GAFTA standard form contracts revise approach to force majeure

GAFTA standard form contracts have adopted new provisions relating to force majeure events. Parties relying on GAFTA standard form contracts should ensure that they are familiar with GAFTA’s revised approach.

21st July 2014

GAFTA standard form contracts have adopted new provisions relating to force majeure events. Parties relying on GAFTA standard form contracts should ensure that they are familiar with GAFTA’s revised approach.

From 1 June 2014 GAFTA standard form contracts have adopted a single ‘Prevention of Shipment/Delivery’ clause which deals with events previously covered under separate ‘Prohibition’, ‘Force Majeure, Strikes’ and ‘Loading Strikes’ clauses. The effect has been to introduce an overarching concept of ‘force majeure’ in all FOB, C&F and CIF GAFTA contracts.

The new clause expressly lists 12 events covered by the unified concept of force majeure. These include:

  • Prohibition of export
  • Blockade
  • Acts of terrorism
  • Hostilities
  • Strike, lockout or combination of workmen
  • Riot or civil commotion
  • Breakdown of machinery
  • Fire
  • Ice
  • Act of God
  • Unforeseeable and unavoidable impediments to transportation or navigation
  • Any other event comprehended in the term ‘force majeure’

Under the change in the GAFTA standard form contract, agreements will be suspended when a force majeure event prevents sellers from performing and notice is served on the buyers within the required timescale. Notice must be given within seven consecutive days of the event occurring or not later than 21 consecutive days before commencement of the shipment/delivery period, whichever is later. This position is a significant move away from the arbitrary termination of contracts which automatically followed a prohibition on export.

Buyers may cancel the contract by serving notice on the sellers if the event continues for 21 consecutive days after the end of the shipment/delivery period. They must serve notice on the sellers not later than the first business day after the end of the 21 day period. The contract will continue for a further 14 consecutive days if the buyers fail to exercise the option to cancel. After this time the contract will be automatically terminated if the force majeure event continues to prevent performance.

The sellers must notify the buyers if the force majeure event ceases before the contract has been cancelled. The sellers are then entitled to the greater of 14 days or as much time as was left for shipment/delivery before the force majeure event occurred to perform.

Although the unified concept of force majeure and simplified notification requirements are a welcome development for parties relying on GAFTA standard form contracts, both buyers and sellers should make sure they are familiar with the deadlines and notice periods set out under the revised ‘Prevention of Shipment/Delivery’ clause.