JSC Zestafoni G Nikoladze Ferroalloy Plant and Others v Ronly Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Colman |
| Judgment Date | 16 February 2004 |
| Neutral Citation | [2004] EWHC 245 (Comm) |
| Docket Number | Case No: 2003 Folio 528 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 16 February 2004 |
[2004] EWHC 245 (Comm)
The Honourable Mr Justice Colman
Case No: 2003 Folio 528
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
NEUTRAL CITATION NO.
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Anthony Trace QC and Mr Benjamin John (instructed by Messrs D French & Co) for the Claimant
Mr Timothy Brenton QC (instructed by Ince & Co) for the Defendant
Hearing dates: 13 January 2004
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.
Colman J.
Introduction
There is before the court an application under Section 67 of the Arbitration Act 1996 whereby the applicant ("Zestafoni Plant") invites the court to set aside an interim arbitration award by Mr Ian Kinnell Q.C. dated 12 th May 2003 on the grounds that he had no jurisdiction to make the award. He held that he did have jurisdiction by reason of an ad hoc agreement to appoint him as sole arbitrator reached between the defendant, Ronly Holdings Ltd. ("Ronly") and Zestafoni Plant and that the claims advanced by Ronly fell within the scope of that jurisdiction.
There is also before the court an application by Zestafoni Plant under section 69 of the 1996 Act, in case it is concluded that the arbitrator did have jurisdiction, for permission to appeal against so much of his award as concluded that Ronly had title to sue for the amounts claimed in its own name.
The disputes between Ronly and Zestafoni Plant relate to or arise out of an agreement dated 30 th September 1997 ("the Agreement") which was entered into by Ronly, an English company, and Fapet International Commercial Trading Inc, a British Virgin Islands Company, ("Fapet") together jointly and severally referred to as "Faronly", with Zestafoni Plant, incorporated in the Republic of Georgia and Redwater Overseas Ltd, a Republic of Ireland company, together jointly and severally, referred to in the Agreement as "Zestafoni".
Under that Agreement, which was for a period of two years, Faronly was to sell and supply to Zestafoni raw materials and electricity and Zestafoni was to sell and supply to Faronly ferroalloys manufactured at its plant in Georgia.
Under the terms of the Agreement, Faronly also made a loan of US$ 1.5 million to Zestafoni.
There was also a Law and Jurisdiction clause which provided that the Agreement should be governed by English law and that disputes should be referred to arbitration in the City of London with one arbitrator to be appointed by each of Faronly and Zestafoni and a third arbitrator by the two so appointed.
In the event, Ronly, having advanced a claim for amounts due to Faronly under the Agreement, purported to agree with Zestafoni Plant through its General Director, a Mr. Ambokadze, that the claims advanced by Ronly should be referred to Mr. Kinnell as sole arbitrator. After he had accepted his appointment and had entered on the reference and after pleadings had been exchanged Zestafoni Plant, then represented by Norton Rose, took the point that in the face of the Law and Jurisdiction clause it was not open to Ronly and Zestafoni Plant to agree between themselves to ignore that provision of the Agreement and to proceed to refer the claims to Mr. Kinnell as sole arbitrator. It was also asserted on behalf of Zestafoni Plant that Ronly had no standing to claim in its own name amounts due to Faronly under the Agreement.
Both those issues were the subject of a hearing before Mr. Kinnell and he issued an award in favour of Ronly on both issues.
Zestafoni Plant now applies to set aside that award on the three grounds that (i) by reason of the terms of the Law and Jurisdiction clause it was not open to Ronly and Zestafoni Plant alone to create a binding sole arbitrator agreement, (ii) alternatively on its proper construction the correspondence never gave rise to an agreement because Ronly and Zestafoni Plant were never ad idem and (iii) that Zestafoni Plant acted illegally under the law of Georgia in entering into such an agreement without the authorisation of the Georgian Ministry of Justice and that therefore it would be contrary to public policy for the English courts to give effect to it by giving effect to the arbitrator's award.
Before considering whether Ronly and Zestafoni Plant were ad idem and thereby entered into an agreement to refer the dispute under the Agreement to the arbitration of a sole arbitrator it is necessary to investigate what powers, if any, they had under the terms of the Agreement to enter into such an arbitration agreement and, if they had none, what was the consequence of their purporting to do so.
Structure and Effect of the 30 September 1997 Agreement
The Agreement is expressed to be made between Fapet and Ronly "jointly and severally". Those two parties are stated to be "hereinafter jointly referred to as Faronly". Redwater and Zestafoni Ferroalloy Plant ("Zestafoni Plant") are also described as contracting "jointly and severally" and both are stated to be "hereinafter referred to as 'Zestafoni". Under Clause 1, the Definition clause, by clause 1.1.4 Faronly is defined as follows:
"1.1.4 "Faronly" shall mean Fapet and Ronly, both companies jointly and severally being liable for obligations of Faronly under this Agreement. No document signed for and on behalf of Faronly under or pursuant to this Agreement shall have any legal effect unless it is signed either by Fapet and Ronly jointly or by Ronly alone. Fapet has no separate legal right of signature."
Under clause 2.1 it is provided as follows:
"2.1 Faronly shall supply and sell Raw Materials and Electricity to Zestafoni and Zestafoni Ferroalloy Plant shall produce and supply Ferroalloys to Faronly on and subject to the terms of this Agreement."
Throughout the Agreement the mutual supply obligations are expressed to be those of Faronly and Zestafoni Ferroalloy Plant respectively. There are, however, several references to "the parties". Thus, for example, if under clause 4.1 Zestafoni requires for its production process Raw Materials not referred to under clause 3 and Faronly agrees to supply such Raw Materials, the specifications, quantity and price are to be "set out in an annexure to this Agreement and signed by the Parties". Further, under clause 5.2 after the initial six month period of the Agreement and thereafter after each subsequent quarter of the Agreement "the parties are to meet and agree" upon the quantities and unit price of electricity to be supplied by Faronly to Zestafoni, the shipment schedule for Raw Materials and any additional requirements which Zestafoni may have for Raw Materials which Faronly agrees to supply. Under clause 6.1, which relates to the survey of Raw Materials, the results of the Survey as to weight by an independent surveyor "jointly appointed by the parties" (clause 1.1.8) is to be final and binding "on both parties" at the discharge port. The results of the Surveyor's analysis of the quality of Raw Materials are to be "final and binding on the Parties" (clause 6.3). The costs of the Survey are to be "for the joint account of the Parties" and to be shared equally.
Further, under clause 8 "Faronly" assumes an obligation to lend US 1.5 million to "Zestafoni" for the purpose of carrying out furnace and roof repairs at the Zestafoni Plant. The loan is expressed by clause 8.2 to be repayable by Zestafoni Ferroalloy Plant to Faronly by the delivery by the latter of three monthly shipments of Ferroalloys of a value of US$500,000 each. By clause 8.3 any unused part of the loan is to be immediately repaid to Faronly.
By clause 9.4 it is provided:
"9.4 Where the Parties agree to any variation in the specification of the said Ferroalloys an addendum detailing the said variation shall be signed by the Parties and annexed hereto."
By clause 10.2 there is a provision similar to that in clause 5.2 for the parties to meet periodically and agree the type, quantity and unit price of Ferroalloys to be supplied, the shipment schedule and the type, quantity and unit price of any additional quantities of Ferroalloys offered by Zestafoni and accepted by Faronly. Clause 10.3 provides that the terms of the Agreement reached following each meeting referred to in clause 10.2 are to be recovered in writing and attached as an annexure to the Agreement and "signed by the parties".
Clause 10.6 provides:
"It is expressly agreed that if Zestafoni fails to ship the Ferroalloys within the 45 day period after each delivery of Raw Materials and Electricity as aforesaid, then Zestafoni shall be obliged to repay immediately to Faronly any outstanding costs or expenses of Raw Materials and Electricity supplied by Faronly. Faronly shall have the right to enforce Zestafoni's payment obligations immediately.
Clause 11.5 provides:
"11.5 In the event that the Surveyor's Quality Report shows that the Ferroalloys do not fall within the specifications set out in Schedule 3 or 4 and are beyond the Rejection Limits identified therein Faronly will be entitled to reject part or all of the shipment by giving written notice to this effect to Zestafoni Ferroalloy Plant. Faronly shall thereafter be entitled to recover from Zestafoni Ferroalloy Plant their damages, costs and expenses arising from Zestafoni Ferroalloy Plant's failure to comply with the required specifications. In the event that Faronly rejects the shipment pursuant to the provisions of this Clause then the Parties shall use their best endeavours to negotiate a reduction in the unit price such as to permit Faronly to accept delivery of the shipment. Zestafoni shall always remain ultimately...
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