Fosfa SA ("Fosfa") is a company that was established in Casablanca, Morocco https://fortiorlaw.com/news/fosfa-arbitration/. Its primary activity is to manage the supply of phosphoric acid and other related phosphate derivatives for users (customers) in the fertilizer sector. In 2015, Fosfa began negotiating the terms of an arbitration agreement with its customers (Cereserf and Agroidea). The two companies agreed to arbitrate any disagreements in their business relationship. They signed an arbitration agreement that included standard clauses on confidentiality and costs. However, when it came to executing the arbitration agreement, both parties had concerns over potential rights and obligations imposed by the agreement. As a result, they entered into a separate document called Terms of Reference for Arbitration (“TAR”). The TAR was meant to be read together with the Arbitration Agreement and governed the relationship between the two parties during arbitration proceedings.

Background to the dispute

Fosfa is a Moroccan phosphate producer and supplier of phosphoric acid and other related phosphate derivatives for users of fertilizers in Morocco and other countries in the Middle East and Africa. Fosfa’s customers are manufacturers of fertilizers from all over the world, including China, India, Brazil, and the United States. In 2015, Fosfa began negotiating the terms of an arbitration agreement with its customers (Cereserf and Agroidea). Every time Fosfa signed an agreement with a new customer, it included standard clauses on confidentiality and costs. However, when it came to executing the arbitration agreement, both parties had concerns over potential rights and obligations imposed by the agreement. As a result, they entered into a separate document called Terms of Reference for Arbitration (“TAR”). The TAR was meant to be read together with the Arbitration Agreement and governed the relationship between the two parties during arbitration proceedings.

Problematic Clauses in the TAR

When reviewing the TAR, both parties discovered that it included two problematic clauses. The first clause in the TAR allowed Fosfa to amend the Arbitration Agreement at any time. This meant that Fosfa could change any terms of the Arbitration Agreement, including costs and the arbitration procedure, without the consent of the other party. The second clause in the TAR gave Fosfa the right to amend the TAR itself. This meant that Fosfa could retroactively change the rights and obligations of the two parties during the arbitration. These two clauses were invalid because they violated the laws of arbitration.

Agroidea v. Fosfa Arbitration

Agroidea v. Fosfa Arbitration was the first arbitration between Fosfa and its customers. It took place in New York. The main dispute was about a big shipment of phosphate that Fosfa delivered to Agroidea. Fosfa claimed that Agroidea still owed it for the phosphate. Agroidea claimed that the phosphate was not of the grade or quality that Fosfa had agreed to supply. Agroidea argued that the Arbitration Agreement and the TAR were invalid because they included the two problematic clauses. Agroidea claimed that the Arbitration Agreement and the TAR should be read as one document. Agroidea also argued that the TAR was an unenforceable contract. Agroidea won and the arbitral tribunal declared the Arbitration Agreement and the TAR invalid because they included the two problematic clauses.

Conclusion

The TAR is meant to be read together with the arbitration agreement and govern the relationship between the parties during arbitration proceedings. It is not meant to replace the arbitration agreement and replace it with a completely new agreement. Parties who enter into an arbitration agreement should keep these things in mind to avoid disputes like those discussed above.