Navigating the law governing different aspects of commodity arbitrations
Commodity sale contracts often provide for disputes to be resolved by means of arbitration. This is typically because arbitration offers confidentiality, flexibility and the opportunity to have issues resolved by trade experts. Arbitration awards are also widely enforceable across many jurisdictions.
Parties may be surprised to discover that the underlying dispute, the arbitration agreement and arbitral procedure may each be governed by a different system of law. The parties are free to choose the law which will govern each element, but they should be aware that more than one choice is required: the governing law clause in the sale contract will not automatically extend to all three.
Whilst many standard form commodity contracts have been carefully drafted to address this, parties drafting bespoke contracts or making significant deviations from standard terms should not assume that one choice of law covers all. With the English Arbitration Act 1996 (the Arbitration Act) having been amended with effect from 1 August 2025, the rules in this area have changed.
This article examines each of the three elements in turn and considers the practical implications, with particular reference to the standard form contracts used across the commodity sector.
The law governing the underlying dispute
In international trade, English law remains the pre-eminent choice for dealing with disputes, because of the consistency, certainty and commerciality it offers. It is therefore embedded into the majority of standard form commodity contracts, including GAFTA, FOSFA, RSA/SAOL, STA-M and SCoTA1.
However, parties are free to choose the governing law the tribunal will apply to the merits of the dispute, and it is open to them to agree something different.
In commodity trading, parties often agree key terms in a short form contract and then incorporate a set of standard terms. If the key terms do not contain a choice of law, any governing law clause in the standard form will apply. If they do agree an express choice of law however, that will typically prevail over the incorporated standard terms.
Where no choice has been made at all, the rules of most arbitral institutions give the tribunal the power to apply the substantive law which it considers most appropriate. This could lead to a different law being applied from what the parties had intended and potentially, to an unexpected outcome. Incorporating standard terms mitigates this risk.
The law governing the arbitration agreement
Under English law2, the arbitration agreement is treated as entirely separate from the main contract. The parties are free to choose the law which governs their agreement to arbitrate, and this will be relevant to its validity, interpretation and enforceability. Given the doctrine of separability, any express choice should be set out in the arbitration agreement itself so that it will survive in circumstances where the underlying agreement is found to be void. For example, the standard arbitration clause in the RSA/SAOL Contract Rules specifically identifies that English law will be applicable to the arbitration agreement.
In practice, however, this is not always done and many standard arbitration clauses do not expressly specify the law which will govern the arbitration agreement itself . In those circumstances, where institution rules have been incorporated, these may provide the answer. For example, in the case of SCoTA and STA-M, the LCIA Rules of Arbitration are incorporated, which provide that the law of the seat will apply to the arbitration agreement.
Otherwise, the position is now covered by section 6A of the amended Arbitration Act 1996: for arbitrations commenced on or after 1 August 2025 where no express choice is made, the law applicable to the arbitration agreement will be the law of the seat. Previously3, there was scope to find that the substantive law of the contract governed; that route is now closed. In the majority of standard terms, the law of the seat is specified to be English law and so in the absence of an express choice by the parties, English law will apply to the arbitration agreement.
Law of the seat
Ideally, legal advice should be taken as to the most appropriate choice of seat. This is because the law of the seat will determine key issues which can have an impact on the outcome of an arbitration, such as which courts will act in a supervisory capacity, the availability of interim relief and the enforceability of any award, for example by determining whether an award is considered domestic or foreign and whether it falls with the scope of the New York Convention.
Commodity trading contracts which incorporate industry standard forms will typically specify the seat of the arbitration as London or England. This includes the rules of most trade associations (e.g. GAFTA, FOSFA and the RSA/SAOL) and industry standard terms such as SCoTA and STA-M. The benefit of this choice is that English courts are generally seen as being reliable, consistent, supportive of arbitration and non-interventionist.
However, parties are free to contract as they like and if an arbitration agreement specifies a seat different to that of the incorporated standard terms, a tribunal and/or court is likely to give effect to that express choice.
If no seat has been chosen, the appointed tribunal will determine the seat if it has been empowered to do so (e.g., under Rule 16.1 of the LCIA Rules for Arbitration 2020).
The term “seat” can be misunderstood as meaning the location where any hearing must take place. That is not necessarily the case. The GAFTA Arbitration Rules 125 highlight this distinction and provide at rule 1.3 that any oral hearing shall be at a place designated by GAFTA or as agreed by the parties – notwithstanding the juridical seat being designated as England in rule 1.2. This is a practically important distinction for commodity trading companies managing the cost and logistics of arbitration. A trader or trading house headquartered in Geneva, Singapore, or Dubai should not assume that a London-seated arbitration will require its witnesses or documents to travel to London and such practical issues are less relevant when choosing a seat. Issues such as procedure and enforcement will be more important.
Conclusion
In the context of commodity trading, where parties often agree a few key terms and then incorporate standard terms, parties should understand the choices required and give careful thought as to the impact they could have on any future dispute. If they are in any doubt as to the potential consequences of the choices they plan to make, they should take legal advice.
The standard form contracts widely used across the commodity markets – GAFTA, FOSFA, RSA/SAOL, STA-M, SCoTA, and others – have done much of the heavy lifting by including governing law and arbitration clauses with considered choices of law and seat. Where parties depart from those established frameworks, whether by negotiating bespoke contracts or by modifying standard terms, specific attention should be given to each of the three elements examined in this article.
Parties should also be careful when entering string or back-to-back transactions, where contracts in a chain may contain subtly different arbitration clauses, which can lead to inconsistent procedural and substantive outcomes across what are effectively connected disputes.
Footnotes
- Grain and Feed Trade Association, Fats, Oils and Seeds Feed Trade Association, Refined Sugar Association/Sugar Association of London, Standard Trading Agreement for Metals and Standard Coal Trading Agreement respectively.
- Arbitration Act 1996, section 7
- Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38
