Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
MR. JUSTICE TEARE
Between :
A.K.KABLO IMALAT SAN VE TIC A.S. | Claimant |
- and - | |
INTAMEX S.A. | Defendant |
Alexander Wright (instructed by Wikborg Rein LLP) for the Claimant
Sean Snook (instructed by Seddons) for the Defendant
Hearing dates: 7 and 8 November 2011
Judgment
Mr. Justice Teare :
This is the hearing of an application challenging an arbitration award pursuant to section 68 of the Arbitration Act 1996. An application for leave to appeal pursuant to section 69 of the Act (normally considered on documents alone) was ordered to be heard at the same time.
The award under challenge is that of a London Metal Exchange (“LME”) tribunal consisting of Mr. Danin and Mr. Sambrook. It was made on 1 February 2011.
The dispute between the parties arose out of a CIF sale of approximately 1200 mt of copper cathode by Intamex SA (“the seller”) to Ak Kablo (“the buyer”). The consignment was divided into three lots. The buyer took delivery of lots 1 and 2 but did not take delivery of lot 3. The seller claimed the sum of US$284,744.14 (later revised to US$288,441.75) in respect of sums said to be due under the contract and damages for breach of contract. The buyer counterclaimed the net sum of US$205,124.04, being the difference between the cost of buying goods on the market to replace lot 3 and the sum it said was payable under the contract after setting off sums admitted to be due to the buyer. The tribunal held that the claim succeeded in the sum of $224,352.88 and that the counterclaim failed.
The contract of sale
The contract of sale was dated Lausanne, 10 March 2009. The seller was a Swiss company. The buyer was a Turkish company. The contract provided for UK law to apply and for disputes to be submitted to the LME. The material terms of the contract were as follows:
“A) Material:
Copper Cathode (MOOK) grade in normal bundles. Kazakhmys production, Kazakh origin Duty/taxes unpaid.
B) Quantity:
Approx 1200 metric tons, of which 600t approx will be taken by client immediately on vessel arrival, balance approx 600t to be kept in port and taken within max 15 days from arrival. Seller will bear the cost of the warehousing from date of arrival until date of pickup but max 15 days in total. Buyer will arrange customs clearance of the whole consignment on arrival of the vessel.
C) Price/Quotational Period:
LME Cash settlement average price for Copper Grade A plus a premium of USD 40.00/mt. QP to be mutually agreed between date of contract and ten market days following arrival at port of destination.
D) Place of Delivery:
CIF Free out Ambarli port/Turkey
E) Time of shipment:
Prompt/13-16th March 2009 on vsl “Adnan Kaptan” or substitute due to load in Novorossisk – ETA Ambarli around 22/23.03.09
F) Payment terms:
Nett cash by T.T. against presentation of following documents through Buyer’s bank in Turkey, on arrival, for the total under the contract:
1. Seller’s invoice 2. Copy Certificate of Weight and quality from Producer/s which may be combined. 3. 3/3 original clean shipped on board Bs/L 4. Insurance certificate in duplicate for 110% of invoice value.”
The events giving rise to the dispute
I take these from the award. The parties had commenced trading copper in September 2008. Pursuant to the contract the three lots of copper were shipped at Novorossisk on 14 March 2009. Provisional invoices in respect of the three lots dated 13 March 2009 were presented on 16 March 2009. The copper arrived at Ambarli on 18 March 2009.
The buyer paid the provisional invoice in respect of lot 1 and took delivery of it on 31 March 2009. The buyer paid the provisional invoice in respect of lot 2 and took delivery of it on 2 April 2009. Final pricing for lots 1 and 2 was agreed on 24 April 2009 and the seller issued “balancing invoices to reflect the differences between the provisional and final prices.”
With respect to lot 3 the award records the following events. At a meeting on 15 April 2009 an extension of one week was agreed for the collection of lot 3. On 20 April the seller issued another provisional invoice for lot 3 based on a price of $4765 per ton. (The award does not state what the price in the first provisional invoice was but the parties referred me to the invoice itself which stated it was based on a price of $3700 per ton. The explanation for the differing prices is that the LME cash settlement price was rising between 16 March and 20 April.) The buyer objected to the increased price and on 27 April 2009 the price was further revised to $4490 per ton (the LME cash settlement price having fallen between 20 and 27 April). The buyer objected to that also. On 29 April 2009 the buyer informed the seller that it would buy the cargo elsewhere whereupon the seller then notified the buyer that the contract was terminated.
The tribunal’s findings
The tribunal made a number of findings by reference to a list of issues. Amongst the most material are these:
The seller presented the buyer’s bank with the documents stipulated in clause F of the contract on 16 March 2009 (finding 1.2).
The buyer’s payment obligations were triggered by a combination of the arrival of the goods and the presentation of documents (finding 1.4).
It was standard practice to issue a provisional invoice in this type of business. Payment against such an invoice is generally effected immediately. Payments are later adjusted with final pricing (finding 2.2).
The contractual pricing process was varied with respect to timing (finding 2.3). The award recites that the buyer had alleged a variation with regard to the timing of material take up and that it had been orally agreed that that the provisional invoice for lot 3 would be issued based on the LME cash settlement price for 24 April 2009 which the seller denied. It appears from the finding that the alleged oral agreement was not proved to the satisfaction of the tribunal. The tribunal noted in its reasons that it was common ground that the contract was alive up to 29 April 2009 with no pricing agreed which suggested that there had been a variation with regard to timing since the contract required the price to be agreed within 10 days of the vessel’s arrival.
There was no agreement to take delivery of lot 3 on 24 April 2009 as had been alleged by the buyer (finding 3.3).
With regard to lot no.3 the buyer was in breach of contract by failing to pay the provisional invoice (issued on 16 March 2009) on arrival of the vessel (finding 6.1). The seller issued the later invoices with regard to lot 3 “with the hope of keeping the contract alive”.
The seller was not in breach of a pricing agreement between the parties in not raising an invoice as requested by the buyer at LME cash settlement price on 24 or 28 April 2009 (finding 6.2). The tribunal explained in its reasons that the CIF contract required payment against documents and so the buyer did not have the power to request a provisional price at a specified date.
The buyer was in breach of contract by failing to take up lot 3 and repudiated the contract by indicating on 28 April 2009 that it would be purchasing replacement goods (finding 6.3). It is clear from the recital of the parties’ arguments that the tribunal rejected the buyer’s argument that the Claimant had repudiated the contract by “refusing to issue a contractually valid provisional invoice”. In their reasons for this finding the tribunal said:
“Although parties throughout the hearing agreed that pricing for provisional invoices was to be on a date requested by the [buyer] and based on previous day’s LME settlement, the pattern was not followed. As an example, the pricing of the provisional invoice for Lot 2 was not based on the day requested by the [buyer] …and was $60 higher than LME + $40. In her evidence Mrs. Akbudak …refers to the price for this provisional invoice being accepted since it could have related to the LME price movements in the day. We see that the LME settlement moved from $4541 on 23 April to $4305.5 on 27 April … the same argument should apply and the defence lacks credibility. This suggests that personal feelings outweighed expediency.”
The contract terminated in respect of lot 3 on 29 April 2009 (finding 6.4).
The buyer was liable to pay interest on lot 3 from the arrival of the vessel until receipt of payment from substitute customers. (finding 8.1.4).
The tribunal summarised its findings as follows:
“The [buyer] had defaulted by not paying the provisional invoice for Lot 2 immediately. The [seller], in line with normal practice and previous good relations with the [buyer], made efforts to keep the Contract alive during a period of severe market volatility even though it was out of money. Comments and possible misunderstanding in the latter part of April regarding finance and storage costs arising from the delay obviously upset Mr. Balarisi and he acted unreasonably. He may have baulked at the price of the provisional invoice 13497of 27 April …..and even if he was exposed to increased customs tax costs ….it would have been logical and more prudent to pay the provisional invoice, pay or receive against the final invoice and then claim any extra charges arising. The [buyer] chose not do this and suffered the consequences.”
Following receipt of the award the buyer wrote to the tribunal seeking clarification of the award pursuant to section 57(3)(a) of the Arbitration Act 1996. Amongst the questions asked were these:
Having referred to findings 6.3 and 3.3 the buyer asked the tribunal to confirm that the tribunal found:
“1. As a matter of fact, Mr Keles agreed with Mrs Akbudak on 24 April 2009 that the provisional invoice for Lot 3 would be based on that day’s LME cash settlement price.
2. However that agreement did not bind the Claimant in law because “Mr Keles did not have the power to make such agreements and there is nothing to show acceptance by the Claimant”.
3. Mrs Akbudak and Mr Balarasi “assumed” that an agreement had been reached with the Claimant because (i) the agreement had been reached with Mr Keles; (ii) Mr Keles was the Claimant’s appointed agent in Turkey and (iii) Mr Keles did not at any time say that the agreement was subject to his principal’s approval. However they did not appreciate that Mr Keles did not in fact have the power to make any such agreement.”
Having referred to finding 6.3 the buyer asked the tribunal to confirm that the tribunal found:
“1. The agreement reached by the parties (subject to the issue of Mr Keles’ authority, as discussed above) was that “pricing for provisional invoices was to be on a date requested by the Respondent and based on the previous day’s LME settlement”.
2. For 24 April 2009, that LME settlement price was US$4,362, meaning that a provisional invoice raised using that date’s settlement price should have been raised in the sum of US$4,402 inclusive of the US$40 contract premium (this is not expressly referred to in the award but we understand this to be uncontroversial).
3. As a matter of practice, however, the Respondent did not insist on this being followed but allowed a degree of flexibility based on the general market trend. The Tribunal identifies the provisional pricing of Lot 2 as such an example.
4. In the circumstances, the Respondent ought, on Lot 3, to have followed the previous practice as “expedient” but did not as “personal feelings outweighedexpediency”.”
Having referred to the tribunal’s summary and reminded the tribunal that one of the issues at the hearing was whether the seller would have accepted tender of a lower sum than that claimed on provisional invoice 13497 the seller asked the tribunal to confirm “that the tribunal’s view was that the seller would not have accepted a lower sum”.
By letter dated 16 February 2011 the tribunal replied saying that there was no ambiguity or error in the award and therefore rejected the application. However, the tribunal said that it was disturbed that the buyer had made incorrect assessments of the findings and regretted that the award apparently lacked clarity. The tribunal then said as follows:
“The Agreement between Mr Keles and Mrs Akbudak on 24 April 2009
To clarify our findings regarding issue 6.3:-
We find that although there was implicit agreement for the parties to price provisional invoices on a date requested by the Respondent based on the previous day’s LME settlement, this agreement was varied as shown.
1. The tribunal does not find as a matter of fact, that Mr Keles and Mrs. Akbudak reached an agreement that the provisional invoice for Lot 3 would be based on that day’s LME Settlement price. The Award states that there is no evidence to support such agreement.
2. Since there was no agreement, the powers of Mr Keles in this regard are irrelevant.
3. We reason in 3.3 “…it is possible Mrs Akbudakak and Mr Balarisi may have assumed that an agreement had been made but there is no satisfactory evidenceto support such assumptions.” (our emphasis)
We therefore cannot confirm your summary.
The basis for provisional invoice 13497, 27 April revision
1. This is covered above.
2. As shown in our award and commented upon above, we have seen that, although the parties agreed to pricing provisional agreements on a date requested by the Respondent based on the previous day’s LME settlement, they chose not adhere to this agreement. Since this was the practice we do not accept that the Claimant should have used the LME Settlement price of 24 April 2009.
3. Despite the implicit agreement on pricing of provisional invoices, practice showed that both the Respondent and the Claimant were involved in the variation.
4. We confirm this assessment.
Our reasoning in these matters is set out in the Award.
Termination
We see no evidence to suggest that the Claimant would have accepted a sum lower than that justified by market conditions.”
The section 68 challenge
Mr. Wright, counsel for the buyer, advanced a case that there had been a serious irregularity by the tribunal which may be summarised as follows:
The tribunal found that there was an implicit agreement for the parties to price provisional invoices on a date requested by the buyer based on the previous day’s LME’s settlement.
The tribunal further found that that agreement was varied by practice, in particular the circumstances in which the buyer accepted lot 2.
However, the alleged variation formed no part of either party’s case and so the tribunal had not given the buyer an opportunity to deal with it.
Had the buyer been given the opportunity to deal with it the tribunal might have concluded that there was no variation with the result that the 27 April invoice was issued in breach of contract and the buyer would have been able to maintain that the seller was in repudiatory breach by refusing to deliver lot 3 save against payment of that invoice.
This allegation of a serious irregularity was opposed by Mr. Snook, counsel for the seller, on a large number of grounds. His Skeleton Argument on the section 68 challenge ran from page 9 to page 27 of a 44 page Skeleton Argument. However, his first and, to my mind, fundamental point was that the challenge was based upon a misreading of the award. He submitted that the tribunal had neither found the agreement on pricing alleged by the buyer nor the variation of that agreement alleged by the buyer.
It is therefore necessary to decide what it was the tribunal decided. Mr. Snook accepted that the award was not “altogether easy to read”. The award set out the material events (in short form), the claim and the counterclaim and then decided a number of issues in a list of issues which had been agreed by the parties. I do not criticise this approach. It no doubt seemed a sensible approach given that the parties had agreed a list of issues. But the absence of a detailed chronological narrative has led to difficulty in understanding the award.
I was referred, in the context of the correct approach to understanding an arbitrator’s award, to the guidance of Bingham J. in Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd. [1985] EGLR 14. I summarised the guidance from that case and a later case in The Pace [2010] 1 Lloyd’s Rep.183 at para.16 as follows:
“……when reviewing the reasons of an arbitral tribunal the court should read the award “as a whole in a fair and reasonable way ….[and] should not engage in minute textual analysis” (see Kershaw Mechanical Services Ltd v Kendrick Construction [2006] EWHC 727 (TCC) [2006] 2 All ER (Comm.) 81 at paragraph 57. The courts do not approach awards “with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults in awards and with the objective of upsetting or frustrating the process of arbitration” (see Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14).”
With that guidance in mind, and bearing in mind what I was told had been the contentions of the parties at the hearing, I consider that Mr. Snook is right as to what the tribunal decided.
The tribunal held that the contractual pricing process was detailed in clause C of the contract; finding 2.1. The buyer contended that there was a variation of that process with regard to the fixing of prices for lot 3. It was said that Mr. Keles and Mrs. Akbudak had agreed that the provisional invoice for lot 3 would be issued based on the LME cash settlement price for 24 April 2009. The tribunal did not accept that there had been such a variation but accepted that there had been a variation with respect to the time of “material take up” ie delivery; see findings 2.3 and 3.2.
In addition to relying on an alleged express agreement between Mr. Keles and Mrs. Akbudak the buyer also relied upon an alleged implied term to the same effect arising from a previous course of conduct. Whilst findings 2.3 and 3.2 appear to have been made in the context of the alleged express agreement it is clear from the award that the alleged implied term must also have found no favour with the tribunal. That is because the tribunal held that the buyer was in breach by failing to pay the invoice in respect of lot 3 issued on 16 March 2009; see finding 6.1. Such a finding could not have been made had the implied term found favour. For if the implied term had found favour only an invoice issued with respect to the prices appropriate to 24 April would have been binding. The implied term is also inconsistent with finding 6.2 which was to the effect that the seller was not in breach by failing to raise an invoice at the LME cash settlement price on 24 or 28 April 2009.
Mr. Wright sought to avoid this conclusion by suggesting that the implied term might itself have been subject to an implied anterior provision to the effect that it only applied if the buyer in fact selected a pricing date. However, this was a new point not advanced before the tribunal and cannot therefore be used when reading and understanding the award. In any event it cannot serve to distinguish the express from the implied term because the content of both terms was the same.
It can be seen from the buyer’s letter to the tribunal that the buyer sought to spell out of the award a finding that there was an express agreement concerning the pricing of lot 3. The buyer relied upon the reasons for finding 6.3 which stated that the “parties throughout the hearing agreed that pricing for provisional invoices was to be on a date requested by the [buyer] and based on previous day’s LME settlement”. However, I do not consider that it is a fair and reasonable construction of the award that such an express agreement had been found. First, the arbitrators added that “the pattern was not followed”, which suggests that there was not actually any such agreement. Second, that is consistent with the previous findings to which I have referred, which show clearly that there was no such agreement. Thus, reading the award as whole does not lead to the conclusion that the tribunal had accepted the buyer’s case as to the pricing agreement.
This is confirmed by the tribunal’s response to the buyers’ request for clarification pursuant to section 57 of the Arbitration Act 1996. Having been requested to confirm that the tribunal had found that Mr. Keles and Mrs. Akbudak had reached agreement on pricing the tribunal said that they had made no such finding.
However, they prefaced their answer by saying:
“We find that although there was implicit agreement for the parties to price provisional invoices on a date requested by the Respondent based on the previous day’s LME settlement, this agreement was varied as shown.”
It is this comment upon which the buyer relies, not to support a suggestion that there had been an express agreement, but to argue that the reference to an “implicit agreement” must be an acceptance of the buyer’s alternative basis for the suggested agreement, namely, an implied agreement arising from a previous course of conduct. I am unable to accept this submission. The tribunal were not seeking to say anything different from that which they had said in the award. That is why they said “this [implicit] agreement was varied as shown”. The words “as shown” refer back to the reasons in the award for finding 6.3 in which they said that, although there had been an “agreement” with regard to pricing, “the pattern was not followed”. The reference in the tribunal’s letter to the “agreement” being “varied” was no more than a reference to the fact that the “agreement” was not followed by the parties. This is made abundantly clear by the further terms of the tribunal’s letter dated 16 February 2007:
“2. As shown in our award and commented upon above, we have seen that, although the parties agreed to pricing provisional agreements on a date requested by the Respondent based on the previous day’s LME settlement, they chose not adhere to this agreement. Since this was the practice we do not accept that the Claimant should have used the LME Settlement price of 24 April 2009.
3. Despite the implicit agreement on pricing of provisional invoices, practice showed that both the Respondent and the Claimant were involved in the variation.”
Although not stated in terms it would appear that that is why the tribunal failed to find an implied term arising from a course of conduct. There was it seems a course of conduct or “implicit agreement” but it was not a pattern which was always followed.
It is likely that a trained lawyer would not have used the expression “implicit agreement” in support of a conclusion that there was no implied term arising from a course of conduct but it would be wrong to read an LME award by commercial men as if it had been written by a lawyer.
I am satisfied, reading the award as a whole together with the tribunal’s subsequent letter, not with a view to upsetting the award but with a view to upholding the award, that the buyer’s case on there having been an express, alternatively an implied agreement arising from a previous course of dealing, that invoices were to be priced on a date requested by the buyer based on the previous day’s LME settlement was rejected by the tribunal.
That being the effect of the award the buyer’s challenge based on there having been a serious irregularity can be seen to have no substance despite the skill and care with which Mr. Wright advanced the buyer’s case. There was no finding that there was an implied agreement in the terms alleged by the buyer which had been varied. There had been a debate before the arbitrators as to whether that there had been an express agreement on pricing different from clause C of the contract. The buyer’s case on that had been rejected. There had also been a debate before the arbitrators as to whether there was an implied term to the same effect arising from a previous course of conduct. Whilst it would appear that there was material to support the buyer’s case (hence the reference in the award under finding 6.3 to an “agreement” and in the tribunal’s letter to an “implicit agreement”) the buyer’s case was not accepted because there was no consistent pattern. “As an example” the tribunal instanced what had happened with regard to lot 2. On both of these debates the buyer had had a full opportunity to advance its case. The tribunal did not base its decision on a case which had not been argued. On the contrary it accepted the seller’s case that the applicable pricing mechanism was that set out in clause C of the contract and rejected the buyer’s case that that mechanism had been varied.
It follows that the section 68 challenge must be dismissed.
In those circumstances it is unnecessary for me to decide whether, assuming that the tribunal had in fact held that there was an agreement implied from the parties’ conduct which had been varied, the suggested “variation”, although not formally stated as part of the seller’s case, was nevertheless “in play or …..in the arena in the proceedings” (see ABB AG v Hochtief [2006] 2 Lloyd’s Rep. 1 at paragraphs 65 and 72) or whether, assuming it was not in play so that there was a serious irregularity, it caused “substantial prejudice”. Investigation of these issues on the basis of assumed findings, which on my reading of the award the tribunal did not make, is a hypothetical exercise and is particularly difficult in circumstances where the tribunal’s finding that the invoice issued on 16 March 2009 was valid, contrary to the buyer’s case before the arbitrators, was not challenged. Moreover, the debate involved references to the transcript of the three day hearing before the tribunal to see what the evidence of witnesses and the submissions of counsel had been. I see no purpose in entering into such a debate when, on the basis of reading the award as a whole in a fair and reasonable way, it is founded upon an assumed and hypothetical finding.
The section 69 application
This application is based on two alleged errors of law.
The first is based upon the same suggestion which underlay the section 68 application, namely, that the tribunal found that the implied term arising from a previous course of conduct was varied. It was said that the finding that such term had been varied was obviously wrong. This application must fail because the suggested finding was not made by the tribunal.
The second alleged error of law is said to relate to the tribunal’s decision on termination of the contract. The content of paragraph 35 of the award (quoted earlier in this judgment) is said to contain an error of law. It was said that the suggestion in that paragraph that “it would have been logical and more prudent [for the buyer] to pay the provisional invoice, pay or receive against the final invoice and then claim for any extra charges arising” was wrong in law being inconsistent with a statement by Lord Russell in the Nanfri [1979] AC 757 at p.786. However, in circumstances where the tribunal had held (see finding 2.2) that “it is standard practice to issue a provisional invoice in this type of business……payments are later adjusted with final pricing” the comment in paragraph 35 is a very long way from being obviously wrong.
Mr. Wright accepted that paragraph 35 may not even be a finding with regard to termination and in those circumstances submitted that the award should be remitted to the tribunal pursuant to section 70 of the Arbitration Act 1996 so that it can reconsider the question whether the seller repudiated the contract. Section 70 is concerned with the need for further reasons where the award does not contain the tribunal’s reasons or they are not set out in sufficient detail to enable the court to consider an appeal. Those circumstances are not established in this case. The tribunal’s findings on repudiation and termination and its reasons for those findings are clear. In finding 6.3 the tribunal held that the buyer repudiated the contract by indicating on 28 April 2009 that it would be purchasing replacement material. (The reference to 28 April 2009 appears to have been in error because the buyer’s indication was said in the narrative of events to have been given on 29 April but it was not suggested that was of any significance.) The finding of repudiation, and the reason for it, is clear. In finding 6.4 the tribunal held that the contract terminated on 29 April. That must be a reference to the seller’s notification to the buyer on that day that the contract was terminated. The tribunal did not say what it would have decided had it accepted the buyer’s case that the price mechanism was the subject of an express agreement or an implied term arising from a course of conduct. But it did not have to do so in circumstances where it had rejected that case.
Conclusion
The challenge to the award under section 68 of the Act is dismissed. Leave to appeal the award pursuant to section 69 is refused. The request to remit the award to the tribunal for further reasons pursuant to section 70 is refused.