Gafta Arbitration: General Guide

Gafta arbitration (Grain and Feed Trade Association) is a dispute resolution process conducted under the Gafta rules, primarily based on the association’s standard forms. Gafta, the International Grain and Feed Trade Association, was established to standardise and simplify the global trade of grain and feed. The association develops standard form contracts that include mandatory provisions for resolving disputes through Gafta arbitration. These contracts are widely used in international trade, and any disputes arising from them are subject to arbitration under English law.

Examples of Gafta Contract Forms

Within Gafta, there are numerous contract forms, each designed for specific trading conditions and regions. Below are examples of some forms frequently used in international grain and feed trade:

• Gafta 38 — a contract form for trading grain from Argentina on FOB terms.
• Gafta 48 — a contract form for trading grain from Central and Eastern Europe on C&F, C&FFO, CIF, CIFFO terms.
• Gafta 49 — a contract form for trading grain from Eastern Europe on FOB terms, both in bulk and in bags.
• Gafta 124 — not a contract form but rather rules for sampling, analysis, and certification (Rules for Sampling, Analysis Instructions and Certification). These rules play a crucial role in ensuring product quality and compliance with Gafta standards.

All Gafta contract forms include provisions that require disputes to be resolved under Gafta arbitration rules, specifically Gafta No. 125.

How Gafta Arbitration Works

Gafta arbitration is the preferred method for resolving disputes arising from contracts under the association. The process is conducted in accordance with the association’s rules, such as Gafta No. 125, and involves independent arbitrators. These arbitrators, appointed by the parties or by Gafta, review the disputed issues and issue a decision that is binding on both parties.

A Gafta arbitration award has the same legal standing as a court judgment and can be enforced through the courts in the country where the respondent is registered or in the jurisdiction where the respondent’s bank accounts and other assets are located.

For less complex and urgent disputes, there is a separate set of rules — Gafta No. 126, which provides for expedited case consideration.

Gafta Arbitration Procedure

The Gafta arbitration procedure begins with the issuance of a notice of arbitration to the respondent and to Gafta. In this notice, the claimant outlines the nature of the dispute, the demands being made, and appoints their arbitrator. The respondent is then required to appoint their own arbitrator within nine days of receiving the notice.

If the respondent fails to appoint an arbitrator, the claimant may request that Gafta appoint an arbitrator on the respondent’s behalf.

Once the arbitrators are appointed, an arbitration tribunal is formed, which may consist of one or three arbitrators, depending on what the parties have agreed. The tribunal reviews the case based on the written submissions and evidence provided by the parties. In most cases, Gafta arbitration is conducted remotely, which significantly speeds up the process. However, in exceptional cases, oral hearings may be held if necessary to ensure a fair resolution of the dispute.

Choosing Arbitrators in Gafta

Gafta arbitrators are professionals with many years of experience in grain and feed trading. Unlike traditional judges, Gafta arbitrators are often practising traders or surveyors, which allows them to better understand the specifics of disputes related to international trade. This makes the Gafta arbitration process more specialised and tailored to the needs of market participants.

The selection of arbitrators in Gafta arbitration plays a key role in ensuring fairness and objectivity. Gafta maintains a register of qualified arbitrators from which the parties can choose for their cases. If the parties cannot agree on the selection of arbitrators, Gafta will appoint them independently, ensuring the tribunal’s impartiality and independence. The full list of arbitrators is available on the Gafta website.

Limitation Periods and Their Compliance

Compliance with limitation periods in Gafta arbitration is a crucial aspect of protecting the rights of the parties. These periods depend on the terms of the Gafta contract and must be strictly adhered to in order to avoid losing the right to file a claim.

The main limitation periods include:

• CIF (Cost, Insurance, Freight) contracts:
  A claim must be filed within one year from the date of discharge at the port of destination.
• FOB (Free on Board) contracts:
  A claim must be filed within one year from the date of the bill of lading.
• Contracts on other delivery terms:
  For contracts on other terms, such as CPT, DAP, or DDP, a claim must be filed within one year from the last day of delivery or receipt of the cargo, depending on the contract terms.

Gafta rules also provide for special limitation periods in various situations:

• Guaranteed terms (Rye Terms):
  A claim must be filed no later than 10 days after the completion of discharge.
• Sample analysis:
  If arbitrators require sample analysis, the claim must be filed within 21 days of the date of delivery or packaging of the goods.

Failure to comply with these deadlines may result in the loss of the right to file a claim, making it impossible to pursue the dispute further. Therefore, it is essential for the parties to closely monitor the established deadlines.

Costs of Gafta Arbitration

The cost of Gafta arbitration varies depending on the complexity of the case, the number of arbitrators, and the time spent on its consideration. On average, the total first-tier arbitration cost (Association fees plus arbitrators’ fees) is approximately £14,654.65 per published GAFTA figures. This may increase where the dispute requires more extensive consideration. The average cost for an appeal is approximately £23,816.78.

As for the deposit required to initiate the arbitration process, its amount depends on the number of arbitrators:

• Deposit for a single-arbitrator case:
  From £8,000 (where both parties are Gafta members) up to £11,400 (where both are non-members).
• Deposit for a three-arbitrator case:
  From £12,000 (both parties Gafta members) up to £15,000 (both non-members), depending on membership status.

After filing a claim, Gafta issues an advance invoice for the arbitration fees. This advance must be paid within 60 days, otherwise, the arbitration procedure will be annulled. If the actual costs of arbitration are less than the deposit, the remaining amount will be refunded to the claimant. Otherwise, the arbitrators may request additional payment if the costs exceed the initial deposit.

Arbitration costs are initially borne by the claimant. However, in the final award, the arbitrators may order the losing party to pay the costs. If the claim is partially upheld, the arbitration costs may be apportioned between the parties proportionally.

Recovery of Legal Costs in Gafta Arbitration

One of the issues that arise during Gafta arbitration is the possibility of recovering legal costs. Unlike traditional court proceedings, Gafta arbitration does not always provide for the reimbursement of legal costs. Exceptions are made in cases where the parties have expressly provided for such a possibility in the Gafta contract terms. However, in practice, this is relatively rare, and parties should consider this aspect when drafting contracts and preparing for arbitration.

For a detailed breakdown of when legal costs are recoverable in GAFTA arbitration without an express written agreement, what falls within “costs of the reference”, and the Section 65 Arbitration Act 1996 cost cap, see the separate article: How to Recover Legal Costs in GAFTA and FOSFA Arbitration.

Appealing a Gafta Arbitration Award

If one of the parties is dissatisfied with the Gafta arbitration award, they may file an appeal. An appeal in Gafta involves a full reconsideration of the case, including the opportunity to present new evidence and arguments. The appeal must be filed within 30 days of the award, and a deposit of £20,000 is required.

The appeal process in Gafta is similar to the initial consideration of the case but with a larger number of arbitrators. If the case was initially heard by three arbitrators, five arbitrators participate in the appeal process. This process provides the parties with additional opportunities to protect their interests, especially in complex and contentious cases.

Furthermore, it is possible to challenge a Gafta arbitration award in the High Court of Justice in London, but only on limited grounds, such as lack of jurisdiction, serious procedural irregularities, or incorrect application of the law. It should be noted that the High Court of Justice rarely overturns Gafta arbitration awards, highlighting the importance of thorough preparation and presentation of the case at all stages of the arbitration process.

Enforcement of a Gafta Arbitration Award

A Gafta arbitration award can be enforced through the courts in the country where the respondent is registered or in the jurisdiction where their bank accounts and other assets are located.

The first step after receiving the award is to approach the other party with a demand for voluntary compliance with the arbitration award. In most cases, debtors agree to voluntary compliance, especially if they continue to participate in international trade.

If the debtor refuses to comply with the award, the following steps can be taken:

• Compulsory enforcement through the courts:
  If voluntary compliance is not possible, the arbitration award can be enforced through the courts in the country where the debtor’s assets are located.
• Publication of debtor information on the Gafta website:
  Additionally, the mechanism of publishing information about the debtor on the Gafta website can be used. Including the debtor company in the defaulters’ list can put significant pressure on the company and encourage voluntary compliance with the award. This step can severely damage the debtor’s reputation in the industry and affect their future trading operations.
• Additional legal measures:
  In some cases, additional measures can be taken, such as obtaining a Worldwide Freezing Order (WFO) or a Third Party Debt Order (TPDO). However, these measures are usually considered only when there is a significant risk of asset dissipation or evasion of compliance with the award.

Conclusion

Gafta arbitration is an effective and specialised tool for resolving disputes in international grain and feed trade. This process, based on Gafta No. 125 rules and other Gafta regulations, ensures prompt and fair resolution of conflicts, which is especially important for participants in global trade.

Understanding the key aspects of Gafta arbitration, such as selecting arbitrators, adhering to deadlines and rules, and preparing documents properly, will help you successfully protect your interests and achieve a positive outcome in Gafta arbitration.

If you have any further questions or need assistance with Gafta arbitration, please contact me via email, Telegram, or WhatsApp. I provide legal assistance on all matters related to Gafta arbitration and international trade.