Pacol Ltd v Joint Stock Company Rossakhar [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J. |
| Judgment Date | 15 October 1999 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 15 October 1999 |
Queen's Bench Division (Commercial Court).
Colman J.
Jeffrey Gruder QC (instructed by Pinsent Curtis) for the applicant.
The following cases were referred to in the judgment:
Fox v Wellfair LtdUNK [1981] 2 Ll Rep 514
Interbulk Ltd v Aiden Shipping Co Ltd (“The Vimeira”)UNK [1984] 2 Ll Rep 66
Arbitration — Serious irregularity — Whether serious irregularity for arbitrators to decide issue of liability after liability admitted — Whether award should be remitted or set aside — Arbitration Act 1996, s. 33, 68.
This was an application by Pacol Ltd for an arbitration award to be remitted or set aside for serious irregularity under s. 68 of the Arbitration Act 1996.
In 1997 Pacol sold sugar to a Russian company, Rossakhar, under contracts numbered 70127 and 70157 which provided for arbitration of disputes under the rules of the Sugar Association of London. Pacol nominated vessels to deliver the sugar to safe ports in the Black Sea but because of the problems of the Russian economy and the banking moratorium Rossakhar failed to open the credits and make the payments required under the contracts. In 1998 the parties entered into an agreement relating to both contracts under which Pacol deducted losses claimed in respect of contract 70157 from the partial deposit paid in respect of 70127. The agreement was expressed to be without prejudice to Pacol's rights and remedies and was not to affect the obligations of Rossakhar under the contracts which were expected to be performed as soon as the conditions allowed. No further payments were made by Rossakhar and Pacol referred disputes under both contracts to arbitration. The parties exchanged statements of claim and defence under the rules. Rossakhar's defence in the arbitration related to issues of quantum and Pacol's reply which was not challenged stated that Rossakhar did not deny breach of the two contracts and that its defence related only to damages. The arbitrators dismissed Pacol's claims on the basis that the 1998 agreement had postponed Rossakhar's payment obligations under the two contracts until such time as its financial position permitted it to perform and that at the date of the reference Rossakhar was not able to perform. Pacol applied to the court under s. 68 of the Arbitration Act 1996 arguing that there had been a serious irregularity in that the arbitrators had failed to comply with their duty under s. 33 of the 1996 Act by reopening without warning the issue of liability which had been decided between the parties.
Held setting aside the award:
1.The arbitration was conducted in accordance with the rules of the Sugar Association and English procedural law applied. The rules expressly provided for the definition of issues by means of the exchange of statements of the respective cases of the parties. By the time the matter came before the arbitrators the issues had been defined and related only to quantum. Rossakhar had admitted liability. The parties were not put on notice that the arbitrators were going to reopen the question of liability which had been closed in the pleadings. The award had been made without Pacol having a reasonable opportunity of addressing the issue of the effect of the 1998 agreement on liability. There had been a serious irregularity. ( Interbulk Ltd v Aiden Shipping Co Ltd (“The Vimeira”)UNK [1984] 2 Ll Rep 66 applied.)
2.It was particularly important in arbitrations conducted on documents alone that arbitrators should be alive to the danger of introducing into their awards matters which had not been or had ceased to be in issue. It was arguable, although the point was not relied on, that the arbitrators had no jurisdiction to reopen the issue of liability without the consent of both parties.
3.Notwithstanding the provisions of s. 68(3) of the Arbitration Act 1996 it would be inappropriate to remit the matter to the arbitrators. The whole arbitration would have to be reopened and probably repleaded. The award would be set aside.
Colman J:
This is an application by Pacol Ltd for the remission of an arbitration award pursuant to the court's powers under s. 68(1) of the Arbitration Act 1996.
This application raises matters of some importance as to the court's powers of intervention in international commodity arbitrations taking place in the city of London.
In this case the arbitration was one which was held under the rules of the Sugar Association of London by reason of two contracts entered into by Pacol Ltd, as sellers of sugar, and by the respondent buyers, Joint Stock Company Rossakhar, which carries on business in Moscow. The disputes arose in this way.
The two contracts in question involved the delivery of sugar in instalments and included a pricing mechanism whereby the price of the sugar to be delivered was fixed by reference to market price in accordance with a formula set out in the contracts. The contracts were numbered 70127 dated 5 September 1997 and 70157 dated 6 November 1997. Shortly after that time, the Russian economy encountered serious problems and the ability of Russian trading houses to acquire hard currency for the purpose of paying for goods and services which they had contracted to acquire was seriously interfered with by governmental intervention and by the banks themselves, which in turn were placed under considerable financial restraint.
The buyers failed to open sufficient letters of credit and pre-delivery credits under contract 70157 and failed to make certain payments required under contract 70127. The parties got into discussion as to what should be done in the circumstances which had arisen. These circumstances included the nomination of vessels for the purposes of the delivery of sugar. In particular, on 11 November 1997, the claimant, Pacol, nominated the vessel “Sea Boss II” to ship a consignment of sugar with a laycan 5–15 December 1997 and a destination of one safe port in the Black Sea. That was under contract 70157. Further, on 6 January 1998 the claimants sent a message to the respondents nominating a vessel called “The Semtosa” to lift a quantity of sugar in respect of the January instalment under contract 70127. That had a laycan 18–25 January 1998 and the discharge was also to be at one safe port in the Black Sea. In both cases the respondents acknowledged the nomination of the vessels.
However, as I have said and as claimed by Pacol, insufficient credits or payments were made prior to shipment and on 18 February 1998 the parties entered into an agreement in Moscow in respect of both contracts. The agreement was in these terms:
“A. Contract No. 70157 dated 06/1l/97 — 30,000 metric tonnes.
B. Contract No. 70127 dated 27/8/97 — 150,000 metric tonnes.
A. This tonnage was shipped per MV Sea Boss. Unfortunately Rossakhar were not in a position to open a letter of credit in accordance with the contract terms. This cargo therefore suffered detention in the port of discharge to the amount of US$115,500 and Pacol also suffered loss...
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