How to extend supply term under Gafta & Fosfa Rules

• International Trade

Extension Clause, whereunder one of parties to the contract is entitled to extend supply term, is widely used in contracts on CIF and FOB terms. Unless such clause is set forth in the contract, the party violating supply term can be certainly declared as default. However, in case when the contract contains Extension Clause, there may be quite different legal effects.

Traders often incorporate Extension Clause in their contracts but formulate it in such way, so it could be impossible to apply it further.

Extension Clause are set forth in many standard proformas of GAFTA and FOSFA contracts – for instance, FOSFA 26 and GAFTA 49, as set below in our publication.

Extension of supply term as per FOSFA 26 (CIF)

Pursuant to Clause 9 FOSFA 26, if contractual supply term does not exceed 31 calendar days, the Seller is entitled to extend such it for the term not exceeding 8 calendar days. To extend it, the Seller shall send to the Buyer appropriate notice not later than the first business day upon expiration of supply term. In such case, a discount on the price of goods shall apply, depending on actual number of extension days:

- 1-4 days: 0.50%;

- 5-6 days: 1%;

- 7-8 days:  1.50%.

To extend supply term in accordance with Clause FOSFA 26, the Seller is not obliged also to ask for the Buyer’s consent. Supply term shall be extended unilaterally, provided that the Seller sends to the Buyer appropriate notice within set deadline.

But if supply term exceeds 31 calendar days, the Seller shall have neither the right to refer to Clause 9 FOSFA 26 nor the right on extension.

Extension of supply term as per GAFTA 49 (FOB)

As compared to FOSFA 26, pursuant to Clause GAFTA 49, right on extension shall be granted to the Buyer, not to the Seller. Supply term shall be extended for additional term not exceeding ten calendar days. To extend it, the Buyer shall send a notice not later than the first business day upon expiration of supply term. In such case, no discount shall be provided; however, all the storage fees, interests, insurance costs and other transportation expenses shall be borne by the Buyer.

In order to extend supply term as per GAFTA 49, the Buyer is not obliged also to ask for the Seller’s consent. As compared to FOSFA 26, here Extension Clause may apply irrespective of duration of the initial supply term under the contract.

While using GAFTA or FOSFA contract proformas, we recommend you to study thoroughly Extension Clause, since such clauses differ in various proformas. Since supply term under contracts on CIF and FOB terms is an essential condition, incorrect extension may cause default.

While drafting the contract individually, it is necessary to formulate a correct Extension Clause, so it could be applicable and effective.