UK: Time limits In FOSFA Arbitrations

Over the past few months we have seen an increasing number of disputes arising out of sale contracts that incorporate the Federation of Oils, Seeds and Fats Association (FOSFA) standard form, but where a commercial party has missed the time limit for commencing arbitration proceedings, leaving it in the potential position of being out of time to make an otherwise valid claim. With these examples in mind, we hope that the following guidance will serve as a useful reminder to help try and avoid potential, but all too common, time-bar issues.

Time limits

The key point is, of course, to know what the time limits are. This may seem elementary but it is a hurdle which all too often is not cleared. As soon as a dispute or potential dispute arises double check against the current arbitration rules. Don't forget, when doing so, that your analysis or view of when a dispute has arisen may be very different from the view taken by your opponents. If in doubt, err on the side of caution and check the FOSFA rules carefully. The following key time limits are currently contained in Article 2 of the Rules of Arbitration and Appeal of FOSFA (the FOSFA Rules):

1. Notice of a quality and/or condition claim shall be given within 21 days from the date of completion of discharge of the goods (r.2(a)(i));

2. Claims other than on quality and/or condition shall be notified by the claimant:

  1. For goods sold on CIF and similar contract terms: not later than 120 days after the expiry of the contract period of shipment or of the date of completion of final discharge (r.2(b)(i)(1)); and
  2. For goods sold on FOB terms: not later than 120 days after the expiry of the contract period of shipment (r.2(b)(i)(2)).

Court extensions of time

Although it is possible for a party to bring a claim in the High Court in London to extend the time limits described above, the Court will only grant an extension in very limited circumstances.

In SOS Corporacion Alimentaria SA and another v Inerco Trade SA [2010] EWHC 162 (Comm), a case heard last year in the London High Court, Clyde & Co successfully defended a claim for the extension of the contractual time limits for the commencement of arbitration. In this case, the claimant buyer of certain cargoes of Ukrainian sunflower seed oil commenced FOSFA arbitration proceedings against the defendant seller for contamination of the cargoes. The sale contracts incorporated the standard form FOSFA 54, which, in turn, incorporates rule 2 of the FOSFA Rules that any claim on quality and/or condition must be brought within 120 days from delivery.

There was a contamination issue with the cargo, which caused some delay and by the time the claimant commenced FOSFA arbitration its claim was time-barred.

Rule 2(d) of the FOSFA Rules confers on the arbitration tribunal an absolute discretion to extend the time limit for commencement of arbitration, and the FOSFA Board of Appeal exercised its discretion to refuse to extend time under this rule in this case. The claimant in turn applied to the Commercial Court seeking a time extension under section 12 of the Arbitration Act 1996, which the court has the power to grant where circumstances are beyond the reasonable contemplation of the parties and where it considers it just to do so.

The judge held that it would not be just to extend time in this case and placed considerable weight on the FOSFA Board of Appeal's decision not to extend time. The judge also rejected the claimant's defence, that it was ignorant of the time limits, and commented that, if the claimant had brought proceedings immediately, once the contamination had been discovered, an extension might have been appropriate but there was no good reason for the claimant's delay of a further five months thereafter.

The judgment confirms that, while in theory an application can be made to the High Court to extend the time limit under rule 2 of the FOSFA Rules, in practice it will be an uncertain process and an avenue best avoided if possible.

The key message is to have time limits for bringing a FOSFA arbitration at the forefront of one's mind and either;

  • obtain a counterparty's agreement to an extension of time before time expires; or
  • do not delay bringing proceedings once a situation has arisen, which could give rise to a claim.

Although settlement discussions may be taking place, do not assume that these will be successful, and consider reserving your position by filing a claim concurrently with any ongoing discussions. In doing this, your position should be protected in the event that you do not reach a favourable settlement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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