An introduction to GCH’s Standard Trading Agreement for Metals – “STA-M”

Global Commodities Holdings Limited (“GCH”) recently published the first version of its Standard Trading Agreement for Metals (“STA-M”)¹, and its new physical metals trading platform was launched with nickel late last year. HFW’s Damian Honey and Michael Buffham assisted GCH with drafting STA-M, a first-of-its-kind standard agreement. In this briefing, we introduce STA-M: what it covers, how it works, and points to note. Unless otherwise stated, defined terms have the meaning given in STA-M.

WHAT DOES STA-M COVER?

STA-M is wide in scope:

• Metals – it can be adapted to the sale and purchase of any metal.
• Bulk/containerised – it can be used with metals shipped in bulk or containers.
• Origins/destinations – it covers multiple points of origin and multiple ports of destination.
• Delivery bases – it covers most Incoterms®, including FAS, FOB, CFR, CIF, DAP, DES, and DPU.

How does STA-M work?

The terms of a trade under STA-M will come from the following sources, in the following order of precedence. (The idea is that, once the parties have agreed to a Trade Confirmation, they will have a comprehensive, clear and balanced set of terms to govern almost all aspects of their trade.)

(1) Trade Confirmation

As with almost all commodity trades, the key commercial terms (e.g. parties, product, quantity, price) will be set out in a Trade Confirmation or “confirm”. The contents of the confirm will be bespoke and individually negotiated by the parties.

A template confirm is included at Schedule 1 to STA-M. Parties can use in-house versions if they wish, but they must include all the relevant details for the trade.

The confirm will refer to and incorporate the relevant Transaction Specification (discussed below).

If parties wish to vary any term of the Transaction Specification or GTCs (as defined below), they can include bespoke provisions in the “Other terms” section of the confirm.

(2) Transaction Specification

Transaction Specifications set out the ‘product specific’ and ‘trade specific’ terms. These are:

1. the quality specification with which the relevant Metal must comply
2. other, mostly operational, terms intended to reflect standard market practice in respect of that product
3. terms appropriate for the Delivery Base and method of shipment (i.e. in bulk or containers), such as provisions dealing with vessel nomination, loading and carriage to the Destination Point, discharge and laytime or Container Free Time and demurrage.

For example, GCH has published a “Nickel Briquettes CIF” Transaction Specification. This contains a specification and terms tailored to the trade of this particular commodity (nickel), in this particular form (briquettes), and on this particular delivery basis (CIF). So, it requires ASTM Standard Specification B39-79 (2023) or GB/T specification 6516-2010- Ni 9990 grade nickel to be delivered, transported in containers rather than bulk, and for the briquettes to be packed in steel drums.

At present, there are Transaction Specifications for nickel in the form of (i) pellets, (ii) briquettes, (iii) rounds, (iv) cathodes, and (v) powder. Further Transaction Specifications are intended to be published for other products.

(3) General Terms and Conditions for Sales and Purchases of Metals (“GTCs”)

The main body of STA-M is the GTCs. These are the general terms that apply regardless of the particular product being traded.

The GTCs contain default operational, quality and quantity, and payment terms. These apply subject to the terms of the Transaction Specification used, and the relevant confirm. Although the GTCs are drafted to contain all key legal terms required for a complete and workable sale and purchase contract, it is important to note that the Transaction Specification may contain terms that supersede the default position set out in the GTCs. For instance, the “Nickel Briquettes CIF” Transaction Specification contains different Price and Payment terms.

The GTCs also contain detailed and robust clauses of a kind commonly seen in metals trading contracts: e.g., failure to deliver/take, rejection, force majeure, and REACH clauses.

Finally, the GTCs contain standard ‘boilerplate’ clauses seen in most commercial contracts: e.g., confidentiality, entire agreement, and law and jurisdiction clauses.

(4) Incoterms

STA-M defines certain terms by reference to Incoterms®. “Delivery”, for example, is defined to mean delivery in accordance with Incoterms 2000 or Incoterms 2020 (as applicable). Most Delivery Bases are also defined by reference to the meanings given in Incoterms® 2000 or Incoterms® 2020, as appropriate. Incoterms® 2000 is used in STA-M as the DES Incoterm (which was discontinued from Incoterms® 2010 onwards) remains popular in the market for certain trades. STA-M also uses the Delivery Basis “In Situ”, which is not defined in Incoterms® and so instead is defined in STA-M.

Points To Note

• Balance – STA-M is intended to be neither seller nor buyer friendly, a set of terms on which parties will be happy both to buy and sell. The intention is for this to avoid the need for lengthy negotiations. Users of course remain free to negotiate and agree amendments to STA-M in the Trade Confirmation, which will take priority over the terms in the Transaction Specification and GTCs.
• Breadth – STA-M has a very broad scope, as set out above. It is unusual, for example, for a set of GTCs to cover both bulk and containerised goods.
• English law – STA-M is governed by English law. It therefore benefits from the relative certainty provided by English courts’ well-developed body of case law on the interpretation of physical commodity sale and purchase agreements.
• Fraud – the metals trade is particularly susceptible to fraud. STA-M ensures that in cases of fraud, certificates of weight or quality will not be binding and liability will be unlimited. Regardless, it is a maxim of English law that ‘fraud unravels all’. A victim of commercial fraud will ordinarily have a number of causes of action by which to pursue wrongdoers.
• Sanctions – the metals trade is frequently impacted by sanctions, including as a result of the conflict in Ukraine. STA-M includes robust and detailed general sanctions provisions. For example, a party has the right to terminate the agreement where it reasonably believes performance will materially affect its reputation.
• CIF/CFR Arrival Periods – the parties can choose to specify an “Arrival Period” for CIF and CFR trades in their confirm. This is defined to mean the period during which the vessel must tender NOR at the Destination Point (i.e. the discharge port). Specifying Arrival Periods in this way converts the sale from a traditional CIF/CFR trade, under which once shipment is concluded, the seller’s physical delivery responsibilities cease,² to a CIF/CFR ‘delivered’ sale, under which, even though risk and title will pass at loading, the seller is obliged to ensure the physical arrival of the vessel at the port of destination within the relevant period.³ The seller under a CIF/CFR ‘delivered’ sale is therefore (subject to force majeure) at risk in respect of delays to or even loss of the vessel during the voyage.
• Quality certificates – by default and as per standard market practice, the relevant Producer’s Certificate of Analysis will be conclusive evidence of the quality of the Metal delivered. However, it will not be binding in case of fraud or manifest error. The buyer does also have a right to procure its own Buyer’s Certificate of Analysis and may be able to challenge the Producer’s Certificate of Analysis, but the contractual procedure and timelines must be followed strictly.
• Price adjustment – unlike in certain sale contracts for other commodities (e.g. coal), there are no agreed price adjustments set out in STA-M to apply where the Metal does not comply with the contractual Specification. This reflects that, with certain metals, a small deviation from the agreed specification can drastically affect the value of the product.
• Rejection – if the Metal is off-spec, the parties are required to use reasonable endeavours to agree a fair price adjustment, but the buyer may ultimately require the seller to take back the Metal – risk in the Metal will revert immediately to the seller on rejection, and disposal is for the seller’s account.
• Health and safety – parties to STA-M expressly agree that they will comply with all applicable regulations related to health, safety and the environment, including REACH⁴, and will therefore need to be aware of the rules and obligations relevant to their product and intended trade.

HFW Comment

GCH’s STA-M and new physical metals trading platform represent ambitious, innovative solutions for a modern metals trading market, aiming to promote standardisation, transparency, practicality and the adoption of pragmatic, commercially reasonable trading terms. It is envisaged that, by utilising terms that reflect market standard practices and are even-handed between buyers and sellers but can be tailored to individual party requirements through amendments in Trade Confirmations, STA-M will assist parties to efficiently negotiate and agree trading terms and will facilitate the performance of contracts by providing clarity on the rights and obligations of parties.   

If you have any questions, please contact the authors of this briefing.

Footnotes

1. https://www.globalcommoditiesholdings.com/public/Metal/Nickel/CommodityTradingContract/Default.cfm
2. Shipton Anderson & Co v Weston (John) & Co (1922) 10 Ll LR 762, 763
3. This can also be the result of the terms of a given Transaction Specification. For example, paragraph 1.4 of the Nickel Briquettes CIF (Version 1) Transaction Specification provides expressly that “Seller’s obligation to Buyer to deliver the Shipment shall be fulfilled when the NOR is tendered within the agreed Arrival Period and made available to the Seller on presentation of Bill of Lading.“
4. Regulation (EC) No 1907/2006 of the European Parliament and Council of 18 December 2006 concerning the registration, evaluation, authorisation and restriction of chemicals