Cottonex Anstalt v Patriot Spinning Mills Ltd

The Claimant (“Cottonex”) appeals pursuant to s.69 of the Arbitration Act 1996 against an Award of the Technical Appeal Committee (“TAC”) of the International Cotton Association Ltd (“ICA”) dated 12 April 2013 (the “Award”).

The dispute relates to a sale contract dated 21 September 2010, pursuant to which Cottonex sold 600 mt of cotton to the Defendant CFR Chittagong, Bangladesh (the “Contract”).

The essential issue which arises on the appeal is whether the Contract incorporated, as Cottonex contends, only the ICA’s Arbitration Bylaws, or whether, as the TAC held, it incorporated all the ICA’s Bylaws and Rules.

The ICA Rules contain substantive obligations governing performance of the sale contract, including in particular an “invoicing back” provision (contained in “Rules” 225 and 226).

An “invoicing back” provision provides for a contractual method of closing out a contract, based on the market price at the date of closure, and irrespective of the issue of breach and who is to blame for its termination. Although such clauses have been the subject of some judicial criticism, they have been a feature of trade for over 100 years – see Dunavant v Olympia [2011] EWHC 2028 (Comm) at [2]-[4].

In this case, the Contract was not performed. Both parties contended that the other was in breach of the Contract but the Respondent (“Patriot”) contended that irrespective of breach, it was entitled to a payment from Cottonex pursuant to the invoicing back clause, which it argued had been incorporated into the Contract. Cottonex denied that the invoicing back clause was incorporated. The TAC found that it was incorporated, and awarded Patriot the net sum of US$720,744.74 by way of invoicing back.

Subject to arguments sought to be raised by Patriot’s Respondent’s Notice, the Contract is a two page document dated 21 September 2010 and described as “Sales Contract and Proforma Invoice Number 610011”.

The front page of the Contract contained its essential terms, such as quantity (“about 600 metric tons”), commodity (“Raw cotton”), price (“USD117.00 cents per LB”), quality, port of loading, shipment period, payment terms and that it was CFR Chittagong.

The second page was headed “General terms and conditions”, and included a number of standard provisions (such as a force majeure clause). The final clause was clause 5, which provided as follows:

“5.

Claims and controversial matters, that may occur in connection with the execution of the following contract, are to be solved by the representatives of the Buyer and Seller, having full power to act. All disputes relating to this contract will be resolved through Arbitration in accordance with the Bylaws of the International Cotton Association Limited. This agreement incorporates the Bylaws which set out the Association’s Arbitration procedure”

The ICA has “Bylaws” and “Rules”. They are contained in its “Rule Book” which is headed “Bylaws and Rules of The International Cotton Association Limited”.

The Bylaws and Rules are set out in four Sections as follows:

Only Section 2 therefore contains ICA Rules. Sections 1, 3 and 4 consist exclusively of Bylaws. Section 3 contains the Bylaws on arbitration.

The Bylaws and Rules therefore generally have a different subject matter, although both are contained in Section 2. A further difference is that parties cannot derogate from Bylaws, but can derogate from the Rules (Bylaw 102).

The TAC’s reasons for deciding that the Rules were incorporated were as follows:

“As to ICA Bylaws and Rules

1.

The TAC studied Bylaw 201, which is the first step in the Arbitration procedure, which states:

Subject to Bylaws 302 and 318, the following clauses will apply to every contract made under our Bylaws and Rules, or containing words to similar effect:

•

The contract will incorporate the Bylaws and Rules of The International Cotton Association Limited as they were when the contract was agreed.

•

If any contract has not been or will not be performed, it will not be as cancelled. It will be closed by being invoiced back to the seller under our Rules in force at the date of the contract.

•

All disputes relating to the contract will be resolved through arbitration in accordance with the Bylaws of The International Cotton Association Limited. This agreement incorporates the Bylaws which set out the Association’s arbitration procedure; and

•

Neither party will take legal action over a dispute suitable for arbitration, other than to obtain security for any claim, unless they have first obtained an arbitration award from the International Cotton Association Limited and exhausted all means of appeal allowed by the Association’s Bylaws.

Clause 5 of the contract in question, contains a copy of bullet point 3 above, and as such adding emphasis to this Bylaw, but not excluding the introductorily sentence covering all 4 bullet point that:

“the following clause will apply to every contract made under out Bylaws and Rules”

Furthermore we cite Bylaw 102 inter alia:-

If a contract is made under our Bylaws and Rules:

•

all of the Bylaws in this book will apply to the contract and no amendment by the buyer and seller is allowed;

This indicates that neither party may alter in any way what is contained in the ICA Bylaws.

Clause 5 of the contract therefore cannot overrule the Bylaws. We therefore reason and find that the contact is subject to the Bylaws and Rules of the ICA.”

In summary, the TAC’s reasoning would appear to be as follows:

The question of law for which permission to appeal was given was:

“Whether a clause in a contract for the sale of raw cotton which provides that. ‘All disputes relating to this contract will be resolved through Arbitration in accordance with the Bylaws of the International Cotton Association Limited. This agreement incorporates the Bylaws which set out the Association’s arbitration procedure’ incorporates the Rules of the International Cotton Association relating to contract closure and ‘invoicing back’ (viz. Rules 225 and 226.)”

Patriot submits that this is an inapt question of law since the answer must depend on the other terms of the contract: no clause can be construed in isolation. As such, it could only be answered: “Maybe; it depends on a proper construction of the particular contract as a whole.”Patriot further submits that permission to amend the question should not be given, nor should any requisite extension of time be granted.

I agree with Patriot that the question could be better expressed, although I do not accept that it could not be answered. The question should be related to the actual contract made rather than to a clause in a contract. It would be more satisfactory if it read:

“Whether the clause in the contract for the sale of raw cotton which provided that, ‘All disputes relating to this contract will be resolved through Arbitration in accordance with the Bylaws of the International Cotton Association Limited. This agreement incorporates the Bylaws which set out the Association’s arbitration procedure’ incorporates the Rules of the International Cotton Association relating to contract closure and ‘invoicing back’ (viz. Rules 225 and 226).”

I do not consider that these minor amendments fall outside the existing permission given. The substance of the question is the same. Although the question was framed in abstract terms, permission was obviously being given in relation to how that question is to be answered in relation to the contract under appeal.

It is quite common for minor refinements to the question of law to be made at the appeal stage in the light of fuller argument and, on occasion, the court’s own views. Provided the substance of the question of law remains the same I do not consider that further permission is required for such amendments. As Eder J put it in The “Mahakam” [2011] EWHC 2917 (Comm.) at [15], it is sufficient if it falls within “the spirit if not the letter of the leave granted”.

If that is wrong and further permission is required to amend the question then I grant it. It was submitted that Patriot had been prejudiced because if the question had been properly framed at the time of the permission application that might have affected the grant of permission and/or Patriot’s response to that application. However, I do not consider that this minor change in the terminology of the question would have made any difference to the grant of permission. Permission was granted in light of the fact that Burton J had given permission in another case on the same incorporation issue. It was not suggested that the question of law raised was one of general importance so that the general terms in which the question was expressed cannot have had any impact in that respect. Nor do I consider that it would have made any difference to Patriot’s response. Patriot did not have legal representation at the time and its response involved a re-iteration of the correctness of the Award. Any suggestion that it was or would have been influenced by the niceties of precisely how the question of law was framed is unreal.

If further permission is required, and if that means that an extension of the time limits for the application for permission is also required, then I grant such extension given in particular the minor nature of the amendment required, the lack of any prejudice to Patriot, and the very real prejudice to Cottonex if its appeal was shut out.

On 23 January 2014, Patriot served a Respondent’s Notice, seeking to raise three new arguments as to how the invoicing back provisions were incorporated. Patriot relies on three documents which pre-dated the signed written contract, a “sales confirmation” and two “indents”, dated 18 September 2010, signed by local agents of Cottonex. It is said that these documents make it clear that the parties intended the invoicing back provisions were to be incorporated, and that these documents (1) formed part of the Contract, or (2) were incorporated by reference into the Contract, or (3) were part of the relevant factual matrix against which the Contract must be construed.

None of these arguments had been raised before. They were not raised before the First Tier tribunal. They were not raised before the TAC. They were not raised in Patriot’s skeleton opposing permission to appeal. Cottonex submits that they raise questions of fact which cannot and should not be resolved by the court and that it is far too late to raise them now.

The Arbitration appeal Practice Direction (PD62 12) clearly circumscribes the documents which are admissible for the purpose of permission to appeal and appeal. In relation to permission to appeal PD62 12.5 provides that:

“12.5

Unless there is a dispute whether the question raised by the appeal is one which the tribunal was asked to determine, no arbitration documents may be put before the court other than –

(1)

the award; and

(2)

any document (such as the contract or the relevant parts thereof) which is referred to in the award and which the court needs to read to determine a question of law arising out of the award.

In this Practice Direction “arbitration documents” means documents adduced in or produced for the purposes of the arbitration.”

In relation to the appeal itself PD62 12.15 provides that:

“12.15

The bundle for the hearing of any appeal should contain only the claim form, the respondent’s notice, the arbitration documents referred to in paragraph 12.5, the order granting permission to appeal and the skeleton arguments.

Aside from the award itself the only admissible documents are therefore documents which are referred to in the award and which the court needs to read to determine a question of law arising out of the award – see The “Sylvia” [2010] 2 Lloyd’s Rep 81 at [86-88]; Dolphin Tanker Srl v Westport Petroleum Inc [2011] 1 Lloyd’s Rep 550 at [23-30].

The documents now sought to be relied upon are not referred to in the substantive part of the Award and were not relied upon by Patriot before the TAC. They were not necessary for the TAC to determine the question which it did, nor was it so suggested. They are equally not necessary for the court to determine the question of law raised on appeal from the Award.

Patriot submits that there is no prohibition in PD62 12.6 as to the documents which the respondent may rely upon and that this may include any documents which were before the tribunal. I reject that submission.

PD12.5 is clear that the only arbitration documents which may be put before the court at the permission stage are those set out therein. That applies to both the applicant and the respondent.

PD12.15 is equally clear that those are also the only arbitration documents which may be put before the court on an appeal. That applies to both the appellant and the respondent.

Appeals are concerned with questions of law “arising out of an award”. Such appeals have to be argued on the basis of the award itself and the findings made therein. There is a limited exception for incorporated documents which are necessary to determine the question of law, such as the contract under appeal. Unless the court rules otherwise at the time of the permission application (see PD62 12.10), there is no justification for putting before the court documents other than those referred to in PD62 12.5(2).

It follows that the documents upon which Patriot wishes to rely are not admissible on the appeal. There are no findings in the award which enable the arguments raised to be run. These arguments are therefore not open to them. There is nothing surprising or unjust about that given that the arguments were not raised at either level of arbitration, or at any time before last week.

Even if Patriot was entitled to refer to these additional documents I do not consider that the arguments which they wish to raise are open to them.

In CTI v Transclear [2007] EWHC 2340 (Comm), Field J stated at [13] that where a respondent seeks to uphold an award on grounds not expressed in the award, those grounds must be based on a point or points of law. As Eder J observed in The “Mahakam” at [18], there may in addition be cases where “a respondent wishes to say that a particular fact finding contained in an award is of itself sufficient to persuade the Court to uphold the award regardless of the point of law sought to be raised on appeal by the applicant”. What, however, is generally impermissible is to raise a new point of law which requires consideration of factual materials and in relation to which material findings might have been sought and made had the point been raised at the arbitration. Both the appellant and the respondent are confined to the findings made in the award. The respondent can argue new points of law based on those findings. If, however, the failure to argue the point which the respondent wishes to raise has the result that not all potentially relevant findings have been made then it should not be open to it.

In the present case the Contract as found by the TAC was that as found in the First Tier award. That was the Contract dated 21 September 2010 (no.610011) the terms of which were set out in full in the First Tier award.

It was not contended before the First Tier tribunal or the TAC that the Contract was to be found in any other document (aside from such parts of the Rules Book as may have been incorporated). It is not now open to Patriot to contend that the Contract is not as found by the TAC and is in fact to be partly found in some other document. That is not merely seeking a further finding, it is seeking to go behind a finding already made.

The argument that the sales confirmation was incorporated by reference is also not open to Patriot. There are no findings to that effect. Had that argument been raised at the arbitration there are a number of factual issues which would have arisen and relevant findings which might have been made in relation, for example, to the status and authority of the agents who signed the confirmation; what the confirmation was meant to represent; whether it amounts to an “agreement”; what happened between 18 and 21 September 2010; whether the confirmation was seen by Cottonex etc.

For similar reasons it is not now open to Patriot to contend that the sales confirmation and indents form part of the factual matrix. There are no findings to that effect. In addition to the factual questions outlined above, this argument also raises questions as to the status, role, use of those documents; their relationship to each other and to the sales contract itself; the conduct of the parties’ negotiations; whether these are negotiation documents etc.

For all these reasons Patriot’s new arguments are not open to it even if it was entitled to rely on the further documents, which it is not.

If a respondent wishes to contend that the award should be upheld on other grounds, it should do so at the permission to appeal stage, as required by PD62 12.6. It is important that this is done so as to ensure that decisions on permission to appeal are made on an informed basis - Acada Chemicals v Empresa [1994] 1 Lloyd’s Rep 428 at 432. Whilst the Court does have jurisdiction to permit grounds to be raised later, “appropriate cases are likely to be rare” (per Judge Havelock-Allan in The Intan 6 [2003] 2 Lloyd’s Rep 700 at 708).

In the present case permission should not be granted because the notice relies on inadmissible documents and inadmissible arguments. In any event, this is not one of those rare cases in which further grounds raised after the permission stage should be permitted. The notice is very late, being seven months after the PD62 12.6 deadline and no adequate explanation for such delay has been provided. The only explanation for their late emergence is a last minute decision to instruct lawyers, but that is not a satisfactory explanation for a delay of this magnitude.

A question of construction of a contract is a question of law.

This has long been established as a matter of English law, as Lord Diplock explained in The “Nema” [1982] AC 724 at 736, and “it is far too late to change”.

Although the factual background or matrix may mean that there are matters of fact which are relevant to the proper construction of a contract, they do not alter the legal nature or characterisation of the exercise.

In the present case Patriot submits that where a question of construction is fact dependent it is, or is the equivalent of, a mixed question of fact and law.

In relation to mixed questions of fact and law it is well established that on an arbitration appeal the court should only interfere with the conclusion reached if no reasonable person, applying the correct legal test, could have reached that conclusion – a “heavy” burden of persuasion - see, for example, The “Sylvia” at [54-55].

If that is the approach to be adopted on appeals and applications for permission to appeal on issues of construction then it would be likely to make successful applications/appeals far more difficult than they already are.

Possible support for Patriot’s argument is to be found in Merkin on Arbitration Law at 21.7.1 in which it is stated that mixed questions of fact and law include “the proper construction of a contractual document in its factual matrix”. However, the cases referred to in the applicable footnote, whilst recognising the relevance of the factual matrix, do not decide that construction is a mixed question of fact and law. Further, earlier in the same paragraph it is stated that matters which are “plainly of law” include “the meaning of words in a contract”.

I accept that before deciding that a tribunal has come to wrong conclusion on an issue of construction deference may need to be given to the tribunal’s commercial or trade experience, and the advantages that may give in understanding the relevant factual background. As stated by Jackson J in Kershaw Mechanical Services Limited v Kendrick Construction Limited [2006] 4 All ER 79 at [57], after a consideration of the most relevant authorities:

“1.

The court should read an arbitral award as a whole in a fair and reasonable way. The court should not engage in minute textual analysis.

2.

Where the arbitrator's experience assists him in determining a question of law, such as the interpretation of contractual documents or correspondence passing between members of his own trade or industry, the court will accord some deference to the arbitrator's decision on that question. The court will only reverse that decision if it is satisfied that the arbitrator, despite the benefit of his relevant experience, has come to the wrong answer.”

The degree of deference to be so accorded will depend on the circumstances of the particular case and the extent to which commercial or trade experience, and the advantages that may give in understanding the relevant factual background, have assisted the tribunal in reaching its conclusion. However, since the issue is one of law, in the final analysis the tribunal’s decision is either right or wrong as a matter of law.

As is now commonplace, I was referred in relation to the issue of construction to the guidance provided by the Supreme Court in Rainy Sky SA v. Kookmin Bank [2011] 1 WLR 2900.

As is now equally commonplace, both sides contended that their interpretation of the contract made more business common sense and should therefore be preferred – “where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense” – per Lord Clarke at [30].

The assumption underlying the argument made in this and, in my experience, many other cases is that the interpretation which makes most business common sense is to be preferred. However, this is an oversimplification.

First, the approach of adopting “the interpretation which is most consistent with business common sense” only applies where the court considers that the words in issue have “more than one potential meaning” – per Lord Clarke at [21]. If the court concludes that the words are only capable of one meaning then that is their meaning regardless of considerations of business common sense.

Secondly, where the words in issue have more than one potential meaning there is no rule of law or construction which requires the court to give effect to the interpretation which is most consistent with business common sense. It is “entitled” to prefer that interpretation (per Lord Clarke at [21]) and it may be “generally appropriate” to do so (per Lord Clarke at [30]), but it is not bound so to do. The more ambiguous the meaning and the stronger the business common sense arguments the more likely it is to be appropriate to do so.

Thirdly, it will only be appropriate to give effect to the interpretation which is most consistent with business common sense where that can be ascertained by the court. In many cases that is only likely to be so where it is clear to the court that one interpretation makes more business common sense. If, as frequently happens, there are arguments either way the court is unlikely to be able to conclude with confidence that there is an interpretation which makes more business common sense. It is often difficult for a court of law to make nice judgments as to where business common sense lies.

The importance of the court being able to ascertain which interpretation makes more business common sense and, where it can, that there is no “overriding criterion of construction” that that interpretation is to be preferred was emphasised by Aikens LJ in BMA Special Opportunity Hub Fund Ltd & Ors v African Minerals Finance Ltd.[2013] EWCA Civ 416 at [24]:

“There has been considerable judicial exposition of these principles by the House of Lords and the Supreme Court in recent years [Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; Re Sigma Finance Corp [2010] 1 All ER 571 and Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900] There is no point in my going over the same ground again at any length. The court’s job is to discern the intention of the parties, objectively speaking, from the words used in the commercial document, in the relevant context and against the factual background in which the document was created. The starting point is the wording of the document itself and the principle that the commercial parties who agreed the wording intended the words used to mean what they say in setting out the parties’ respective rights and obligations. If there are two possible constructions of the document a court is entitled to prefer the construction which is more consistent with “business common sense,” if that can be ascertained. However, I would agree with the statements of Briggs J, in Jackson v Dear[2012] EWHC 2060 at [40] first, that “commercial common sense” is not to be elevated to an overriding criterion of construction and, secondly, that the parties should not be subjected to “…the individual judge’s own notions of what might have been the sensible solution to the parties’ conundrum”. I would add, still less should the issue of construction be determined by what seems like “commercial common sense” from the point of view of one of the parties to the contract.”

With the above principles in mind I shall now address the issue of construction which arises in this case, as set out in the amended question of law.

The starting point in relation to an issue of contractual incorporation is the incorporating words used in the “host” contract. In this case those words are:

“…This agreement incorporates the Bylaws which set out the Association’s Arbitration procedure.”

The incorporating provision accordingly only refers to Bylaws, and, moreover, Bylaws which set out the ICA’s arbitration procedure.

There is no difficulty in identifying such Bylaws. There is a separate section in the ICA “Rule Book” which contains Bylaws which deals with Arbitration and which set outs the applicable procedure (“Section 3”).

Section 3 is a self-contained set of provisions. The operation of Bylaws 300-361 is not dependent in any way on the operation of the other ICA Bylaws or Rules.

Further, the incorporating words appear within an arbitration clause. In that context the incorporation of provisions dealing with arbitration makes obvious sense. By contrast, it would be unusual to incorporate a set of rules containing important and governing substantive obligations as part of an arbitration clause.

The TAC’s reasons do not address the incorporating words of the “host” contract. Instead, they proceed as the “first step” to consider the wording of the Rules alleged to be incorporated. This is a wrong approach in law and involves assuming what has to be proved. As Rix LJ stated in Tradigrain S.A. v. King Diamond Shipping SA [2000] 2 Lloyd’s Rep. 319 at [78]:

“[t]he first rule relating to the incorporation of one document’s terms into another is to construe the incorporating clause in order to decide on the width of the incorporation".

The circular nature of the TAC’s reasoning is borne out by the wording of Bylaw 201 upon which it erroneously relied as the “first step”. Bylaw 201 is contained in Section 2, the section concerned with “trading terms”. The Bylaw states that “the following clauses will apply to every contract made under our Bylaws and Rules”. However, for that to be relied upon it must first be shown that the relevant contract was made “under” the ICA “Bylaws and Rules”. In this case the incorporating words show that the Contract was made “under” the Arbitration Bylaws, but not “under” the ICA Bylaws generally, still less its “Bylaws and Rules”. The TAC appeared to have assumed that this Bylaw applied unless it was excluded by the Contract. But unless the Contract incorporates Bylaw 201 there is no basis for its application, nor reason for its exclusion.

The same objection arises in relation to the TAC’s reliance on Bylaw 102 as showing that parties cannot contract out of the Bylaws. Bylaw 102 provides that that “if a contract is made under our Bylaws and Rules: … all of the Bylaws in this book will apply to the contract and no amendment by the buyer and seller is allowed”. For this to be relied upon it must first be shown that the parties have contracted into Bylaw 102 and that the contract was indeed made “under” the ICA’s “Bylaws and Rules”.

Patriot accepts that the correct starting-point must be the Contract, not the Bylaws and Rules themselves and that to the extent that the TAC’s’ starting point was the Bylaws and Rules, that was not the right approach.

It nevertheless submits that the reference to “Bylaws” in clause 5 is a short-hand for the Bylaws and Rules as a whole. In particular:

However, the reference to Bylaws in clause 5 is not a generalised reference to the Bylaws, still less to the Bylaws and Rules. It is specifically a reference to the Arbitration Bylaws. In any event, as to (i), the parties have stated in clear and specific terms that only part of the Bylaws and the Rule Book was to be incorporated. As to (ii), the Rule Book does differentiate between Bylaws and Rules. Only Bylaws are contained in Sections 1, 3 and 4 and whilst one cannot contract out of Bylaws, one can contract out of most Rules. As to (iii), the Rule Book may well be designed so as to apply to a contract which is subject to both Bylaws and Rules, but that does not mean that a contract cannot be made subject to some Bylaws or Rules only. In the present case the contract is perfectly workable on the basis that only the Arbitration Bylaws apply.

In relation to business common sense, Patriot contends that:

As to (i), I accept that it makes good sense to have an arbitral tribunal applying its own substantive rules. However, parties may simply wish to rely on the tribunal’s experience of cotton and the cotton trade. There is no necessity for them also to rely on its familiarity with ICA Rules.

As to (ii), whilst the Contract would have more content if all the ICA Rules were incorporated, it is perfectly workable without them. The Contract contains all essential terms. It also contains “General Terms and Conditions” and incorporates “Incoterms 2000”.

I do not therefore consider that this is a case where it has been shown that one interpretation makes more business common sense than the other. Further, even if Patriot’s interpretation makes more commercial sense the difference is marginal and it is not sufficient to mean that it would be appropriate to prefer that interpretation given that there is little, if any, ambiguity about the words used.

For all these reasons I have reached the clear conclusion that the TAC’s conclusion is wrong in law. In reaching that conclusion I have paid deference to the TAC’s commercial and trade experience, but the reasons they gave were not expressly so based. Those reasons were based on the wording of the Bylaws and did not address the incorporating words in the Contract itself.

For completeness, I would add that even if I had had regard to the arguments raised by the Respondent’s Notice they would not have affected my conclusion. I agree with Cottonex that clause 4.6 of the Contract is a form of entire agreement clause which excludes reliance on prior statements or agreements. I also agree with Cottonex that clause 1, which Patriot relies upon, was not intended to incorporate extrinsic terms by reference, but merely to confirm that the written Contract contained the terms agreed.

It follows that the question of law is to be answered in the negative.

Cottonex submits that if the Court decides that the invoicing back provisions were not incorporated into the Contract, it should make an order that the Award be set aside, and declare that Patriot’s claim based on invoicing back is dismissed.

Patriot submits that the appropriate course is to remit the Award back to the TAC, in the light of the Court’s answer to the question on invoicing back, in order that the TAC can consider further the question of breach and whether, if there has been a breach, Patriot is entitled to any remedy.

Cottonex opposes this on basis that an alternative clam for market damages has never been put forward and that there is therefore no claim for the TAC to consider further. If Patriot wishes to commence fresh arbitration proceedings to claim traditional market damages, or seek to amend its claim to claim traditional market damages, then it can try to do so, and Cottonex will take any points available to it (including arguments based on abuse of process and Henderson v Henderson).

The procedural position is not entirely clear and the position is made more opaque by reason of the fact that Patriot was not legally represented and the relatively informal nature of the procedure adopted.

In summary, it would appear that the original claim put forward by Patriot by letter to its arbitrator alleged that Cottonex “did not ship the consignment showing many vague causes” but did not specify any monetary claim. However, Patriot had apparently previously issued an invoice to Cottonex for USD800, 269.90 on the basis of the ICA invoicing back provisions.

In its Response Cottonex denied that it was in breach and alleged that it was Patriot which was in breach of the Contract. It further stated as follows:

“Patriot not entitled to the damages

No sums are, or can be due, to Patriot by Cottonex in this case. This is because (i) Cottonex is the innocent party and Patriot is the defaulting party and damages can only be awarded to an innocent party and (ii) the invoicing back provisions under the ICA Byelaws do not apply in this contract.”

In its Reply Patriot asserted that it was Cottonex rather than Patriot which was in breach. Its monetary claim was based on earlier debit notes that would appear to have relied on the invoicing back provisions.

The First Tier arbitrators upheld Patriot’s invoicing back claim so that it did not need to consider whether any alternative claim was being advanced. It did, however, find that Cottonex was in breach of the Contract.

Cottonex appealed that decision to the TAC. The TAC upheld Patriot’s invoicing back claim, albeit in a lesser amount. It too did not therefore need to consider whether any alternative claim was advanced. It made no findings of breach, nor did it need to do so for the purpose of the invoicing back claim.

In the above rather unclear circumstances, I consider that the appropriate course to take is to remit the matter to the TAC to determine whether an alternative claim for damages for breach was before it. If it was, then it should determine that claim. If it was not, then that is the end of the matter as far as this arbitration is concerned.

As matters stand the TAC is functus officio. It retains jurisdiction only to the extent covered by any remission. If there is to be a new claim it would therefore need to be in a further arbitration. It should only determine Patriot’s alleged damages claim if satisfied that such a claim is within the existing arbitration reference/appeal.

The question of law will be answered in the negative, the appeal will be allowed and the Award will be remitted to the TAC on the terms indicated.