Biofuels Series - Focus on: Biomass
25 November 2021
Biofuels Series – Focus on: Common problems for biofuel traders
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Market Insight 01 December 2021 01 December 2021
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UK & Europe
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Trade & Commodities
In our previous article, we took a look at the regulatory environment for one component of the bioenergy mix: biomass. While the future of regulation and the pursuit of net-zero emissions remains a key structural question for biomass and biofuel traders to consider, today we will take a brief look at some of the more routine (but no less important) issues that traders may find themselves facing day-to-day.
Problem 1: Delays at port
If loading or discharging of the vessel is delayed, then the shipper will find themselves facing a demurrage claim from the vessel under the terms of their charter for each day of delay. If the shipper is not the party responsible for the relevant loading or discharging of the cargo, then they may seek to make a corresponding claim under the contract of sale.
Traders who experience delays at port will need to consider following:
- What is my time bar position? In all cases, a trader must ensure it complies with the contractual time limits, or risk losing the right to bring (or pass on) a demurrage claim. For intermediary traders, sale contracts can and frequently do contain time bar provisions which are shorter than the underlying charterparty. Traders may therefore need to take steps before a claim has even been received.
- What documentation do I need for my claim? Charterparties and sale contracts, often require that very specific documentation is provided within the time limit for any claim to be valid (for instance, you may find express references to the notice of readiness, statement of facts, pump logs, letters of protest and other documents). This can often present traders with difficulties where they are not the primary party with access to the documents.
- Are there additional delay-related losses which I might wish to claim or anticipate receiving? There may be scope for other claims regarding losses suffered as a result of delays at port, a common one being cargo deterioration. Ultimately, the question will be very fact and contract specific. By way of example, the Court of Appeal recently considered the application of demurrage clauses to delay-related losses and concluded that, in the absence of any contrary indication (and any separate breach), such clauses will generally prevent any recovery (above the demurrage rate) for losses caused by delays in loading or unloading by the relevant party (“ETERNAL BLISS” [2021] EWCA Civ 1712).
Problem 2: Cargo contamination and disputes regarding quality
Another common headache for traders arises when the buyer asserts that something is wrong with the cargo. Perhaps the cargo is contaminated with foreign material, or falls outside of the express contractual specification, or is otherwise considered unfit for the purpose for which it was intended by the buyer.
Sale contracts commonly include a number of provisions which are intended to protect sellers from quality or condition claims arising after delivery (for instance “certificates final” clauses, or statements that cargo is sold on a “typical but not guaranteed” specification). However, these clauses are not always effective in excluding liability for every problem which may arise with the cargo.
Common issues that traders will need to consider include:
- Effective sampling and analysis. The evidential building blocks of any quality and condition claim (or defence) will be the sampling and analysis of the cargo. Time is short in claims of this nature and traders must be decisive and efficient in managing the sampling and analysis process. Complex questions immediately arise. For instance: does the contract specify an express method of sampling and analysis? Has it been complied with? Does it cover the claim in question? What other samples and analyses might be relevant or decisive in the claim? Can analysis be done unilaterally, or should both parties be involved? It is crucial that these and other questions be answered and dealt with correctly to avoid problems in later legal proceedings
- Identifying the relevant parties and claims. Depending on the facts, quality and condition claims might involve the loading terminal, discharge terminal, vessel owners, barge owners or stevedores.
- Losses and mitigation. Receiving cargo that is not fit for purpose inevitably causes disruption to the buyer’s business, but there will be strict contractual and legal limits to the losses which can be claimed. Once again, traders need to have these in mind from a very early stage, regardless of whether they are bringing or defending a claim.
- Time bars (again!). Quality and condition claims are often subject to very short and strict time bars for notifying claims supported by evidence – this reflects the fact that identifying the cause of a problem becomes much harder as time moves on. Traders should be doing what they can to protect their time bar position, and that can involve taking pre-emptive steps.
Problem 3: Fraud
As traders will be well aware, fraud in the commodities market is an ever-present risk which can arise in relation to the cargo itself, or in connection with the financing of the cargo. Every fraudulent trade is different, but the common feature is that it pays to seek advice early.
Clyde & Co has a wealth of experience on all facets of the issues that commodity traders generally, and biofuels traders specifically, are likely to encounter from day to day. Rebecca & Jack regularly deal with the issues described above in the English Courts and in arbitration subject to rules an governed by organisations as diverse as FOSFA, Gafta, LMAA, LCIA, UNCITRAL, ICC, SIAC and others.
If you would like to discuss any of the issues touched upon above, do please get in contact.
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