Commodities arbitration

Arbitration has been used to resolve disputes in the commodities trades ever since such trading began. It grew enormously with the formation of trade associations in the nineteenth century. The associations published standard from contracts for the sale of different commodities and provided arbitration services for the resolution of disputes arising under them.

The Rt Hon Lord Goff of Chieveley, a distinguished English jurist, neatly summarised the characteristics of trade association arbitration in his foreword to the leading textbook International Commodity Arbitration by Derek Kirby Johnson (Lloyd’s of London Press, 1991):

“These arbitrations are the principal institutionalised arbitrations in the City of London, the essential nature of which is that they are administered by those who are deeply experienced in the particular trade in question. They are familiar with the way in which traders in fact operate on the ground; with the practical pressures upon traders; with the way in which contracts are made, and the way in which contracts are performed. They are familiar too with the standard forms (our modern commercial codes, which achieve uniformity across national boundaries without any of the trauma and complexity of international conventions), and with the manner in which those forms are regularly applied in practice. It is a commonplace that commodity arbitration tribunals in London frequently include traders from overseas, who are experienced in the trade at the place in which the dispute has arisen.”

As noted in the article which I wrote jointly with Cherine Foty, Conflicting Perceptions of Ethics in International Arbitration, download here, the International Cotton Association (ICA), founded in Liverpool in 1841, has been credited as the blueprint for the modern arbitral institution. While such institutions have diversified and expanded, the trade associations’ arbitration services continue to prosper, providing “arbitration by the trade for the trade”. The ICA, as discussed in our article, has modernised its rules and practices by listening to its users. As noted in my Lexis Blog post on arbitration statistics for 2022, a study by Zhong Lun Law Firm of international arbitration awards submitted for enforcement in Chinese courts between 2012 and 2022 found that ICA awards came in second place to the Singapore International Arbitration Centre (SIAC) and well ahead of the International Chamber of Commerce (ICC).

Arbitrators in commodity arbitrations are often traders or retired traders and sometimes in-house lawyers. Some trade association rules forbid or restrict external lawyers from participating in hearings. However, lawyers may be involved in drafting written submissions and in following the procedure. When I was in practice as a solicitor, I acted for some producers and trading houses, for importers of rice, corn, and other commodities in North and West Africa, and for cargo underwriters.

I was pleased to be asked by Gafta, the Grain and Feed Trade Association, to give lectures on training courses for traders and arbitrators. In 2004, I was privileged to participate in a Gafta course held in Tripoli, Libya. It was well attended by traders from Libya, neighbouring countries and beyond. The lecturers were lucky to have the opportunity to visit the magnificent ruins of Leptis Magna, the port city rebuilt by the Roman emperor, Septimus Severus, at the beginning of the 3rd century AD at a time when its North African colonies were Rome’s ‘bread basket’. The port used to silt up, proving unsuitable for ships, but the sand has preserved much of the city. Leptis Magna had been Septimus Severus’s birthplace but he died in York in England in 211 after making the mistake of trying to conquer Scotland.

The trade associations’ standard forms seek to anchor everything in England. The transactions are fully international with parties from different jurisdictions buying and selling commodities often sourced from a third country and delivered to a fourth. Certainty and predictability can be secured by making the contracts subject to English law and London arbitration. International traders rarely like to become involved in comparative law analyses. I discussed this in my paper ‘The law of the arbitration agreement: a non-issue’, which I gave at the International Congress of Maritime Arbitrators (ICMA) in Dubai in November 2023 and which you can download here. I gave the example of the arbitration rules of the Refined Sugar Association (RSA), Rule 8 of which leaves no doubt that English law would govern the arbitration agreement as it does everything else in the contract and in the arbitration.

However, times change and globalisation brings new members to existing trading communities and new commodities to new markets, for example minor metals for new technologies. Not all are convinced that London and English law should have a monopoly. Traders in the Asia Pacific region have turned to Singapore and to the Singapore International Arbitration Centre (SIAC). There may even be room for the United Nations Convention on Contracts for the International Sale of Goods (CISG), central to the annual Vis Moot competition but so often excluded in real-life commodities contracts.  I was pleased to have interesting exchanges with Professor Petra Butler about the advantages of trade association rules when she was in charge of the Commonwealth Study of International Commercial Arbitration in the Commonwealth. I was even more delighted when a FOSFA (Federation of Oils Seeds and Fats Associations) standard form contract was incorporated in a CISG contract in the 2022 Vis Moot. Professor Butler invited me to give a lecture on commodities arbitration to her students in Victoria University, Wellington, New Zealand, in 2019. My PowerPoint slides may be downloaded here (PDF).

As an arbitrator, I have been appointed in a variety of commodities disputes under different governing laws and at different seats, notably Singapore and Dubai. I have been pleased to sit on tribunals with former traders and brokers from the UK, India and Hong Kong, in institutional (eg SIAC) and ad hoc (eg LMAA) arbitrations. World events and market fluctuations will continue to bring commodities disputes to institutions, trade associations and arbitrators to be dealt with under traditional and new procedures.