Trade Contracts and Dispute Resolution

Transcription

1 STRUCTURED GRAIN TRADING SYSTEMS IN AFRICA TRAINING MODULE - 8 Trade Contracts and Dispute Resolution Chemonics International Inc. 0

2 Module Eight: Trade Contracts and Dispute Resolution Introduction to the Module Module Objectives By the end of the module participants should be able to; Know the meaning and importance of Trade Contracts and Disputes Resolution. Understand the Contracting Process. Appreciate Standard Contracts Determine Key Considerations in This module is the last in a series of Training Materials designed for Cereal Traders who are already engaged in or intending to venture into Structured Trading in Agricultural produce (i.e. Output Marketing). Invariably, any kind of trading will involve parties entering into contractual arrangements for the purpose of actualizing the transfer of goods and/or services for a consideration. The need for adequate knowledge in Trade Contracts and Dispute Resolution is therefore critical. This module will equip the participants with requisite understanding in Trade Contracts and Dispute Resolution for profitable undertaking. Resolving Disputes. The ability to make and enforce contracts and Know how to resolve disputes is fundamental if markets Resolve Contract are to function properly. Good enforcement Disputes procedures enhance predictability in commercial relationships and reduce uncertainty by assuring investors (i.e. buyers and sellers) that their contractual rights will be upheld promptly by local courts. When procedures for enforcing commercial transactions are bureaucratic and cumbersome or when contractual disputes cannot be resolved in a timely and cost effective manner, economies rely on less efficient commercial practices. Traders depend more heavily on personal and family contacts; banks reduce the amount of lending because they cannot be assured of the ability to collect on debts or obtain control of property pledged as collateral to secure loans; and transactions tend to be conducted on a cash-only basis. This limits the funding available for business expansion and slows down trade, investment, economic growth and development. STS Module 8 Trade Contracts and Dispute Resolution Page 1 of 28

3 This Module will provide valuable information on grain trade contracting and critical minimum requirements for contractual dispute resolution. The Module is estimated to take 1 hours and 40 minutes. However, since it is the last Module in the Structured Trading Systems course, it may take longer depending on any outstanding issues carried forward from the previous Seven Modules as well as the level of understanding of participants. STS Module 8 Trade Contracts and Dispute Resolution Page 2 of 28

4 TRADE CONTRACTS AND DISPUTE RESOLUTION Module Summary Sessions Training Methods Training Materials Time 1. Module Introduction Presentation Participants Handout 1: Module Objectives 15 Mins. 2. Trade Contracts and Dispute Resolution Presentation and Discussion Participants Handout 2: Importance of Contracts 20 Mins. 3. The Contracting Process Discussion with participants and presentation Participants Handout 3: A Grain Contract: Things to Check in Negotiations 20 Mins. 4. Standard Contracts Presentation Participants Handout 4: INCOTERMS: International Commerce Terms 10 Mins. 5. Key Considerations in Dispute Resolution Presentation and discussions with participants Participants Handout 5 : Trade Dispute Arbitration Committee Compels South Sudan to Pay $41M to Ugandan Traders Participants Handout 6: Key Considerations in Resolving Disputes 10 Mins. 6. Resolving Contract Disputes Presentation and Discussion with Participants Participants Handout 7: Sample Grain Contract for Local Trade - EAGC Participants Handout 8: Sample Grain Contract for International Trade. 10 Mins 7. Understanding the Legalese Presentation and Discussion 10 Mins 8. Review of Module Participants questions and comments Facilitator s summary Discussion on Trade Contracts and Dispute Resolution. Participants Handout 8: Module Summary 15 Mins TOTAL 1 hour 40 Mins. STS Module 8 Trade Contracts and Dispute Resolution Page 3 of 28

5 1. Welcome and Introduction (Presentation by the Facilitator: 15 Minutes) Welcome to the Module Trade Contracts and Dispute Resolution. My name is ; I will take you through this session, which is scheduled to last approximately one and a half hours. I welcome any remaining questions you may require clarifications on regarding the entire Structured Trading Systems course outside the session times pertaining to Trade Contracts and Dispute Resolution. The word contract refers to a legally enforceable agreement between 2 or more parties, rather than a piece of paper with signatures on it. A contract is and may be in writing, but may also be oral (or partly in writing and partly oral). Contracts are established to ensure that commercial transactions across the supply chain (be they a grain producer, merchant, end user or an exporter) occur in an efficient and fair manner to both parties to the contract. Contractual disputes may arise when parties to a contract are dissatisfied. Disputes are time-consuming, expensive and unpleasant. They can destroy client/supplier relationships painstakingly built up over a period of time and can impact on the supply chain. They can add substantially to the cost of a contract, as well as nullifying some or all of its benefits or advantages. They can also impact on the achievement of value for money. It is in everyone s interest to work at avoiding disputes in the first place and this is mirrored in the Government s emphasis on improving relationships between the client and supplier through teamwork and partnering. Inevitably, however, disputes do occur and when they do the importance of a fast, efficient and cost-effective dispute resolution procedure cannot be overstated. List Participants points on a flipchart, entitled Expectations. Refer back to the list of problems and expectations throughout the Module when relevant. Distribute Participant Handout 1: Module Objectives. A properly structured grain trading system for Africa could be facilitated to eradicate regional and cross-border trade restrictions on food movement. STS Module 8 Trade Contracts and Dispute Resolution Page 4 of 28

6 What do you hope to learn from this Module? The objectives of this module are to; Know the meaning and importance of Trade Contracts and Disputes Resolution. Understand the Contracting Process. Appreciate Standard Contracts Determine Key Considerations in Resolving Disputes Know how to Resolve Contract Disputes 2. Trade Contracts and Dispute Resolution (Presentation and Discussion: 20 Minutes) Contracts are necessary to specify the terms under which two parties agree to do business. They can be used for trading in grains even where commodity exchanges are not used. All it takes for a contract is a willing buyer and a willing seller who are both ready to honour an agreement. It is important that those involved are aware of the obligations that contracts imply. A contract is an agreement between two or more persons, which is legally enforceable. Contracts are important for grain trading because: They specify the full details of the trade (the quantity, price, etc.) as well as the buyer and seller (and their representatives where applicable). They specify the responsibilities and obligations of both the seller and the buyer. They make buyers confident that they will actually get the grain they pay for, where and when they want it, and of the right type and quality. They make sellers confident that the buyer will actually pay for the grain. They can be used to reduce risks such as price risk (the risk of prices going up or down) and performance risk (the danger that either the buyer or seller does not fulfill his or her obligations). They specify what must be done in case there is a disagreement. Have participants discuss their understanding and Merits of Trade Contracts and Dispute Resolution. Elicit participants responses and record these on Flipchart or Blackboard. Distribute Participants Handout 2. STS Module 8 Trade Contracts and Dispute Resolution Page 5 of 28

7 From a commercial perspective, a contract is a useful marketing tool that can be used to minimize the risk of price fluctuations. From a legal perspective, a contract is a legally binding document that must be fulfilled. 3. The Contracting Process (Group exercise, presentations and Discussion: ( 20 Minutes) Contracts are negotiated. During the negotiations, the parties must make clear that they agree to the same terms. This is normally done by an offer and an acceptance. One party makes an offer, which the other party either accepts or rejects. Before starting the negotiations Before the parties start, they must understand the process of negotiating a contract. They should be confident with the party they intend to have dealings with. They should record the details of the contract, preferably in a book or diary. They must understand their role and obligations. They should be careful if they commit to supplying grain, because if they fail to fulfill the contract, there are likely to be financial consequences. Distribute Participants Handout 3: Negotiating the contract The person negotiating the contract should record the time, name and title of the person they are speaking to in their book or diary. He or she should discuss the items in Table 7, noting the details of the negotiations so there is a record of what was agreed. Receiving and verifying the contract The negotiator should read and check the contract details against the notes they recorded during the conversation with the buyer or seller. He or she should ensure the contract and the diary notes agree. It is important to check the fine print to avoid any unpleasant surprises. STS Module 8 Trade Contracts and Dispute Resolution Page 6 of 28

8 If there are any discrepancies, the negotiator should contact the buyer immediately to resolve these. If there is uncertainty about a term or condition, he or she should contact the buyer and have it explained. If still unsure, the negotiator should seek advice. After receiving and confirming the contract, the negotiator should document any changes made in subsequent conversations with the buyer. These, too, should be confirmed in writing as soon as possible. When the negotiator is confident that everything is correct, he or she should sign and date the contract. One copy is sent to the other person, and another goes in the negotiator s files. (It is best to keep two copies in separate places in case one gets lost or destroyed.) 4. Standard Contracts (Presentation and Discussions: 10 Minutes) Standard contracts Standard contracts make trading easier because it is not necessary for the buyer and seller to negotiate lots of fine print. That makes trading faster and cheaper. Standard grain contracts can be downloaded from: EAGC: eagc.org/index.php/contacts/training/viewcategory/7-listof-eagccontracts Distribute Participant Handout 4. GAFTA: Sample contracts for local and international trade are given at the end of this chapter. Understanding the legalese Contracts can be full of legalese. Here are some terms that everyone involved in structured trade needs to know. Contract of agency. A contract of agency is a written agreement between the buyer (or seller) and the broker to conduct business on his or her behalf. It lists the agreed terms and conditions, including the price. STS Module 8 Trade Contracts and Dispute Resolution Page 7 of 28

9 Delivery period. This is the period in which delivery must be made or the contract executed. (i.e., delivered to or transferred from the warehouse). Force majeure. Force majeure is an extraordinary event or circumstance beyond the control of the parties that prevents one or both parties from fulfilling their obligations under the contract. Examples include a war, strike, riot, crime, or an act of God (hurricane, flooding, earthquake, volcanic eruption, etc.). In such situations, both parties are normally freed from their contract obligations. Events that are considered force majeure often have to be negotiated among the parties. For example, the possibility of a government ban on exports may need to be considered. Is that force majeure, or is the seller required to buy the required quantity from another country in order to comply with the contract? Demurrage. Demurrage is the extra cost incurred if the loading or unloading of the grain on transport is delayed for example if a ship or lorry arrives late. Compensation is usually paid for such delays. This compensation should normally be reclaimed by the seller under the contract he or she has with the shipper. Incoterms: International commerce terms. These are an internationally recognized standard trade terms that set out buyer and seller responsibilities. They are used to develop trade contracts. Table 8 lists the most common Incoterms. 5. Key Considerations in Resolving Disputes (Presentation, Exercise and Discussion: 10 minutes) Contract law includes the rules set and administered by the state that determine when an agreement is enforceable, the grounds on which a breach of the agreement will be found and the consequences. Contract enforcement is one of the pillars of the rule of law. Distribute Participants Handout 5 and 6. STS Module 8 Trade Contracts and Dispute Resolution Page 8 of 28

10 Effective contract enforcement When two parties strike a bargain, there must be some mechanism to ensure that each party will stick to the terms. The main contract enforcement mechanisms are self-enforcement (e.g. posting bonds, ending a commercial relationship), reputation (e.g. risking a future commercial relationship), organisational (e.g. third party audits), technology (e.g. to monitor sales) and of course contract law. The PFI user needs to examine these mechanisms. From an economywide perspective, the issue is not whether a contract can be enforced but rather the cost of the various enforcement mechanisms and their efficacy in improving confidence between contracting parties. To be effective, the costs of enforcement must not outweigh the gains achieved from increased contractual commitment. Institutional requirements to support contract enforcement Having a contract law on the books is not sufficient. What matters equally are the role and practices of the legal institutions that support the effective implementation of contract law. The legal institutions relate to the organisation of courts, an independent and competent judiciary, the legal profession, the enforcement services and the process of law making itself. Their design is a crucial factor influencing equality of treatment between actors (e.g. small- and large-sized enterprises) and also bears on the cost of enforcement and thus the reliance and confidence that investors have in the system of contract enforcement. Alternative dispute settlement processes Exclusive reliance on formal systems of contract enforcement (i.e. litigation through the judiciary system) can be costly and slow. Alternative dispute resolution systems seek to resolve differences between parties in a timely and fair manner. The main examples are arbitration, mediation and conciliation hearings, often by industry bodies, specialised agencies or third party evaluators, conducted at the national or international level. Alternative dispute settlement processes often complement and sometimes supplement judicial contract enforcement procedures and can strengthen contractual commitment at lower cost. How well these alternative dispute resolution mechanisms function? What are the relative STS Module 8 Trade Contracts and Dispute Resolution Page 9 of 28

11 costs and efficacy of the alternatives available and the methods of involvement by the official sector to enforce settlement agreements? 6. Resolving contract disputes (Presentation, and Discussion: 10 minutes) Why disputes arise Disputes may arise over grain contracts, even between two parties who are both honest and respected. Some causes can be: Poorly or hastily drafted contracts that do not foresee questions that may reasonably arise, such as when each party has to do something. When important terms of the contract are unclear, causing misunderstanding. For example: The grain seller may not understand the obligation to deliver the contracted quantity of grain. The buyer may not understand the obligation to pay for the grain at the contracted price. The grain supplier fails to deliver the contracted quantity of grain to the buyer if another buyer offers a better price. This is known as side-selling. It is a common problem among smallscale farmers who need cash urgently and are tempted by the higher prices offered by other buyers. Divide the participant into groups and let them identify: Why Disputes Arise in Contractual Obligations? Distribute Participants Handout 7 and 8. Dispute-resolution techniques Disputes can be resolved in various ways: Negotiation. Here, the parties negotiate directly with one another. Mediation. This is where a neutral, independent person (the mediator) helps the parties reach their own agreement to settle the dispute. Arbitration. This is where the parties refer the dispute to a neutral, independent arbitrator, and agree to be bound by the decision he or she reaches. The decision is legally binding and enforceable for both parties. STS Module 8 Trade Contracts and Dispute Resolution Page 10 of 28

12 Litigation. Where the parties cannot settle the dispute using the above techniques, claims are taken to court. Judgments are binding on the parties, subject to the right of appeal. Commodity exchanges usually require the parties to resolve their disputes through the exchange s own arbitration mechanism. In general, arbitration is cheaper, more flexible and faster than litigation. This is often in the interest of both parties. Descriptions of arbitration procedures can be downloaded from: EAGC: GAFTA: 7. Understanding the Legalese (Presentation, and Discussion: 10 minutes) Contracts can be full of legalese. Here are some terms that everyone involved in structured trade needs to know. Contract of agency. A contract of agency is a written agreement between the buyer (or seller) and the broker to conduct business on his or her behalf. It lists the agreed terms and conditions, including the price. Delivery period. This is the period in which delivery must be made or the contract executed. (i.e., delivered to or transferred from the warehouse). Force majeure. Force majeure is an extraordinary event or circumstance beyond the control of the parties that prevents one or both parties from fulfilling their obligations under the contract. Examples include a war, strike, riot, crime, or an act of God (hurricane, flooding, earthquake, volcanic eruption, etc.). In such situations, both parties are normally freed from their contract obligations. Events that are considered force majeure often have to be negotiated among the parties. For example, the possibility of a government ban on exports may need to be considered. Is that force majeure, or is the seller required to buy the required quantity Facilitator explain Participants Legal Terms. should to the STS Module 8 Trade Contracts and Dispute Resolution Page 11 of 28

13 from another country in order to comply with the contract? Demurrage. Demurrage is the extra cost incurred if the loading or unloading of the grain on transport is delayed for example if a ship or lorry arrives late. Compensation is usually paid for such delays. This compensation should normally be reclaimed by the seller under the contract he or she has with the shipper. Incoterms: International commerce terms. These are an internationally recognized standard trade terms that set out buyer and seller. 8. Review of Module (Participants questions, Presentation: 15 minutes) Let s review together the main points about Trade Contracts and Dispute Resolution: CONTRACTING: Contracts are necessary to specify the terms under which two parties agree to do business. They can be used for trading in grains even where commodity exchanges are not used. All it takes for a contract is a willing buyer and a willing seller who are both ready to honour an agreement. It is important that those involved are aware of the obligations that contracts imply. Questions answer session. Distribute Participants Handout 9. and THE CONTRACTING PROCESS: Before the parties start, they must understand the process of negotiating a contract. They should be confident with the party they intend to have dealings with. They should record the details of the contract, preferably in a book or diary. They must understand their role and obligations. DISPUTE RESOLUTION TECHNIQUES: Negotiation. Mediation. Arbitration. Litigation. STS Module 8 Trade Contracts and Dispute Resolution Page 12 of 28

14 PARTICIPANT HANDOUT 1 MODULE OBJECTIVES Know the meaning and importance of Trade Contracts and Disputes Resolution. Determine Considerations Resolving Disputes Key in Understand Contracting Process. the Know how to Resolve Contract Disputes Appreciate Contracts Standard STS Module 8 Trade Contracts and Dispute Resolution Page 13 of 28

15 PARTICIPANT HANDOUT 2 Importance of Contracts Contracts are important for grain trading because: They specify the full details of the trade (the quantity, price, etc.) as well as the buyer and seller (and their representatives where applicable). They specify the responsibilities and obligations of both the seller and the buyer. They make buyers confident that they will actually get the grain they pay for, where and when they want it, and of the right type and quality. They make sellers confident that the buyer will actually pay for the grain. They can be used to reduce risks such as price risk (the risk of prices going up or down) and performance risk (the danger that either the buyer or seller does not fulfill his or her obligations). They specify what must be done in case there is a disagreement. STS Module 8 Trade Contracts and Dispute Resolution Page 14 of 28

16 PARTICIPANT HANDOUT 3 Table 7. A grain contract: Things to check in negotiations Items in the contract Things to check while negotiating and before signature Commercial terms The type of commodity sold Quality (grade) of the grain The grain type and quality (grade) required, the variety, protein and moisture content, screenings, and any premiums or discounts applicable. (Screenings are small grains that pass through a certain sieve size If the percentage of full grains is high, it may be possible to sell at a premium.) Date by which delivery is to be completed. Location of delivery Price (or the formula to be used in determining the price, including the interest rates) Price adjustment if it is not possible to meet the specified grade Quantity being contracted and the acceptable weight tolerance The delivery date or period. Where the delivery point is. The price and whether it includes or excludes taxes and duties. Who has to pay any fees or charges that apply (such as taxes or local government levies). The quantity required, and any tolerances (amounts over or under that amount). Full details of both buyer and seller Signatures of both parties and the date STS Module 8 Trade Contracts and Dispute Resolution Page 15 of 28

17 of signing Jurisdiction Dispute resolution Force majeure Which country s legal mechanisms will be used to settle any disputes. What happens if the seller is unable to deliver the grain as specified in the contract; the mechanisms to deal with any disputes. Trades made on a commodity exchange may include a requirement to refer disputes to arbitration (see below). What happens to the contract if an extraordinary event (such as a war or earthquake) occurs (see below). Performance Terms Delivery details and who meets these costs Payment terms Documents Discharge rate Demurrage Weighing Sampling and inspection The price may be ex-warehouse (delivered at the local depot or silo), or ex-farm. This indicates whether the buyer or seller is responsible for the transport, storage and handling charges. See the section on Incoterms below. When the payment is due and how it will be made. The documents that must be presented when the grain is handed over. What happens if the loading or unloading is faster than expected. This is normally used for sea consignments. What happens if transport is delayed (see below). Whether the weight of the load is measured at the loading time or at the destination. STS Module 8 Trade Contracts and Dispute Resolution Page 16 of 28

18 Packaging and labelling Analysis methods Name of broker The type of packaging (bags, bulk) that should be used. The methods used to test for moisture, etc. If the contract is negotiated by a broker. STS Module 8 Trade Contracts and Dispute Resolution Page 17 of 28

19 PARTICIPANT HANDOUT 4 Table 8. Incoterms: International Commerce Terms Incoterm Meaning Details Departure Ex-Warehouse The seller makes the goods available to the buyer at the named place (e.g., a factory or warehouse). Shipment FC A FOB CIF Delivery DDP DAP Free Carrier (at a particular place) Free on Board (at a particular port of shipment) Cost, Insurance & Freight (at a particular destination port) Delivered Duty Paid (at a particular place) Delivered at Place (at a particular destination) The seller is required to deliver goods to a carrier (transporter) named by the buyer. The seller must load the goods on board a vessel specified by the buyer. The seller must clear the goods for export. The seller must pay the costs, insurance and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. Used in maritime transport only. The seller has to bear all the costs (including duties, taxes, and other official charges payable) and risks needed to bring goods to a specified point of destination. The seller pays for carriage to the named place, except for costs and taxes related to import clearance, and assumes all risks up to when the grain is ready for unloading by the buyer. STS Module 8 Trade Contracts and Dispute Resolution Page 18 of 28

20 PARTICIPANT HANDOUT 5 Box 20. TRADE DISPUTE ARBITRATION COMMITTEE COMPELS SOUTH SUDAN TO PAY $ 41M TO UGANDAN TRADERS South Sudan to pay $41m in compensation to Ugandan traders who were not paid for goods and services supplied. Among the firms compensated were Aponye Uganda Limited ($8m), Afro Kai Limited ($2.58m), Sunrise and other single claimants who have sought compensation. The settlement was done by the Trade Dispute Arbitration Committee tasked with reviewing and verifying trade disputes and claims in South Sudan. Both the South Sudan and the Ugandan governments verified the compensation claims. The Sudanese agreed to pay the compensation Source: STS Module 8 Trade Contracts and Dispute Resolution Page 19 of 28

21 PARTICIPANT HANDOUT 6 Key Considerations in Dispute Resolution Contract law includes the rules set and administered by the state that determine when an agreement is enforceable, the grounds on which a breach of the agreement will be found and the consequences. Contract enforcement is one of the pillars of the rule of law. Effective contract enforcement When two parties strike a bargain, there must be some mechanism to ensure that each party will stick to the terms. The main contract enforcement mechanisms are selfenforcement (e.g. posting bonds, ending a commercial relationship), reputation (e.g. risking a future commercial relationship), organisational (e.g. third party audits), technology (e.g. to monitor sales) and of course contract law. The PFI user needs to examine these mechanisms. From an economy-wide perspective, the issue is not whether a contract can be enforced but rather the cost of the various enforcement mechanisms and their efficacy in improving confidence between contracting parties. To be effective, the costs of enforcement must not outweigh the gains achieved from increased contractual commitment. Institutional requirements to support contract enforcement Having a contract law on the books is not sufficient. What matters equally are the role and practices of the legal institutions that support the effective implementation of contract law. The legal institutions relate to the organisation of courts, an independent and competent judiciary, the legal profession, the enforcement services and the process of law making itself. Their design is a crucial factor influencing equality of treatment between actors (e.g. small- and large-sized enterprises) and also bears on the cost of enforcement and thus the reliance and confidence that investors have in the system of contract enforcement. Alternative dispute settlement processes Exclusive reliance on formal systems of contract enforcement (i.e. litigation through the judiciary system) can be costly and slow. Alternative dispute resolution systems seek to resolve differences between parties in a timely and fair manner. The main examples are arbitration, mediation and conciliation hearings, often by industry bodies, specialised agencies or third party evaluators, conducted at the national or international level. Alternative dispute settlement processes often complement and sometimes supplement judicial contract enforcement procedures and can strengthen contractual commitment at lower cost. How well these alternative dispute resolution mechanisms function? What are the relative costs and efficacy of the alternatives available and the methods of involvement by the official sector to enforce settlement agreements? STS Module 8 Trade Contracts and Dispute Resolution Page 20 of 28

22 PARTICPANT HANDOUT 7 Sample grain contract for local trade Contract No.2: Ex Warehouse (ExW) Buyer Seller Contract date Commodity Quality specifications required Foreign matter Broken grains Aflatoxin Inorganic matter Pest-damaged grains Discoloured grains Immature / shrivelled grain Rotten or diseased grain Live insect infestation Dead insects Total defective grains Quantity (metric tonnes) Tolerance +/- % Number of bags Price per unit Payment terms Delivery period/days Size of bags Delivery Terms Ex Warehouse Location STS Module 8 Trade Contracts and Dispute Resolution Page 21 of 28

23 Handling costs Responsibility of seller Seller to notify the buyer in writing when the commodity is ready for uplift from the warehouse Weight to be confirmed during loading. Buyer to provide appropriate packing material and equipment. Responsibility of buyer Other conditions Governing terms Buyer responsible for the cost of loading the goods from the warehouse. This contract is subject to the provisions of the terms and conditions of the EAGC contract No 2 which are deemed incorporated herein and made part of this contract which the Buyer and the Seller hereby acknowledge, accept and agree to be bound by. EAGC shall arbitrate in case of any disputes. Kenyan Law shall apply. Whole agreement Signed by the buyer Stamp Date This document constitutes the whole agreement between the parties and no term, condition, warranty or representation shall be of any force and effect unless recorded herein. Any amendment to this agreement shall only be binding if such amendment is in writing and signed by both parties. Signed by the seller Stamp Date STS Module 8 Trade Contracts and Dispute Resolution Page 22 of 28

24 PARTICIPANT HANDOUT 8 Sample grain contract for international trade Contract number Seller ABC Buyer XYZ South African White Maize conforming to South African Grade Commodity No. 1 with up to a maximum 10% grade No. 2 at contract price at Sellers option. Specifications Quantity Packaging Weight & quality Shipment period Moisture (max) Defective maize (max) Other coloured maize(max) Foreign matter (max) Pinked maize (max) Deviations b), c) and d) collectively (max) Aflatoxin (max) WM1 13.5% 7.0% 3.0% 0.3% 12.0% 8.0% 20 ppb WM2 13.5% 13.0% 6.0% 0.5% 12.0% 16% 20 ppb 10,000 mt +/- 10% at Seller s option at contract price. In Bulk Weight and Quality final at the port of loading as per certificates issued by a first class independent surveyor at Seller s option and cost. Certificates issued at time of loading to be deemed as final and binding and shall be part of the documents to be presented for negotiation 1 to 31 December 2012 from origin, both dates inclusive. Delivery Price Payment terms Cost, Insurance & Freight (CIF) Mombasa port, Kenya as per incoterms United States Dollars per metric ton (IN WORDS) Cost, Insurance & Freight, one safe berth, one safe port Mombasa, Kenya Cash Against Documents within 48 hours of fax presentation, Mondays to Fridays. If documents are presented during Saturday, Sunday or holidays, payment to be made on the following working day. Documents to be faxed directly to the Buyer on fax number +XXX XXX XXX XXX 1. Bills of Lading, marked Freight Prepaid and issued to the STS Module 8 Trade Contracts and Dispute Resolution Page 28 of 28

25 order of XYZ Maize Millers 2. Seller s Commercial Invoice 3. Phytosanitary certificate issued by relevant authority in country of origin or transit country 4. Fumigation certificate issued by loading silo or first class fumigation company or independent surveyor at Seller s expense and choice 5. Weight certificate issued at load by an independent surveyor of Seller s choice and expense 6. Quality certificate issued at load by an independent surveyor of Seller s choice and expense 7. Insurance certificate Seller will be responsible for PVOC inspections in South Africa. PVOC inspection costs will be for account of the Buyer. A copy of the Certificate of conformity will be provided to the Buyer for clearance purposes. The goods will only be released for discharge by the Buyer upon receipt of funds. Any costs and consequences resulting from standing time or loss of berthing slot resulting from late payment by the Buyer, will be for Buyer s account and responsibility. Shipping Terms Discharge terms Governing contract Transshipment allowed. Partial shipment allowed. All lighterage and/or port dues, risks and time at disport for Buyer s account. Geared/Gearless vessel acceptable. Vessel up to 25 years of age acceptable. Overage premium for Seller s account Customary Quick Dispatch Buyer to guarantee meter Salt Water Draft and LOA of 185 m at discharge port including all channel access thereto. Lighterage/lightening, if any, to be for Buyer s account. As per GAFTA 59/60. Force Majeure clause as per GAFTA 100 and Arbitration rules of GAFTA 125, in force at the date of contract of which parties admit that they have knowledge and STS Module 8 Trade Contracts and Dispute Resolution Page 28 of 28

26 notice, and details above given shall be taken as having been written into such contract form in the appropriate place. Title of the goods shall remain with the Seller until the goods are Title of goods paid in full, regardless of whether the commodity has been sold on credit or not. Risk of the goods shall transfer to the Buyer when the goods pass Risk of goods the ship s rail at the port of loading. No amendments or variation of this agreement or any of the Amendments documents referred to in it shall be valid unless it is in writing and signed by or on behalf of each of the parties. Neither party shall not without the prior knowledge of the other party (such consent not to be unreasonably withheld or delayed) assign, transfer or delegate any of its rights or duties under this Assignment contract. However, the Seller may assign this contract, with prior notice to (but without consent of) the Buyer, to any company within the Seller s Group. No term of this contract shall be enforceable by a third party Rights to third parties (being any parties: person other than the parties and their permitted successors and assignees). If any provision of this agreement shall be found by any court or administrative body of competent jurisdiction to be invalid or unenforceable, such invalidity or unenforceability shall not affect other provisions of this agreement which shall remain in full force Severance and effect. The Buyer and the Seller, by mutual agreement, may delete, substitute or otherwise modify such provision as to correct such invalidity or unenforceability. This contract shall be governed by and construed in accordance Governing law with the laws of England. Thank you very much for this business. Please sign, stamp and return a copy of this contract. Seller Buyer Witness Witness STS Module 8 Trade Contracts and Dispute Resolution Page 28 of 28

27 PARTICIPANT HANDOUT 9 TRADE CONTRACTS AND DISPUTE RESOLUTION MODULE SUMMARY Message Application Trade Contracts and Dispute Resolution Contracts are necessary to specify the terms under which two parties agree to do business. They can be used for trading in grains even where commodity exchanges are not used. All it takes for a contract is a willing buyer and a willing seller who are both ready to honour an agreement. It is important that those involved are aware of the obligations that contracts imply. The contracting process Dispute-resolution techniques Before the parties start, they must understand the process of negotiating a contract. They should be confident with the party they intend to have dealings with. They should record the details of the contract, preferably in a book or diary. They must understand their role and obligations. They should be careful if they commit to supplying grain, because if they fail to fulfill the contract, there are likely to be financial consequences. Negotiation. Mediation. Arbitration. Litigation. Commodity exchanges usually require the parties to resolve their disputes through the exchange s own arbitration mechanism. STS Module 8 Trade Contracts and Dispute Resolution Page 28 of 28