The department of the "Bremen Cotton Exchange" which deals with
questions relating to actual cotton, has a staff of sworn classers. It
is their duty to fix, with the aid of the various standards, the class
of cotton, or to pronounce an opinion on it, or to settle the disputes
between buyer and seller, as far as they refer to the quality of
cotton.
American cotton is divided into a number of classes, and each has its
standard. Originally, these standards were obtained from Liverpool, but
later on, Bremen produced the standards independently. There are
original standards and standard copies; the former, remain unchanged,
while the latter are renewed every year, because, through constant use,
they are liable to deteriorate. The freshly made up standards are
subject to the examination and approval of a Committee, elected for
that purpose, and which consists of Members of the Trade and the
Industry. The sworn classers are nominated by the directors, and
concern themselves solely with the classing and arbitrating of cotton.
They have sworn a solemn oath, to conduct their office with absolute
impartiality; this is further safeguarded by the fact, that the names
of the parties interested are kept strictly secret. If a party
consider, that they have a right to complain about the verdict of the
classers, they can appeal against the decision. The verdict of the
appeal is given by Appeal Judges, who are appointed by a Committee,
elected for that purpose. They are selected from the merchants and
spinners, and great care is exercised that they possess the necessary
expert knowledge. The names of the interested parties are also withheld
from the appeal judges, nor are they informed whether buyer or seller
have appealed. It is of great advantage to the whole arbitration
system, that the appeal judges are actively engaged in the cotton
business, by this means a bureaucratic verdict is avoided. Up to a
point, the arbitrators and appeal judges work together, and thereby,
the former remain in close touch with the general business life, which
is of importance for various reasons. It is not sufficient for a
correct verdict, to simply compare the cotton with the standards, the
judges must know, how the difference in the quality is to be valued;
and how far the character of each crop is to be taken into
consideration, etc. etc. It is therefore apparent, that the judging of
cotton requires a certain connection with the actual business activity,
and, it is certain, that only the commerce itself can produce and
educate the individuals, who are chosen to pronounce an expert opinion
upon questions of such importance and difficulty.
* * * * *
The "Bremen Cotton Exchange" does not only decide questions concerning
quality, but settles also all other disputes, which may arise between
members. These decisions are given by, what may be called, a court of
arbitration and a court of appeal. To the former each party appoints
its own expert, while the Exchange appoints the experts to the latter.
The conditions of the "Bremen Cotton Exchange" are adapted to the
common law, but take into account, the decided peculiarities of the
cotton trade.
The following is an explanation of an important point, where the
conditions differ from the Common Law. A deviation from the guaranteed
quality, does not give the buyer the right to cancel the contract. He
is awarded an allowance, when the difference is small; if the
inferiority be greater, penalty is added to the allowance, but, when a
heavy allowance is not likely to compensate the buyer for the damage
sustained, he may return the cotton, but not by cancelling the
contract. In such cases, the contract will be what is called,
"regulated" or "invoiced back", in which method, the market differences
are duly taken into account, with the addition of penalty for the
guilty party. When sales are made for specified deliveries, and these
should not be made within the proper time, the buyer has also the right
of invoicing back, in the manner described. This invoicing back, takes
the place of the cancelling of a contract, according to law.
It is possible, that when a party practically goes by default on a
contract, through a very inferior tender, or by a late delivery, they
may yet be entitled to claim from the other party, a difference in
price. For instance: Somebody sells cotton at 22 cents, the market
drops to 20 cents, the contract is invoiced back for bad delivery,
then, the seller, who is the guilty party, has a claim against the
buyer, for a difference in the market of 2 cents less penalty of 2% =
0.44 cents, equalling 1.56 cents net.
This claim would not be possible according to Common Law. The
conditions of the "Bremen Cotton Exchange" make it a principal, that no
party shall take an advantage of the market fluctuations.
In the above case, the buyer would have a profit of 2 cents, if he
could have simply cancelled the contract on account of bad delivery,
because he could have immediately re-bought the cotton at 20 cents,
while all his calculations were based on a purchase at 22 cents. This
apparently strange fact, that the innocent should pay to the guilty, is
the direct consequence of the elimination of market fluctuations from
the Law Codes.
It has been of great benefit to all concerned, that any differences of
opinions are promptly settled by the "Bremen Cotton Exchange", and not
by having resort to a costly and wearisome law suit. Everybody in
cotton knows, that quarreling is always bad business, and, it is with
some pride, that the cotton Exchange looks back upon the big number of
decisions given.
Only very rarely has it happened, that disputes have been referred to
the ordinary Law Courts. The "Bremen Cotton Exchange" has, according to
the Rules, the power to do so, but that right is only exercised, where
purely matters of Law are concerned.