At the beginning of September Gafta announced the introduction of its new contract No. 78UA (“Gafta 78UA”), effective for contracts entered into on or after 1 September 2019. What is special about this new contract form and what should the market know about it?
Gafta 78UA is specifically designed for the Ukrainian market. The idea of creating this specific contract has its roots in the unique delivery practices for goods, by using wagons and cars. It is commonly known in Ukraine as a “CPT market”.
The Ukrainian CPT market has its own peculiarities in the sense that it has a long history of using Gafta contract No. 78 (contract for goods by rail) for inland deliveries from silos to seaports and terminals or the state border of Ukraine. In other words, Gafta contracts and English law are frequently used for agreements that are fully performed within the territory of Ukraine and its jurisdiction. This entails a number of Ukrainian features and specifics that are not reflected in standard Gafta contracts, such as complex logistics, terminals’ work and other. For this reason, actual trade contracts usually run for more than 10 pages, despite the incorporation of Gafta 78.
The market, therefore, saw the need to adapt the standard Gafta contract to Ukrainian realities. A working group was set up under the auspices of the Kyiv Gafta office and the supervision of Gafta’s International Contracts Committee.
Introduction of cars
One of the alterations made in Gafta 78UA is the introduction of road transport. The new contract now provides an option to deliver goods by rail and/or road by default. This is fully in line with Ukrainian trade practice, since market participants tend to deliver the goods by trucks whenever rail delivery is unavailable due to shortage of wagons, congestion or limitations by local authorities.
DAP and DAT, “quality final” and delivery terms
Another important change is the delivery terms. Gafta 78UA now has both DAP and DAT terms incorporated, while DAF and DDU terms have been removed. The new contract now has the full list of delivery terms commonly used for inland deliveries (FCA, CPT, DAP, DAT, DDP), withconcise definitions. As a result, it also has provisions as to the determination of final quality and quantity as well as the dispatch/delivery period; the idea being to bring them in line with the delivery terms.
These changes may seem to be technical, but in fact, may significantly affect the market. Previously, it was irrelevant which delivery terms were incorporated into the contract (CPT, DAP or DAT). In any circumstances the quality/weight were final at the place of arrival (i.e. port terminal or state border), with the single market price for the goods.
The Gafta 78UA could push the market towards creating a watershed between CPT and DAP/DAT deliveries. It may allow the sellers to conduct delivery on CPT terms by dispatching the goods into wagons and providing the relevant weight and quality certificates at time and place of loading. In such cases the buyers would be obliged to settle the price before the wagons actually arrive at the port. This could create a difference in price between the CPT and DAP/DAT market. Forthcoming years will show whether this will be the case.
Gafta 78UA also has a more liberal approach as to the consequences of a buyer’s failure to give dispatch instructions within the time limits provided. While Gafta 78 says that in such a case the buyer shall be deemed to be in default, unless the parties agree to extend the period of dispatch, the contract for Ukraine explicitly provides that it is the right of the seller (so, not an automatic default).
Finally, now there is a provision for dispatch/delivery in approximately evenly-spread quantities throughout the period of dispatch/delivery. This clause was introduced to prevent postponement of delivery of the whole consignment until the last day.
The above changes are aimed at reflecting Ukrainian realities in Gafta standard contract form. This will bring legal certainty and further help with facilitation of the trade in general.
Posted on January 2, 2020