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  • QA 182
    Question:
    In case of partial contract execution, what penalty if any does the European Contract for Coffee prescribe?
    Background:
    We have signed a contract for delivery of a substantial tonnage of coffee but we have only been able to supply about two thirds. What sanctions are foreseen under the European Coffee Contract (ECC) for non-delivery of the balance?
    Asked by:
    Anonymous - Central Africa
    Answer:

    There are no 'standard penalties' in the international coffee trade. Instead, all disputes that cannot be resolved amicably are settled through arbitration. Penalties, if any, are then decided upon by the arbitrators. The ECC only regulates when and how claims are to be lodged whereas arbitrators act in accordance with the rules of arbitration in force at the place where the arbitration is held.

    All European Coffee Federation (ECF) and Green Coffee Association (GCA - New York) contracts expressly exclude recourse to the law for the settlement of disputes, stating instead that this shall be resolved through arbitration. This is partly to prevent consignments being held up endlessly because of lengthy (and costly…) court proceedings, but also because the trade in coffee is complex. Dispute resolution requires insight and expertise not easily found outside the coffee trade itself.

    ECC covers FOB sales, i.e. sales for shipment Free On Board vessel.

    Article 13 states amongst others that where a shipping advice is not received by noon on the 14th calendar day after the last day of the contractual shipping period, and the seller has not claimed force majeure*, then the buyer shall have the right to declare the seller to be in default with damages. Failing this the contract shall be deemed to be discharged without allowance, unless the parties agree otherwise. Notice of the default declaration must allow three clear working days and must be given to the sellers at their place of business not later than 17 calendar days after the last day of the contractual shipping period.

    Article 23 states that if the buyer declares the seller to be in default he shall, after having given notice as and when stipulated, have the right to claim discharge of the contract with or without damages. If the seller does not comply or disagrees with the amount of damages then the matter shall be determined by arbitration.

    Article 24 allows the buyer 90 calendar days to initiate arbitration proceedings from the date he notifies the seller that amicable settlement is not possible.

    Article 22 on the other hand allows the buyer 45 calendar days from the last day of the contractual shipping period to lodge a formal claim if the coffee has not been shipped. We understand this to apply if seller and buyer have been in negotiations from before the expiry of the shipping period, and where such negotiations have not resulted in an amicable settlement.

    The point to note however is that the contracts only stipulate the route to follow to arbitration. In Europe arbitrations can be held at a number of places, for example London, Amsterdam, Bremen/Hamburg, Le Havre, Antwerp and Trieste. The coffee trade associations there each have their individual set of arbitration rules - this is why the place of arbitration should always be stipulated in the contract. If no such place was stipulated then the venue shall be decided by the ECF Contracts Committee.

    Basically, what all this means is that if he so wishes the buyer can claim damages. If the seller disagrees then the matter will be decided by arbitration in which case the arbitrators will decide on the level of damages if any.

    It is impossible to speculate on the outcome of any arbitration. However, the arbitrators may well investigate the extent to which a seller has attempted to mitigate the harm non-delivery might cause, for example by informing the buyer well in advance about the difficulties being faced.

    Finally, we would point out that arbitration always dents reputations and usually spells the end of a business relationship, whereas correctly settled claims can help to cement relationships…

    To read more about the ECC and its conditions see Chapter 4 - 'Contracts' of the Guide. The complete contract can also be downloaded from www.ecf-coffee.org . For more on arbitration see Chapter 7 - Arbitration.

    * Force majeure - inability to perform due to unforeseeable and insurmountable occurrences. Must be pleaded in accordance with contract conditions and advised without delay…

    Posted 25 February 2008

    Related chapter(s):
    Related Q & A:
    Q&A 006, 010, 143