Mercantile arbitration in international contracts
Arbitration has become a popular method of settling disputes concerning contracts for the international sale of goods. Mercantile arbitration, h owever, is governed by its own rules, which differ from the rules and customs of the well-known arbitration.
The history of global arbitration shows that arbitration has naturally developed on the basis of international trade, where the efficient and professional way of settling disputes between sellers and buyers of goods determined the development of entire urban populations. The role of the forum where such disputes were and still are commonly resolved, has been played by specialized federations, associations, commodity exchanges and industrial chambers that bring together manufacturers, sellers, intermediaries and dealers. These organizations originate from the medieval trade guilds, which brought together all types of merchants. From the thirteenth century, with a fast development of international trade in goods, specialized organizations of merchants trading in salt, sugar, grain, wool, coffee, as well as any other natural resources were formed. It is difficult to precisely determine the total number of trade associations that exist all around the world. Some of them are local or very narrowly specialized in trading in a particular commodity. Noteworthy, however, are global merchant associations. Their standard contracts, general terms and conditions or guidelines are generally applicable to most sales transactions. These include: Federation of Oils, Seeds and Fats (FOSFA), International Seed Trade Association and Pasha (GAFTA ), London Metal Exchange (LME), the Association of Sugar Producers, the Federation of Trade in Cocoa (FCC ), the International Coffee Organization (ICO ). Each of them is headquartered in London.
Disputes within merchant associations
In principle, the overriding objective of forming merchant organizations and associations was to ensure the protection of its members’ interests. This was achieved by developing and supporting good commercial practice, trading exchange in the given sector, which in time became the rules and took the form of general terms and conditions applicable to contracts for sale of particular commodity.
In the event of disputes arising out of transactions, members of trade organizations preferred to resolve them within their environment. Such disputes mostly concerned the narrow matter (e.g. market prices or quality of goods ), which sometimes was known only to the persons directly engaged in the sale of goods. No wonder then that it was arbitration that perfectly fitted to the commercial reality and became deeply rooted as an appropriate method of resolving disputes in the international trade in goods. For efficient dispute resolution, merchant organizations formed permanent courts of arbitration as part of their activity with their own arbitration rules and lists of arbitrators.
Rules and principles of trading in goods
The rules of arbitration of merchant organizations significantly differ from those applied by "universal" permanent courts of arbitration such as the International Court of Arbitration of the International Chamber of Commerce in Paris, the London Court of International Arbitration or permanent courts of arbitration at, for example, the national chambers of commerce. Differences include, among others, the forms of entering into arbitration agreements, time limits for filing claims or bringing actions, selection of arbitrators, legal representation and representation of parties at the hearing and the two-instance nature of arbitration. Particular attention should be paid to such issues by commercial entities that do not enjoy much experience in the customs and principles of merchant organizations, but which have decided to enter into contracts on their general terms and conditions.
General terms and conditions. Disputes are referred to arbitration under arbitration clauses contained in individual agreements. The execution of the sales contract whose content refers to the rules of arbitration of a merchant organization is usually equal to a consent to having disputes settled by way of mercantile arbitration. A mercantile arbitration clauses are often included in the offer itself that relies on the document containing a provision on the referral of a dispute to arbitration. Such document s most often represent general terms and conditions, which, as a rule, are non-negotiable, and any deviations are an exception to the rule. Therefore, when accepting the offer or signing any document which is a confirmation of the sales contract execution, you have to consider whether or not they contain a reference to the general terms and conditions or rules of arbitration.
Selection of arbitrators and arbitral tribunal . Another feature that distinguishes mercantile arbitration from classical court of arbitration is the method of selecting arbitrators and appointing the arbitral tribunal. In classical arbitration, the parties have a direct control over it whereas in mercantile arbitration they are somehow restricted in this respect. They can choose only candidates from the lists of arbitrators kept by merchant organizations at issue ; it even happens that all the arbitrators of the tribunal are appointed directly by the organization. The lists of arbitrators are usually exhaustive and the candidates are mostly the persons from the industry without any legal background. This does not mean that the arbitrators selected from the lists are biased towards entities outside the organization or that arbitration is conducted in the manner inconsistent with the law.
Time limits. The r ules for conduct of the proceedings are also characteristic. General terms and conditions used in sales contracts and rules of arbitration provide for very short time limits for asserting claims under contracts, for example, claims related to the quality of goods may be asserted within 14 days only. If the time limit is not complied with, the claim expires and the injured party loses its chance to recover damages.
Two-instance nature. As a rule, mercantile arbitration is conducted in writing, except when the arbitral tribunal considers it necessary for the parties to submit oral explanations. Professional attorneys are hardly ever hired to participate in the hearings, the parties usually represent themselves or are represented by trade representatives. Two-instance proceedings provided for in almost all the rules of arbitration of merchant organizations are also very typical.