GAFTA update: The new Gafta 125 arbitration rules

From 1st September 2016 the new version of the Gafta 125 Rules of Arbitration takes effect in all sale contracts referencing or incorporating the rules.

The Rules are widely used among traders in soft commodities who are and are not members of Gafta. Although the changes to the Rules are not extensive, many of them will be welcomed by those involved in the commodities industry, as they attempt to deal with some of the practical problems encountered during the arbitration process.

The changes, having been drawn up by a committee representing the trade, highlight the benefits of a trade organisation which draws on the practical experience of its members.


Changes to the Rules

Some of the most important changes to the Rules of Arbitration are summarised below:-

(i)    Gafta have sought to dispose of and clarify some of the difficulties created by the time limit associated with quality and condition disputes. The new rules seek to do this by re-naming the heading for Rule 2.1 and disposing of the old Rule 2.1. (b) and (c).

The aim of the change is to attempt to ensure that the time limits contained in Rule 2.2 (1 Year) apply to the majority of claims. Quality and Condition disputes are now subject to a one year time limit rather than 21 days.

Gafta have however maintained the 21 day time limit for commencing arbitration for circumstances where one of the parties (usually the buyer) requires a Gafta arbitrator to analyse samples taken for the purposes of resolving a dispute.

(ii)  Gafta have clarified that they will now appoint a sole arbitrator/arbitrator in default (under Rule 3) upon receipt of the first written submissions from the claimants (filed/served in line with the requirements of Rule 4).

(iii) Gafta have clarified that if the requisite deposit is not received by them within 60 days from the date of request the claim will be waived/time barred (Rule 4.1).

(iv) The Rules now give tribunals greater powers to consolidate or hold concurrent proceedings in the event that one of the parties does not agree (Rule 7). This power has also been extended to the appeal board (Rule 12).

(v)   Gafta have included a new provision covering cancellation costs (Rule 16) in the event that the parties do not proceed with the arbitration. The new provision also provides a formula for assessing such costs.


Our Comment

Many of these changes will be welcomed by the industry as they clarify and adapt some of the practical aspects of Gafta arbitration procedure. One change which will be widely welcomed is the additional powers given to Gafta tribunals to consolidate or hold concurrent hearings in circumstances where one of the parties refuses to provide their consent (a requirement of the old rules), as in the past it had been known for litigants to refuse to provide their consent for similar contracts/disputes to place additional pressure on the claimants to start separate Gafta proceedings thereby requiring them to pay additional deposits.

Although Gafta have attempted to alleviate the issues caused by quality and condition claims, it remains to be seen whether the new provision relating to samples (Rule 2.1) will adequately do so, as a creative respondent may use the provision to generate some logistical and legal difficulties. While such difficulties may be alleviated by the tribunal’s discretion to admit a claim, even it is time barred (Rule 23), it does not prevent the uncertainty and increase in costs that could be caused if such potential problems are raised in the course of a dispute.

For any further information on the new Gafta 125 arbitration rules or any other issues relating to commodity disputes, please feel free to contact our litigation team.