SACOTA and arbitration's role in our grain and oilseed industries

March 2015

STEVE HOCHFELD, Hochfeld Group

Since the dawn of time, humanity has been buying, selling, bartering and trading. As there are at least two parties to every trade, we can assume that ever since the first trade, disputes arose and a method was needed to settle these disputes.

During the middle ages, the traditional way of settling disputes was to fight to the death in the presence of the king, or one of his senior officials. It was believed that the Lord would assist the party that had the law on his side. This was clearly shown by the guilty party being killed in the fight.

Gangsters, such as the legendary Al Capone, still used these old methods, even in modern times. Luckily for us, such deadly methods are no longer popular among business people and have been replaced by more conventional methods of settling disputes.

These methods are, in order of increasing aggression:

• Negotiation
• Mediation
• Arbitration
• Litigation

With the increasing cost and complexity of litigation and the long delays in bringing disputes to court, and thereafter judgments, appeals and further appeals, mediation and arbitration have become more popular over the past decades and are generally known as alternative dispute resolution.

Advantages of alternative dispute resolution

Disputes involving technical issues as well as those requiring specific industry knowledge, lend themselves to the arbitral process, which has some distinct advantages over litigation.

These advantages are:

• The disputing parties themselves can nominate a single arbitrator or arbitral tribunal (usually a panel of three arbitrators).
• If the disputing parties cannot agree on an arbitrator, then the independent arbitral body that was agreed to by the parties will appoint an arbitrator.
• If the defendant does not participate in the process, the arbitration will continue without them. Any arbitral award will be enforceable.
• The arbitral tribunal will have specific industry knowledge that will ensure that there is no need to explain industry standards or practices to the arbitral tribunal.
• The appointment of the arbitral tribunal can usually take place quickly and the dates for the arbitral hearing can be set down without delay. Thus a quick hearing of the dispute is possible and subject to the arbitral tribunal, a decision can also be taken quickly. There is no need to wait for an available court date, which may be years in the future.
• The arbitral procedure is entirely open for the disputing parties to decide upon. The physical location of the hearing, the applicable country law, the applicable procedures, whether legal representation will be allowed or not, whether an appeal will be allowed or not – these are all open to selection by the disputing parties.
• Arbitrations are usually confidential, whereas court litigation is almost always public.
• Normally there is no appeal against an award by the arbitral tribunal. This speeds up the whole process.
• The arbitration award can quickly be made an order of court and is accordingly fully enforceable both locally and in many states overseas.
• The courts will normally not interfere in the arbitral process or the award. It is only in cases where the arbitrator is found to be incapable or dishonest, that the courts will interfere.

SACOTA and SAGOS

One of the first projects that the South African Cereals and Oilseeds Traders Association (SACOTA) instigated, was to develop a Standard Contract, SAGOS 1 (South African grains and oilseeds) for members and anyone else who would like to use it. From the start, the contract incorporated a mandatory arbitration clause. No dispute could be litigated. All disputes would have to be arbitrated.

The SAGOS contract has been revised several times with the current version being SAGOS 1 Ver. 9. This latest version incorporates a major change in the arbitration procedure. From the beginning of 2013 all arbitrations would be administered by the Arbitration Foundation of South Africa (AFSA) and would use the AFSA Expedited Rules for arbitrations. More information on AFSA’s role will be given below and can also be obtained from the AFSA website (http://www.arbitration.co.za).

Arbitrators

To ensure that there were sufficient grain experienced and arbitration trained arbitrators available, nine individuals were nominated by SACOTA, GSA, NCM, and AFMA and underwent an arbitration course funded by the Maize Trust. Over the past years a number of them did not continue with arbitration work and the requirements to become an AFSA approved grain arbitrator have changed.

Currently anyone who wishes to become a grain arbitrator must:

• Have had a minimum of ten years commercial experience in the grain and allied trades.
• Have attended and passed the AFSA arbitrators course with an optional module of international arbitration.
• Be a person with a reputation for integrity and ethical behaviour.
• Be approved by the AFSA management committee.

The role of AFSA in arbitrations

AFSA is the administrative body which manages the arbitration in all its aspects, but has no input in the arbitral award, which is decided by the arbitrator.

AFSA will:

• Receive the request for arbitration.
• Liaise between the parties.
• Appoint an arbitrator acceptable to both parties.
• Receive deposits and payments for the arbitrator’s services.
• Arrange for a venue and transcription services, if so requested.
• Issue the arbitral award after receipt from the arbitrator.

The role of the arbitrator

The arbitrator is an independent, objective person with experience in the grain trade, who will take evidence from both parties, decide on any interim issues between the parties and eventually issue an award.

An arbitrator can be nominated by the claimant, or appointed by AFSA. Even if nominated by the claimant, the arbitrator acts as an in dependent party and does not represent the party nominating him.

In order to maintain his independence, the arbitrator will not discuss any of the issues raised with either of the parties, unless both parties are present for the discussion. The arbitrator is not permitted to offer any advice to either of the parties.

The arbitrator effectively has a similar power to that of a court and can make findings and rulings as the arbitral process progresses.

The arbitrator will manage the process and progress of the arbitration. He will set deadlines for presentation of the claimant’s claim, for the defendant’s response, and then for the claimant’s reply on the defendant’s defence. His aim will be to give both parties a chance to fully express their claim and defence and to keep the process fair without any unnecessary delays.

Legal representation

SAGOS 1 Ver. 9 specifies that there will be no legal representation in the arbitration. This restriction is found in many overseas grain arbitration contracts as well. The aim of this restriction is to try and keep the dispute focused on the fundamentals of the dispute and not to have legal barriers to the progress of the arbitration. It is in the interest of both parties to have a quick and fair decision from the arbitrators.

This clause can be changed if both parties agree to have legal representation in the arbitration.

Arbitrator as advisor

Arbitrators in their personal capacity are permitted to act as advisors to one or other of the disputing parties, but then that person will not be acceptable as an independent arbitrator for that dispute.

Thus it is important to decide beforehand whether you will be approaching an arbitrator to ask for advice or to propose that you would like him/her to act as arbitrator in your dispute.

Time limits

The SAGOS 9 contract has many specific time limits for claiming and it is very important to adhere to these. It is within the powers of the arbitrator to reject any claim or response which is “out of time”. Thus if you do have a claim to submit, read the contract and make sure that you strictly adhere to the time limits in the contract as well as any time limits imposed by the arbitrator.

Publication: March 2015

Section: On farm level