Jonathan Waters, General Counsel, Gafta
Gafta is an international trade association representing the agricultural commodities trade such as grains and feed. It aims to encourage trading on the principle of “my word is my bond” and to promote free trade by encouraging governments to remove tariffs and non-tariff barriers to international trade.
Gafta’s mission is to promote free and open trade and has over 2000 member companies in 100 countries around the world. 80% of world trade in grain is carried out on Gafta contracts.
Gafta contracts
Gafta provides over 80 standard form “Contracts” for use in the trade and issues “Rules”. The latter forms part of the Contracts via the English law of contractual incorporation. The Rules include Arbitration, Domicile, Insurance and Testing.
The Contracts and Rules have been used extensively within the sector for many years. Parties do not need to negotiate their contracts from the beginning and, instead, can confidently rely on clauses which have been “tried and tested” within the trade and before the courts. English law applies and English courts have exclusive jurisdiction.
Gafta arbitration
Gafta is also an international arbitral body. In 2023 it received 337 new cases and awarded damages of $US 162,522,377. The number of cases often reflects geo-political events (such as the Russian war in Ukraine and the impact on shipping routes in the Red Sea), which can have an impact on the market. Where markets are volatile, more breaches of contract tend to occur and Gafta can receive up to 1000 new cases a year. In 2023, when Russia pulled out of safe corridor’s agreement in Black Sea for ships carrying cereals, prices increased. Some traders viewed their contracts as less profitable and defaulted (breached) them.
A key feature of a Gafta arbitration hearing is the exclusion of private practice lawyers. However, representation by a party’s in-house counsel is permitted. The intention here is to maintain the principle of trade arbitration – arbitration for the trade by the trade.
Once considered by the Tribunal, an Award will be issued which is strictly confidential. A party who fails to abide by an Award is liable to being placed on the Gafta “Defaulter List”. The List is only available to members and can be an effective risk management and due diligence tool, often used by members, seeking to trade with a new counterparty. If a defaulter is a Gafta member, the association has the right to take disciplinary action against them – including suspension and/or termination of membership.
Gafta has a pool of 80 arbitrators, drawn from different countries and trade sectors. To pass the arbitration examination they need to attend and pass courses and have at least 10 years trade experience. Gafta arbitrators understand the way in which the trade operates in practice, and this gives arbitration “users” the confidence that Tribunal understands both the law and the context in which their dispute has arisen. Gafta arbitration is considerably quicker and cheaper than “traditional” court litigation.