08 Mar 2019
Some things you can only do in London. Although loitering in the fog is no longer part of the city’s attraction, taking a ride in a black cab, having a pint at the Cittie of Yorke and arbitrating a commodities dispute are still very much an exclusivity of the English capital. Indeed, London is the home of a variety of commodities trade associations, each one with its own standard contracts, arbitration rules and tribunals.
Of these, perhaps the best known – or least unknown - is the Grain and Feed Trade Association (“Gafta”). It is estimated that around 80% of all the grains traded in the world do so under Gafta standard contracts, all of which contain an arbitration clause, making the association’s tribunal the main forum for solving grain disputes worldwide.[1] Gafta’s dispute resolution system, however, is quite particular and we shall look into some of its most peculiar aspects in this article, intended for the general information of interested traders.
Richard Southern QC stresses two main points of Gafta Arbitration Rules No. 125:[2] legal representation and costs and the “naming and shaming” of defaulters. Concerning the first, Rule 17.2 allows parties to engage legal representatives only in written proceedings but not on oral hearings. Rule 17.1, nevertheless, conditions the engagement of lawyers in oral hearings to a written agreement by the parties. Lord Hacking criticizes this provision, as giving an advantage to the party whose legal position is least tenable: he or she is not likely to agree with the employment of legal representatives.[3] The consequence is that, in practice, “lawyers are actively involved in the preparation of cases, but it is mostly traders who present cases in front of arbitrators.”[4]
Mr. Southern called our attention to an apparent contradiction in Rule 17.[5] Under Rule 17.1, in case parties agree in writing to employ lawyers, “the tribunal and/or board of appeal shall determine the recoverable costs of engaging legal representatives.” Rule 17.4, however, states that “unless expressly agreed otherwise, in writing, each party shall bear all their own costs including their own legal and representation costs.” The question is whether parties need a second written agreement to have their costs determined by the tribunal or board of appeal or such a determination would be implied by the first agreement to employ legal representatives and, therefore, only one agreement would suffice to entail recoverable costs for legal representation.
According to Richard Southern QC, “it is a difficult question, but it seems that two agreements may be required. So parties should consider whether they want such costs to be recoverable or not – because the default position seems to be that costs cannot be recovered without a specific agreement that they can be.”[6] It is indeed the better view, it is submitted, because, otherwise, Rule 17.4 would be pointless in case parties have agreed in writing to use lawyers. Moreover, it is widely known that Gafta has been historically somewhat reluctant to allow the use of lawyers[7] and those provisions seem to be intended to impose a hurdle on the recoverability of costs for legal representation. They work almost as a penalty for employing lawyers.
The second main point stressed by Richard Southern QC is that Gafta is quite particular in “naming and shaming” its defaulters. Rule 24 of Gafta Arbitration Rules No 125 defines defaulters as those who do not comply with the awards and/or do not pay the costs of the arbitration. In verbis:
24.1. In the event of any party to an arbitration or an appeal held under these Rules neglecting or refusing to carry out or abide by a final award of the tribunal or board of appeal made under these Rules, the Council of Gafta may post on the Gafta Notice Board, Web-site, and/or circulate amongst Members in any way thought fit notification to that effect. The parties to any such arbitration or appeal shall be deemed to have consented to the Council taking such action as aforesaid.
Mr Southern remarked[8] that although Gafta’s website states clearly that “this information is available ONLY for Gafta members and must NOT be provided in any form to companies or individuals that are not Gafta members”,[9] the list of defaulters is made public on the very same website.[10] This “peer-pressure” on defaulters seems to be quite effective, as there are very few cases of defaulters.[11]
Another aspect of Gafta arbitrations that might puzzle the uninitiated overseas observer is the fact that all arbitrations are deemed to have its seat in England and to be governed by English Law.[12] There is no scope for the parties to choose another seat or even to discuss the seat of the proceedings. The advantage of this seemingly imposition is that it enables Gafta to maintain uniformity and predictability in its decisions. It also adds to legal certainty, as traders know that English Law will be the basis of the proceedings as it is already for the contracts. The flip side not well versed in Gafta terms or not trained in English law may find it but impossible to understand and intervene in a competent manner. Lord Hacking himself tells that “when parties are limited in using the English language and have no knowledge of English Law they are, as I have witnessed, at a disadvantage in conducting a Gafta arbitration.[13] In those circumstances, it is submitted, the assistance of lawyers trained in English Law is of critical importance to the capability of overseas traders to take part fully in the proceedings.
It is also worth mentioning that Gafta Rules have very short limitation periods for bringing a claim. As a general rule, traders have one year to serve a notice on the respondent.[14] When there are samples to be examined by the arbitrators, the period falls to 21 consecutive days,[15] and, in a case under the “Rye Rules”, limitation is shortened even further to 10 consecutive days.[16] This very short limitation period serves the obvious purpose of adding certainty to the trade, as traders do not have to be worried that claims might be raised long after delivery of the consignment. In addition, the even shorter limitation period for cases when samples will be analysed is also a most logical provision, as goods are perishable and allowing disputes to happen after they started to become stale would be a pointless and expensive exercise.
Gafta, in short, has a most successful dispute resolution system, which is “crafted and adjusted exclusively” for the international grain trade.[17] According to Polovets, Smith and Terry “no other arbitral institution dealing with commercial disputes can boast of such a level of expertise”.[18] Its rules and procedures, however, in the same manner as its contracts, are also quite niched, which demand a high level of proficiency from lawyers, arbitrators and traders themselves, who have much to gain in taking an active membership of the association.
Paulo Fernando Pinheiro Machado FCIArb is an advocate, diplomat and arbitrator, Managing Partner of Pinheiro Machado & Co in Brazil.
* The author is grateful to Richard Southern QC and 7 King’s Bench Walk for the support and the most interesting insights on the subject.
[1] Gafta, All Contracts <https://www.gafta.com/All-Contracts> Accessed 29 January 2019
[2] Mentioned in private communication with the author.
[3] Lord Hacking, ‘Gafta and the Legal Profession’, GaftaWorld (2007), Issue 165, 3 <https://www.lordhacking.com/Documentation/DDH%20Article%20on%20'GAFTA%20and%20the%20Legal%20Profession'.pdf> Accessed 29 January 2019
[4] Iryna Polovets, Matthew Smith and Bradley Terry, ‘Gafta Arbitration as the Most Appropriate Forum For Disputes Resolution in Grain Trade’, (2013) Arizona Journal of International & Comparative Law, Vol.30, No. 3, 575
[5] Mentioned in private communication.
[6] Ibid
[7] Lord Hacking, ‘Gafta and the Legal Profession’, GaftaWorld (2007), Issue 165, 3 <https://www.lordhacking.com/Documentation/DDH%20Article%20on%20'GAFTA%20and%20the%20Legal%20Profession'.pdf> Accessed 29 January 2019
[8] Mentioned in private communication
[9] Gafta, Defaulters on Awards of Arbitration <https://www.gafta.com/Defaulters-on-Awards-of-Arbitration> Accessed 29 January 2019.
[10] Ibid
[11] Iryna Polovets, Matthew Smith and Bradley Terry, ‘Gafta Arbitration as the Most Appropriate Forum For Disputes Resolution in Grain Trade’, (2013) Arizona Journal of International & Comparative Law, Vol.30, No. 3, 580
[12] Gafta, Arbitration Rules nº 125, Rule 1.
[13] Lord Hacking, ‘Gafta and the Legal Profession’, GaftaWorld (2007), Issue 165, 3 <https://www.lordhacking.com/Documentation/DDH%20Article%20on%20'GAFTA%20and%20the%20Legal%20Profession'.pdf> Accessed 29 January 2019
[14] Ibid, rule 2.2(a-c)
[15] Ibid, rule 2.1(b)
[16] Ibid, rule 2.1(a)
[17] Iryna Polovets, Matthew Smith and Bradley Terry, ‘Gafta Arbitration as the Most Appropriate Forum For Disputes Resolution in Grain Trade’, (2013) Arizona Journal of International & Comparative Law, Vol.30, No. 3, 602
[18] Ibid