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Read MoreJackson Parton (Andrew Patrinos and Alex Askew) and Mr Timothy Hill QC (20 Essex Street) acted for the successful Sellers, Alegrow SA, in Alegrow SA v Yayla Argo Gida San ve Nak A.S [2020] EWHC 1845 (Comm).
This was a rare example of a successful appeal of an arbitral award on a point of law under s69 Arbitration Act 1996 (the “Act”), before Mr Justice Henshaw in the Commercial Court (the “Court”). The judge varied and remitted a GAFTA Appeal Board (the “Board”) Award finding that the Board had made an error in law in deciding that the Seller had repudiated its contract with the Buyer, with the Buyer being entitled to treat the contract as having come to an end and so entitled to substantial damages.
Background
The dispute involved a contract for the sale of 24,000 mts of Russian paddy rice Rapan type Crop 2016 CIF FO Mersin. The shipment period was between 1 September 2016 and 15 December 2016 and there were detailed contractual specifications. The rice was to be shipped on various vessels. Two shipments were made. However, the shipment on the mv KIOWA, despite the rice having been inspected and cleared by the GAFTA approved surveyor at the load port, was initially rejected by the Turkish authorities who alleged that there was a presence of nematode (roundworm). As the rice had been produced by the same supplier, harvested from the same fields etc this caused consternation and concern. On 27 February 2017, the Turkish authorities allowed the mv KIOWA to berth and discharge.
In the meantime, the balance of 11,385.58 mts had not been shipped.
On 29 March 2017, the Buyer, Yayla Agro Gida San ve Nek AS, sent an email to the Seller informing them that they had until the evening of 30 March 2017 to provide a shipment schedule and to 15 April to ship the remaining rice. There was no response to this email, nor to an email on 1 April which indicated the Buyer’s intention to bring arbitral proceedings if the Seller failed to respond by 4 April. On 7 April the Buyer confirmed to the Seller that they had referred the matter to arbitration and attached the notice of arbitration.
The Awards
The first tier GAFTA tribunal (“FTT”), having considered the matter on paper, found for the Buyer. The FTT concluded that
“The Buyer having indulged the Seller for a reasonable period of time, finally made time of the essence by their email of 29 March 2017 when they required the Seller to declare by 30 March 2017 the tonnage that would/would not be loaded by the latest shipment date of 15 April 2017 AND WE SO FIND. The Seller failed to respond and on 1 April 2017 the Buyer once again gave notice that they would apply for Arbitration, thereby ending their indulgence if they did not receive a decision by 4 April 2017. With time of the essence once again preserved and the Seller failing to react, the Buyer finally brought the Contract to an end and held the Seller in default on 7 April 2017 and claimed arbitration. WE THEREFORE FIND that the date of default is 7 April 2017.”
The Sellers appealed the decision to the GAFTA Appeal Board and an oral hearing took place. The Board concluded that
“Buyers gave a final deadline to Sellers of 30th March 2017 for them to receive a schedule for the shipment of the outstanding balance. Sellers failed to respond to or meet this deadline and provide a schedule. Buyers notified Sellers of their intention to go to arbitration on 1st April 2017 and declared Sellers in default on 7th April 2017. We therefore uphold the first tier Tribunal’s Award to the extent that Sellers are in default by their failure to provide the balance of rice outstanding of 11,385.580mt rice. It is important to note that Buyers were not, on 29th March 2017, insisting on shipment before the end of March, but were requesting a shipment schedule AND WE FIND THAT the notice gave adequate time for Sellers to provide a schedule.
With regard to the date of default by their failure to respond to the deadline of 30th March 2017, Sellers were in breach of the Contract on the next business day after the deadline for receipt of a schedule for the outstanding shipment and the default date was 31st March 2017.”
The Seller appealed to the English High Court under s69 of the Act, on the following questions of law
“i) “Was the Buyer contractually entitled to demand a ‘shipment schedule’ on 29 March 2017?”; and
ii) “Was the Seller in repudiatory breach of the Contract in failing to provide such a shipment schedule by the Buyer’s deadline of 30 March 2017?”.
The Court’s decision
Despite the fact that “Trade tribunal decisions are generally to be accorded deference where the arbitrators’ experience assists it in determining a question of law, such as the interpretation of contractual documents or correspondence passing between members of an arbitrator’s own trade or industry” Mr Justice Henshaw allowed the Seller’s appeal.
The judge (relying on the judgment in Bunge SA v. Nibulon Trading BV [2013] EWHC 3936 (Comm); [2014] 1 Lloyd’s Rep 393, §§ 35-36 per Walker J, referring to statements of the Court of Appeal in MRI Trading AG v Erdenet Mining Corporation LLC [2013] 1 Lloyd’s Rep. 638) made clear that “the English court strives to uphold arbitration awards”, and accordingly the court should read an award in a “reasonable and commercial way, expecting as is usually the case, that there will be no substantial fault that can be found with it”. Awards should not be read with a “meticulous legal eye endeavouring to pick holes, inconsistencies and faults … and with the object of upsetting or frustrating the process of arbitration”. Moreover, in cases of uncertainty, “the court will, so far as possible, construe the award in such a way as to make it valid rather than invalid”.
In deciding whether a tribunal had dealt with a question of law, English courts should “read [the relevant] paragraphs [in the award] in a fair and reasonable way in the context of the award as a whole. They must not be taken in isolation and subjected to minute textual analysis” (Kershaw Mechanical Services [2006] EWHC 727 (TCC) at [77]-[78] per Jackson J). However, as Popplewell J explained in Novasen v Alimenta [2013] EWHC 345 (Comm), the appropriate degree of deference may sometimes be tempered:
“26. I would naturally be reluctant to differ from a trade tribunal such as the FOSFA Board of Appeal on a question of the interpretation of one of its standard clauses unless I were satisfied that despite the collective experience of the Board it were wrong. Nevertheless in this case the deference due to their views is somewhat tempered by the fact that the tribunal did not articulate any reasoning for their conclusion, either as to the wording of the clause, or as to the commercial considerations which might have influenced the effect which they found the clause to have. …” .
With these considerations in mind, the judge nevertheless came to the view that the FTT reasoning that “ time ceased to be of the essence, but that [the Buyer’s] 29 March 2017 email made it of the essence again, and that on 4 April 2017 [the Buyer] then withdrew its ‘indulgence’ due to [the Seller’s] failure to provide a shipping schedule by 30 March 2017... [which] was in substance a finding of breach by failure to deliver, time having once more become of the essence” was unsupportable. “In order to find time thereby to have been made of the essence again, the FTT would have had to conclude that the period from 29 March to 15 April 2017 was a reasonable time to ship the remaining goods. No such finding is evident from its award. Further, if [the Buyer] had made time of the essence by requiring shipment by 15 April, it could not then in law have treated [the Seller] as in breach for failing in the intervening period to provide a shipment schedule that was not contractually required…”
In analysing the Award, after highlighting a lack of clarity in certain respects, and identifying various inconsistencies in the Board’s reasoning, Mr Justice Henshaw concluded that “it was the failure to respond to the request for a shipment schedule that led the Appeal Board to find [the Seller] to have been in default by 31 March”, and that the Seller’s breach of this obligation to provide a shipment schedule was repudiatory given that, as the judge pointed out, “the Appeal Board made no finding as to where any obligation to provide a shipment schedule is to be found in the Contract, or why one should be implied”.
The Court therefore found that
“i) the Buyer was not contractually entitled to demand a shipment schedule on 29 March 2017; and
ii) the Seller was not in repudiatory breach of the Contract in failing to provide such a schedule by the Buyer’s deadline of 30 March 2017.”
The appeal was allowed and the judge ordered that the Award “must be varied so as to conclude that [the Seller] was not in repudiatory (or renunciatory) breach of the Contract, but that [the Buyer] renounced the Contract by its notice of arbitration”. The Seller’s counterclaim was ordered to be remitted to the Board for determination of liability and quantum.
The Buyer also sought to run an argument based on renunciation. The judge observed that the Board did not explicitly address any case of renunciation, nor record the Buyer’s case as having been advanced on this basis at any time. In those circumstances the Seller had not been “given the opportunity to meet any case based (expressly or in substance) on renunciation”. To decide the case on the basis of renunciation it would have been necessary for the Board to have found that the Seller “had indicated, clearly and unequivocally, that it refused to perform or could not perform.” There was no such finding. Finally, the judge rejected an argument of renunciation by silence.
Points to note
1. In situations where, under a contract, time is of the essence for delivery and such delivery is late the buyer may expressly waive the breach or treat it as a breach of warranty only.
2. However, the parties may also, by a process of mutual affirmation, agree to keep the contract on foot, in which case the seller bound to deliver in a reasonable time when so instructed by the buyer. The question of what amounts to a reasonable time is a matter to be decided based on all the relevant facts that apply at the time.
3. If the buyer has by his words or actions agreed to keep the contract on foot and then made time of the essence again by instructing the seller to deliver within a reasonable time, if he seeks to treat a failure to deliver as a repudiation of the contract before the reasonable time has expired the buyer will be in repudiatory breach of contract which the seller can accept as bringing the contract to an end, entitling the seller to claim any damages that may result.
4. The judgment reiterates the court’s approach and general reluctance to interfere with arbitration awards when parties seek to appeal an award on a question of law under s69 of the Act. Successful challenges are therefore rare under English law but, in appropriate circumstances, where there has been a clear and manifest error of law, this case demonstrates that the court will intervene as the requirements of justice trumps the desire for finality in such circumstances.
5. However, it is important to note that, as s69 is not a mandatory provision, some major arbitral institutions’ rules expressly exclude any right of appeal on a point of law under s69 of the Act and that parties are always free to exclude the right of appeal by appropriate wording in their contracts.
Article Author: Andrew Patrinos
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