GAFTA and the Grain Trade

Limitation and Representation under GAFTA Rules

It is estimated that around 80% of all the grains globally are sold under GAFTA standard contracts. GAFTA has a dispute resolution system, which is “crafted and adjusted exclusively” for the international grain trade.

Time Limitation under GAFTA Contracts

Traders who incorporate GAFTA Arbitration Rules 125 (GAFTA 125) into their contracts would be well advised in the event of a dispute to commence GAFTA arbitration proceedings at the earliest opportunity. As a matter of English law, which governs all GAFTA contracts, the commencement of arbitration proceedings in accordance with GAFTA 125, interrupts running of time for limitation purposes. This protective measure comes at little cost (appointment fee of £125.00) to the claimant, and does not carry an obligation to continue the proceedings.

In fact, many traders use commencement of arbitral proceedings to strengthen their position in negotiating, which often take place after the notice of arbitration has been served on the other side.

If the claimant decides to go ahead with the arbitration, it will need to pay the when the pleadings are served. The deposit for GAFTA arbitration is comparable with the English court fees and currently amounts to £10,000 if both parties are GAFTA members, and to £11,500 is one of them is a GAFTA member and £13,000 if both parties are not GAFTA members.

If should be mentioned that GAFTA Rules have very short limitation periods for bringing a claim compared with the Limitation Act 1980. S. 5 of the Limitation Act provides with a simple contract the defendant should have the procedural defence after the expiration of six years from the date on which the cause of action accrued. The limitation period of 6 years would be relied on in most court and arbitral proceedings in London, but not in GAFTA proceedings.

Under Rule 4.10 of GAFTA 125, the innocent party has one year to serve a notice on the other party. However, the claim can be renewed for the successive period of 1 year by serving a notice within 30 days prior to expiry of the limitation period, for the total period of 6 years from the date of the original notice of arbitration.

If the dispute concerns the quality of the sold goods, and the samples need to be inspected by the surveyors, the period for serving the notice of arbitration falls to 21 consecutive days under Rule 2.1 of GAFTA 125, and, in a case under the “Rye Rules”, the period for serving the notice is limited to 10 consecutive days.

Legal Representation under GAFTA contracts

GAFTA dispute resolution differs from other arbitral panels in London by another key feature: if the dispute is resolved via hearing, the parties are represented by GAFTA representatives rather than lawyers, unless the parties agree in writing to be represented by their lawyers in accordance with Rules 17.4 and 17.5. It means that the parties with a strong legal position in the dispute can be in disadvantageous position.

The emphasis on trade rather than law is understandable. However, the GAFTA contracts are governed by English law, and as such require, legal training to interpret them and analyse the merits of the claims under them. If the mistake in interpretation, or legal reasoning occurs in the tribunal’s award issued on the basis of the traders’ representations, appealing it at the High Court of London can be a real challenge under s. 69 of the Arbitration Act 1996. Seeking correction of the award or additional award under s. 57(3) of the Arbitration Act 1996 may help for the mistake to crystalise so that the party with the strong legal position would be able to ask the court to correct the mistake.

Conclusion

GAFTA rules and procedures, as well as its contracts, are niched for grain trade and demand a high level of proficiency from traders, their legal representatives and arbitrators. The guidance in relation to (i) limitation, (ii) legal and arbitration costs, and (iii) representation is best obtained prior to commencement of arbitration, straight after the events giving rise to breach of GAFTA’s contract. GAFTA claim is not the dish best served cold.