S v A and Another
| Jurisdiction | England & Wales |
| Judge | The Hon Sir Bernard Eder |
| Judgment Date | 20 April 2016 |
| Neutral Citation | [2016] EWHC 846 (Comm) |
| Docket Number | Case No: CL-2015-000519 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 20 April 2016 |
[2016] EWHC 846 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
The Hon Sir Bernard Eder
Case No: CL-2015-000519
David Lewis QC (instructed by Cooke Young & Keiden LLP) for the Claimant
Paul Henton (instructed by Andrew Jackson Solicitors) for the Defendants
Hearing dates: 8, 9 March 2016
Approved Judgment
Introduction
This case concerns an arbitration award dated 27 March 2015 in respect of two separate arbitrations which were heard together (the "Award"). The arbitrations concerned disputes under two coking coal sale contracts (the "Contracts") both dated 11 April 2011 between the same seller (the "seller") and two related Indian companies respectively as buyers whom I shall refer to as "A" and "B" (together the "buyers").
In summary, the main focus of these disputes was the buyers' claim for damages on the basis that the seller was in breach of certain express terms of the Contracts with regard to the quality of the coal concerning in particular what is known as "Fluidity" and Mean Maximum Reflectance ("MMR"); and also in breach of implied terms under ss.13 and 14 of the Sale of Goods Act 1979 ("SOGA") that the goods shall correspond with the description and be of satisfactory quality.
Following a case management conference on 16 October 2013, the initial oral hearing of the arbitration took place on 18 to 20 November 2013. The hearing was then adjourned because certain witnesses were unable to obtain the necessary visas to attend in London. To accommodate those witnesses, a further hearing then took place on 15 to 17 April 2014. This was followed by two rounds of written closing submissions which were exchanged in May 2014.
In the event, by its Award, the tribunal ordered the seller to pay US$1 million to A and US$682,400 to B by way of damages plus interest and certain costs.
The seller now applies to challenge the Award on the ground of alleged serious irregularity under s.68(2)(a) and/or (c) of the Arbitration Act 1996 (the "Act"). Alternatively, the seller seeks leave to appeal under s.69 of the Act and (if leave be granted) to appeal the Award. In both cases, the applications were issued late; and the seller requires an extension of time under s.80(5) of the Act. All the seller's applications are being heard at a single "rolled-up" hearing pursuant to the Order of Mr Justice Teare dated 13 October 2015.
In support of the applications, the seller relies upon two witness statements of Srivathsan Rajagopalan. In response, the buyers rely upon two witness statements of Dominic Ward. These statements set out in some detail the course of the arbitration proceedings and the events following the publication of the Award.
The Award
The Award is a detailed document extending to some 118 pages. For present purposes, the following appears from the relevant parts of the Award.
Clause 2 of the Contracts provided in material part:
" DESCRIPTION/ INDONESIAN COKING COAL IN BULK.
QUALITY: IN ACCORDANCE WITH ASTM STANDARDS"
Under the heading "DESCRIPTION / QUALITY", a total of nine parameters were identified. Of these parameters, seven were specified by reference to maximum or minimum levels. So far as Fluidity and MMR were concerned, clause 2 specified:
" FLUIDITY (TYPICAL) 500 DDPM
MMR (TYPICAL) 1.2%."
By way of explanation, "DDPM" stands for dial divisions per minute.
The Contracts also contained at Clause 5, provision for payment by irrevocable letter of credit against presentation of certain documents, including " Loadport sampling and analysis certificate in original and 2 copies issued by SGS to be in conformity with contracted specifications"; and at Clause 7, a provision for loadport sampling by SGS in accordance with ASTM standards to be final, conclusive and binding on both parties for the purpose of Clause 9 (but, it is to be noted, not Clause 2).
Clause 9 was headed " PENALTIES" and stipulated various price adjustments and rejection levels in respect of certain (but not all) of the parameters specified in Clause 2. In relevant respect, it provided:
" FLUIDITY
REJECTION BELOW 250
MMR
REJECTION BELOW 1.05% AND ABOVE 1.3%"
Clause 20 provided, in effect, for the incorporation of INCOTERMS 2010 which stipulated by Article A1:
" A1 The seller must provide the goods and the commercial invoice in conformity with the Contract of Sale and any other evidence of conformity that may be required by the Contract."
As matters turned out, the Certificate of Sampling and Analysis dated 16 May 2011 from SGS (the "SGS-CSTC Certificate") did not certify anything about Fluidity or MMR and so did not bar the buyers from making a claim for breach of the Contracts with regard to Fluidity and MMR (Award paras 50, 104, 149, 163).
The direct evidence in relation to Fluidity and MMR was threefold (Award para 155):
i) A Certificate of Sampling and Analysis dated 6 June 2011 issued by Inspectorate (Singapore) Pte Limited (the "Singapore Inspectorate Certificate") showing Fluidity of 322 ddpm and MMR of 1.25% (Award paras 122, 146(ii)(c), 164–165);
ii) A report of a Dr Chaudhuri dated 4 July 2011 (the "Dr Chaudhuri Report") in relation to certain samples showing Fluidity of 44 ddpm and MMR of 1.24% (Award paras 135, 146(iv), 169, 170–171);
iii) A certificate of stack sampling dated 16 September 2011 provided to the buyers by SGS-India Pte Limited (the "SGS India Certificate"), showing Fluidity of 29 ddpm and MMR of 1.35% (Award paras 144, 146(vi), 173–174).
In relation to this evidence, the tribunal held:
i) The derivation of the samples tested for the Dr Chaudhuri Report was unknown (Award paras 135, 169, 184), and there might have been a mix-up of coals (Award paras 188, 208(b)), meaning that the tribunal could not place reliance upon the report (Award para 188);
ii) Reliance could not be placed on the SGS India Certificate's results for Fluidity and MMR because the sampling method could not, and did not, provide representative samples and because the sampling was done some 7 weeks after delivery (Award paras 179–181, 189);
iii) There was no reason to impugn the accuracy of the Singapore Inspectorate Certificate aside from the fact it did not agree with the Dr Chaudhuri Report or the SGS India Certificate (Award para 166). Hence the tribunal accepted the results for Fluidity and MMR as shown by the Singapore Inspectorate Certificate as the best available evidence of the parameters for Fluidity and MMR (Award paras 193–195).
iv) Thus, the tribunal made its important findings with regard to the "correct figures" viz Fluidity 322 ddpm and MMR 1.25% (Award para 195).
It is important to note that although the stated Fluidity figure of 322 ddpm fell below the figure of 500 ddpm in clause 2 of the Contracts, it was well above the "rejection" threshold ("REJECTION BELOW 250") in clause 9; and that although the stated MMR figure of 1.25% was above the figure of 1.2% in clause 2 of the Contracts, it fell within the parameters (" REJECTION BELOW 1.05% AND ABOVE 1.3%") for MMR in clause 9. Mr Lewis QC submitted that this was a substantial victory for the seller given that the buyers had been relying on the Dr Chaudhuri Report and the SGS India Certificate and the seller had been relying on the Singapore Inspectorate Certificate.
However, despite this claimed "victory", the tribunal concluded that the seller was in breach of the Contracts. This alleged disconnect or mis-match is the nub of Mr Lewis QC's complaint on behalf of the seller.
The critical findings of breach against the seller are contained and explained in a number of different paragraphs in the Award. In particular, the tribunal stated:
" Conclusions as to correspondence with the specification:
198. [The seller] was in breach of both Contracts by failing to supply coal which corresponded with the specification in Clause 2. Such a breach was in respect of [the seller's] obligation under Clause 3 [sic] and the Inco term "CFR" and, or alternatively, in respect of an implied term under Section 13 of the Sale of Goods Act that the coal should correspond with its description"
199. The difference was a shortfall in Fluidity of 172 ddpm (36% shortfall) and an excess in MMR of 0.05%.
208d. The poor quality of the coke produced using an 80/20 blend of the Coal and Australian coal (and other blends):
We consider that the reduced Fluidity recorded by Inspectorate Singapore (36% below the typical quality which the coal should have had with regard to Fluidity) is consistent with the production of a poor quality coke, especially if it were to be used as the sole fuel.
209…….We consider that, in all the circumstances, the deficiency of 36% in the Fluidity alone meant that the coal could probably not be used satisfactorily as a single coking coal and could only be used as a blend stock for producing coke of a quality suitable for use in blast furnaces (as it seems, in fact, to have been largely used by [the buyers] during the remainder of 2011.
210. The terms of section 14(2) and 14(2A) of the Sale of Goods Act are well understood. In such a case as this, whether goods are of "a satisfactory quality" depends on (a) (inter-alia) their description and price and (b) all other circumstances. This includes "in appropriate cases whether the goods are fit for "all the pain for which goods of the kind in question are commonly supplied.
211. Undoubtedly, one of the purposes for which coking coal is used is to make coke...
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