Ukraine is a leading producer and exporter of sunflower oil. As traders engage in extensive oil transactions, they often encounter disputes due to unmet obligations to their trading partners. These conflicts are typically resolved through FOSFA arbitration.
This article will provide an overview of the FOSFA arbitration https://fortiorlaw.com/news/fosfa-arbitration/ process, the costs involved, and advice for increasing your chances of success in these proceedings. FOSFA, the Federation of Oils, Seeds, and Fats Associations, is a London-based organization founded in 1863 with the goal of supporting and protecting the oils, seeds, and fats trade.
FOSFA has three core roles: it serves as a platform for industry development and protection, oversees arbitration, and drafts standardized pro forma contracts. According to FOSFA, about 85% of global oil and fats trade is conducted under FOSFA contracts.
FOSFA offers more than 50 standardized pro forma contracts, each identified by a number and varying in terms of the type of commodity and delivery method. For example, FOSFA 53 is used for selling vegetable oil and fish oil with FOB terms, while FOSFA 54 is for the same commodities under CIF terms. FOSFA 4a is for European oilseed trades, among others.
Key Aspects of FOSFA Arbitration
Applicable Law and Arbitration Clause: FOSFA contracts are governed by English law. The FOSFA model arbitration clause, known as the "Scott v Avery" clause, has specific provisions. Unlike GAFTA, FOSFA contracts prohibit parties from seeking court-imposed interim measures such as "worldwide freezing orders" (WFO). If parties wish to reserve the right to seek these measures, they need to explicitly exclude this clause from the contract. Violating the clause could lead to an anti-suit injunction from the High Court of Justice, with the offending party likely facing costs.
Rules in Force: The latest FOSFA arbitration rules date back to 1 April 2021. Keep in mind that the applicable rules are those in effect when the contract was signed, not when the dispute arises. For instance, if a contract was signed in December 2020, but the dispute arose after 1 April 2021, the relevant rules would be those from 1 April 2020.
Regular Updates: FOSFA frequently updates its arbitration rules and pro forma contracts, which can impact arbitration outcomes. For example, the current rules extended the time limit for non-quality claims from 120 days to one year.
Time Limits: FOSFA rules set different time limits for various disputes. For quality-related disputes, the limit is 90 days from unloading (for CIF, CIFFO, CF contracts) or delivery (for FOB, Ex-tank, Ex-mill, Ex-store contracts). For other disputes, the limit is one year from the actual shipment or delivery, or the end of the contract period for shipment or delivery, whichever is later.
Cost of FOSFA Arbitration FOSFA arbitration is among the most cost-effective commercial arbitrations in England. A deposit is required within 30 days of filing a claim: £5,000 for the first tier and £10,000 for the appeal tier. The losing party generally bears these costs. While FOSFA allows for recovery of legal costs from the losing party, various factors, such as the conduct of the parties and the proportionality of costs, influence the final amount. Typically, successful parties recover 60-80% of their costs, though some arbitration decisions have denied cost recovery when the arbitrators deemed the disputes simple enough not to require lawyers.
FOSFA Arbitration Process FOSFA's arbitration system has two tiers: the first tier and an appeal tier. The most common rules are the FOSFA Rules of Arbitration and Appeal. There's also a single-tier system for small claims, with a sole arbitrator and no appeal.
The process begins with the claimant appointing an arbitrator, followed by the respondent appointing theirs within 30 days. The Federation then appoints a third arbitrator, usually as the tribunal head. The parties can agree to have a sole arbitrator instead. All submissions and documents are exchanged in writing or electronically, and decisions are typically made based on these documents. In exceptional cases, arbitrators may call for oral hearings. The typical sequence for document exchanges is:
- The claimant files a claim.
- The respondent submits a reply.
- The claimant files a rebuttal.
- If needed, parties can request additional exchanges, though this may cause delays.
These are the key aspects of FOSFA arbitration. I hope this helps clarify the process and the important points to consider in FOSFA-related disputes.
