The Ginga Terms: Five Points to Note for LPG Traders

The CFR Far East Ginga LPG Forward Contract terms are the market standard terms for sales of LPG to Asia. They are nevertheless unusual in some respects, when compared to standard trading terms for other physical commodities.

In this article, we highlight five points to note for users of these terms:

1. Origins
2. Chains
3. Demurrage
4. Events of default
5. Arbitrators

The Ginga terms

The Ginga terms are updated periodically. The changes between recent versions have been relatively minor. In this article, we will use as our reference point the CFR GINGA LPG Forward Contract for Half Cargo January 2025 version (the “Ginga terms“).

1. Origins

The Ginga terms set out in Clause 2.02 a list of “acceptable origins” for the propane or butane being supplied. Traders might think that this prevents them from trading cargoes of other origins under the Ginga terms.

However, the clause begins “unless otherwise agreed“. Even if it did not, our view is that, as a matter of English contract law, an ‘acceptable origin’ clause in an incorporated set of standard terms will not generally prevail over a term in the transaction confirmation that the relevant cargo would be sourced from an origin not listed in that clause.

In other words, Clause 2.02 is redundant as between the parties, as they can agree in the confirmation to trade LPG from an origin not listed as acceptable in the Ginga terms.

2. Chains

It is common in international commodity sales for ‘chains’ of multiple buyers and sellers to form in respect of a given physical cargo. For example, A sells a cargo to B, who is on-selling the same cargo to C, who is on-selling the same cargo to D:

A > B > C > D

Usually, sale contracts do not refer to the fact that a chain might arise in respect of the relevant cargo. The Ginga terms, however, do. The word “chain” appears 34 times.

Parties should consider the effect of these references carefully.

One area of uncertainty created is that of privity of contract. This is the principle of English law that a contract is only binding and enforceable between the parties to that contract. In other words, a reference made in a contract between two parties to other members of a chain does not mean that the parties can enforce the contract terms against non-parties who are members of the chain.

3. Definition of demurrage

In CFR sale contracts, demurrage is usually (if not invariably) understood to be liquidated damages payable by the buyer to the seller for delays in discharging the cargo beyond an agreed amount of laytime.

Indeed, the laytime provisions in the Ginga terms allow the Buyer a certain amount of time to discharge the cargo. It would ordinarily follow that demurrage is payable by the Buyer if such laytime is exceeded. We suspect that this is how traders assume the demurrage regime in the Ginga terms operates in practice. There is also for example reference in Clause 4.01 of the Ginga terms to the payment of “Demurrage” by the Buyer.

However, “Demurrage” is defined in Clause 11.01 of the Ginga terms in an unusual way, as follows:

“Liability of demurrage: The Seller and the Buyer acknowledge that this Agreement may form a part of a Chain, and that the First Seller¹(as such Chain may be constituted from time to time) who may be liable to pay demurrage (“Demurrage”) in respect of the carrying Vessel at the port of discharge, may be a person other than the Seller or the Buyer under this Agreement.“

The Ginga terms appear therefore to assume that the First Seller will be chartering the vessel that carries the traded cargo and define the capitalised term “Demurrage” as the demurrage payable by that entity (whoever it is) to the vessel owner under the relevant charterparty, not as any demurrage payable by the Buyer under the Ginga terms.

We suggest that parties consider the effect of this definition carefully. For example, if Demurrage (as defined in clause 11.01) is the demurrage that arises under the relevant charterparty, it will accrue by reference to the laytime provisions in that charterparty. If so, it is not clear how this works alongside the laytime regime (including an agreed amount of laytime in clause 10.01 and various ‘exceptions’ to laytime elsewhere) in the Ginga terms.

4. Events of default

It is common in international commodity sale contracts for there to be a clause entitling a party to terminate the contract if certain conditions are triggered by the other party (often referred to as “events of default”). A common event of default is insolvency, for example. The Ginga terms include no event of default clause. Traders may prefer to add one.

5. Arbitrators

The Ginga terms provide that all arbitrators must be “solicitors with relevant expertise in international oil trading disputes“. It is unusual to restrict arbitrators to solicitors only. This would exclude, for example, English barristers or counsel. In addition, this wording may lead to disputes over what constitutes “relevant expertise“. Our view is that it is better not to include it at all.

Conclusion

Whilst they are used frequently, parties should be mindful of the unusual aspects of the Ginga terms, including those highlighted above. We are actively advising clients on these issues and ready to assist with any questions that traders may have.

Footnotes

1. the first member of the chain, i.e., party “A” in the example above.