In this article, we will explain the process and costs of FOSFA arbitration https://fortiorlaw.com/news/fosfa-arbitration/ and how to enhance your chances of success in this arbitration.
Ukraine is one of the world's leading producers and exporters of sunflower oil. Traders not only engage in numerous oil transactions but also face various disputes arising from the failure to meet obligations to their counterparties. These disputes are primarily resolved through FOSFA arbitration.
FOSFA (Federation of Oils, Seeds and Fats Associations) is an organization established in 1863 in London with the main goal of protecting and promoting the trade of oil, seeds, and fats.
FOSFA focuses on three primary activities: it provides a platform for business development and protection, administers arbitration, and drafts standard pro forma contracts. According to FOSFA, 85% of the global trade in oils and fats is conducted under FOSFA contracts.
There are currently more than 50 pro forma FOSFA contracts, each numbered and varying in terms of commodity and delivery basis. For instance, FOSFA 53 is used for the sale of vegetable oil and fish oil on FOB terms, FOSFA 54 for the sale-purchase of the same commodity on CIF terms, and FOSFA 4a for trading European oilseeds, among others.
The Contract Provides for FOSFA Arbitration — What is Important to Remember?
Applicable Law and Arbitration Clause: FOSFA contracts stipulate that disputes between parties are governed by English law.
The FOSFA model arbitration clause has specific features (the "Scott v Avery" clause). Unlike the GAFTA arbitration clause, the FOSFA clause prohibits parties from seeking interim measures from courts, such as "worldwide freezing orders" (WFO). If parties include a model FOSFA clause in the contract but wish to avoid the restrictions on obtaining interim measures, they should exclude this part of the clause. If the clause is breached (e.g., if a party seizes disputed goods), the other party can apply to the High Court of Justice for an "anti-suit injunction," which is a court order preventing the case from being heard anywhere other than in arbitration. This order typically includes provisions for covering the costs incurred by the party who breached the clause.
Applicable Rules: The latest version of the arbitration rules is dated 1 April 2021. It is important to apply the rules in effect at the time the contract was made, not when the dispute arose. For example, if the contract was signed in December 2020 and the dispute arose after 1 April 2021, the FOSFA arbitration rules dated 1 April 2020 should be applied.
The rules and pro forma contracts are not publicly available and must be purchased. Old pro forma contracts and regulations are available to FOSFA members upon request.
FOSFA regularly updates its arbitration rules and pro forma contracts. These updates can be significant and may impact the outcome of arbitration. For example, the current FOSFA arbitration rules have extended the time limits for non-quality claims from 120 days to one year.
Time Limits: FOSFA rules provide two different time limits for submitting a notice of claim, depending on the type of dispute:
- In quality disputes: 90 days from the date of unloading the goods (for CIF, CIFFO, C&F contracts) or delivery (for FOB, Ex-tank, Ex-mill, and Ex-store contracts).
- In all other disputes: within one year from the actual shipment or delivery of the goods, or from the end of the contract period for shipment or delivery (whichever ends later).
The previous rules (effective until 1 April 2021) had a shorter time limit of 120 days for non-quality disputes.
Cost of Arbitration: FOSFA arbitration is one of the least expensive commercial arbitrations in England. Within 30 days of filing a claim, the claimant must pay a deposit of £5,000 at the first tier and £10,000 at appeal. The losing party usually bears the costs.
Unlike GAFTA, FOSFA allows the recovery of legal costs from the losing party, but this does not guarantee full reimbursement for the successful party. Arbitrators consider various factors in awarding legal costs, such as the conduct of the parties and the proportionality of the costs to the claim. Typically, if a party wins, it can recover 60-80 percent of its costs. However, in some cases, FOSFA arbitrators have refused to reimburse costs, considering the disputes simple enough not to require lawyers.