport of the goods to such port/s, the contract delivery period shall be extended by 60 days. If the Force Majeure event ends less than 21 days before the end of the extended delivery period, then a further 21 days shall be allowed after the termination of the Force Majeure event. Should loading or delivery not be possible within this extended delivery period, contract to be void.”

17 LEGAL DEPARTMENT - BRAZIL 17 " 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. Specific example: GAFTA

18 LEGAL DEPARTMENT - BRAZIL 18 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.” Specific example: GAFTA (part 2)

19 LEGAL DEPARTMENT - BRAZIL 19 –Committed when either party fails to perform the contract according to its “terms” –What are the terms? » Express (written/oral) » Implied by law » Implied by statute Breach of Contract

20 LEGAL DEPARTMENT - BRAZIL 20 Key points: –There are three types of contractual term: Conditions, Warranties and Innominate terms. –Labelling is not conclusive – the starting point is to consider the parties’ intentions, but generally treated as such. –Repudiatory breach justifying termination – must be a breach of a vital term (eg. a condition). Conditions, Warranties and Innominate Terms

21 LEGAL DEPARTMENT - BRAZIL 21 –Major or fundamental terms, breach of which will entitle innocent party, in addition to a right to sue for damages, to treat contract as repudiated. If any of the following apply: 1.Statute or case law expressly provide a term is a Condition. 2.Contract provides expressly that breach of the term entitles termination. 3.The contractual wording indicates an intention of the parties that this is a term, the breach of which would entitle termination. 4.Nature of contract/subject matter/surrounding circumstances. Conditions

22 LEGAL DEPARTMENT - BRAZIL 22 An event upon which an obligation or obligations of one or the other party, or of both parties depend. NOR – “Buyer shall give at least 15 days Notice of Readiness of vessels”. Bunge Corp v. Tradax Export SA [1981] 1 W.L.R HELD : To be a condition by the House of Lords. Examples of breaches of conditions:

23 LEGAL DEPARTMENT - BRAZIL 23 1.The giving of ETA’s on a reasonable and honest basis : “BALEARES” [1993] 2.A letter of credit has to be provided on time. Vitol SA v. Conoil [2009] 3.Shipment period 4.Quantity outside margin Other examples of conditions by case law:

24 LEGAL DEPARTMENT - BRAZIL 24 Minor, or less important terms, breach of which entitles innocent party to sue for damages. A party might warrant: That it has obtained all approvals necessary for entry into a contract. As to, say, the Ownership of the Vessel. Warranties

25 LEGAL DEPARTMENT - BRAZIL 25 Firstly, a court must ask whether the term broken is a condition or warranty? Any term not so classified, will be an innominate term. The rights arising on the breach of an innominate term depend on the NATURE and CONSEQUENCES of that breach. Breach of an innominate term, therefore, may or may NOT entitle the innocent party to treat the contract as discharged. Innominate Terms

26 LEGAL DEPARTMENT - BRAZIL 26 Lord Wilberforce said that the Courts: “Should not be too ready to interpret contractual clauses as conditions.” BUT he went on to say that he did not doubt: “… that in suitable cases the courts should not be reluctant, if the intentions of the parties as shown by the contract so indicate, to hold that an obligation has the force of a condition.” Bunge Corp v. Tradax Export SA

27 LEGAL DEPARTMENT - BRAZIL 27 The leading case on the innominate term is this shipping case. Defendants chartered ship from claimants for 2 years. 20 weeks were lost. Court of Appeal found that the breach did not deprive the defendant of substantially the whole benefit of the Contract and so it did NOT justify termination. Hong Kong Fir Shipping Co Ltd v. Kawasaki Kisen Kaisha Ltd, CA (1962)

28 LEGAL DEPARTMENT - BRAZIL 28 1.What a term is labelled is not absolutely conclusive. 2.Increasingly the Courts will look to the effect of a breach on the innocent party before designating it as a condition or warranty, and thus determining the legal consequences of the breach. 3.When contracting regarding performance, if entering into a condition, be confident you can comply with it. Key Points

29 LEGAL DEPARTMENT - BRAZIL 29 Beware because these are all conditions. To avoid questions arising regarding satisfactory quality/fitness for purpose, the usual practice is to exclude these. An example exclusion is as follows: “There are no representations, duties (whether in negligence or otherwise), conditions, guarantees, warranties or terms, as to the description or satisfactory quality, fitness or suitability of the [product] for any purpose whatsoever, or otherwise relating to the quality of the oil, which extend beyond the description of the oil appearing in the agreement”. This clause, therefore, excludes any implied terms as to Quality. Statutory implied terms

30 LEGAL DEPARTMENT - BRAZIL 30 S12 – Seller must own goods at time property will pass to buyer S13 – A condition that the goods conform to their description S14(2)(A) – A condition that the goods are of satisfactory quality S14(3) – A condition that the goods will be reasonably fit for purpose S30(1) – goods must not be of less than contractual quantity The Sale of Goods Act 1979

31 LEGAL DEPARTMENT - BRAZIL 31 The mechanisms by which parties in a commodity international contract resolve their disputes remain to a great extend those set out in the arbitration rules of the major commodity associations, based in London Commodity arbitration continue to be rather different to standard commercial arbitrations under, for example, the LCIA and ICC rules. Consequently there ar many potential pitfalls for the uninitiated Arbitration

32 LEGAL DEPARTMENT - BRAZIL 32 Arbitration Commercial rather than Legal Tribunals Curtailed time limits for initiating arbitrations Multi-tier arbitrations incorporating Appeal procedures The exclusion of legal practitioners from oral hearings String arbitration / One biding award Default posting

33 LEGAL DEPARTMENT - BRAZIL 33 When parties agree to incorporate the arbitral rules of a specific trade organisation (e.g. FOSFA), such rules can dictate the time period by which a party must make a claim against their contractual counterparty. Without the incorporation of specific arbitral rules, the standard time limits operating at law are as follows: »Limitation Act: Contract/Tort claims – 6 years. »From a shipping context, beware of Hague/Hague-Visby conventions – 1 year, and Collision – 2 years (need to be checked individually). »Also, demurrage time limits, which are usually very short (but time stops running on presentation of a claim). What are “time bars” and why are they important?

34 LEGAL DEPARTMENT - BRAZIL 34 A time bar for commencing arbitration is usually stopped by one of the following: »Commencing an arbitration; or »Agreeing an extension of time (only if allowed). If neither of the above are done within the time bar, a party may lose their right to make a claim against their contractual counterparty (often referred to as a claim being “time barred”). Important: »(1) for commercial certainty – no liability years later. »(2) to beware of them to avoid losing the right to claim. What are “time bars” and why are they important?

35 LEGAL DEPARTMENT - BRAZIL 35 Type of ClaimTime limit Against seller for quality/condition of the cargo Within 21 days from completion of discharge Against buyer or seller for monies dueNot later than 60 days after the dispute has arisen Other CIF or similar claims (not quality/condition/monies due) Not later than 120 days after (i) expiry of contract period of shipment; or (ii) completion of discharge Other FOB claims (not quality/condition/monies due) Not later than 120 days after expiry of contract period of shipment On any other terms (not quality/condition/monies due) Not later than 120 days after last day of contractual delivery period Specific FOSFA time limits

36 LEGAL DEPARTMENT - BRAZIL 36 Type of claimTime limit Disputes arising out of the “Rye Terms” clause 10 th consecutive day after the date of completion of final discharge Claims arising out of certificates of analysis (where allowances are not fixed by the terms of the contract) 21 st consecutive day after the date the final certificate of analysis is received by the Claimant All other quality and/or condition disputes21 st consecutive day after the date of completion of final discharge/delivery/destuffing of the container(s) CIF, CIFFO, C&F and similar (other disputes) 1 year after (i) the date of the last bill of lading or (ii) the expiry of the contract period of delivery (including extension if any) whichever is earlier FOB (other disputes)1 year after (i) the date of the last bill of lading; or (ii) the expiry of the contract period of delivery (including extension if any) whichever is earlier Any other terms (other disputes)1 year after the last day of the contractual delivery, collection or arrival period Non-payment of amounts payable60 consecutive days from the notice that a dispute has arisen (as provided for in the payment clause in the contract) Specific GAFTA time bars

37 LEGAL DEPARTMENT - BRAZIL 37 Type of ClaimTime limit If the cotton is country-damaged when it arrives 7 days after weighing or devanning, whichever is later (but always within 42 days from the date of arrival) Claim for false packed, mixed packed or plated bales 26 weeks from the date of arrival of the cotton Unmerchantable cotton26 weeks from the date of arrival of the cotton Foreign matter in the cotton26 weeks from the date of arrival of the cotton Internal moisture42 days from the date of arrival of the cotton Specific International Cotton Association Bylaws Note: Other stipulations as to time (e.g. availability of cotton for inspection/return and keeping the cotton available for inspection/return )

38 LEGAL DEPARTMENT - BRAZIL 38 Serve a claim for arbitration by “rapid written communication”. In practice, this generally means: Appoint an arbitrator. Request that they appoint an arbitrator. Make it clear that you are referring the issue/dispute to arbitration. Identify the dispute and provide sufficient detail. By (or alternatively fax). How do we interrupt the time bar under FOSFA rules?

39 LEGAL DEPARTMENT - BRAZIL 39 In certain circumstances, Party A in a sale chain may commence against Party B, but Party B may have entered into a contract back-to- back with Party C. How should this be dealt with? Consult in-house lawyers immediately or external lawyers as appropriate. »Consider time bar? »Pass on the claim immediately? »Also appoint an arbitrator? »Consider other types of claim? Note: FOSFA Arbitrators have a discretion to extend time bars. Points to note about chains of sale

40 LEGAL DEPARTMENT - BRAZIL 40 1.Enforcement issues – Consider domicile of contractual counterparty when commencing a claim. 2.Systems in place to flag up unpaid invoices within the contractual time bar. 3.Being aware of differences between contracts when entering into “back-to-back” deals. 4.In cases where delays are envisaged with loading (even if it is simply a “paper” deal), consult in-house lawyers. »e.g. where Force Majeure to potentially be relied on. Other “Red Flags” to beware of

41 LEGAL DEPARTMENT - BRAZIL 41 Sources SWANGARD, Michael – Commodity Arbitration in Arbitration in England with chapters on Scotland and Ireland Kluwer Law International BV, The Netherlands, pag. 105/144 GAFTA - The Grain and Feed Trade Association. London. FOSFA INTERNATIONAL – Federation of Oils, Seeds and Fats Association Ltda. London. ANEC – Associação Nacional dos Exportadores de Cereais.

42 LEGAL DEPARTMENT - BRAZIL 42 OBRIGADO


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