MATALUNI SPA v INERCO TRADE SA

The Claimants make two applications:

The Claimants have brought claims in two arbitration proceedings conducted under the Rules of Arbitration and Appeal of the Federation of Oils, Seeds and Fats Association Ltd, FOSFA International (“FOSFA”):

In both arbitrations the Sellers contended that the claims were time-barred under the Rules of Arbitration and Appeal of FOSFA (“the FOSFA Rules”). Since both arbitrations involved the same and/or related parties, the parties agreed that the time-bar issue in both arbitrations should be dealt with in a consolidated, preliminary procedure.

The Arbitrators concluded in two separate Awards, one for each arbitration, that they should exercise their discretion under Rule 2(d) of the FOSFA Rules to allow the claims to proceed.

The Sellers then appealed, and on 22 September 2009, a FOSFA Board of Appeal published two Awards (“the Board’s Awards”) reversing the Arbitrators’ Awards, refusing to exercise their discretion to allow the claims to proceed and holding that accordingly the claims were time-barred.

Both parties have served witness statements setting out the factual background to the claims in the arbitrations: namely, the first witness statement of Shai Wade on behalf of the Claimants and the first witness statement of Michael Swangard on behalf of the Defendant.

Both the Rhone and Joran contracts incorporated FOSFA 54, including its arbitration clause; this provides that any dispute would be referred to arbitration in accordance with the FOSFA Rules, Article 2 of which provides, inter alia, as follows (with emphasis supplied):

“2.

PROCEDURE FOR CLAIMING ARBITRATION AND TIME LIMITS

(a)

Claims on quality and/or condition:

(i)

If the claim is not to be supported by certificate/s of contractual analysis/ses, the party claiming arbitration shall despatch the notice of claim with the name of his appointed arbitrator to the other party within 21 consecutive days from the date of completion of discharge of the goods…

…

(b)

Claims other than on quality and/or condition shall be notified by the claimant with the name of an arbitrator to the other party and to the Federation within the time limits stipulated in this Rule:

(i)

For goods sold

(1)

On CIF, CIFFO … and similar contract terms: not later than 120 consecutive days after the expiry of the contract period of shipment or of the date of completion of final discharge of goods whichever period shall last expire. …

…

(d)

In the event of non-compliance with any of the preceding provisions of this Rule, and of such non-compliance being raised by the respondents as a defence, claims shall be deemed to be waived and absolutely barred unless the arbitrators, umpire or Board of Appeal referred to in these Rules shall, in their absolute discretion, otherwise determine. Either party has a right of appeal against the arbitrators’/umpire’s decision, in which case the Board of Appeal have the same rights as the arbitrators under this clause.”

The relevant timings are as follows:

The Certificates of Analysis issued at loading for both cargos confirmed that the percentages of moisture and impurities, Free Fatty Acids, and Linolenic acids were in accordance with contractual specifications. The testing carried out did not reveal the contamination by mineral oil as, in accordance with what the Buyers contend is normal practice, the tests did not include analysis for mineral oil.

In April 2008, the EU issued an urgent alert concerning industry wide contamination of Ukrainian sunflower oil with mineral oil, following the discovery of such contamination in various shipments. I was referred, by way of example, to the following documents evidencing the emergence of the contamination problem and the industry and regulatory response to it: Minutes of FEDIOL’s Crisis Management Meeting in Brussels on 15 April 2008; Minutes of FEDIOL’s Crisis Management teleconference on 18 April 2008; FEDIOL’s Question & Answer document regarding the current status of the contamination crisis dated 26 April 2008; FEDIOL’s statement regarding the contamination dated 27 April 2008; and a Public Ledger report dated 5 May 2008.The European authorities recommended withdrawing contaminated goods to safeguard consumer health as set out in the European Commission alert dated 30 April 2008.

As to the Joran contract, SOS became aware of the industry wide contamination issue on 14 April 2008. At that time, it says that it held in Spain stocks of Ukrainian sunflower oil from 13 different shipments, including the Joran oil and that it had already processed and sold, for various uses, a significant quantity of the Joran oil.

On 15 April 2008 SOS began testing all stocks to determine which were affected. The Joran oil was identified by such internal analysis as being contaminated on 24 April 2008; and this was confirmed by external testing of the discharge samples by Dr Verwey on 23 May 2008.

SOS notified the Sellers of this contamination and the fact that it held the Sellers responsible for any loss arising by a letter dated16 May 2008, to which the Sellers did not respond.

SOS was at this stage engaged in the exercise of recalling all products which contained contaminated oil. Details are given in the statement of Mr Romualdo Lopez San Miguel who oversaw the recall exercise. To give some sense of the scale of this exercise it was said that around 100 SOS employees were engaged on a full-time basis until the end of July 2008, and 3 external companies were employed; 245 customers throughout Spain had received products prepared with contaminated oil; over 6 million bottles of oil and sauces needed to be recalled.

SOS contended that the recall exercise, rather than its own financial recovery, was the focus of its immediate attention and that it was not in fact aware of the FOSFA time limits for commencing arbitration. However, when SOS learnt of these from Carapelli at the end of July, it appointed solicitors and commenced the Joran arbitration on 19 August 2008.

As to the Rhone contract, SOS says that it had purchased the Rhone cargo as agents for Mataluni, who had sold it to Carapelli, a company within the SOS Group and that Carapelli, only became aware of the industry wide contamination issue towards the end of April 2008 - as a result of the EU alert and notifications by the Italian health authorities. At that stage, Carapelli held stocks from 4 separate consignments of Ukrainian sunflower oil, including the Rhone shipment.

Carapelli carried out in-house testing on 25, 26 and 27 April 2008 which revealed the fact (but not the extent) of mineral oil contamination in the Rhone oil. The extent of the contamination was not known until the results of a further analysis had been received on 15 May 2008.

Carapelli was at this time also engaged in an equally extensive recall exercise, as described in the statement of Nicola Pellero. It is said thatin addition to the Rhone oil, two further consignments of oil had been found to be contaminated and all products made from these had to be recalled. The recall process involved 10 Carapelli employees working over approximately 20 weeks, and an external logistics company was engaged to assist.

Carapelli put the Sellers on notice of their claim by a letter dated 13 June 2008. The Sellers responded by letter dated 2 July 2008, raising inter alia, the time-bar point.

It is said that Carapelli’s focus at this stage remained, however, on the recall exercise. The significance of the time-bar point was not appreciated, but once Carapelli became alive to it on 31 July 2008, as a result of discussions with Bunge S.A. (a company who were also affected by the contamination), solicitors were immediately instructed and the Rhone arbitration was commenced straight away, on 1 August 2008.

The Board’s Awards were in materially similar terms. The following paragraphs of the Awards (taken from the Joran Award) are of particular relevance:

In the Rhone Award the out of time period was stated to be 206 or alternatively 104 days (paragraph 5.9) and the date by which a notice of claim could “certainly” have been put in was 15 May 2008 (paragraph 5.13).

In summary the Board had regard to the evidence and arguments submitted and the “fairness of the issue” (paragraph 5.17).

They emphasised that it is well known in the trade that “time limits have the purpose to give commodity trading in particular certainty” and reflected the philosophy of time being of the essence (paragraph 5.20). They considered that a seller who is deprived of a time bar defence does suffer prejudice (paragraph 5.18).

The Board was clearly unimpressed with the argument that the Claimants’ delay in making a claim could be excused by their “apparent lack of knowledge about the FOSFA Rules” (paragraph 5.10). They pointed out that the Claimants had a legal department which was actively involved in dealing with the contamination issue but did nothing to protect their rights (paragraph 5.11). They observed that this involved a failure to exercise controls and due diligence in respect of “rather fundamental practices” (paragraph 5.19).

In relation to the Joran they found that the Claimants could “certainly” have put in a claim notice by 24 April 2008 but did not do so for a further 98 days. In relation to the Rhone they found that the Claimants could “certainly” have put in a claim notice by 15 May 2008 but did not do so for a further 78 days (paragraph 5.13).

In all the circumstances in the exercise of their “absolute” discretion they decided that no extension of time should be granted.

It was submitted by the Sellers that this application should be considered first for two main reasons. First, if the application/appeal is dismissed then it follows that the exercise by the Board of its discretion was lawful and not open to challenge under the Act and that may be relevant to the exercise of the Court’s discretion under s.12 of the Act. Secondly, if the Court was to allow the appeal then remission to the Board may well be required; such remission should occur before any s.12 application is considered, and indeed under s.12(2) the arbitral process for obtaining an extension has to be exhausted before an application can be made under s.12. I accept that these considerations make it appropriate to address the s.69 application first.

The Claimants submitted that, in deciding whether to extend time under Rule 2(d) of the FOSFA Rules, the Board erred as a matter of law in taking account of factors which should not have been taken into account and/or omitting to consider a number of particular factors identified in The Aspen Trader[1981] 1 Lloyd’s Rep 273.

The Sellers submitted that an application to challenge the exercise of the arbitrators’ discretion to extend time could only properly be made under s. 67 or s.68 of the Act, rather than s.69. I do not accept that those sections provide the only means of challenge. The exercise of discretion may involve an error of law and therefore be susceptible to challenge under s.69. Indeed in relation to challenges to the exercise of the arbitrators’ discretion in relation to costs it has been held that the appropriate means of challenge is through seeking permission to appeal. The position is summarised in Mustill and Boyd 2001 Companion on Commercial Arbitration at p.207 as follows:

“Following the enactment of the Arbitration Act 1979, it was no longer regarded as a species of misconduct, founding an application to remit the award to the arbitrator to reconsider his award on costs, to make an award of costs on the wrong legal principles. The arbitrator’s award on costs could only be challenged by an appeal on a question of law under the 1979 Act in accordance with the principles described in the Chapter 36 of the Second Edition, including the ordinary rules as to leave to appeal, reasons, exclusion agreements, etc. In order to demonstrate an appealable error of law it is not sufficient to allege that the arbitrator has made an award which a judge would not have made; it has to be shown from the reasons given by the arbitrator that the award of costs was unlawful, in the sense that there were no grounds on which the arbitrator could properly in law have made the order which he did, or that he made the order on grounds which he could not properly in law have taken into account, or failed to exercise the discretion at all: The Maria [1993] QB 780; President of India v Jadranska Slobodna Plovidba [1992] 2 Lloyd’s Rep 274.”

In relation to circumstances in which the exercise of an absolute discretion may be challenged, Sir John Donaldson MR stated in Cook Industries Inv v BV Handelsmaatschappij Jean Delvaux [1985] 1 Lloyd’s Rep. 120 that:

“The first question which arises is whether the Court can review a discretion which is in terms stated to be "absolute". For my part, I have no doubt that it can. One has only to consider the possibility of mala fides - which, of course, is not suggested here - or the taking account of a matter which on no conceivable view could be regarded as relevant. In such cases the Court could and should intervene.”

Those observations were made in the context of the pre-Act regime. In the context of the Act, they were cited and followed by Judge Havelock-Allan QC in Al Hadha v. Tradigrain [2002] 2 Lloyd’s Rep. 512who putthe matter as follows:

“These observations confirm that the grounds upon which the exercise of an absolute discretion can be challenged are very strictly circumscribed. They are limited to bad faith and the taking into account of wholly extraneous matters. In my judgment, if and insofar as this is not already covered by the concept of bad faith, the grounds would also extend to cover a case in which there had been a complete failure of the tribunal to exercise its discretion on any identifiable grounds at all, in other words, a case where the tribunal had abdicated its responsibility of making a rational decision and, in effect, had simply tossed a coin. I do not think that it helps to give examples. Necessarily the circumstances would be extreme and the instances rare.”

I agree that the circumstances in which the Court will find that the exercise by the arbitrators of their discretion is unlawful are likely to be rare. In the present case the Claimants contend that the Board took into account two matters which “on no conceivable view could be regarded as relevant” or which were “wholly extraneous”. It was accepted that taking into account such matters involved not merely having regard to them but making a decision that was materially based on them.

First, the Claimants contended that the Board apparently considered that the Claimants’ lack of knowledge of the FOSFA time-limits was by itself a reason to refuse to exercise its discretion. They pointed out that at paragraph 5.13 of the Board’s Awards, it is stated:

“Addressing Buyers’ ignorance of their responsibilities does not, in the Board’s mind, relieve them from a buyers’ contractual obligations and liabilities and therefore time limits. This alone is sufficient, in the Board’s mind, to decline discretion.”

Reliance was also placed on paragraphs 5.18 to 5.21, from which it was contended that it appears that a key factor was the Buyers’ failure (as the Board saw it) to acquaint themselves with the FOSFA time limits:

“It seems to the Board that Buyers are content to operate in an environment of regulatory control and due diligence, but not exercise their own controls and due diligence on, for the trade, rather fundamental practices.”

It was submitted that this factor is irrelevant, or at least not relevant in the way that the Board seem to have regarded it, in that:

I reject these criticisms of the Board’s decision. Reading the Board’s Awards in a reasonable and commercial way, what the Board of Appeal were saying in paragraph 5.13 was that the Claimants could have put in their claim notice in April or May 2008, but failed to do so until August 2008. The Board was unimpressed by the Claimants’ explanation for this delay, namely ignorance of the Rules, and concluded that this culpable delay was sufficient to justify their not exercising the discretion.

In paragraphs 5.18 to 5.21 of the Board’s Awards, the Board reinforced their reasoning by deprecating the Claimants’ failure to acquaint themselves with the Rules (for the trade, rather “fundamental practices”) in the context where the trade attached high importance to time limits as giving rise to certainty.

It was the Claimants who put their alleged ignorance of the Rules before the Board of Appeal. They can hardly complain if the Board rejected that as an excuse for the delay between knowledge of the claims and commencement of arbitration. Further, the Board was fully entitled to take that delay into account when deciding whether to exercise its discretion.

Second, the Claimants contended that although the Board purported to consider the prejudice that would be suffered by both parties, they appear only in fact to have taken irrelevant prejudice into account as the other principal reason for refusing the extensions. At paragraph 5.18 of the Board’s Awards, they state:

“We consider that prejudice is imposed upon a seller, who in fulfilling a trade commitment delivers goods not proven (knowingly or otherwise) to be contaminated at the time of delivery, has no recognised defence on the question of time limits for the notification of a claim against him.”

It was submitted that the Board were here placing particular emphasis on the prejudice which will always occur if a time-bar defence is not allowed. It was further submitted that, in reliance upon The Aspen Trader and other cases decided under section 27 of the Arbitration Act 1950, this is not, and cannot be, the relevant prejudice which the Board ought to have considered.

For reasons that I shall address in more detail below, I do not consider that it is appropriate to challenge the Board’s decisions by reference to the approach taken in The Aspen Trader and other s. 27 cases. Nor do I accept that under the Act the loss of a time bar defence is irrelevant or cannot be regarded as prejudice. In reality, the Claimants’ complaint is as to the weight given to that prejudice, which is a matter exclusively for the Board.

For all these reasons I am not satisfied that the requirements for permission to appeal under s. 69 of the Act have been met, even if one applies the lesser statutory test of being required to demonstrate that the Board’s decision is open to serious doubt. In my judgment the Claimants do not come anywhere near demonstrating that the Board took into account matters which “on no conceivable view could be regarded as relevant” or which were “wholly extraneous”. I therefore dismiss the s. 69 application.

The Claimants accepted before the Arbitrators and the Board, and accept before the Court, that the time-limits in Rules 2(a)(i) and/or 2(b)(i)(1) apply to the claims brought in the Rhone and Joran Arbitrations, and that the Rhone and Joran Arbitrations were commenced outside those time-limits.

The Claimants nevertheless asked the Arbitrators, and subsequently (on the Sellers’ appeal) the Board, to exercise their discretion under Rule 2(d) to allow the arbitrations to proceed notwithstanding the expiry of the time-limits. As noted above, the Arbitrators agreed to do so but the Board did not. The Claimants accordingly now apply under s. 12(3) of the Act for an extension of time for commencing arbitration.

S. 12 of the Act provides, so far as material, as follows:

“12.

Power of court to extend time for beginning arbitral proceedings, etc.

(1)

Where an arbitration agreement to refer future disputes to arbitration provides that a claim shall be barred, or the claimant's right extinguished, unless the claimant takes within a time fixed by the agreement some step—

(a)

to begin arbitral proceedings, or

(b)

to begin other dispute resolution procedures which must be exhausted before arbitral proceedings can be begun,

the court may by order extend the time for taking that step.

(2)

Any party to the arbitration agreement may apply for such an order (upon notice to the other parties), but only after a claim has arisen and after exhausting any available arbitral process for obtaining an extension of time.

(3)

The court shall make an order only if satisfied—

(a)

that the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question, and that it would be just to extend the time, or

(b)

that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question.”

In the DAC Report the commentary on s.12 includes the following:

As this makes clear, and as is explained in a passage of the judgment of Colman J in Harbour & General v. Environment Agency[2000] 1 Lloyd’s Rep. 65, which was approved by the Court of Appeal at paragraphs 80-81, s.12 of the Act marked a clear change in the law and practice relating to the extension of time for commencement of an arbitration. Under s.27 of the Arbitration Act 1950 the concept of undue hardship had been given a broad meaning and relatively benevolent application. In contrast:

In relation to the s.12 application the following issues arise:

Whether the arbitration agreement falls outside s.12 because it contains a “double trigger” for the claim to be barred, namely failure to commence arbitration in time and such non-compliance being waived by the Respondents as a defence.

Under s.12(1) of the Act, the Court’s power to extend time only arises where an arbitration agreement to refer future disputes to arbitration provides that a claim shall be barred, or the claimant's right extinguished, unless the claimant takes within a time fixed by the agreement some step “to begin arbitral proceedings.”

The Sellers contended that, in contrast, Rule 2(d) of the Rules contains a double trigger for the barring and waiving of a claim. First, there must have been failure to comply with the time limits in Rule 2(a) or (b). Second, such non-compliance must have been raised by the respondents as a defence.

As such, Rule 2(d) does not provide that the claim shall be barred unless the Rule 2(a) or (b) time limits are complied with. It provides that the claim shall be barred only if the time limits are not complied with and, additionally, the non-compliance is raised by the respondents as a defence. Unless and until the respondents raise the non-compliance as a defence, the claim is not waived and barred even if it has not been made in time.

I reject this argument. In particular:

As Waller LJ said of s.12(3)(a) in Harbour & General at paragraph 81:

“The sub-section is concerned with party autonomy. Its aim seems to me to be to allow the Court to consider an extension in relation to circumstances where the parties would not reasonably have contemplated them as being ones where the time bar would apply, or to put it the other way round, the section is concerned not to allow the Court to interfere with a contractual bargain unless the circumstances are such that if they had been drawn to the attention of the parties when they agreed the provision, the parties would at the very least have contemplated that the time bar might not apply; - it then being for the Court finally to rule as to whether justice required an extension of time to be given.”

Waller LJ’s explanation was elaborated upon by Toulson J in Korbetis v. Transgrain[2005] EWHC 1345 (QB), who concluded that it restricts the words to circumstances which were not only beyond the reasonable contemplation of the parties, but were also such that if the parties had contemplated them, they would also have contemplated that the time bar might not apply in such circumstances (para.21).

I accept the guidance provided by those authorities and consider that the relevant question is (1) whether there were circumstances beyond the reasonable contemplation of the parties when they agreed the provision and (2) if so, whether, if the parties had contemplated them, they would also have contemplated that the time bar might not apply in such circumstances.

Neither of these cases concerned a time bar provision which conferred a power upon the arbitral tribunal to extend time. In such a case the relevant question is whether the parties would have contemplated that the prima facie time bar might not apply.

The Sellers submitted that there was no reason for the parties to contemplate that the time bar might not apply in circumstances where the arbitral tribunal had a discretion to extend time. If so, that would mean that s.12(3)(a) could never apply to a time bar clause that confers such a discretion. I consider that this is too rigid an approach. It is also inconsistent with s.12(2) of the Act which clearly envisages that s.12 applies even though the arbitral tribunal has a discretion to extend time. In my judgment the arbitral tribunal’s discretion is primarily relevant to whether it is just to extend the time, rather than to the prior question of whether the circumstances of the case are such that the parties would have contemplated that the time bar might not apply. In relation to that question it is the time bar part of the clause which needs to be focused on.

Turning to the facts, the Claimants’ essential position was that:

As to the first aspect, the Claimants contended that the risk of contamination of sunflower oil by mineral oil of the type which in fact occurred was not a recognised risk in the industry prior to the Ukrainian sunflower oil scandal in mid 2008, and was not generally tested for by traders of sunflower oil; that there was no industry standard method of testing for this type of mineral oil at the time that the contamination was discovered; and that it was only in direct response to the problem which was discovered in 2008 that FEDIOL, ASSITOL, and the European authorities set about developing a standard method of testing, which was introduced by a FEDIOL Code of Practice with effect from August 2008.

They contended that the evidence showed:

In the circumstances, they contended that there is no basis for a conclusion that the parties to these two particular contracts contemplated mineral oil contamination.

I accept the Claimants’ evidence and contentions on this issue, but the fact that the parties may not have contemplated mineral oil contamination is not in my judgment sufficient. If, for example, such contamination was nevertheless discovered on discharge, the circumstances in which the time limit was not observed can hardly be said to have been beyond the contemplation of the parties. The circumstances in question must in each case include those which caused or significantly contributed to the claimant’s failure to comply with the time bar: see Colman J in Harbour & General, approved by Waller LJ at paragraph 81.

I agree with the Sellers that the circumstance that is primarily relevant in the present case is that the contamination was allegedly not reasonably discoverable before the time limit expired. If that is made out, precisely how and why it came about adds little. There may be many reasons why the contamination was not reasonably discoverable, but it is the fact that it was not so discoverable that matters.

In considering whether such a circumstance was “outside the reasonable contemplation of the parties” the cases have used different terminology to express the degree of likelihood that will mean that this requirement will not be satisfied. In Harbour & General Coleman J. referred at p71 to “not unusual circumstances”. In The Catherine Helen [1998] 2 Lloyd’s Rep. 511 at p520 it was put in terms of being “prone if not certain to occur”. If one relies on the analogy of the cases on remoteness of damages in contract, the question would be whether it is “not unlikely” to occur. If the circumstance is one which is “not unlikely” to occur then the test will probably not be satisfied.

I would accept that the parties would reasonably contemplate that there may be cases where the claim is not reasonably discoverable before the time limit expired, particularly the 21 day quality/condition time limit. Although it is possible that there will be such cases, I do not consider that it could be said that such an eventuality is “not unlikely”, or is “not unusual” or is “prone” to occur. It is an occurrence which will in all probability be relatively exceptional. As such, I accept that it would be a circumstance outside the reasonable contemplation of the parties. In this connection, I note that HHJ Jack QC in Vosnoc v Trans Global[1998] 1 Lloyd’s Rep. 711 at p719 envisaged that circumstances where the damage only became apparent after the time-bar had expired were the sorts of circumstances which might be beyond the reasonable contemplation of the parties.

As to whether, if the parties had contemplated that circumstance, they would also have contemplated that the time bar might not apply in such circumstances, I consider that in general they would so contemplate. The test is whether they would contemplate that the time limit “might not” apply rather than it “would not” or “must not” apply. In general, time limit clauses are addressed at steps which the party in question can reasonably be expected to take within the prescribed time.

If that approach is correct then it would follow that on the facts there was a relevant circumstance beyond the reasonable contemplation of the parties in relation to all time limits other than the longer time limit for the Joran claim. As to that, the Claimants were aware of the contamination on 24 April 2008, 8 days before the Rule 2(b)(i)(1) time limit expired. As such I do not consider that the failure to comply with that time limit can be said to involve circumstances beyond the reasonable contemplation of the parties and no s.12 relief could therefore available in respect of any claims to which that time limit applies.

The Claimants’ starting point was that if they can show that this is a case involving circumstances beyond the reasonable contemplation of the parties then that in itself suggests that it would be just to extend time. I accept that that is a relevant matter to take into account and that in some cases it may be an important factor. However, s.12(3)(a) involves a two stage process and requires separate consideration of whether it would be just to extend time. Moreover, in the present case the circumstances which I have held to be beyond the contemplation of the parties relate to the observance of the time limit, not to the delay which occurred after the Claimants were aware of the contamination. Further, the discretion on the arbitral tribunal to extend time confers a means to alleviate any injustice which may thereby be caused.

The Sellers’ fundamental point was that it would not be just to extend the time in circumstances where the parties conferred an absolute discretion upon the tribunal to extend the time, and the Board of Appeal declined to exercise that discretion in the Claimants’ favour.

They forcefully submitted that it would be an unwarranted intrusion on party autonomy for the Court to substitute its own judgment as to whether an extension of time ought to be granted for that of the parties‘ contractually agreed tribunal, particularly where that tribunal was a trade tribunal which had regard to the practices and expectations of the trade (see particularly Board’s Awards paragraphs 5.19 and 5.20) and, having heard witnesses from the Claimants, was critical of the Claimants‘ delay in claiming arbitration.

S.12(2) of the Act shows that it was contemplated that an extension of time could be obtained from the Court in a case where there is an arbitral process for obtaining an extension of time. However, I accept that such cases are likely to be rare. The DAC Report paragraph 74(ii) expressed the view that the requirement that it would very rarely be just for the Court to extend the time where an available arbitral process had not resulted in an extension:

“(ii)

Secondly, it is made a pre-condition that the party concerned first exhausts any available arbitral process for obtaining an extension of time. In the view of the Committee it would be a rare case indeed where the Court extended the time in circumstances where there was such a process which had not resulted in an extension, for it would in the ordinary case be difficult if not impossible to persuade the Court that it would be just to extend the time or unjust not to do so, where by an arbitral process to which ex hypothesi the applying party had agreed, the opposite conclusion had been reached.”

In The Seki Rolette[1998] 2 Lloyd’s Rep. 638at 645, Mance J observed that where there is an available arbitral process for obtaining an extension of time, in most cases that can be envisaged, s.12(2) probably also means that that any subsequent application to the Court could have “little realistic prospect of success”.

The Claimants emphasised that the Court must exercise its own discretion and should accord no undue weight to the way in which the arbitrators have exercised their own different discretion, particularly in circumstances where the first tier arbitrators reached a contrary conclusion. In this connection I was referred in particular to Lord Jauncey’s observations in Comdel v Siporex [1990] 2 Lloyd’s Rep. 207 at p214. However, those observations were made in the context of the 1950 Act. Under the 1950 Act the Court had a defined discretion rather than a wide discretion dependent on considerations of justice, and party autonomy was not the “dominant icon” that it has become under the Act.

I agree that the question of whether the circumstances were outside the reasonable contemplation of the parties was not a matter which the Board had specifically to consider and the Court has to reach its own conclusion on that. However, whether or not it is just to extend the time is a very similar question to that considered by the Board in exercising its discretion. That discretion was a wide “absolute” discretion. It was not limited to particular circumstances. In considering how to exercise that wide discretion it is apparent that the Board focused on considerations of fairness – “the fairness of the issue” (paragraph 5.17). In these circumstances I consider that the Court ought to place very considerable weight on the conclusion of the chosen trade tribunal in deciding whether it is just to extend time.

I agree with the guidance given in the DAC Report that in order to persuade the Court to extend time in general it will be necessary to show that this is not an “ordinary case” and that there is good reason why it would be just to extend time notwithstanding the contrary decision of the chosen arbitration tribunal. Often, as in this case, this will involve a challenge to the way in which the discretion has been exercised and will overlap with an application under s.68 and/or s.69 of the Act.

In the present case, for reasons already given, I consider that there are no grounds for an appeal under s.69. The Board set out the parties’ submissions in relation to the exercise of its discretion to extend time; it considered those submissions focusing on the “fairness of the issue”; it reached a reasoned conclusion as to why in all the circumstances it would not be fair to extend the time. It is not suggested that that decision involved a serious irregularity. I reject the contention that it involves an error of law.

Although the factual circumstances giving rise to the contamination claims may have been unusual, I do not consider that when one has regard to the overall delay this is a case which is out of the ordinary. The missing of the initial time limits may have been unavoidable (save in respect of the second Joran time limit) but the focus of the debate in relation to the discretion to extend time was the delay which occurred after the Buyers knew enough to “put in a claim notice” (24 April 2008 for Joran; 15 May 2008 for the Rhone on the Board’s findings – paragraph 5.13 of the Board’s Awards). There was nothing out of the ordinary about the circumstances giving rise to that delay, nor was there any good reason for that delay. Essentially it was claimed to be due to ignorance of the applicable time limits and procedures.

The Claimants submitted that the Court should approach the question of whether it is just to extend the time by reference to the criteria set out in The Aspen Trader. I do not accept that it is appropriate simply to transpose and apply The Aspen Trader criteria, although both parties made reference to these criteria before the first tier arbitrators and the Board. As made clear in the DAC Report and the Harbour and General case, s.12 of the Act depends on different criteria to s.27 of the Arbitration Act 1950 and marked a move away from it and from the caselaw which had developed in relation to it.

In Mustill and Boyd 2001 Companion on Commercial Arbitration it is said at p276 that:

“Undoubtedly the decisions under the old legislation had gone further than its promoters had intended in mercy to the claimant, and undoubtedly there was a case for new criteria for granting an extension of time, more attuned to the need to hold the parties to a bargain freely and advisedly negotiated rather than to the hardship which the claimant would otherwise suffer, even if ‘undue’, in the sense that it was a matter of regret to some that the opportunity was not taken to treat contractual time limits in arbitration proceedings on an equal footing with contractual time limits applying to legal proceedings, if indeed any measure of protection for the claimant was needed beyond that now afforded to consumers.

…

The new test moves away entirely from the concept of undue hardship.”

In Merkin on Arbitration Law it is stated at para. 13.48:

“The Arbitration Act 1950, s 27, was far more generous to the applicant, and permitted the court to extend time if failure to do so would result in “undue hardship”. The drafting of the 1996 Act was a deliberate attempt to cut back on the previous broad approach. The 1996 Act has restored the position which was originally believed to prevail under the 1950 Act, namely, that time is to be extended in exceptional circumstances only. The contrast with s 27 of the 1950 Act is striking.”

Whilst a number of the considerations set out in TheAspen Trader may often be relevant to an evaluation of whether or not it is just to extend time, the practice of setting them out as the relevant test to be applied should be discouraged. They were considerations set out in the context of s.27 and the applicable test of “undue hardship”, not the test of justice/injustice under s.12(3)(a)/(b). Harking back to The Aspen Trader carries with it the danger of reliance on s.27 case law, and how the Court addressed The Aspen Trader factors in particular cases, as the present case illustrates. Those cases were decided at a different time, under a different Arbitration Act, applying a different statutory test. In most cases it will be neither necessary nor appropriate to refer to the pre-Act s.27 case law.

The danger in so doing is illustrated by some of the arguments in the present case. One of the Claimants’ principal arguments is that in the context of The Aspen Trader criteria the prejudice in being deprived of the right to rely on a time bar is “irrelevant” prejudice. However, in the context of the Act and its underlying philosophy of party autonomy I consider that it is a relevant consideration. The parties should generally be held to the bargain they have freely made. It is well recognised that time limits serve the salutary purpose of encouraging certainty and finality and enabling a line to be drawn under a transaction. A party should not be lightly deprived of the bargain he has made and the recognised benefits such a bargain brings. To be so deprived does involve prejudice that should be weighed in the balance when considering the overall justice of the case. Whilst the s.27 test of undue hardship focused on the position of the applicant, the wider test of whether an extension is just requires consideration to be given to the interests of both parties.

Another Aspen Trader criterion was the amount at stake. However, if it is right to have regard to the prejudice that will be suffered if the time bar defence is lost, then the prejudice involved in being unable to pursue a potentially substantial claim will be matched by the prejudice involved in losing a good defence to that substantial claim. That is why in forum conveniens cases the availability of a time bar defence in the alternative jurisdiction is regarded as a neutral factor. This would suggest that this should now be regarded as a factor of no great weight.

Factors which are likely always to be relevant to whether it is just to extend time are the length of the delay, whether it was due to the fault of the Claimants and, if so, the degree of fault and whether either party will suffer any prejudice in addition to the loss of the claim/ time bar defence.

As to the delay involved, the position in relation to Joran can be summarised as follows:

SOS became aware of the potential contamination issue on 14 April 2008.

On 19 August 2008, SOS claimed arbitration.

The position in relation to Rhone can be summarised as follows:

The claim made by the Claimants was therefore out of time by 206 or 104 days (Rhone) and 189 or 90 days (Joran) (Board Awards at paragraph 5.9). These are significant periods, particularly when contrasted with a contractually agreed limitation period of 21 days.

In the case of Joran the claim was 98 days after the date when the Board found that the Claimants could “certainly” have put in a claim notice (paragraph 5.13). In the case of Rhone it was 78 days after the date when the Board found that the Claimants could “certainly” have put in a claim notice (paragraph 5.13).

There were considerable delays after the Claimants were on notice of the possibility of contamination, actual contamination, and, strikingly, after they were on notice of the fact that the Sellers were relying on the FOSFA time bar.

In relation to Joran:

In relation to the Rhone claim:

In my judgment this is a case where there has been significant delay after the Claimants became aware of the contamination and were in a position to put in a claim notice. Their failure to do so involves a high degree of fault. It is also a case where there is culpable delay after the Claimants were on notice that the Sellers were relying on time bar.

The Claimants should have been familiar with the terms of the contract they had made and the time bar it contained. In any event, time limits for the bringing of claims relating to the goods are common if not invariable in international contracts for the sale of goods governed by Trade Association terms, including FOSFA. It was the Claimants’ own case that 85% of the world trade in oils is conducted on the basis of FOSFA contracts and SOS is a well established international producer and distributor of vegoils. The Claimants had a legal department which was actively involved. They should have been well aware of what the Board described as the “rather fundamental practice” of contractual time limits for claims.

As to whether the parties will suffer prejudice other than the loss of the claim/time bar defence, it was not suggested that the Claimants would suffer any additional or consequential prejudice. The Sellers did contend that they would suffer additional prejudice, but I accept that no significant prejudice has been established.

The Sellers asserted that they have suffered prejudice as a result of the destruction of the load port samples. However, the load port samples were destroyed in March 2008, which was prior to the Claimants becoming aware of the contamination. As such, the Sellers would be in no different or better position had the Claimants commenced arbitration immediately on discovery of the contamination, as the Sellers say they should have done. The Sellers cannot therefore say that the loss of the samples occurred as a result of any ‘culpable’ delay on the part of the Claimants. In any event, there are discharge samples available and the nature of the contamination alleged in this case means that they are likely to be as valuable evidentially as loadport samples would have been.

The Sellers further asserted that they may have lost a potential claim against their own suppliers. The Sellers contracted with their suppliers on FOSFA 53 terms, and said that they would, or might, also have been precluded from advancing claims against their suppliers by reason of the time-limits in the FOSFA Rules. However, the fact of the matter is that the Sellers have never taken any steps to commence arbitration against their own suppliers, or to preserve their claims against them, nor have they said that they intend so to do. The reason is likely to be that the Sellers’ suppliers were an associated company, Lanen SA. In reality, there is therefore no claim which has been lost since the likelihood is that there was never going to be a claim.

Taking all these considerations into account I have reached the clear conclusion that it would not be just to extend time. In particular: the Board in the exercise of its wide discretion has refused to extend time; the exercise of that discretion is not open to challenge and was exercised on a lawful, reasoned basis; there was significant delay once the contamination was discovered; there was culpable delay after the Claimants were on notice that the Sellers were relying on time bar; the Claimants’ delay involved a high degree of fault. When one has regard to the overall delay this is not a case which is out of the ordinary, and no good reason has been made out which would render it just to extend time notwithstanding that the arbitral tribunal has refused to do so in the exercise of its “absolute” discretion.

Even if it is right to place little weight on the decision of the Board to refuse to extend time, and to apply the Aspen Trader criteria in the manner contended for by the Claimants, I would still reach the same conclusion. If the Claimants had acted promptly following the discovery of the contamination the outcome might well have been different. They did not do so, and this is clearly a consideration that weighed heavily with the Board, approaching it, as they did, from a trade perspective.

For all these reasons the Claimants’ s.12 application is dismissed.