Commodity trade

Commodity trade

Commodity trade is the trade in raw materials and semi-finished products. International commodity trade is standardized in many areas through standard contracts, international quality standards, certifications, trade papers, and exchange prices. We assist organizations with negotiations and the conclusion of contracts in the field of international trade.

Moreover, we assist organizations with various disputes, such as:

• Non-conformity
• Claims for damages
• Liability
• International trade dispute settlement (including arbitration)

We have the knowledge and expertise to assume diverse roles: from advisory services to dispute resolution. We have an experienced team of lawyers and legal experts in the field of commodity trading. Contact us to discuss the possibilities.

Soft and hard commodities: what we help you with

Commodity trading falls into roughly two categories. Soft commodities are agricultural products such as grains, seeds, legumes, oils, fats, sugar, coffee, and cocoa. Hard commodities are mined raw materials such as metals, ores, and mineral products. Both categories are traded intercontinentally, often on a forward basis and within long chains of buyers and sellers. We assist both international corporations and smaller entrepreneurs just starting out with cross-border purchasing or sales. Our mixed teams of lawyers and in-house counsel are familiar with the practice of both the boardroom and the warehouse.

Standard contracts and industry conditions (GAFTA, FOSFA, NOFOTA)

International commodity trade is conducted largely through standard contracts from trade organizations. For grains and animal feed, these are the contracts of GAFTA (The Grain and Feed Trade Association); for oils, seeds, and fats, those of FOSFA (The Federation of Oils, Seeds and Fats Associations). In the Netherlands, NOFOTA and the conditions of the Royal Committee of Grain Traders also play a role. These contracts regulate, among other things, quality, delivery, payment, force majeure, and the method of dispute resolution. Many of these conditions are governed by English law and contain their own terms and clauses that differ from what a Dutch entrepreneur is accustomed to. We assess which condition applies to your transaction, what this means for your position, and how best to safeguard your interests.

Vienna Sales Convention and applicable law

In cross-border sales, the Vienna Sales Convention (the United Nations Convention on Contracts for the International Sale of Goods, also known as CISG) often applies when both parties are established in contracting states. Parties may exclude the application of the convention pursuant to Article 6 of the Vienna Sales Convention. If you do not do so consciously, the convention may govern your contract without you realizing it. For subjects not regulated by the convention, the national law chosen or designated pursuant to the Rome I Regulation applies in a supplementary manner; if you choose Dutch law, for example, the provisions regarding conformity in Book 7 of the Dutch Civil Code are relevant. We advise on choice of law, choice of forum, and the interplay between the Vienna Sales Convention, industry conditions, and national law.

Incoterms, transfer of risk and trade documents

The Incotermsrules of the International Chamber of Commerce determine the place of delivery, the moment at which risk passes from seller to buyer, and the distribution of transport, insurance, and customs clearance costs. In commodity trading, for example, CIF and FOB are frequently used. It is important to note that some standard contracts, such as those from GAFTA and FOSFA, do not adopt the Incoterms in their entirety but use their own delivery definitions. Incorrectly chosen or misunderstood delivery conditions can quickly lead to disputes regarding who bears the risk if the cargo is damaged or lost in transit. We align the delivery conditions, transport (see also our page on Transport and Logistics), and trade documents.

Documentary credit and trade finance

Payment in the commodity trade is often made via a documentary credit (letter of credit) under the International Chamber of Commerce's UCP 600 rules. The bank then pays upon presentation of the appropriate documents, such as the bill of lading, invoice, insurance policy, and quality and inspection certificates. One incorrect or late-presented document can block payment. We advise on the financing structure, document requirements, and collateral; for broader financing and collateral practices, we refer you to our Financing and Collateral.

Non-conformity, quality disputes and duty to complain

In the commodity trade, goods are purchased based on description, quality, and condition, often recorded in specifications and inspection certificates. If the delivered batch deviates from this, it constitutes non-conformity. Under Dutch law, pursuant to Article 7:17 of the Civil Code, a delivered item must conform to the agreement. However, the buyer must lodge a complaint in a timely manner: Article 7:23 of the Civil Code establishes a duty to complain in sales, and Article 6:89 of the Civil Code contains the general duty to complain regarding defective performance. Moreover, standard contracts often contain short, strict deadlines for filing a claim or engaging arbitration. Complaining too late can cost you your right to repair or compensation. We assess the position quickly, monitor deadlines, and, where necessary, conduct discussions regarding the quality and certificate-final clauses.

Strings, wash-out, and default: disputes in the chain

Commodities are often resold multiple times in a chain of contracts, known in trade as strings . If a link fails to fulfill its obligations, the question arises as to who bears which damages. Standard contracts have their own mechanisms for this, such as the default clause , which governs the calculation of damages in the event of non-performance, and the was-out, whereby parties cancel out their opposing positions against each other. Incorrect application of these clauses leads to significant disputes regarding compensation and liability. We provide preventative advice on the structuring of your contracts and assist you should a dispute nevertheless arise.

Arbitration and dispute settlement (GAFTA and FOSFA)

Most standard contracts refer disputes not to the ordinary courts but to arbitration, usually under the rules of GAFTA or FOSFA in London and English law. This has its own characteristics: strict time limits (time bars), a separate right of appeal within the arbitration and, in the case of FOSFA, the possibility for the winning party to claim reasonable reimbursement of legal fees. We guide you through the procedure, from the timely initiation of arbitration to the enforcement of the award, and liaise with English correspondents where necessary. Our lawyers and legal experts also assist you in disputes before the Dutch courts, mediation, or an amicable settlement.

For whom we work

We work for parties throughout the entire commodity chain: from international trading houses and listed corporations to cooperatives, processors, and smaller family businesses involved in international buying and selling. Whether you manage a continuous flow of contracts or are purchasing a cross-border consignment of grain or metal for the first time, our mixed teams of lawyers and in-house counsel scale to meet your needs. From international corporations to the baker on the corner: everyone deserves a legal partner who speaks the language of trade.

Frequently asked questions about commodity trading

Does the Vienna Sales Convention automatically apply to my international purchase?

Often yes, if both parties are established in contracting states and the agreement concerns movable property. You can exclude the convention pursuant to Article 6 of the Vienna Sales Convention, but you must do so deliberately and clearly in the contract.

What is the difference between a GAFTA and a FOSFA contract?

GAFTA contracts are used for cereals and animal feed, and FOSFA contracts for oils, seeds, and fats. Both have their own quality, delivery, and arbitration provisions and are generally governed by English law.

How soon do I have to complain about a defective delivery?

Under Dutch law, you must lodge a complaint in a timely manner (Article 7:23 and Article 6:89 of the Civil Code). Moreover, standard contracts often contain short, strict deadlines. Therefore, do not wait and have your position assessed immediately.

Do you only work for large trading houses?

No. We serve both international corporations and smaller entrepreneurs. Our mixed teams of lawyers and in-house counsel tailor the approach to the size and importance of your case.

Part of our expertise in Commercial Law

Commodity trading is a specialization within our broader expertise in Commercial Law. Within this area, we also advise on related topics such as distribution, agency, transport and logistics , and financing and securities. Please feel free to contact us to discuss the possibilities for your situation.