Lunch with Swithun

Swithun Still is an old friend. I included an interview with him in my Commodity Conversations book, An Introduction to Trading in Agricultural Commodities, and he kindly wrote the preface to The New Merchants of Grain.

I was due to meet him for lunch on a Monday at La Maison d’Igor, his favourite restaurant in Morges, Switzerland. It is a forty-five-minute cycle ride along the lake shore from my hometown of Lausanne. I knew Swithun would also want to cycle to our meeting, but a massive storm over the weekend had transformed Lake Leman into an ocean; white-crested waves were still crashing onto the shore. We compared notes during the morning and decided that I should take the train instead.

But then the sun came out, and I went on my bike. It was a fun ride as the storm had, in places, washed away the lake path, and I found myself cycling through foot-deep lake water. I got to the restaurant just as Swithun arrived on his bike.

Once at our table, I was disappointed that our waiter wasn’t called Igor. He explained that the restaurant and hotel were named after Igor Stravinsky, who had lived there for a few years at the beginning of the last century. “And, no,” he added, “the food is not Russian. We don’t serve caviar.” I was relieved; it was my turn to pay.

Swithun was President of Gafta, the Grain & Feed Trade Association, in 2019. The Association traces its history back to 1878 and has several roles, including education and training. Grain traders initially set it up to promote standard contract forms and provide an arbitration mechanism to settle disputes arising from these contracts. As much as 80 per cent of the global grain trade now transacts under Gafta terms and conditions.

I wanted to talk to Swithun about arbitration. He is one of Gafta’s seventy-five (or so) qualified arbitrators. I wanted him to explain the role of arbitration when things go wrong. Perhaps more importantly, how should counterparties avoid things going wrong in the first place? We had agreed that he would speak to me in a personal capacity.

He had brought along a Gafta brochure showing the scope of their arbitration service. Between October 2020 and September 2021, Gafta’s arbitration department received 310 claims. Over that period, Gafta ruled awarded nearly four million euros under 125 rules and just over one million dollars under 126 rules. Arbitration is big business.

“Gafta 125 arbitration rules are used for most dispute resolution under Gafta terms and are heard by three arbitrators”, Swithun explained. Gafta 126 Rules are for minor claims requiring expedited arbitration and involving parties agreeing to a Sole arbitrator. Both have the right of appeal, in which case Gafta will appoint a Board of Appeal consisting of five qualified arbitrators”.

“There are generally three exchanges at the first tier. There are first the claim submissions, then the reply submissions by the Respondent. The Claimant then replies to the defence’s submissions. The Claimant will always have the last bite of the cherry.

“What frequently happens in complex cases is that there are rejoinder submissions and clarifications as to what’s gone on. If the Claimant introduces new evidence in his reply to the defence, then the Respondent will frequently ask for the opportunity to respond to those new bits of evidence.

“It usually takes about three and a half months between claim submissions and the finalisation of closing of submissions. In the best-case scenario, the arbitration ruling takes four months, but more often, six.

“The arbitrators then assess any award, or quantum as it’s called. The claimant may claim an amount, but the respondent will inevitably argue with the amount or say there’s no valid claim. The arbitrators then convene over email and video conference to decide the merits of the arguments.

“All contracts under Gafta terms are as per English law, so the juridical seat of the arbitration is the law of England and Wales. It’s not British law because there is no such thing. It is thus not Scottish law but the law of England and Wales.

“Sometimes, companies dispute the jurisdiction or deny they traded on Gafta terms, even if they have traded under Gafta terms previously. Sometimes, there are Preliminary awards made over jurisdiction or other matters such as Time Bar, where the Respondent might argue that too much time has elapsed for the claim to be valid.”

Our non-Igor waiter brought us our pumpkin soup. It was delicious, even if it could have been a bit hotter. I asked Swithun what the most common reasons counterparties ended up in arbitration.

“They usually occur,” he told me, “When someone defaults because the market price has moved between when the contract is agreed and when it is executed. If the price goes up, the seller may think twice about performing their contract – or try to find some way out of the contract. If the price goes down, the buyer thinks twice.

“It is especially true if the counterparties are not first-class buyers or sellers. If there’s a price differential for a seller and he doesn’t care too much for his reputation, he’ll walk away and resell the goods.  He knows it will go to arbitration, but it might take a year between the first tier and the Appeal. If the Award is defaulted, the defaulting party might simply liquidate his company, and the Claimant might be chasing shadows when seeking to enforce.”

“There have been quite a lot of arbitrations in the last year due to force majeure because of the war in Ukraine,” Swithun continued. “There can be various reasons behind force majeure cases – and it is not always on the supplier side.”

I asked him how a buyer could claim force majeure.

“Lots of reasons, such as export bans, war, strikes, extreme weather, or so-called Acts of God”, he replied. “Since the start of the war, traders of Ukrainian grain have declared Force Majeure because of the war, FOB Buyers or CIF sellers have found it difficult or impossible to charter a vessel willing to go to the loading ports. There have also been cases where a vessel started loading but could not finish, or finished but could not sail.”

“Is there a list of companies that have not honoured an arbitration ruling?” I asked.

“Yes, there is a list,” he answered. “Gafta posts arbitration awards on their website and circulates them to members after the council meetings held three times a year – in January, June, and October. All members know when a company is a defaulter.

“Smaller companies may continue to trade with a defaulter, but multinationals won’t. It’s a no-go.

“And before you ask the question,” Swithun continued, I don’t know how many companies are on the list. I do know that many companies on the list are defunct. They disappear and often reappear with a new name, like a phoenix from the flames.

“The system can be ineffective if you’re up against someone who’s not acting in good faith in the first place. They’re going to do everything not to respect the award.”

The waiter bought us our main courses: chicken for Swithun and baked cauliflower for me. Swithun asked me why I didn’t eat meat, but before I could reply, he told me that he had asked his twelve-year-old nephew the same question. He answered, “I like animals. I don’t want to eat them.”

“Sounds like a good enough reason,” I replied.  My baked cauliflower was as delicious as the soup but also lukewarm. Shame.

Swithun told me he entered the grain trade in 1999 and did the Gafta Foundation Course in 2001. It is a week-long residential course where you learn the rudiments of contract types like CIF and FOB, and Gafta procedures and all the various elements of the grain trade, such as superintendents and fumigation. In 2006, as its first student, he started a six-module two-year online course, Gafta’s Distance Learning Programme. He then took a trade diploma exam, and Gafta invited him to become an arbitrator in 2008.

“You must have ten years’ experience to be an arbitrator,” he added. “I had just passed the cusp of 10 years. At the time of my appointment, I was GAFTA’s youngest-ever arbitrator.

“I thought it would be an interesting second career – a paid hobby – and it was. I found – and still find – it fascinating to learn from the mistakes of others and see the things that can happen when simple mistakes are made.”

“What sort of mistakes?” I asked.

“An example would be not giving notices on time – or not asking for an extension on a shipment period when a vessel is delayed.”

Swithun finished his chicken and looked at his phone, checking the time. I could feel that he was busy and that his attention was wandering.

“How do you find the time to be an arbitrator when you have a full-time job?” I asked him.

“It’s a dilemma,” he replied. “I didn’t take on many arbitrations when I was working full-time at Solaris, maybe one or two a year. But earlier this year, I was in a hiatus professionally and did several. I’m now trading again; fitting them in during the day is impossible. I do my arbitration work in the evenings and weekends.

“I think it’s possible to do four or five arbitrations a year – maybe six at a push – if you are prepared to work evenings and weekends. It’s challenging because you don’t know how much work each one will involve before you accept them. Some arbitrations are open and shut cases; others are more complex.

“The other tricky thing is that it can take some time between my appointment as an arbitrator and seeing the first submissions. Arbitrations can be like London buses. None will come for a while, and then lots will all turn up at the same time.”

Our waiter asked us if we would like dessert, and I was surprised when Swithun said yes, tempted by pain perdu and baked apple. “But bring the coffee at the same time,” he told the waiter. I knew my time was running out, but I had one last question, perhaps the most important one: What would he advise people to be careful about to avoid ending up in arbitration?

“Know your counterparty,” he replied, “be it the seller or the buyer.  Be aware that if you’re buying from a supplier that is not first-class – or deemed to be first-class – you have a significant and often unhedgable risk if the market moves. Many counterparties don’t hedge their transactions and can sometimes find they can’t perform if the market moves against them.

“One case I had was when a company defaulted on the purchase of wheat, claiming that the market price had dropped so much that they would have gone bust if they had executed their purchase. They called it “economic force majeure.” We had to explain to them that there was no such thing – and suggested that maybe they should have hedged their purchase.

“If you’ve sold something and the market plummets, your buyers may try to find a way to extricate themselves from the contract – by hook or by crook, by fair means or foul.”

Outside, the weather was still foul, and the wind had picked up. I took the road, rather than the lake path, back to Lausanne.

© Commodity Conversations ® 2023

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