MRI Trading AG v Erdenet Mining Corporation LLC
| Jurisdiction | England & Wales |
| Judge | Mr Justice Eder |
| Judgment Date | 20 July 2012 |
| Neutral Citation | [2012] EWHC 1988 (Comm) |
| Docket Number | Case No: 2012 Folio 320 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 20 July 2012 |
[2012] EWHC 1988 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
IN THE MATTER OF THE ARBITRATION ACT 1996
AND IN THE MATTER OF AN ARBITRATION AWARD DATED 3 FEBRUARY 2012
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Eder
Case No: 2012 Folio 320
Alain Choo-Choy QC and Matthew Cook (instructed by Watson, Farley & Williams ) for the Claimants
Stephen Moriarty QC and Clare Ambrose (instructed by Clyde & Co.) for the Respondents
Hearing date: 29 June 2012
Introduction
This is an appeal by MRI Trading AG ("MRI") pursuant to s.69 of the Arbitration Act 1996 (the "1996 Act") on questions of law arising out of an arbitration award dated 3 February 2012 (the "Award"). Leave to appeal was given by Christopher Clarke J on 23 April 2012.
The Original Contract
As appears from the Award, MRI is a Swiss company. Erdenet Mining Corporation LLC ("EMC") is a Mongolian mining company. On 28 June 2005, MRI and EMC entered into a contract for the sale by EMC to MRI of copper concentrates (the "Original Contract"). The detail of the Original Contract was not relevant to the dispute before the Tribunal. However, in summary, disputes arose between the parties about the performance of that contract and such disputes were referred to arbitration at the London Metal Exchange ("LME") in 2008. That arbitration was resolved by way of a settlement agreement dated 30 January 2009 and signed by the parties shortly thereafter (the "Settlement Agreement").
The Settlement Agreement
Clause 1 of the Settlement Agreement provided as follows:
" Deliveries of Erdenet Copper Concentrates and Molybdenum Concentrates—EMC shall sell MRI Trading 40,000 WMT of EMC Copper Concentrates in each of 2009 and 2010 and 200 WMT of EMC Molybdenum Concentrates in 2009, all pursuant to new, separate contracts between EMC and MRI Trading in the forms agreed at Schedules 1, 2 and 3 of this Settlement Agreement."
Clause 2 of the Settlement Agreement provided in effect that following signature by MRI and EMC of these new contracts, the Original Contract and all rights, obligations, claims and counterclaims of EMC and MRI under or in connection with the Original Contract were "terminated" and each waived all their accrued rights and obligations arising in connection with the Original Contract. Those three draft contracts referred to in Clause 1 were duly signed on the same date or shortly after the Settlement Agreement.
The contract for the sale of copper concentrates for 2009 (the "2009 Contract") and the contract for the sale of molybdenum concentrates for 2009 (the "2009 Molybdenum Contract") were performed without problems. It was the third contract—namely the contract for the sale of copper concentrates in 2010 (the "2010 Contract") which gave rise to the present dispute, since EMC refused to make any deliveries under this contract.
The 2010 Contract
The 2010 Contract consisted of 9 typewritten pages signed by both parties. In particular, it provided in material part as follows:
"WHEREAS [MRI] agrees to buy and [EMC] agrees to sell a copper flotation concentrate production of Erdenet Mining Corporation ("Concentrate") on the terms and conditions hereinafter contained:
2. Duration—This Contract shall enter into force from the date of the last signature and shall remain in force until completion of the Parties' obligations herein.
3. Quantity—The quantity of Concentrate to be delivered shall be 40,000 WMT plus or minus 10% at [EMC's] option.
6. Dispatch
6.1 Shipping schedule shall be agreed during the negotiations of terms for 2010.
9. Deductions
9.1 Treatment Charge shall be agreed between [MRI] and [EMC] during the negotiation of terms for 2010.
9.2 Refining charge shall be agreed between [MRI] and [EMC] during the negotiation of terms for 2010.
25. Prior Agreements—This Contract shall constitute the entire agreement between the Parties hereto and supersedes all prior agreements and understandings, whether oral or written, in relation to the subject matter hereof. Except the terms of the Settlement Agreement between Parties dated 30 January 2009."
In addition, the 2010 Contract contained detailed provisions with regard to the quality and description of the material to be supplied [clause 4], how the concentrate would be delivered [clause 5], when railway bill instructions would be provided [clause 6.3], how the purchase price would be calculated [see below], Quotational Period [clause 10], Payment [clause 11], Title and Risk [clause 12], Insurance [clause 13], Weighing, Sampling and Determination of Moisture [clauses 14 and 15]. It also expressly provided that it was governed by English law [clause 23] and subject to arbitration under the LME arbitration rules [clause 22]. In relation to purchase price, pursuant to clauses 7, 8 and 9 of the 2010 Contract, the price that MRI would pay for the concentrates was to be calculated by reference to the copper and silver content of the concentrates:
a. For copper, pursuant to clause 8, there would be a 1.1 unit deduction from the agreed copper content and MRI would pay for the balance at the daily LME US$ Copper Grade A Settlement quotation taken from the London Metal Bulletin, averaged over the quotational period. In addition, pursuant to clause 9, a treatment charge and a refining charge would be deducted.
b. For silver, if the silver content was over 30 grams per DMT, MRI would pay for 90% of the silver content at the daily LME US$ London Spot quotation for Silver taken from the London Metal Bulletin, averaged over the quotational period. In addition, pursuant to clause 9, a specified silver refining charge would be deducted. A further specified deduction would also be made if the arsenic level in the concentrates exceeded a certain level.
The dispute
In the event, no concentrates were shipped by EMC under the 2010 Contract. According to the Award, this was because "..no agreement was reached on either the [Treatment Charge/Refining Charge] or the shipping schedule." This is a reference to clauses 6.1 (shipping schedule), 9.1 ("TC") and 9.2 ("RC"). On this basis, MRI claimed that EMC was in breach of contract and claimed damages for non-delivery in the sum of US$9,096,885.52 plus interest and costs. The dispute was referred to arbitration under the LME Arbitration Rules in accordance with the arbitration clause in the 2010 Contract.
The tribunal concluded that it should deal with the issue of liability first and therefore (as set out in paragraph 5 of the Award) the hearing which led to the Award was designed to address three issues:
a. Was there an enforceable obligation on EMC to deliver the copper concentrates ?
b. What is the reasonable price at which the copper concentrates should have been sold?
c. When should the copper concentrates have been delivered?
In the event, the tribunal concluded that the delivery obligation was "non-existent" and that MRI's claim failed. Although all three issues were fully argued at the hearing, having answered the first question in the negative, the tribunal did not consider it necessary to answer the second and third questions and did not do so.
The tribunal's reasons and conclusions
At paragraph 13 of the Award, the tribunal considered how it should approach the issue of construction/implication on which the issue of enforceability depended and in particular what material it should take into account, specifically whether it should take account of the Settlement Agreement and the fact that the 2010 Contract (along with the other two contracts) were only entered into as part of that settlement, with the other two contracts having already been fully performed. In particular, the tribunal stated: "The tribunal has considered to what extent if any the three contracts signed as a result of the Settlement Agreement are linked, and has concluded that in this issue it must rely simply on the construction of the contract under dispute." The tribunal then quoted certain parts of the Settlement Agreement and the two 2009 Contracts and, at the end of paragraph 13, stated: "In….the absence of any reference to the Settlement Agreement in the contract under dispute, the tribunal concludes that the dispute is only as to proper construction of the contract under dispute".
The tribunal then quoted certain passages from three authorities and, in paragraph 15, stated:
"15. The tribunal has considered whether or not clause 6.1 and 9.1 and 9.2 (shipping schedule and TC/RC) are a matter of detail, or a significant part of the pricing of the goods. While clearly aware that the largest part of the price was purely dependant upon the underlying LME copper price, the Tribunal is also aware, as was confirmed by the experts, that the negotiation of the TC/RC plays a significant role in the conclusion of concentrates contracts. Although themonetary value is considerably smaller than that of the underlying, it is still an amount of around $200,000–$300,000. The tribunal concludes that the TC/RC is an integral part of the contract negotiation, and is not to be dismissed as a matter of detail. Likewise, the shipping schedule is not a matter of detail, as it needs to conform to the ultimate requirements of the final end-user. It is worth noting the following (Lewison, The Interpretation of Contracts) "The effect of uncertainty may be that no contract comes into existence; or it may be that one provision in an otherwise binding contract is unenforceable. Which of these two possibilities is likelier depends on the importance...
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