Margulead Ltd v Exide Technologies
| Jurisdiction | England & Wales |
| Judge | The Hon Mr Justice Colman |
| Judgment Date | 06 May 2004 |
| Neutral Citation | [2004] EWHC 1019 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2003 FOLIO 732 |
| Date | 06 May 2004 |
[2004] EWHC 1019 (Comm)
The Honourable Colman J.
Case No: 2003 FOLIO 732
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Jonathan Crystal (instructed by Stock Fraser Cukier) for the Claimant
Mr Toby Landau and Mr Richard East (solicitor advocate) (instructed by Kirkland & Ellis International) for the Respondent
Hearing dates: 16 February 2004
APPROVED REASONS FOR JUDGMENT
Introduction
This is an arbitration application under section 68 of the Arbitration Act 1996 ("the 1996 Act") to challenge an international arbitration award dated 7 May 2003. As originally formulated, these proceedings also challenged the arbitrator's Correction Award dated 26 June 2003, but Mr Crystal indicated in the course of the hearing that this was not advanced as an independent point. Margulead's claim in the arbitration failed, as did Exide's counterclaim.
Two grounds are relied upon by the Claimant. First, it is said that contrary to section 68(2)(a) of the 1996 Act, the sole arbitrator failed to permit Mr Daly, counsel for Margulead to reply orally to closing submissions by counsel for the Respondent ("Exide"). Secondly, it is submitted that contrary to Section 68(2)(d) in preparing his Final Award the arbitrator failed to consider or even refer to an argument advanced by Margulead that Exide had affirmed the contract in dispute and therefore could not rely on the allegation that the contract had been entered into by mutual mistake. I refer to these two grounds as "the Reply Point" and "the Affirmation Point" respectively. It is submitted that on both of those grounds there was serious irregularity which caused substantial injustice to Margulead. However, it is quite rightly accepted on behalf of Margulead that if there were no serious irregularity in respect of the Reply Point it could not establish that there had been substantial injustice caused by serious irregularity in relation to the Affirmation Point. Consequently, in order to succeed on this application, Margulead must establish that there was serious irregularity in relation to the Reply Point which caused substantial injustice before it can establish that there has been substantial injustice caused by either Point.
The Issues in the Arbitration
Margulead is an Israeli company which specialises in lead extraction. Exide, incorporated in Delaware, USA, is a leading manufacturer, supplier and recycler of lead-acid batteries. Margulead developed what it claimed to be a new method of extracting lead from batteries but it needed the technology to be proved in a large scale extraction plant. On 13 June 1967 it entered into an agreement with Exide under which the latter agreed to build a pilot plant for this purpose which was to be completed by 28 October 1998. Exide never commenced construction of the pilot. It asserted that there was no reasonable prospect of the process designed by Margulead ever being capable of achieving the criteria as to cost effectiveness laid down in the agreement. Exide terminated the agreement on 28 August 1998.
The agreement was expressly governed by the laws of "the United States" which was treated by both parties as incorporating the Law of the State of Georgia.
The agreement incorporated the following arbitration clause:
"8.3 Arbitration. Any dispute arising from or relating to this Agreement or the parties' performance thereunder shall be submitted to binding arbitration. The Arbitration shall be held in London, United Kingdom, in accordance with the rules of the United Nations Commission on International Law ("UNCITRAL") with the London Court of International Arbitration as appointing authority. The arbitration shall be conducted in English by a sole arbitrator, appointed by the London Court of International Arbitration. The parties shall request that the arbitrator's award be reasoned and in writing. The costs of the arbitration (but not expert's or attorney's fees) shall be borne one-half by Margulead and one-half by GNB. The parties agree that the decision of the arbitrator shall be final and non-appealable, provided that the party prevailing in the arbitration shall be permitted to initiate and prosecute judicial proceedings to enforce the award of the arbitrator. Each of the parties hereby agrees that it shall submit to the jurisdiction of any court in which such judicial enforcement proceedings are brought."
Margulead claimed that Exide had wrongfully repudiated the agreement and applied to the LCIA for the appointment of an arbitrator. On 13 May 2002 Mr Paul Hannon, an experienced international arbitrator, was appointed sole arbitrator. By agreement the proceedings were conducted in accordance with the International Bar Association Rules on the Taking of Evidence in International Commercial Arbitration. Both parties were throughout represented by Counsel.
By its Amended statement of claim of 4 March 2003 Margulead alleged that Exide acted in bad faith in rejecting the new processes without any sufficient explanation. Exide was in breach of contract in failing to build the plant. Margulead had thereby lost the opportunity of having the process proved and it claimed damages totalling $13 million including the cost of employing a substitute testing organisation.
Exide alleged that the agreement was induced by negligent misrepresentations to the effect that the process was developed and effective to achieve the criteria in the agreement. Therefore, Exide was entitled to rescind the agreement. Secondly, it was alleged that Margulead had failed to provide Exide with certain information under Article 1.3 to the effect that Exide's obligation to construct the plant was suspended. Thirdly, there was an implied condition that Margulead's process was capable of meeting the contractual criteria and Margulead was in repudiatory breach of this term with the result that Exide was entitled to and did accept such breach as terminating the agreement.
By written memorials exchanged in March 2003, a few days before the hearing before the arbitrator, the parties put forward the submissions on which the hearing was conducted. Exide repeated in substance what had already been alleged in its defence but added additional alternative points, including that if neither party was at fault in relation to performance of the agreement, there had been a mutual mistake of fact in entering into the agreement, the mistake being the shared belief that Margulead's technology was capable of supporting a pilot plant with an output of 10 mt per day.
The hearing took place in Chicago over four days on 25 to 28 March 2003. Following oral openings of about one hour each, first on behalf of Exide and then on behalf of Margulead, evidence was called. Then at the end of the third day's hearing after the conclusion of the evidence, the arbitrator directed that on the fourth day the hearing should consist of a final speech of one hour by counsel for Margulead (Mr Daly) followed by a final speech of one hour by counsel for Exide (Mr Haubold) and thereafter what he called a "colloquy" which was to be either tripartite or bilateral.
In the course of that hearing Mr Daly had objected to the taking for the first time of two points introduced by Exide only at the stage of pre-hearing memorials, namely mutual mistake and a further point on want of consideration.
On the fourth day, after Mr Haubold had completed his final oral submissions, the following exchange took place between the arbitrator and Mr Daly:
"The Arbitrator: I don't think – thank you very much, Mr Haubold. I have just really a few questions. I think we can probably wrap this up before we go to lunch because I have just a few questions. Let's see, in any event.
Mr Daly: Excuse me, would you not – I am going to reply?
The Arbitrator: No, I don't think so. I think you did a very admirable job of stating your case. I don't think that there is – that its necessary to reply to Mr Haubold."
The colloquy then continued without objection by Mr Daly and with the arbitrator asking both counsel a number of questions on key points. In conclusion, the arbitrator indicated that he was "intrigued" by the mistake of fact argument and that he would like to have it further developed in written briefs to be received by him by 14 April. The parties were also given the opportunity of further written submissions on the want of consideration argument. After these matters had been discussed the arbitrator told the parties that all submissions had been completed except for the written briefs and closed the hearing.
On 14 April Margulead's further written brief was served. It extended to 43 pages drafted by Mr Daly. It included the submissions that there was no common assumption as to the material facts, that under the law of the State of Georgia, Exide, having failed to exercise due diligence bore the risk of a mistake as to any common assumption and that, even if a mistake would otherwise have been a defence to Margulead's claim, it could not be relied upon by Exide because it had waived reliance on mistake by its election to go on with the agreement, that is to say, it had affirmed the agreement.
The Award and the Correction Award
The Award was published on 7 May 2003. Its conclusions on the main issues can be summarised as follows:
i) Exide was not excused from performance on the grounds of misrepresentation: there had been no reliance on such representation and the delay precluded this defence.
ii) In accordance with an implied condition of the agreement Exide was not obliged to construct the plant if it rightly took the view that Margulead's process was not technically to commercially viable. The process was not...
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