RBRG Trading (UK) Ltd v Sinocore International Company Ltd

JurisdictionEngland & Wales
JudgeLord Justice Hamblen,Lord Justice Lewison,Lord Justice Irwin
Judgment Date23 April 2018
Neutral Citation[2018] EWCA Civ 838
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A3/2017/0626
Date23 April 2018

[2018] EWCA Civ 838

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM QUEEN'S BENCH DIVISION

(COMMERCIAL COURT)

MR JUSTICE PHILLIPS

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Lewison

Lord Justice Hamblen

and

Lord Justice Irwin

Case No: A3/2017/0626

Between:
RBRG Trading (UK) Limited
Appellant
and
Sinocore International Co. Ltd.
Respondent

Neil Calver QC and Tom Pascoe (instructed by King & Spalding International LLP) for the Appellant

Nicholas Vineall QC and Neil Henderson (instructed by Holman Fenwick Willan LLP) for the Respondent

Hearing date: 27 March 2018

Lord Justice Hamblen

Introduction

1

This appeal concerns the enforceability of a New York Convention arbitration award where there are issues of illegality relating to the underlying claim.

2

The award dated 30 June 2014 (“the Award”) was issued by the China International Economic and Trade Arbitration Commission (“CIETAC”). The Award awarded damages of US$4,857,500 to the Respondent Sellers (“Sinocore”) for breach by the Appellant Buyers (“RBRG”) of a contract for the sale of rolled steel coils.

3

RBRG contends that recognition and enforcement of the Award would be contrary to public policy and should therefore be refused under s.103(3) of the Arbitration Act 1996 (the “Act”).

The Factual and Procedural Background

4

By a contract of 15 April 2010 (the “Sale Contract”), Sinocore agreed to sell 14,500MT of rolled steel coils (the “Goods”) to RBRG at a price of US$870/MT C&F, to be shipped from China to Mexico by July 2010 at the latest. Payment was to be made by an irrevocable letter of credit, which was to be opened by RBRG in strict conformity with the Sale Contract. The Sale Contract also provided that disputes were to be determined by CIETAC arbitration, under Chinese law, in Chinese, in China.

5

On 22 April 2010, on the instructions of RBRG, a conforming letter of credit was issued by Rabobank in the Netherlands for the full sum of US$12,616,000. This letter was subject to the Uniform Customs and Practice for Documentary Credits (“UCP600”).

6

On 7 May 2010, the parties amended the Sale Contract to provide for RBRG to arrange an inspection of quality and quantity of the Goods prior to or during loading. On 12 June 2010, under instruction from RBRG, Rabobank purported to issue an amendment to the letter of credit, so that the required shipment period was changed to “20 th to 30 th July 2010”.

7

On 5–6 July 2010, the Goods were loaded on board a vessel in China. Genuine bills of lading dated 5 and 6 July 2010 were issued. The vessel departed on 7 July 2010 and on the same day Sinocore sent a shipping advice to RBRG which stated that the date of the bills of lading was 6 July 2010.

8

On 22 July 2010, Sinocore's collecting bank requested payment from Rabobank under the letter of credit, presenting bills of lading dated 20–21 July 2010. It is now common ground that these bills were forgeries. Although Sinocore has offered no explanation for the existence or presentation of the false bills of lading, it appears they were presented to comply with the purported amended shipment date terms in the letter of credit.

9

On 26 July 2010, the Court of Amsterdam granted a temporary injunction preventing Rabobank from making payment under the letter of credit against the false bills. Subsequently, on 13 August 2010, Sinocore commenced proceedings against Rabobank in the Chinese courts, claiming damages for Rabobank's non-payment under the letter of credit. This claim was dismissed on 26 June 2013, on the basis that the bills of lading presented upon the request for payment were fraudulent. Sinocore brought an appeal against this decision in China, which has yet to be heard.

10

By a letter of 20 August 2010, Sinocore purported to terminate the Sale Contract due to RBRG's “repudiatory breach by failing to fulfil [their] contractual obligations under the [Sale] Contract”. RBRG accepted the termination without prejudice to its right to claim damages for breaches of contract.

11

By a contract of 26 August 2010 Sinocore sold the Goods to a third party, Chimay, for US$670/MT. On 30 August 2010 the Goods arrived at Houston Port, USA, where they were detained by the US authorities on RBRG's application from 3 September 2010 until their release on 21 October 2010 following a decision of the US District Court. On 29 March 2011 the price was reduced to US$535/MT by a supplemental agreement with Chimay.

12

On 11 April 2012 RBRG commenced CIETAC arbitration proceedings against Sinocore for damages caused by Sinocore's breach of the inspection clause in the Sale Contract. RBRG alleged that Sinocore had shipped the Goods on 5–6 July 2010 to prevent RBRG from inspecting them, and then produced forged bills of lading to falsely show a later shipment date which complied with the amendment to the letter of credit. RBRG inferred from this conduct that the Goods were of insufficient quality. Sinocore counterclaimed for damages for breach of contract based on RBRG's unilateral attempt to amend the letter of credit.

The Award

13

Following oral hearings on 10 April and 9 August 2013, the CIETAC tribunal (“the Tribunal”) issued the Award on 30 June 2014. The Tribunal found as follows:

(1) RBRG had not requested to inspect the Goods before or during shipment. Sinocore had given sufficient notification of shipment. Sinocore was, therefore, not in breach of the inspection clause. Further, any breach would not have been causative of RBRG's loss, as the termination was caused by a failure of the parties to agree whether the attempted amendment to the letter of credit was consistent with the Sale Contract, rather than issues with the quality of the Goods, or their inspection.

(2) RBRG had breached the Sale Contract by instructing Rabobank to issue an amendment to the letter of credit which was not compliant with the terms of the Sale Contract and which, contrary to RBRG's case at the arbitration, had not been agreed to by Sinocore.

(3) Although the Tribunal held that it did not have jurisdiction to determine whether the bills of lading were forged, it referred to the fact that the Dutch court and the Chinese court had both ruled on the issue and “totally accept the judgments rendered by the courts”.

(4) The Tribunal then went on to consider the consequence of that determination on Sinocore's position in the arbitration:

“…the arbitral tribunal believes that it is an important task of this arbitration to decide if it constituted falsification under the sales contract to forge such bills of lading by the seller and if the seller had to assume any liability thereof based on the above fact found.”

(5) RBRG alleged in the arbitration that there had been a fraud against it which had serious consequences, namely that it could not have taken delivery of the Goods with the forged bills of lading even if it had paid and that the bills of lading could not have been forwarded to its sub-buyer with the result that RBRG would have been in breach of the sub-sale contract. The Tribunal held that Sinocore had not deceived RBRG about the shipment date of the Goods because RBRG had been made aware of it by the shipping notice sent by Sinocore on 6 July 2010:

“The bills of lading under the letter of credit which were submitted by the seller to the issuing bank were forged … That the seller submitted, to the issuing bank, forged bills of lading under the letter of credit in order to get the payment was equivalent to concealing the fact and deceiving the issuing bank, which was also the sole reason why the letter of credit was enjoined from payment by the Dutch court. Such deception or fraud was a fact between the beneficiary and the bank in the legal relationship of the letter of credit, but deceiving the bank did not mean deceiving the buyer. The facts and evidence in this case have to be taken into consideration to decide if the seller deceived the buyer or not. According to the evidence in this case, the seller had informed the buyer of the dates of issue of the true bills of lading as early as July 6, 2010 (see paragraph 13). From evidence C in paragraph 62 above, we can see that with knowledge of the actual shipment period of the goods the buyer took the initiative to ask STX PAN OCEAN only to get evidence from the carrier to apply for the injunction at the Dutch court. Many pieces of evidence above could prove that the buyer knew the movement of the goods very well. It all indicates that the buyer fully understood the actual shipment period of the goods, so the claim that the seller deceived the buyer is unfounded” (Award paras. 65–66).

(6) The Tribunal agreed with RBRG that Sinocore “could have done it better” and in particular could have insisted that RBRG's unilateral amendment had no effect under UCP 600 and presented documents conforming with the original, unamended letter of credit:

“The arbitral tribunal totally agrees that the seller could have done it better. For example, the seller may insist that such amendment did not have any effect on it according to the provision of Article 10.a UCP 600, and act and present the documents according to the terms of the letter of credit first issued by the buyer, instead of making such an unwise decision” (Award para. 68).

(7) The Tribunal concluded that the fundamental cause of the termination of the Sale Contract and Sinocore's failure to obtain payment was the non-conforming letter of credit tendered by RBRG following amendments to which Sinocore did not agree. This is borne out by a number of passages in the Award, in particular:

(i) Paragraph 32 — “…according to the description of the factual background of this case, the arbitral tribunal holds that the direct reason leading to the termination of Contract No. 415 in this case had nothing to do with the quality of the goods because both parties failed to reach an agreement on...

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