A wash-out is a special method of settlement in supply contracts. In these cases, the goods are not physically delivered. Instead, a difference settlement takes place between the parties.
This method is mainly used in grain and animal feed trading contracts and in oil and fat trading. Both the GAFTA / FOSFA contracts and the standard terms and conditions provide for this.
As a rule, in a supply chain, each party would pay the full purchase price to its respective seller and would receive the full purchase price from its own buyer. This is often not practicable. In addition, higher bank charges apply if the full purchase price has to be transferred.
The settlement is therefore based on a base price. This is determined according to a specific method provided for in the contract. The difference between the base price and the respective contract price then forms the basis for mutual settlement. A good deal remains a good deal and a bad deal remains a good deal.
If one party appears twice in the supply chain, the supply chain is self-contained, resulting in a so-called “circle”. In these cases the delivery of the goods is also omitted and only a price statement is made.
Due to the large number of people involved in a supply chain, legal difficulties quickly arise. In particular, if one of the parties is resident abroad, the reaction must be correct.
O&W Rechtsanwälte specializes in wash-out contracts and in particular in contract practice according to uniform terms and conditions, GAFTA, FOSFA, GROFOR. Please do not hesitate to contact us.