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Recommendations to traders in agricultural commodities

21 November 20196 min reading

Conflicts and disputes are inevitable in international trade. If a conflict arises, do not burn the bridges or go into hiding. Be more cooperative and diplomatic. Remember: silence and uncertainty are two most common mistakes during the first stages of the conflict. 

Dmytro Koval Senior Associate Avellum

It has already become common for traders to make deals in messengers by confirming some basic terms with a concise “Ok. Booked” sent to a broker. Slowly and hesitantly, the ‘final draft’ of the contract is forwarded to colleagues to be signed after yet another annoying reminder from the counterparty. We even do not always know company’s name or its employees with whom we have just concluded the contract. Nonetheless, agribusiness is very specific. Today’s highly profitable deal may become tomorrow’s lost case for you or your counterparty. As a result, some traders may try to escape from an unprofitable contract. At the end of the day, this approach looks like: “It is no business of mine; I did not conclude this contract”. Unsurprisingly, these actions usually lead to an inevitable conflict and arbitration.

That is why disputes regarding the conclusion of a contract are common in arbitration. However, traders’ arguments always remain the same, and all the “benefits” of modern trade such as absence of the stamp and signature, may be used in arbitration as a proof that the trader has never concluded a contract with you. Consequently, it will only result in a headache and long process of dispute resolution.

Be it as it may, such arguments are old-fashioned. Most of them will not stand a chance before the arbitral tribunal.

We deal with such disputes almost every day. Thus, we prepared a list of arguments most commonly used by traders willing to avoid the contract. We also tried to explain why the following arguments would not work in most cases:

1. “We did not sign this contract” – a classic example. For those still unaware, English law does not require a contract to be in writing, signed or stamped unless otherwise agreed between the parties in advance. If there is no such agreement, this argument is useless.

2. “This is not our employee” – relations with a person that conducted negotiations and concluded the contract on your behalf are your own concern that has no relevance in arbitration. Regardless of their position or actual employment, these persons are presumed to act on your behalf. Of course, this rule applies unless it is obviously clear that they are not related to your company.

3. “Okay, but we did not authorise our employee” – again, this is your concern. Your counterparty is not obliged to investigate whether your employee is authorised to conclude the contract. The burden is on you to control this matter. Therefore, it is better to act swiftly. Warn your counterparty in advance if your employee lacks proper authority to enter into the contracts on your behalf. If you fail to do so, be ready to face the consequences.

4. “Alright, but we did not instruct the broker” – this does not work that way. Generally, the broker is an independent intermediary between you and the counterparty. If you said something to the broker, consider that you have said it to the counterparty as well. Thus, if you accepted the offer through the broker, you are bound by the contract with your counterparty. No further instructions to the broker are required.

5. “Alright, alright. But we did not agree on all the terms of the contract” – this issue is a bit complicated. It depends on the nature of the term upon which the parties allegedly have not agreed. A term is considered essential, if in the absence of a consent to it, the contract cannot be performed. If the parties agree that without a specific term the contract may not be concluded, such a term is considered essential as well. Without the agreement on all the essential terms, there is no contract at all.

Generally, offers include all the essential terms of the contract. Should you accept the offer, it is difficult, if not impossible, to argue that the contract was not concluded due to the fact that the parties, for example, had not agreed on the laytime calculation.

And last but not least, you should always ensure that your offer incorporates standard contract forms of trade associations (e.g. GAFTA or FOSFA).

6. “We did not react / did not perform the contract” – we do not recommend such a line of defence if you want to break off negotiations of the contract. Without any doubt, no reply does not mean that a party agreed to be bound by the contract. It is even possible that you will successfully quit negotiations at initial stages. Even more, in such case the argument that you did not perform the contract may make your position stronger. However, if you are at the stage of ‘draft’ exchange, it is most likely that you are already bound by a contract, thus, it would not be the best idea to disappear at final stages of the conclusion. In such cases, silence may only undermine your position. In other words, if you believed that there was no contract at all, why would you keep silent and not argue it immediately?

GENERAL RECOMMENDATIONS: • Be clear in your words and actions. While communicating, express your position simply, directly and unambiguously. You should also urge your counterparty to act in the same way. In case of any misunderstanding or ambiguity, ask your partner for clarification. At the end of the day, it may prevent a possible dispute or conflict that could cost you a fortune.

• Do not be silent. If you want the contract be signed and stamped, inform your counterparty about this. The same holds true if your employee lacks proper authority to conclude the contract.

• Do not panic. Conflicts and disputes are inevitable in international trade. If a conflict arises, do not burn the bridges or go into hiding. Be more cooperative and diplomatic. Remember: silence and uncertainty are two most common mistakes during the first stages of the conflict. Generally, most conflicts and disputes may be avoided if the parties choose a correct action plan.

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