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Of Counsel, ARBITRADE
Yuliya Chernykh has more than 15 years of practice in the field of international arbitration, litigation and international trade. She is Chartered Arbitrator (Chartered Institute of Arbitrators, UK). Yuliya received her legal education at the National University of Kyiv-Mohyla Academy, the Stockholm University and the University of Oslo. She also has the GAFTA Trade Diploma and served as a member of the GAFTA International Contract Policy Committee in 2013-2018.
GAFTA Qualified Arbitrator, Deputy Legal and GR Director, BUNGE (Ukraine)
Natalia Pylyptseva has over 13 years of experience in the legal profession in the agricultural sector, working for the two biggest grain trading and oil processing companies: Cargill and Bunge. She graduated from the Ukrainian National Economic University and the London School of Economics and Political Science. Natalia was a member of the GAFTA working group that worked on the development of GAFTA No. 78UA
Specialised Standard Contract for Ukraine: GAFTA No.78UA
This short article addresses the first ever specialized standard contract form for the sale of grain and feed designed specifically for Ukraine —
the so-called GAFTA No.78A. We will first provide a short introduction to GAFTA and its contract forms and then address particular features of GAFTA No. 78A and its importance for the commodity trade in Ukraine.
GAFTA — an Influential Player in Global Trade of Soft Commodities
The Grain and Feed Trade Association, or GAFTA, is an international trade association that unites over 1,900 members in 98 countries. GAFTA develops and maintains a range of instruments promoting and simplifying international grain and feed trade. The two most important are a portfolio of standard contract forms and industry-based ‘commodity arbitration’. The association enjoys wide support, as about 80% of the global grain trade is carried out based on the GAFTA standard contract forms.
GAFTA’s influence has grown over the course of a century. Its foundation was tightly connected with the so-called ‘first wave of globalisation’ in 19th century, which triggered sharp growth in world trade. Supranational legislation was not ready to accommodate and address the new economic realities, which meant traders were left with national legislation and conflict of laws that in turn added complexity, unpredictability and increased costs to international trade. All these factors forced corn merchants to establish the London Corn Trade Association (LCTA) in 1878, which developed trade rules for the whole industry. It is important because it was set up by traders, who transformed trade customs and practice into standard contract forms and established an adjudication body, which enforced these forms. In 1906 the group of traders formed from LCTA founded an association specializing in feedstuffs called the London Cattle Food Trade Association (LCFTA). By 1971, these two trade organizations had merged into GAFTA.
Within its long history the association has continuously performed the complex function of creating and regulating the global grain and feedstuffs market. By development of standard contract forms GAFTA has created an industry- specific transnational legal landscape. These standard contract forms have particular value for the trade. The grain market is characterized by high price volatility and once you have shaken hands it is important to fix the deal quickly so as not to miss out on a price advantage. Ready-made, updated and adjusted to a particular trade, standard contract forms help to meet this challenge as the parties are often familiar with their terms and need to have express agreement on minor specifications (for clarity we shall acknowledge that the parties are not precluded to modify the standard contract form and deviate from some of their provisions). The specially created committees consisted of both trade specialists and in-house legal professionals continuously reviewing trade practice and contract forms to make them consistent and properly reflect the needs of businesses in particular regions, or specific market needs as well as developing GAFTA case law.
English law regulates GAFTA standard contract forms, whereas the Vienna Convention of the International Sales of Goods (CISG), which is used in Ukraine, is expressly excluded. At the same time, customary rules that have emerged in the trade retain their primacy and visibility. By way of example, the GAFTA default clause, a provision regulating consequences of the serious contractual breach tantamount to repudiation, expressly excludes a possibility to recover lost profits. The provision specifically provides that the recovery of lost profits shall not be available to the innocent party except for a specific circumstance and if so decided just by arbitrators ‘in his/their sole and absolute discretion’.
Ukraine-Tailored Standard Contract Form
In September 2019, Ukraine received a specific standard contract form — GAFTA No.78UA. A reference to GAFTA No.78 in the title of the standard form shall not mislead. While GAFTA No.78UA is based on the original GAFTA No.78 form, this is a substantially reviewed and amended contract form that attempted to reflect the peculiarities of the grain trade in Ukraine as a so-called “CPT market”.
In short, the peculiarities of the Ukrainian “CPT market” can be summed up as follows:
– trade involves both rail and road transport;
– physical delivery is made before export customs clearance, which means a seller normally has an extended obligation on export formalities regarding goods that are already transferred to the buyer’s forwarder;
– the name “CPT market” essentially unites a group of delivery terms and include CPT, DAP, DAT, DDP, FCA.
As there were no GAFTA forms covering all peculiarities of this “CPT market”, each trader essentially created his own modification of the GAFTA No.78 standard form, which most closely fitted that particular purpose. As a result, thousands of non-standard contracts were created and the market was losing important commercial speed and negotiations got stuck around unfamiliar and individually drafted terms. A standard contract form specifically drafted for Ukrainian realities was needed, and the newly-drafted GAFTA No.78UA standard contract form came into existence.
GAFTA No.78UA Compared to GAFTA No.78
Below we list some of the particular features of GAFTA No.78UA which make it somewhat distinct from the original standard contract form GAFTA No.78. This part of the article bears technical peculiarities which will be of interest for readers involved in the grain trade in Ukraine or readers interested in the development of regional-specific standard contract forms.
The major changes in GAFTA No.78 UA span seven major areas:
Modes of transportation extended to road transport
GAFTA No.75UA has extended modes of transport to cover both rail and road. By comparison, GAFTA No.78 only covers rail transport. This approach did not match with trade practice in Ukraine where inland deliveries can be made by both rail and road transport.
Included delivery terms specific for the “CPT market”
GAFTA No.78UA has excluded DAF, DDU and added DAP, DAT to the existing FCA, CPT and DDP delivery terms.
Aligned quality and condition terms with specific delivery terms
GAFTA No.78UA has aligned quality and condition with delivery terms and market practice. Now, for CPT/FCA both quality and condition are final at the time of dispatch, while for the rest of the delivery terms (DAP, DAT, DDP) at the destination. For comparison, GAFTA No.78 provides that the quality shall be determined at loading and the condition is linked to the moment of dispatch regardless of the delivery term.
Amended rules on dispatch instructions
GAFTA No. 78UA has modified the rule on dispatch instructions. The characteristic ‘full’ has been excluded from dispatch instructions. The change is made to avoid any speculation on the scope of dispatch instructions. To be valid the instructions shall be just sufficient to allow Sellers to make the delivery.
Adjusted delivery date to delivery terms and introduced evenly spread quantities
GAFTA No.78UA has introduced a specific indication on the delivery date in regard of each delivery term. For instance, for FCA and CPT it is the date when the goods are dispatched, while for DAP, DAT and DDP it is the date when the goods arrive at their destination. Previously it was always the date of dispatch, and the delivery term was irrelevant. Furthermore, due to long discussions by the drafting committee on the allocation of the risk related to delays by Ukrainian rail, which are not attributed to any party but constitute an economic reality in Ukraine, the balance was found in evenly-spread quantities. In this way, GAFTA No. 78UA puts both parties on an equal footing: for Buyers to ensure availability of terminals/silos space to accept evenly spread lots, and for Sellers to ensure proper transportation planning and avoid last minute delivery.
Excluded option of payment against indemnity
Unlike GAFTA No.78, GAFTA No.78UA has a modified payment clause by excluding the sub-clause obliging Buyers to pay against indemnity if the transportation documents are not available. Such practice was not common for the Ukrainian market, and was excluded because of its impracticality.
Shortened timeline for the deemed date of default
While most of the Default clause remains unchanged, GAFTA No.78UA has shortened the period of 10 consecutive days to 5 consecutive days in the sub-clause (e) for the situation when the Seller shall be deemed in default in case the notice of the advice of the despatch is not passed on the Buyer. This development shall bring more discipline to notices on despatch between the parties.
As can be seen from this short overview, GAFTA No.78UA is not just a technical adjustment of GAFTA No.78, it is a substantially different contract form specifically created for and informed by the Ukrainian grain market. We see that the standard contract form is well put into practice in the year that has passed following its introduction. It remains to be seen how the particular provisions are tested in real disputes, something which only time will show.