Emirates Trading Agency Llc v Sociedade de Fomento Industrial Private Ltd

Hearing dates: 27, 28, 29 April 2015

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Introduction

This is primarily an application under section 67 of the Arbitration Act 1996 ("the Act"), seeking to set aside a final merits award of an ICC Tribunal dated 2 September 2014 on the grounds of lack of jurisdiction. There is also an application under section 68 of the Act.

Under a long term contract dated 23 November 2006 ("the LTC") between the Claimant ("ETA") agreed to purchase from the Defendant ("SFI") 500,000 mt of 58% iron ore fines per annum for 5 years, 10% more or less in SFI's option. The cargo was to be delivered FOB at Indian ports, with detailed provisions in Annexure 2 for agreeing shipment schedules and vessel nominations. The LTC, as amended, provided for lifting of a minimum of 50,000 metric tonnes per month except for the monsoon months of June to September, and for liquidated damages of US$ 10 per wet metric tonne ("wmt") to be payable in the event of failure to lift the contractual quantity. In the event of failure to lift the minimum quantity, ETA had the option to carry forward up to 100,000 mt into the next shipping year. ETA was not the end user of the iron ore and did not intend to take physical delivery itself. It entered into the LTC with a view to fulfilling sales to Chinese buyers for physical delivery there.

The LTC was governed by English law. Clauses 10 and 11 of the LTC, as amended, provided as follows:

"10 TERMINATION AND CONSEQUENCES OF TERMINATION"

Any Party may without prejudice to any claim for any antecedent breach, be entitled at its option, on the happening of any of the following events to terminate this Agreement:

a) By delivering a written notice to the other Party, if the other Party becomes or is declared bankrupt or goes into voluntary or compulsory liquidation ……; or

b) by delivering a written notice to the other Party if any distress or attachment is levied, or any receiver or administrator is appointed in respect of the business or a substantial part of the property or assets of the other Party ……………..; or

c) by delivering a written notice to the other Party if there is a government expropriation, nationalisation or condemnation of all or a substantial part of the assets or capital stock of the other Party………..; or

d) the other Party commits any substantial breach of this LTC.

In case of a breach mentioned in 10 (d) above, if such breach is not caused by an event of Force Majeure, the Parties shall seek to resolve any dispute or claim arising out of or under this LTC by friendly discussion. Any Party may notify the other Party of its desire to enter into consultation to resolve a dispute or claim. If no solution can be arrived in between the parties for a continuous period of three (3) months, then the non-defaulting Party can invoke the arbitration clause and the defaulting Party shall be liable to pay liquidated damages at the rate of USD ten (10) per wet metric tonne of the Cargo that remained to be supplied/taken delivery of for the balance of the Term of the LTC if it had been performed in full. The Parties hereby agree that the sum of USD 10 per wet metric tonne is a genuine pre-estimate of the damages which would be suffered in case of default.

Provided however that for the purpose of this Clause, the Seller shall not be considered in substantial breach of this LTC in the event it does not carry out its obligations required to be carried out at the relevant time under this LTC if the Buyer fails to comply with its duty under Annexure 2 in agreeing upon the schedule of shipment as proposed by the Seller.

Termination of this LTC shall not relieve any Party of any obligation or liability, under this Contract.

11. ARBITRATION

11.1 All disputes arising out of or in connection with this LTC shall be finally resolved by arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce (ICC). The place of arbitration shall be in London (UK). The arbitration shall be conducted in the English language.

11.2 The arbitration shall be referred to a tribunal of three (3) arbitrators who shall be appointed by the ICC. Any Award of a majority of the arbitrators shall be final binding upon the parties thereto, and may be entered for enforcement in any court having jurisdiction."

In the first shipment year (23 November 2006 to 22 November 2007), SFI exercised its 10% option to ship 450,000 mt. ETA lifted only 368,200 mt, leaving a shortfall of 81,800 mt which was carried forward into the next shipment year.

In the second shipment year (2007/8) SFI again exercised its 10% option for shipment of 450,000 mt. Of the 531,800 mt required to be lifted in this shipment year, ETA lifted only 350,145 mt leaving a shortfall of 181,655 mt.

As a result of the global economic situation and the refusal of its Chinese buyers to continue to take cargoes, ETA failed to lift any further quantities under the LTC after May 2008.

On 7 November 2009, some 18 months after ETA had lifted the last shipment, SFI served a Notice of termination terminating the contract on the grounds that ETA's failure to lift cargo was a repudiatory and/or renunciatory breach, alternatively a substantial breach giving rise to the contractual right to terminate pursuant to clause 10(d). The Notice of Termination included a claim for US$17,816,550 comprising (a) liquidated damages for short lifting which had taken place in the second and third shipment years and (b) liquidated damages in relation to the quantities remaining to be shipped in the unexpired term of the LTC in the fourth and fifth shipment years.

On 15 June 2010 SFI commenced arbitration by filing a Request for Arbitration with the ICC. It took a little while to constitute the tribunal, ETA having failed to nominate an arbitrator. On 13 January 2011 the Tribunal was constituted with Mr Douglas as chairman and Mr Males QC (as he then was), and Dr Al Owais as co-arbitrators. As a result of SFI instructing counsel from the same barristers' chambers as that in which Mr Douglas practised, he resigned and was replaced as chairman on 21 April 2011 by Mr Jagusch.

By a letter of 16 May 2011 ETA objected to the jurisdiction of the Tribunal, and on 10 August 2011 served written submissions in support of the objection. In summary, ETA argued that SFI had failed to comply with the requirement to undertake friendly discussions for a continuous period of 3 months which was a condition precedent to the right to commence arbitration proceedings, and accordingly that the Tribunal lacked jurisdiction.

The Tribunal heard evidence and received written and oral representations from the parties' legal advisors. On 21 December 2011 it issued a Partial Final Award pursuant to s. 47 of the Act determining that it had jurisdiction ("the Jurisdiction Award"). The relevant findings were set out in paragraphs 7.2 to 7.8 in the following terms:

"7.2 The LTC was entered into on or about 23 November 2006 and SFI purported to terminate it by letter dated 7 November 2009.

7.3 Meetings and various discussions occurred between the parties both before and after the Notice of Termination, including 1 and 2 December 2009. The existence of such discussions is evidenced generally by ETA's letter dated 16 January 2010 and more specifically by Respondent's email dated 6 December 2009, where Respondent provided its draft minutes of the meetings, and also Claimant's reply to Respondent's letter dated 16 January 2010, Furthermore, during oral testimony, the existence of, and its attendance at, the December meetings was confirmed by ETA. Testimony given by Mr Mubarak Hussain, ETA's witness, admits that the purpose of the discussions was to find an "alternative solution which avoided arbitration".

7.4 Following these meetings, the Parties understood that the next step in the discussions would be for ETA to make a proposal concerning settlement of the claim. ETA failed to make any such proposal, save for a repeat of its suggestion that the LTC be reinstated, which SFI had already indicated was unacceptable.

7.5 Despite SFI making it expressly clear to ETA that it was willing to consider "any concrete payment schedule" in respect of the claim, no settlement was achieved.

7.6 Thus, the contemporaneous documentary record is supported by the oral testimony which establishes (in contrast with the position as it appeared from the witness statements) that:

(a) the Parties did have discussions about the claim, those discussions taking place (at least) at meetings on 1 and 2 December 2009,

(b) all discussions were "friendly";

(c) prior to 7 November 2009 the claim which was discussed at meetings, over the phone, and through written correspondence, was SFI's claim resulting from what it alleged to be ETA's failure to perform its obligations under the LTC and which led to the Notice of Termination. After 7 November 2009 the claim discussed was SFI's claim set out in the Notice of Termination. In these later discussions the parties considered a possible settlement of that claim by means of reinstatement of the LTC, but did not reach any agreement;

(d) it was ETA that requested the meetings which took...