Riding the Wave: England as a Hub for Soft Commodities Arbitration

2016 will be recorded in history as a year of great political change. But the commercial consequences of such transformation (good or bad) will be felt this year, including the effects of: the inauguration of Mr Trump as President of the USA — who has indicated a more protectionist approach to trade (January 2017); the mooted triggering of Article 50 — when the U.K. will have two years to negotiate a deal before it must exit the EU (expected to be March 2017); and general/presidential elections across mainland Europe (Holland, March 2017; France, April/May 2017; Germany, October 2017).

Each of these events is likely to have an impact on global trade, particularly in the field of soft commodities. These commodities (e.g. grain, wheat, rice) bear the brunt of such instability. With the threat of currency fluctuation and import/export tariffs looming over a resource that deteriorates over time, commercial disputes inevitably arise.

However, in contrast to this context of change and instability, one thing will remain constant: the proclivity of soft commodity traders to use English law and to resolve their disputes in the U.K.

GAFTA and FOSFA

The Grain and Feed Trade Association (GAFTA) is an international trade association with over 1,500 members in 89 countries. GAFTA works to protect the interests of its members through the provision of standard form contracts, which, it is estimated, govern 80 percent of the world’s trade in grain, wheat and rice. These contracts expressly provide that any and all disputes arising will be dealt with by arbitration under GAFTA’s own set of arbitration rules, Arbitration Rules No. 125.

It is reported that 85 percent of global trade in oils and fats is traded under the standard form contracts of the Federation of Oils, Seeds and Fats Associations Ltd (FOSFA). This organisation has 1,113 members in 89 countries. Like GAFTA, FOSFA acts as a professional international contract issuing and arbitration body, whose contracts include a dispute procedure that involves arbitration under FOSFA’s own set of arbitration rules.

Disputes

Arbitration is the favoured dispute resolution mechanism for soft commodity disputes. Two of the key reasons for this are:

1. Specialised arbitration rules — GAFTA and FOSFA provide streamlined arbitration rules, which have been developed with the input of members. They include a number of innovations that are of importance to the soft commodity trade (i.e. the opportunity to appeal the first instance decision); and disputes are determined by specially qualified arbitrators who are experienced in the trade.
2. Enforcement — Awards made in arbitration are enforceable in 149 countries under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Given the international nature of soft commodity trading, this is of critical importance.

Will Brexit (and World Events) Affect England’s Status as a Hub for Soft Commodity Disputes?

Both GAFTA and FOSFA arbitration rules are inextricably linked with English law. The appeal of English law as the governing law of a contract sits quite outside the U.K.’s position within the EU; English law is often chosen as the governing law for commodities contracts as it is responsive to international commerce through the development of the common law.

Further, Brexit will have no impact on the enforcement of arbitration awards as the U.K. is a contracting state to the New York Convention in its own right. This means that the U.K. will be no less attractive as a place in which to resolve disputes via arbitration.

Finally, on a practical level, the English language has always been part of the attraction of London as a centre for commercial disputes. This is because English is considered the lingua franca of commerce as well as one of the most widely spoken languages in the world.

Although we appear to be living through a time of political and economic uncertainty, these changes will not impact on England’s position as a centre for soft commodities disputes and arbitration: English law is enshrined in the arbitration and domicile clauses of both GAFTA and FOSFA; the New York Convention will continue to govern the enforcement of arbitration awards despite Brexit; and commodities contracts themselves often specify English law and jurisdiction in their governing and jurisdiction clauses.