Petrochemical Industries Company (K.S.C) v The Dow Chemical Company
| Jurisdiction | England & Wales |
| Judge | Mr Justice Andrew Smith |
| Judgment Date | 11 October 2012 |
| Neutral Citation | [2012] EWHC 2739 (Comm) |
| Docket Number | Case No: 2012 Folio 808 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 11 October 2012 |
[2012] EWHC 2739 (Comm)
Mr Justice Andrew Smith
Case No: 2012 Folio 808
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Grabiner QC, Sa'ad Hossain and Michael Watkins (instructed by Ashurst LLP) for the Claimant
Joe Smouha QC, David Joseph QC, Ricky Diwan and Rupert Allen (instructed by Shearman & Sterling (London) LLP) for the Defendant
Hearing dates: 2 and 3 October 2012
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.
Petrochemical Industries Company (K.S.C.) (to whom I refer as "PIC") apply under section 68 of the Arbitration Act 1996 for an order that there be remitted to the Tribunal for reconsideration two paragraphs of an award and the question whether, as the Tribunal determined at paragraph 4 of the dispositif, PIC should pay damages for consequential losses (or "loss of opportunity" damages).
The reference was before the International Court of Arbitration of the International Chamber of Commerce ("ICC"), and the Tribunal comprised Mr. Kenneth Rokison QC, Lord Hoffmann and Judge Charles Brower. The dispute referred to them was about PIC not completing an agreement (a Joint Venture Formation Agreement or "JVFA") dated 28 November 2008 with The Dow Chemical Company (" Dow") to enter into a joint venture, paying $7.5 billion for a 50% interest in certain petrochemical assets of Dow.
The arbitration agreement between the parties, which was in an Umbrella Arbitration Agreement also dated 28 November 2008, excluded any appeal from the Tribunal under section 69 of the Arbitration Act, both directly and by agreeing to ICC rules to that effect. It was suggested by Mr Joe Smouha QC, who with Mr David Joseph QC, Mr Ricky Diwan and Mr Rupert Allen represented Dow, that this should in some way make the court less ready to accede to an application under section 68. I do not accept this; section 68 is a mandatory provision of part 1 of the 1996 Act, and it was not and could not have been excluded or modified by the parties.
The award that is challenged is a Partial Award dated 21 May 2012, in which the Tribunal concluded inter alia that PIC were in breach of contract in failing to close the JVFA on 2 January 2009 by paying Dow $7.5 billion (an amount sometimes called the "K- Dow proceeds", as the joint venture assets were sometimes called the "K- Dow assets"), and that Dow had established that they were entitled to damages for consequential losses (or so-called "loss of opportunity" damages) of some $2,050.95 million. The application, as I have indicated, is directed only against this second conclusion and the award of those damages: no complaint is made before me about the determination against PIC on liability or about an award of $110.1 million by way of wasted costs. More specifically, the criticisms concern the Tribunal's conclusion that PIC are liable for losses suffered by Dow because, after PIC had failed to complete the JVFA, Dow had to pay some $15 billion in order to complete an acquisition of Rohm & Haas ("R & H") under a commitment made in July 2008, some months before they concluded the JVFA. In their skeleton argument on this application, Lord Grabiner QC, Mr. Sa'ad Hossain and Mr. Michael Watkins, who together represent PIC, describe the position thus:
" Dow hoped to use the K- Dow proceeds towards this acquisition but had arranged fully committed funding from leading investment banks to finance the entire amount in the event that the K- Dow proceeds were not available. This committed funding proved insufficient and Dow was forced to refinance the entire transaction in short order in an attempt simultaneously to complete the Rohm & Haas Transaction and maintain its previously safe investment grade credit rating."
They say that PIC argued before the Tribunal that, not least because of assurances given to them by Dow before the JVFA was concluded about the funding available to them and their financial position, " Dow's exceptional losses were not within the reasonable contemplation of the parties and that irrespective of what the parties knew about the risk of such losses, PIC could not fairly be said to have assumed responsibility for them given Dow's assurances. In short, Dow could not claim damages for the extraordinary consequences of refinancing the Rohm & Haas transaction when it had told PIC that it was fully funded and was not desperate for the K- Dow proceeds".
I need to explain in a little more detail the legal and factual basis of PIC's complaint. Their legal contention, based on the speeches in Transfield Shipping Inc v Mercator Shipping Inc (The "Achilleas"), [2008] UKHL 48, as developed and explained by the Court of Appeal in Supershield Ltd v Siemens Building Technologies FE Ltd, [2010] EWCA Civ 7, was in the reference and is on these applications that the question whether losses resulting from a breach of contract are too remote for a contract breaker to be liable in damages for them does not depend entirely or ultimately upon what I shall (perhaps loosely) label "foreseeability" but also upon whether he is reasonably to be regarded as having assumed responsibility for losses of that kind, what I shall call an "assumption of responsibility" test. By "foreseeability" I refer to the question (or questions) whether the losses were of a type that would have been within the parties' reasonable contemplation as a not unlikely result of the breach either as arising naturally or in the usual course of things so as to be covered by the so-called "first limb" of the principles explained in Hadley v Baxendale, [1854] EWHC Exch J70, or in light of special circumstances known to both parties so as to be covered by the "second limb". Thus, before the Tribunal PIC argued (in their First Memorial) at paragraph 491 that:
"The correct approach to remoteness therefore requires the following questions to be answered:
a. At the time of making the contract, would a reasonable person in the position of the contract-breaker have considered the type of loss that has occurred to be not unlikely:
1) in the ordinary course of things, or
2) as a result of special circumstances communicated to him?
b. If the answer to question a. is "yes", should liability nevertheless be excluded because it could not fairly be said that the contract-breaker had assumed liability for the type of loss?
c. If the answer to question a. is "no", should liability nevertheless be included because the contract-breaker assumed responsibility for the type of loss?"
On this application PIC contend that, having answered question a "yes", the Tribunal failed to deal with question b.
As for the considerations that would be relevant in this case to the question whether they "assumed responsibility for the type of loss" (or whether liability was excluded under question b), PIC said this at paragraph 533 of their First Memorial:
"Even if it could be said that the incremental costs of the but-for and incremental funding were not unlikely to occur in the event of the JVFA not Closing, it could not fairly be said that PIC assumed responsibility for such kinds of loss having regard to: the purpose of PIC's obligation; the pre-existing nature of Dow's ROH commitment; the manner in which the special circumstances alleged to render the loss foreseeable were communicated to PIC; the lack of control by PIC in respect of such losses; and the detailed terms of the JVFA."
(I explain the term "incremental" at paragraph 9 below. In argument, Mr Smouha emphasised that paragraph 533 is in a part of the memorial directed to one part of the contentious claim for consequential damages, the "funding costs", but, as I read it, this point is effectively incorporated in passages dealing with the two other parts of the contentious claim, those concerning "incremental expenses" and "general business losses", and so directly or indirectly is applied to all the damages with which I am concerned.) The consideration that Lord Grabiner particularly emphasised before me was "the manner in which the special circumstances alleged to render the loss foreseeable were communicated to PIC", and PIC's case about this was expanded at paragraph 536 of the memorial:
"Beyond the timing of the ROH commitment, the circumstances in which ROH was mentioned by Dow to PIC negated any assumption of responsibility by PIC. This point has been addressed above already … in considering limb (2) of the foreseeability test but is of equal relevance here. Put shortly having indicated that the funding of ROH was not dependent on the PIC proceeds, Dow cannot now assert that PIC assumed responsibility for any of the claimed losses relating to ROH (and that would be so even if such losses were in fact foreseeable by PIC)."
As is apparent from this, PIC referred to matters that, they said, had been "indicated" by Dow both (i) in relation to "foreseeability" under the "Second Limb", and (ii) in relation to an assumption of responsibility test. One argument of PIC was that on both questions account should be taken only of knowledge of PIC that they had acquired from Dow and not of what they had been told by others, specifically by their advisers, JP Morgan. As is apparent from paragraph 145 of the award (which I set out at paragraph 12 below), that argument was rejected by the Tribunal and PIC do not seek to resurrect it on this section 68 application.
PIC submitted before me that the (uncontroversial) evidence at the hearing before the Tribunal was that Dow, through senior executives, gave...
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