Midgulf International Ltd v Groupe Chimiche Tunisien

This is the second judgment of the court in this matter. The first judgment is reported as [2009] EWHC 963 (Comm). Both judgments arise in the context of an application by Midgulf that an arbitrator be appointed pursuant to section 18 of the Arbitration Act 1996 and for the continuation of an anti-suit injunction. At the end of my first judgment I directed that there be a speedy trial of the issue whether the relevant contract between the parties contained a London arbitration clause. The trial of that issue required oral evidence.

The facts giving rise to the dispute between the parties are set out at paragraphs 1-27 of my first judgment. I do not repeat them but they should be regarded as having been incorporated into this judgment. I should now add the following:

On 3 July 2008 GCT submitted a memorandum to the Tunisian Higher Commission for Public Deals seeking its permission to negotiate with Midgulf and purchase 150,000 mt of sulphur at a price of US$895 per mt CFR. The text of the memorandum suggests that other producers were seeking prices at $950-$1000 per mt and so the price on offer from Midgulf was regarded as attractive.

On 4 July 2008 the Tunisian Higher Commission for Public Deals considered the proposed purchase of 150,000 mt of sulphur.

Also on 4 July the purchasing department of GCT sent to the legal department the draft contract dated 27 June which had been amended to refer to the proposed purchase of 150,000 mt of sulphur and sought its opinion.

On the same day the purchasing department also communicated with the financial department concerning the proposed purchase of 150,000 mt of sulphur and sought its opinion.

On 9 July the Higher Commission of Public Deals formally gave its permission in writing to the purchase of 150,000 mt of sulphur.

Also on 9 July the legal department replied to the purchasing department suggesting that the contract for the purchase of 150,000 mt of sulphur be governed by Tunisian law and that disputes be resolved either in Tunisia or by ICC arbitration with the application of a neutral law. This appears to have been the basis of the fax dated 14 July sent by GCT to Midgulf (see paragraph 25 of my first judgment).

Midgulf’s case has been enlarged since the hearing which gave rise to the first judgment. The London arbitration clause is now said to have been contained in or evidenced by:

An offer dated 2 July 2008, accepted orally on 4 July 2008; and then confirmed or evidenced by fax dated 7 July 2008 (but sent on 8 July 2009);

Alternatively, by an offer dated 2 July 2008, as accepted by a fax dated 7 July 2008 (but sent on 8 July 2008), “main terms” having been agreed orally in the intervening period on 4 July 2008;

Alternatively, by an offer dated 2 July 2008, a counter-offer by fax dated 7 July 2008 (but sent on 8 July 2008) and an acceptance by e-mail dated 9 July 2008.

The oral agreement on which reliance is placed is said to have been made during a telephone conversation on 4 July 2008 between Dr. Mohamed Dajani, the Chairman and CEO of Midgulf, and Mr. Taoufik Hamrouni, GCT’s Central Manager for the purchase of raw materials. Mr. Hamrouni appears to have had some formal limits on his authority but there was no evidence that Dr.Dajani was aware of them. Both gentlemen gave oral evidence. (Mr. Samarraie, Mid-Gulf’s chartering manager, also gave evidence but his evidence did not directly involve the conversation of 4 July.) At the end of their evidence I reached the conclusion that whilst each sought honestly to assist me with his recollection of their telephone call on 4 July 2008 the evidence of each owed, not surprisingly, something to reconstruction as well as to recollection.

Thus, Dr. Dajani said in his statement dated 16 January 2009 that “at no time in these negotiations or discussions did Mr. Hamrouni say anything at all about needing to obtain any approval from anyone else for this contract.” In his second witness statement dated 21 April 2009 he said, with respect to Mr. Hamrouni’s statement that he told him that the details of the July contract had to be considered by the GCT’s legal and finance department, that that was “absolutely not correct: nothing of this nature was ever said by Mr.Hamrouni.” However, when Dr.Dajani gave evidence on 8 June 2009 he added that “Mr. Hamrouni informed me clearly that he got all the approvals needed to accept my offer of 2^nd July.” His diary note did not support this addition and if Mr. Hamrouni had said what is now attributed to him one would have expected Dr. Dajani to have mentioned it in either his first or second statement. A reasonable inference is that Dr. Dajani, in seeking to recollect the conversation and put it in the context of the dispute which has since developed between the parties, has persuaded himself that Mr. Hamrouni did say what he now attributes to him. Indeed, when he was cross-examined about this he said “you know as the case develops and I see that this 4^th July conversation became a crucial point, I have recollected much deeper and focussed much more on what was said than what I did when I wrote this testimony. It was recollection and double checking my thoughts and my dates and my time.”

Similarly, Mr. Hamrouni’s evidence altered as it was probed in cross-examination. In his examination in chief he said that he “got a green light” from the secretary of the Higher Commission for Public Deals but not before his telephone conversation with Dr. Dajani on 4 July. But in his cross-examination he said that when he spoke to Dr. Dajani he had already been given the green light. I formed the view that Mr. Hamrouni did not have a clear recollection of the relevant events and sought to reconstruct events rather than give his recollection. Indeed, Mr. Hamrouni accepted that he had difficulty in recalling the details of the telephone conversation.

Dr. Dajani’s account of the conversation in his first statement was that on 4 July 2008 he received a call from Mr. Hamrouni in which Mr. Hamrouni “enthusiastically confirmed GCT’s agreement to our terms for the purchase of 150,000 metric tons at a price of US$895 per metric ton CFR. I made a note of this in my diary. Mr. Hamrouni said that on this occasion his boss would sign the confirmation fax and that he would only be available to do this the following Monday, 7 July 2008. He explained that this was merely a formality and left me in no doubt that there was an agreement between us for the 150,000 metric tons and that we should go ahead immediately and nominate tonnage for the first shipments.” Mr. Hamrouni’s first account of the conversation was he told Dr.Dajani that “we were interested in buying the sulphur and that the price he was proposing was in line with the market price at the time” but that he “would have to report to different departments in GCT for the final decision.”

The best evidence of the telephone conversation is Dr. Dajani’s diary note, the authenticity of which was not challenged. Against the time of 1 pm GMT for 4 July 2008 he records that Mr. Hamrouni “confirmed purchase of 150,000 mt C.L. ARAMCO sulphur @ $895 and his fax would follow on Monday.” Dr. Dajani expanded on this in his first statement by saying that the fax was to come from Mr. Hamrouni’s “boss”. No reason was suggested for not accepting this amplification of the diary entry. When the fax came it was from GCT’s chairman and managing director.

Dr. Dajani said in his first statement that Mr. Hamrouni “enthusiastically confirmed GCT’s agreement to our terms for the purchase of 150,000 metric tonnes at a price of US$895 per metric tonne.” I prefer the evidence of the diary entry which makes no reference to the terms (apart from price) having been accepted. It is accepted that the detailed terms were not discussed. Dr. Dajani also said in his statement that Mr. Hamrouni told him that the fax was a formality. I am not satisfied that this exact word was used, for on 8 July (before the fax dated 7 July had been received) Dr. Dajani complained that the written confirmation had not been received, which suggests that the fax was regarded as more than a formality. Also, the conversation was in both Arabic and English. However, it seems likely that Mr. Hamrouni gave the impression that there was no doubt that the confirming fax would be sent and that Midgulf could proceed to nominate vessels.

Mr. Hamrouni said in his second witness statement (which was his first comment on the conversation of 4 July) that he told Dr.Dajani that “we were interested in buying the sulphur.” However, it is clear from Dr. Dajani’s diary note that Mr. Hamrouni went further than that and agreed to purchase at the stated price. Indeed, in cross-examination Mr. Hamrouni accepted that he agreed “the main terms” on the telephone. Mr. Hamrouni also said that he told Dr.Dajani that he would have to “report to different departments in GCT for the final decision.” I am unable to accept that this was said. Mr. Hamrouni’s recollection of events was neither firm nor clear, even allowing for the fact that his English was not perfect. Moreover, in his first statement he said that he informed Dr. Dajani on 9 July that the details of the purchase had to be considered by the legal and finance departments. He did not say that he had informed Dr. Dajani of this on 4 July.

A letter dated 9 July 2008 from the Tunisian Higher Commission for Public Deals states that the Commission examined the proposed contract with Midgulf on 4 July 2008. That must have been the meeting which Mr. Hamrouni said that he attended and after which he received a “green light” that the deal would be approved. It seems more likely than not that it was a result of getting the “green light”, albeit informally from the secretary to the Commission, that Mr. Hamrouni was able to telephone Dr. Dajani and inform him that the purchase was confirmed.

On the same day another document was sent from the purchasing department of GCT to the legal department enclosing the draft contract dated 27 June (see paragraph 15 of my first judgment) but stating that it referred to the purchase of 150,000 mt of sulphur and seeking the legal department’s opinion. It is likely that the reason the draft contract dated 27 June was sent in the context of the July contract was that Midgulf’s offer dated 2 July had said that the other terms of the contract would be as per that draft contract. Also on 4 July, a similar communication was sent to GCT’s Central Finance Directorate. I have no doubt that Mr. Hamrouni had these communications in mind when he said that he had to report to different departments for the final decision. However, for the reasons I have already given I am not able to accept that he mentioned that on the telephone to Dr. Dajani on 4 July.

Having made findings as to what was said or not said on the telephone on 4 July I can return to the main question, namely, did the July contract contain an agreement to London arbitration.

The offer in writing dated 2 July stated that jurisdiction and arbitration were to be in accordance with the draft contract dated 27 June 2008, that is, there was to be English law and London arbitration; see paragraph 18 of my first judgment. When Mr. Hamrouni and Dr. Dajani spoke on 4 July the only terms on offer were those in the fax dated 2 July. Dr. Dajani said in evidence that “in my mind it was very clear that without any doubt we had an agreement based on the 2^nd of July offer.” I am not satisfied that he actually thought at the time that all the terms of the 2 July offer had been accepted. At one point in his first statement he said that he was “left in no doubt that there was an agreement between us for the 150,000 tons.” But whatever it was that Dr. Dajani thought after the conversation the test as to whether an agreement has been made and if so on what terms is objective.

It is certainly arguable that when Mr. Hamrouni confirmed the purchase on 4 July an objective and reasonable interpretation of his confirmation was that GCT was accepting all the terms of the offer in the fax dated 2 July. However, there was no discussion of details and a further fax was expected from Mr. Hamrouni’s “boss” by Monday 7 July which was the date until which the validity of the offer had been extended (see paragraph 19 of my first judgment). It was no doubt expected that the fax would reply to the offer and address the question of terms. The offer which had been made was substantial: 150,000 mt of sulphur at a total price of about US$134.5m. Moreover, the draft contract dated 27 June to which the offer made reference had not been signed or stamped by GCT in relation to the June contract and contained terms which had not been agreed (see paragraphs 15 and 16 of my first judgment). Those are all aspects of the background to be taken into account when considering whether the parties’ objective intentions as expressed to each other were to enter into a mutually binding contract and if so on what terms.

Ultimately, I was not persuaded that a reasonable man with knowledge of the relevant background available to both parties would conclude that Mr. Hamrouni, when confirming “the purchase of 150,000 mt C.L. ARAMCO sulphur @ $895”, was confirming each of the details in the contract dated 27 June 2008 to which reference had been made in the offer dated 2 July. To conclude that he did so seems to me unreasonable in circumstances where (i) a fax from Mr. Dajani’s boss was awaited by 7 July, the last day of the offer’s validity, which would be expected to refer to terms, (ii) not all of the suggested terms had been agreed in relation to the June contract and (iii) the proposed contract was very substantial and much bigger than the June contract.

What was confirmed in the telephone call of 4 July was GCT’s agreement to purchase 150,000 mt of sulphur at $895 per ton. Such an agreement can be enforceable as an agreement on main terms only, with the detailed terms to be agreed later; see Pagnan v Feed Products [1987] 2 Lloyd’s Rep. 601 at p.619 (principles 4-6)). However, if the oral agreement of 4 July was enforceable it did not contain a London arbitration clause.

In my first judgment at paragraphs 28-38 I set out the respective cases of the parties and commented upon them. In paragraph 39 I noted that the conversation of 4 July may have an important bearing on the objective construction of the written exchanges. That was because the content of that conversation is part of the relevant background available to both parties and so must be considered when construing the effect of the correspondence exchanged by the parties.

The fax dated 7 July came from Mr. Hamrouni’s boss, namely, the chairman and managing director of GCT. It was with reference to Midgulf’s “offer by fax” of 2 July. The date of the chairman’s reply was the last day of validity of Midgulf’s offer. There was no request for a further extension. Midgulf had been awaiting this reply because a fax had been promised in the conversation of 4 July. It was expected to contain the chairman’s formal response to the offer and it did so. Its language was redolent of a concluded deal; “we are pleased to confirm the purchase of…..” and “we congratulate ourselves for this conclusion”. The reply did not invite further discussion as to terms. What was envisaged was the submission by Midgulf of a loading schedule and the name of the vessel for the first month of July and “smooth execution” of the purchase. Those considerations suggest that the fax should reasonably be understood as an acceptance of the offer made on 2 July (as later amended).

As was, I think, to be expected the terms of the reply went further than the conversation with Mr. Hamrouni on 4 July. The fax specifically referred to the description of the sulpur, the seller’s option as to quantity, the maximum draft at the ports of Gabes and Sfax, specifications as to quality, packing and shipment periods. Attention has been concentrated on the maximum draft condition which, unlike the other matters, had not been specifically set out in the offer of 2 July. But it had been set out in GCT’s counter offer dated 26 June 2008 in respect of the June contract which I regard as having been accepted; see paragraph 16 of my first judgment. The crucial question is whether the terms set out by GCT were those on the basis of which, and only on the basis of which, GCT was willing to purchase or whether GCT was merely listing the most important of the terms set out in the offer of 2 July all of which GCT had agreed. If the former is correct, then the terms on which GCT was willing to contract did not contain a London arbitration clause. If the latter is correct, then the reply was an unconditional acceptance of the offer dated 2 July, including the London arbitration clause.

Counsel for Midgulf summed up her case by saying that “a reasonable recipient in the position of Dr. Dajani would have understood the fax as an acceptance of all of the terms of the 2 July offer.” Counsel for GCT summed up his case by saying that “a reasonable observer looking at those documents would not conclude that there was an agreement that the parties were agreed that the agreement should include the terms set out in the agreement of the 27^th. June.”

Before resolving this dispute it is necessary to mention a further submission by counsel for GCT that when applying the reasonable observer test it is legitimate to consider the internal dealings of the offeree, which in this case would include the requirement of GCT that its legal and financial departments had to be consulted as to the details of contracts before those details could be agreed. Reliance was placed on IRC v Fry [2001] STC 1715 at paragraph 6. That was a case where a taxpayer offered a sum of money in settlement of a tax liability and sent a cheque to the Revenue stating that if the Revenue chose to accept the offer the Revenue could present the cheque for payment. The revenue presented the cheque for payment but said that the cheque had been banked pursuant to its general practice of banking cheques which had been received in the post. It had not been banked because the taxpayer’s offer had been accepted. The taxpayer argued that the Revenue had accepted the taxpayer’s offer. Jacob J. held that the taxpayer’s argument failed for several reasons. First, the Revenue had not acted with knowledge of the taxpayer’s offer. Second, the reasonable observer is assumed to have knowledge of the Revenue’s internal system for dealing with cheques received in the post. Third, even if the reasonable observer is assumed not to have that knowledge, he would not assume that the cheque was banked with the intention of accepting the offer. “The observer would know that the Revenue would receive thousands of cheques a day. Obviously they should be banked as soon as possible. It would not be possible to do that if every time there was a letter it had to be read by a case officer.” Counsel relies upon the second of these two reasons as showing that the reasonable observer is assumed to have knowledge of the internal dealings of the offeree. If the effect of the second reason is that the reasonable observer is to be assumed to have knowledge which was not reasonably available to the parties I must respectfully disagree. I do not suggest that the decision in IRC v Fry was wrong, for the first and third reasons for the decision may well have been correct. But in the present case there was no reason why Midgulf should have known of GCT’s practice of submitting the details of offers to its legal and financial committees before they could be accepted. I do not consider that I should attribute to the reasonable observer knowledge which was not reasonably available to Midgulf.

I have said there are considerations which suggest that the fax dated 7 July should reasonably be understood as an acceptance of the offer made on 2 July (as later amended), but there are other considerations pointing to the contrary conclusion. The fax does not state in terms that the offer dated 2 July was accepted. On the contrary it purports to confirm the purchase “at the following conditions”. Those conditions replicate the terms specifically set out in the offer of 2 July (save for the maximum draft condition) but do not refer to the latter half of the offer which said that a number of other clauses, including jurisdiction and arbitration, were to be as per the draft contract dated 27 June. The omission suggests that GCT was not intending to contract on those terms.

Nevertheless, the tenor of the language of the fax dated 7 July is strongly suggestive that agreement had been reached and that no further negotiations were required. This is certainly how it appeared to Midgulf whose fax dated 9 July thanked GCT “for your confirmation of acceptance of our offer dated 02/07/08”. GCT, however, suggest that the reference to the maximum draft shows that the fax was in fact a counter offer because that term had not been one of the specified terms in the offer made on 2 July. The offer had referred to shipment terms being as per the draft contract dated 27 June and the shipment terms in that draft contract did contain a provision about the maximum draft. But that provision was not in identical terms to those which had been agreed for the June contract. It made no reference to high tide; whereas GCT’s fax dated 26 June which was accepted by Midgulf’s fax dated 27 June, did, as did GCT’s fax dated 7 July. Since it was GCT who were giving the warranty as to the maximum draft the reference to high tide was important.

With that in mind one possible interpretation of the fax dated 7 July is that where GCT did not accept any of the terms in the draft contract dated 27 June which were incorporated into the offer of 2 July the chairman identified that term; and the only non-acceptance was with regard to the shipping term concerning the maximum draft at the discharge ports. On that basis it might be said that the fax should be construed as an acceptance of all the terms in the offer dated 2 July (indicated by the language of “conclusion” of the contract) save for the correction to the shipment terms concerning the maximum draft. That correction therefore made the fax dated 7 July a counter offer which was accepted by Midgulf’s fax dated 9 July. On this interpretation the concluded contract would have included the jurisdiction and arbitration clause in the draft contract dated 27 June.

However, against this interpretation stands what ultimately I have concluded is an insurmountable obstacle for Midgulf, namely, that GCT did not in terms say that it had accepted the detailed terms which Midgulf had sought to incorporate from the draft contract dated 27 June but instead set out the conditions on the basis of which GCT had confirmed the purchase. Those conditions did not include the detailed terms which Midgulf had sought to incorporate from the draft contract dated 27 June. In those circumstances it is not reasonable, in my judgment, to construe the fax dated 7 July as if GCT had accepted those detailed terms. The maximum draft condition was specifically set out because it was a main term of significance to GCT. The fax was therefore a counter offer, not only because of the maximum draft condition (which was not identical to that set out in the draft contract dated 27 July which did not limit the warranty to high tide) but also because the terms on which GCT was willing to contract did not include the detailed terms referred to in the offer of 2 July which were to be incorporated from the draft contract dated 27 June. That counter offer was accepted by Midgulf’s fax dated 9 July. A contract was then formed on the conditions set out in GCT’s fax dated 7 July. They did not include a London arbitration clause.

I have concluded that this was in fact how the July contract was concluded. However, the contract so formed did not include a London arbitration clause.

I have considered all of the submissions made by counsel for Midgulf both in writing and orally but have concluded that I must dismiss Midgulf’s application to appoint an arbitrator and continue the ant-suit injunction. The July contract, unlike the June contract, did not contain a London arbitration clause.