7 Key Tips for GAFTA Arbitration

With the growing complexity of global trade and supply chains, manufacturers are finding it increasingly challenging to meet their customers’ demands. In fact, around 39% of manufacturers have reported that supply chain complexities have been an inhibitor to growth. To help business owners and general managers mitigate the risks associated with trading internationally, manufacturers should consider implementing GAFTA arbitration https://fortiorlaw.com/news/gafta-arbitration/ clauses in their contracts. Arbitration is a private and confidential forum for resolving disputes outside of a court of law. When drafting your contract with another party or parties, you can include specific details regarding any potential disputes or issues that may arise between the parties and how they will be resolved. This process is commonly referred to as “END-END” clauses (END standing for ENDorsement) because they state which clauses are effective only if both parties agree to them by signing the document "ENDing" it with their initials.

Be Mergers and Acquisitions Aware

Before adding arbitration clauses to your contracts, it’s important to be aware of any potential mergers or acquisitions that may occur in the future. Depending on the clauses you include in your contracts, such events may cause arbitration clauses to become null and void. During mergers or acquisitions, the acquiring company will typically want to replace all the contracting parties with their own terms and conditions. If a company replaces an existing clause in a contract, any arbitration clause added by the previous contracting party becomes invalid. This is because the clause is no longer a part of the contract. When drafting arbitration clauses in your contracts, it’s important to be mindful of mergers and acquisitions to avoid any potential issues in the future.

Know Which Clauses to Use

As mentioned, arbitration clauses work best in END-END contracts. If you’re not sure what this means, don’t worry. It simply refers to the fact that both contracting parties must agree to the arbitration clause by signing the contract “ENDing” it with their initials. As an example, let’s say you’re a manufacturer and you want to buy a certain type of raw material from a supplier. You want your contract with the supplier to include an arbitration clause. You then draft the contract and include one. Your supplier agrees to the contract and signs it, with their initials next to the arbitration clause.

Don’t Forget Contractual Safeguards

Keep in mind that arbitration clauses are not 100% foolproof. Arbitration is a binding process, which means that all arbitrators’ decisions are final and the involved parties have no legal recourse. If one of the parties involved in a dispute is not satisfied with the arbitrator’s decision regarding the dispute, they have no legal way of having the decision reversed. This means that arbitration clauses are not appropriate in situations where there’s a high risk of one of the parties being dissatisfied. Furthermore, arbitration clauses are only effective once both parties have agreed to the terms of the contract. This means that if one party has not yet signed the contract but is waiting on the other to do so, the arbitration clause will not be binding until both parties sign the contract.

Establish a Trusted Mutual Reputation Mechanism

In order for arbitration clauses to be effective, the contracting parties must trust each other. The most critical aspect of successful international arbitration is a mutual trust and reputation mechanism. In order to establish this, you must be able to trust that the other party will comply with the arbitration agreement. This includes having the funds to participate in arbitration proceedings. Some contractors will require you to be able to pay for arbitration proceedings before they agree to include an arbitration clause in your contract. There are multiple ways to establish a trusted reputation mechanism, including: A. Verbal agreements: Although verbal agreements are not legally binding, they can be an effective way of establishing a mutual trust and reputation mechanism if both parties trust each other. B. Letters of intent: Letters of intent are written agreements that outline what both parties are planning to do in the future, but are not legally binding. Letters of intent can be an effective way of establishing a mutual trust and reputation mechanism if both parties trust each other and want a record of the agreement.

Select Arbitrators with Care

When choosing arbitrators, it’s important to avoid any potential conflicts of interest and to select arbitrators who are knowledgeable about your industry. It’s also important to remember that not all arbitrators are created equal. Some arbitrators specialize in certain industries and have more experience dealing with similar types of cases than others. When choosing an arbitrator, make sure to thoroughly research their backgrounds to ensure that they’re a good fit for your case. This will help to ensure that the arbitration process proceeds smoothly and that both parties are satisfied with the outcome.

Ensure that Both Sides Agree on the Language of the Contract

Finally, it’s essential to ensure that both parties have agreed to the language of the arbitration clause. When conducting due diligence on a potential trading partner, you can ask to view their current contracts to see if they include arbitration clauses. It may sound silly, but it’s important to remember that there might be multiple versions of a contract. This means that one person’s version of the contract may be different than yours. If this happens, the arbitration clause will not be valid, and you will be unable to enforce it. When drafting your contracts, keep these tips in mind to help ensure that you’re prepared for any potential disputes that may arise between you and your trading partners.