Petrochemical Industries Company (KSC) v Dow Chemical Company [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Andrew Smith J. |
| Judgment Date | 11 October 2012 |
| Date | 11 October 2012 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Andrew Smith J.
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.
The following cases were referred to in the judgment:
ABB AG v Hochtief Airport GmbHUNK[2006] EWHC 388 (Comm).
Arduina Holdings BV v Celtic Resources Holdings plcUNK[2006] EWHC 3155 (Comm).
Ascot Commodities NV v Olam International Ltd[2002] CLC 277.
Bulfracht (Cyprus) Ltd v Boneset Shipping Co Ltd (The Pamphilos)UNK[2002] 2 Ll Rep 681.
Buyuk Camlica Shipping Trading & Industry Co Ltd v Progress Bulk Carriers LtdUNK[2010] EWHC 442 (Comm).
Checkpoint Ltd v Strathclyde Pension FundUNK[2003] EWCA Civ 84.
Fidelity Management SA v Myriad International Holdings BVUNK[2005] EWHC 1193 (Comm).
Hadley v BaxendaleENR(1854) 9 Ex 341; 156 ER 145.
Hussmann (Europe) Ltd v Al Ameen Development & Trade Co[2000] CLC 1243.
Koufos v C Czarnikow Ltd (The Heron II)ELR[1969] 1 AC 350.
Lesotho Highlands Development Authority v Impregilo SpAUNK[2005] UKHL 43; [2005] 2 CLC 1.
London Underground Ltd v Citylink Telecommunications LtdUNK[2007] EWHC 1749 (TCC).
Margulead Ltd v Exide TechnologiesUNK[2004] EWHC 1019 (Comm).
Michael Wilson & Partners Ltd v EmmottUNK[2011] EWHC 1441 (Comm).
Prenn v SimmondsWLR[1971] 1 WLR 1381.
Satef-Huttenes Alberns SpA v Paloma Tercera Shipping Co SA (The Pegase)UNK[1981] 1 Ll Rep 175.
Schwebel v SchwebelUNK[2010] EWHC 3280 (TCC).
Supershield Ltd v Siemens Building Technologies FE LtdUNK[2010] EWCA Civ 7; [2010] 1 CLC 241.
Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas)UNK[2008] UKHL 48; [2008] 2 CLC 1.
Weldon Plant Ltd v Commission for New TownsUNK[2001] 1 All ER (Comm) 264.
World Trade Corp Ltd v C Czarnikow Sugar LtdUNK[2005] 1 Ll Rep 422.
Zermalt Holdings SA v Nu-Life Upholstery Repairs LtdUNK[1985] 2 EGLR 14.
Arbitration Serious irregularity Alleged failure to deal with issue Damages for consequential losses Claimant in breach of contract in failing to close joint venture formation agreement Correct approach to remoteness Whether tribunal failed to deal with issue of assumption of responsibility Whether tribunal in breach of general duty by overlooking evidence Application to remit award for reconsideration refused Arbitration Act 1996, s. 33, 68(2).
This was an application under s. 68 of the Arbitration Act 1996 to remit part of an award for reconsideration of the issue whether the applicant (PIC) should pay damages to the respondent (Dow) for consequential losses or loss of opportunity.
Dow claimed in the arbitration that PIC was in breach of contract in failing to close a joint venture formation agreement (JVFA) which required PIC to enter into a joint venture, paying $7.5 billion for a 50% interest in certain petrochemical assets of Dow. Dow claimed damages for consequential losses or loss of opportunity of some $2 billion, on the basis that after PIC had failed to complete the JVFA, Dow had had to pay some $15 billion in order to complete an acquisition of another business (R & H) under a commitment made before the JVFA was concluded; Dow was forced to refinance the entire transaction in short order in an attempt simultaneously to complete the R & H transaction and maintain its previously safe investment grade credit rating.
PIC argued that 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 in the light of assurances given by Dow before the JVFA was concluded about the funding available to it and its financial position, namely that it was fully funded and did not need the JVFA proceeds to complete the R & H acquisition.
The tribunal held that PIC was in breach of contract and liable for damages of $2.05 billion, representing the additional costs to Dow of having to raise funding in the difficult circumstances resulting from PIC's failure to complete the JVFA.
PIC claimed that there was a serious irregularity under s. 68(2)(a) and/or (d) because the tribunal failed to comply with its general duty under s. 33, and failed to deal with an issue put to it, namely whether PIC had assumed responsibility for Dow's consequential losses.
Held, dismissing PIC's application:
1. A distinction was drawn in the authorities between, on the one hand, issues and, on the other hand, what were variously referred to as arguments advanced or points made by parties to an arbitration or lines of reasoning or steps in an argument. The authorities demonstrated a consistent concern to maintain the high threshold that had been said to be required for establishing a serious irregularity. That concern had sometimes been emphasised by references to essential, key or crucial issues, but those adjectives were not intended to import a definitional gloss upon the statute but simply alluded to the requirement for the serious irregularity to result in substantial injustice. An issue of remoteness, itself an aspect of the issue whether damages were recoverable, might well embrace sub-issues, which would be covered by s. 68(2) (d). The assumption of responsibility question was such an issue. It was not simply a way of presenting the question of foreseeability, and not simply an argument in support of a contention that the losses were not within the first or second limb ofHadley v Baxendale. Almost the whole of Dow's claim could have depended upon how the assumption of responsibility question was resolved, and fairness demanded that the question was dealt with, and not ignored or overlooked, by the tribunal, assuming it was put to them.
2. The assumption of responsibility issue was put to the tribunal, notwithstanding the fact that neither Dow nor PIC separated out the assumption of responsibility question in its list of issues. In its pre-hearing memorials PIC raised the issues that Dow's losses were too remote and that it had not assumed responsibility for Dow's losses. In oral submissions PIC presented the assumption of responsibility question as an aspect of remoteness of loss. PIC relied on the same factual material in its submissions on foreseeability under the second limb ofHadley v Baxendaleand the assumption of responsibility question.
3. A tribunal did not fail to deal with issues if it did not answer every question that qualified as an issue. It could deal with an issue by making clear that it did not arise in view of its decisions on the facts or their legal conclusions. A tribunal could also deal with an issue by so deciding a logically anterior point that the issue did not arise. A tribunal was not required to deal with each issue seriatim: it could deal with a number of issues in a composite disposal of them. In considering an award to decide whether a tribunal had dealt with an issue, the approach of the court was to read it in a reasonable and commercial way. The court could take account of the parties submissions when deciding whether, properly understood, an award dealt with an issue. Awards often responded to the parties submissions and were not to be interpreted in a vacuum. (Zermalt Holdings SA v Nu-Life Upholstery Repairs LtdUNK[1985] 2 EGLR 14applied.)
4. The tribunal did not refer in the award to the indications or assurances said to have been given by Dow on which PIC relied to negative any assumption of responsibility. Nevertheless, it had dealt with the issue when it said that PIC should reasonably have been expected to be held liable for costs associated with its failure to close. That echoed the language of the objective test for assumption of responsibility identified in the cases and was the tribunal's answer on the assumption of responsibility issue. (Satef-Huttenes Alberns SpA v Paloma Tercera Shipping Co SA(The Pegase)[1981] 1 Ll Rep 175andTransfield Shipping Inc v Mercator Shipping Inc (The Achilleas)UNK[2008] UKHL 48; [2008] 2 CLC 1considered.)
4. The court could not infer that the tribunal was in breach of the duty in s. 33(1)(a) because it overlooked the evidence of Dow's assurances. The more natural inference was that the tribunal considered the evidence on which PIC relied but gave it less weight than other evidence about what PIC had learned from its advisers when negotiating a price reduction. If the tribunal had erred in concluding that PIC had relied on information learned from its advisers to negotiate the price reduction, it was difficult to see how that could amount to a breach of the general duty, or cause substantial injustice.
Andrew Smith J:
1. Petrochemical Industries Company (KSC) (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).
2. 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.
3. 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...
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