GAFTA: “Certificate final terms” – Caution with own agreements

Many international contracts are traded under so-called “certificate final” Terms completed. To what extent this clause binds the parties has now been decided by the English High Court under application of GAFTA 119.

In the case underlying the decision of R.G. Grain Trade LLP (UK) v. Feed Factors International Ltd., the seller “Ukrainian origin sunflower expeller FOB Nicolayev” sold. The agreement contained a standard certificate final clause, as in many other GAFTA contracts:

“Official…………….certificate of inspection, at time of loading into the ocean carrying vessel, shall be final as to quality.”

At the same time, the GAFTA Sampling Rules No. 124 were included in the contract. In addition, the parties also agreed on their own provisions that should take precedence over the GAFTA conditions. That’s what they said:

“Quality and condition to be final at time and place of loading as per certificate of first class superintendent approved by GAFTA at seller’s choice and expense.

The buyers have the right to appoint their own GAFTA approved supervisor at their expense. In this case the sampling to be done conjointly, as per GAFTA terms and conditions.

2nd analysis, if any, as per Salamon and Seaber, London”

While the goods were still being loaded, the buyer had a sample taken by his own expert and found that the goods were outside the specifications. The buyer then sent a sample to Salamon and Seaber for a second analysis. This certificate of analysis showed that the protein content was too low and the buyer rejected the goods and documents. The seller then charged the price difference to the cover sale and demanded the price difference from the buyer.

Binding effect of certificates of analysis

In the arbitrage proceedings, the buyer argued that the goods were defective and that the seller therefore had no claim to the price difference. However, the seller was of the opinion that the second certificate was not binding.

Certificate final terms in GAFTA 119 and GAFTA 124

If final terms is sold under certificate, the inspector is generally required to comply with cl. 4 GAFTA 124 is solely responsible for taking the samples. In these cases, the certificate is generally not vulnerable, as the binding effect is intended to create legal certainty.

However, the parties are free to exclude the regime of certificate final. In the present case, the court was of the opinion that the parties deviated from certificate final by their supplementary agreements, which GAFTA 119 provides for as standard.

The Court read this from the supplementary clause of the Treaty, according to which a second analysis should be carried out by Salamon and Seaber where appropriate.

The judges saw in this an implicit exclusion of the certificate final terms. If the loading certificate itself were to be valid, a second analysis would no longer make sense. Therefore, the agreement could only be understood to exclude the binding effect of the loading certificate.

Therefore cl. 4 GAFTA 124 not applicable. Rather, cl. 5.1.6 GAFTA 124 had to be used. This clause regulates the procedure if not sold under certificate final terms. The Court therefore ruled that Salamon & Seaber’s second analysis should be final, as it resulted directly from cl. 5.1.6 GAFTA 124.

Caution with additional agreements to GAFTA contracts

The decision shows that the parties must be cautious with additional agreements to the existing GAFTA contract. In case of contradictions between the GAFTA contract and individual agreements, the individual agreements take precedence in case of doubt. Even a careless choice of words can lead to results that were not foreseen by the parties.

 

Lawyer Dr. Tristan Wegner

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