Can GAFTA terms be implied to provide a party with the bite of arbitration? Lessons learned from Black Sea Commodities Ltd v Lemarc Agromond PTE Ltd

In a rare case of a party successfully challenging an arbitration award under s67 Arbitration Act 1996, the English High Court considered the question of whether a GAFTA arbitration clause could be implied into an agreement between parties by market practice and custom in  Black Sea Commodities Ltd v Lemarc Agromond PTE Ltd [2021] EWHC 287 (Comm).

The case concerned the sale of a consignment of corn from Ukraine, free on board (FOB) Odessa, between a seller and a buyer.  On 9 March 2018, the parties exchanged emails which concluded a sale agreement in respect of the corn.  No formal contract or terms were agreed between the parties including how any disputes should be resolved. 

Subsequently on 12 March 2018, the seller provided draft conditions proposing to rely on GAFTA terms but on amended terms.  Whilst the draft conditions provided an arbitration clause, it was not in the standard form clause contained in GAFTA standard form contracts.  It merely stated that there be “provision for GAFTA arbitration”.  The parties sought to negotiate certain terms but no objections were raised regarding the GAFTA arbitration clause.  The parties did not reach agreement on the conditions to the agreement made on 9 March 2018 and negotiations broke down on 14 March 2018.

The buyer subsequently commenced arbitration proceedings.  The tribunal accepted that it had jurisdiction and proceeded to make an award in the buyer’s favour.  The seller then applied to the High Court to challenge the arbitration award. 

The court accepted that no arbitration agreement had been concluded in the agreement reached on 9 March and that the subsequent negotiations did not result in additional terms being incorporated into that agreement. 

The buyer after the hearing amended its case to say that a GAFTA arbitration clause could be implied as a matter of common trade usage and custom.  The court rejected that argument.  In order to establish that a term can be implied into an agreement as a result of common trade usage and custom, it has to be established that such a clause is “an invariable, certain and general usage or custom of any particular trade or place”.  The custom relied upon must be invariable, binding in the market, in the sense that all trades (in this case trade regarding Ukrainian corn FOB Odessa), invariably contain such a provision.  In order to prove this, a party needs to provide cogent evidence that it is standard market practice or custom for parties in the relevant trade to adopt such a clause in their dealings.  The broker failed to provide compelling evidence and could not point to any prior dealing with the agent where there agreements had adopted arbitration agreements as this was the first commercial dealing they had with each other. 

The case is a useful reminder for parties as to the importance of ensuring that their agreements contain dispute resolution clauses generally and in particular for those that want to use arbitration.  S5 Arbitration Act 1996 makes clear that arbitration agreements have to be in writing and agreed between the parties although adoption of such a clause can be made by reference in the agreement to another document which contains an arbitration clause (s6(2) Arbitration Act 1996). 

For more information about arbitration and what benefit it may provide parties, please see here.

Please contact Mark Davison, Head of International Arbitration for Mills & Reeve LLP on Tel: +44 (0) 20 7648 9245 (Ext 6245) or Email: [email protected] with any queries.