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The Buyers and the Sellers have for many years had an established trading relationship whereby the sellers buy Ukrainian corn according to a standard specification, cash against documents, on CIF terms incorporating GAFTA 48. The business is usually agreed on the telephone and confirmed by email. All that it is necessary to discuss and agree, on each particular occasion, are the price, the quantity and the delivery period. Usually, a confirmation note is drawn up by Sellers, signed by them and sent to the buyers for signature. The buyers usually sign and return the confirmation note but sometimes do not.
The following communications take place:
1. 2 January, email Sellers to Buyers:
“We can offer you 5,000mt for shipment 15-31 January at US$160 per metric ton CIF your usual destinations.”
2. 3 January, email Buyers to Sellers:
“We agree, but is it ok to pay 30 days after BL instead of CAD? If so then we agree but for good order’s sake please send us a full confirmation note.”
3 January, email Sellers to Buyers:
“Yes, that is fine’.
Later that day the Sellers send out a full confirmation note by way of an email attachment. It corresponds exactly with the previous contacts as regards the documents to be presented. It specifies 5,000 metric tons, a price of US$160 CIF “one/two safe Black Sea/Eastern Med. ports”. The shipment period is 15-31 January and payment cash against documents.
3. 4 January email Buyers to Sellers:
“Thanks, your email. Your confirmation note seems to be in order but we will revert soonest and in any event within tomorrow if we have any comments.”
4 There is nothing further from the Buyers and on 6 January the Sellers draw up and sign a contract in identical terms to the one they sent by email on 3 January.
They send this contract to the Buyers by courier and it arrives in the Buyers’ offices on the afternoon of 7 January. In the meantime, the Sellers, on the morning of 7 January have sent the Buyers an email reading as follows:
“We regret that due to the sharp increase in freight rates in the last few days the freight element of our contract has to be increased by US$5 per metric ton. Please, therefore, ignore the signed contract we sent you by courier today. We are drawing up a new contract and will send this to you today”
5 The Buyers respond the same day saying that there is a binding contract and that the Sellers have no right to seek to renegotiate the terms of it
Please explain why you believe there is or isn’t a contract. In your discussion, outline what the terms of the contract are and why.
The contract is binding according to the terms of GAFTA 48, as (f) condition of the appropriation section states that notice of appropriation shall be open to correction in a can of any errors, providing that the sender is not responsible for the said errors and for any previous error which has been repeated in good faith. However, in the given scenario, the sender is responsible for the error, therefore the contract is not open for correction and can be binding if the buyer wants it to be. Moreover, the (h) clause mentions that once a valid notice of appropriation has been received by buyers, it cannot be withdrawn without the connecting of the buyers and in this case, the buyer does not want the sender to withdraw the notice of appropriation. In this case, the seller has signed the contract which states that the seller will send 5,000 metric tons Ukrainian corn, a price of US$160 CIF “one/two safe Black Sea/Eastern Med. ports”.
The shipment period is 15-31 January and payment cash against documents. By contract became binding one the seller signed it and since the buyer is not authorizing any changes in the contract, the seller cannot change the details regarding the freight element. Therefore, there is a contract with the aforementioned terms agreed by both parties. The seller can seek arbitration or legal help but until then he is legally bonded by this contract which states that he agrees to bear the cost, freight and insurance and does not have the right to seek negotiations in the terms of the contract. The previous course of dealings is also applicable in this case as there is a circle of contract and the seller is expected to bear the cost of freight and buyer is expected to not send the confirmation note. This also adds to the previous argument and makes this a binding contract.
You have sold a cargo of New Zealand Barley, CIF Jeddah, cash against documents, to Intergalactic Commodities Inc (“Igcom”). Gafta 100 is incorporated into the contract. You are the shippers and ship on MV “SEA QUEEN” which you have on time charter.
Nothing official has been announced but there are rumours in the market that Igcom is in financial difficulties. You decide, as a precaution, not to present the shipping documents until Igcom’s financial situation becomes clearer. You instruct the master of “SEA QUEEN”, on arrival at Jeddah, not to open the vessel’s hatches without further instructions.
You tell Igcom of your decision and that the documents will only be presented and “SEA QUEEN” will only be permitted to discharge if Igcom pays before the presentation of documents or if they provide a bank guarantee of payment.
Please explain whether you believe that you are entitled to do what you have done?
To not open the vessel or presenting the document is not something the seller is entitled to do as according to the payment clause of the said contract the seller can ask for payment in exchange for and on the presentation of shipping document. Also, in exchange for the shipping document before or on the arrival of the vessel at buyer's destination, the seller can opt for calling upon the buyer to pay for and take up documents after or on consecutive days form the mentioned date of the bill of landing. The seller is entitled to payment on after exchanging or presenting shipping documents.
You are the Buyer. You have bought a quantity of US No. 3 Hard Amber Durum wheat for September shipment C&F, no extension on the basis of Gafta 30.
The goods are shipped and in early October you receive some disturbing news from your agents at the load port:
1. MV “SEA DOG” only berthed late on 30 September and did not commence loading until the following morning.
2. During loading, there was a sudden rain heavy storm. Rainwater found its way into several of the vessels holds.
3. Immediately on sailing the MV “SEA DOG” had a fire in her engine-room, forward by the bulkhead dividing the engine-room from the aftermost cargo hold, no 5. The vessel will require extensive and time-consuming repairs and the cargo in the hold no 5 has been heating damaged.
In respect of each of the above 3 individual factors reported to you by your agent, explain, with reasons whether the event described entitles you to reject the documents?
In this scenario, the clause related to “Event of Force Majeure” is applicable which mentions the proceedings related to the contract in case certain unforeseen incidents occur such as heavy storm, fire etc. In this scenario, the seller needs to serve a notice to the buyer regarding their inability to fulfil the terms of the contract. Also, in case the unexpected event lasts for 21 consecutive days after the end of the period for shipment, the buyer can cancel the unsatisfied part of the contract by notifying the seller of the same after the expiration of the 21-day period. However, if the buyer has not opted for cancellation then the contract remains valid for another 14 days after which the unfulfilled part of the contract is automatically cancelled. Moreover, the burden of proof in these cases lies on the sellers and unless the seller has provided satisfactory evidence to justify the non-fulfilment or delay, liabilities can be levied on parties involved in the transaction.
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