Ukraine is a leading producer and exporter of agricultural products, and agribusiness is the driving force of the country’s economy, as almost 40% of overall foreign currency earnings which come in to the state budget relate to agricultural exporters. The industry grows every day, engaging ever-more investments from both national and foreign participants. Nonetheless, the relevant logistics and infrastructure requires improvement, as does the quality of applicable legal framework.
The GAFTA Standard Contract
Ukraine’s agricultural sector, like so many others, is heavily governed by English law because many Ukrainian market participants incorporate GAFTA standard contracts, governed by English law. However, even though English law provides many advantages, it remains a challenge for traders and lawyers in Ukraine, as the mechanism concluding and performing contracts under English law is often in conflict with the Ukrainian system of law. Nevertheless, many Ukrainian traders are very familiar with the GAFTA standard contracts, and well aware of the rules of English law.
Still, Ukraine is a unique jurisdiction in terms of the application of English law to certain contracts through incorporation of GAFTA standard contracts – in particular, GAFTA Contract No. 78 (the “Original Contract”), a standard contract for the sale of grains providing for a number of delivery terms by rail. The Original Contract provides for CPT (or “carriage paid to”) delivery terms. This provides a unique challenge for Ukraine, as on the one side it calls for English law as governing the sales contract (which incorporates the Original Contract), although the CPT contract itself is performed on the territory of Ukraine. As a result, the sales contract is performed in Ukraine, but calls for the application of English law.
Despite the established laws and regulations applicable to the delivery of goods by rail, however, uncertainties occur. In particular, the Original Contract does not correspond to Ukrainian market realities. As a result, companies operating in the Ukrainian market saw the need to adapt the Original Contract to Ukrainian realities. For this reason, a working group consisting of traders, logistics practitioners, and lawyers was formed under the auspices of the Kyiv branch of the GAFTA office to draft and promote various amendments to the Original Contract. This resulted in the new GAFTA 78UA Contract (the “Amended Contract”) – English law infused with Ukrainian market peculiarities.
Unsurprisingly, the differences in the mechanisms laid out in the Original Contract and those in the Amended Contract demonstrate the reality of the Ukrainian market in terms of delivering goods by rail/road.
How GAFTA’s Standard Contract was Brought in Line with Ukraine’s Market Expectations
One of the main changes was in the mode of transportation. The Original Contract did not provide for the possibility to deliver the goods by road. This forced Ukrainian traders to include provisions as to delivery by trucks into their individually negotiated contracts, given that in Ukraine goods are delivered to port or terminal either by rail and/or road. The Amended Contract has this option, so that parties incorporating the Amended Contract will have both options (rail and/or road) by default in contrast to the Original Contract.
The Amended Contract contains fundamentally different delivery terms. For instance, as the Original Contract did not contain DAP and DAT terms – although they, along with CPT, are among the most popular commercial terms for inland deliveries in Ukraine – both were included in the Amended Contract, and DAF and DDU were removed. The Amended Contract also calls for the Ukrainian market scheme for the determination of final quality and quantity as well as the dispatch/delivery period, depending on delivery terms. Market participants will have a more distinct and clear understanding going forward in choosing the appropriate delivery terms for their transactions.
The Amended Contract is also designed to resolve certain problems in the Ukrainian market associated with logistics and abusive practices. For instance, the provision that dispatch/delivery shall be made in approximately evenly-spread quantities throughout the period of dispatch/delivery was introduced in order to prevent sellers in a rising market from attempting to postpone the delivery until the last day possible – and to prevent buyers in a falling market from postponing confirmation of deliveries to the terminal until the last day.
Conclusion
Consequently, in order to create a workable mechanism of goods delivery by rail or road, several of the Original Contract’s clauses were updated in the Amended Contract. As such, Ukraine has significantly impacted the world of international trade by bringing GAFTA’s standards in line with the reality of performance in Ukraine.
By Ivan Kasynyuk, Partner, Iurii Gulevatyi, Senior Associate, and Leila Kazimi, Associate, Avellum
This Article was originally published in Issue 6.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
