Sanghi Polyesters Ltd (India) v International Investor KCFC (Kuwait) [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | David Mackie |
| Judgment Date | 28 January 2000 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 28 January 2000 |
Queen's Bench Division (Commercial Court).
David Mackie QC (sitting as a deputy High Court judge).
Robin Neill of Stephenson Harwood for The Investor International.
K Basit of Hammond Suddards for Sanghi Polyesters.
The following cases were referred to in the judgment:
Arab African Energy Corp Ltd v Olieprodukten Nederland NVUNK [1983] 2 Ll Rep 419.
Egmatra AG v Marco Trading Corp [1998] CLC 1552.
Marine Contractors Inc v Shell Petroleum Development Co of NigeriaUNK [1984] 2 Ll Rep 77.
Arbitration — Financing transaction on Islamic principles — Failure to repay referred to arbitration — Challenge to arbitrator's award — Whether right to appeal against award excluded by ICC rules — Whether appeal raised issues of law of England and Wales — Whether decision of arbitrator obviously wrong — Whether there was a serious procedural irregularity causing injustice to applicant — Arbitration Act 1996, s. 68, 69, 82.
These were applications by the claimant in an ICC arbitration for a declaration that the arbitrator's award was final and binding and by the respondent in the arbitration challenging the award under s. 68 and 69 of the Arbitration Act 1996.
In 1995 an Indian company (“SPL”) sought finance from a Kuwaiti investor (“TII”) to enable SPL to produce and export polyester yarn. TII agreed to advance US$5m for a period of 18 months. The transaction was structured so as to comply with Islamic Shari'a law, with an agreed profit rate of nine per cent replacing any provision for interest. SPL failed to repay the loan and outstanding profit element. TII requested ICC arbitration and the agreed terms of reference confirmed that the place of arbitration was London and that the dispute was governed by English law “except to the extent it may conflict with Islamic Shari'a which shall prevail”. The arbitrator, who was also appointed by the parties as an expert on Shari'a law, made an award in favour of TII. TII applied for a declaration that the award was final and binding and SPL challenged the award under s. 68 and 69 of the Arbitration Act 1996 complaining that the arbitrator was in breach of his general duties under s. 33(2) of the 1996 Act. TII argued that the right of appeal under s. 69 had been excluded by agreement and that there was no serious procedural irregularity.
Held, dismissing SPL's applications:
(1) The right of appeal under s. 69 was excluded by art. 24 of the 1988 edition of the ICC rules by virtue of which the parties had “agreed otherwise” for the purposes of s. 69(1) and had waived their right of appeal. The words “otherwise agreed” did not require any particular or special form of agreement. ( Arab African Energy Corp Ltd v Olieprodukten Nederland NVUNK [1983] 2 Ll Rep 419 and Marine Contractors Inc v Shell Petroleum Development Co of NigeriaUNK[1984] 2 Ll Rep 77applied.)
(2) SPL's application for leave raised issues of Shari'a law not English law and the court's jurisdiction under s. 69 was only to determine questions of English law by virtue of s. 82. (Egmatra AG v Marco Trading Corp[1998] CLC 1552applied.)
(3) By s. 69(3)(c)(i) the court had to be satisfied that the arbitrator's decision was obviously wrong. The arbitrator's decision that the transaction was a financial transaction put together in a form which achieved that objective by using a standard method conforming with Islamic banking practice was a clear and full evaluation of the issues which had all the appearance of being right. The s. 69 application would be dismissed for that reason as well.
(4) There was no serious procedural irregularity. The arbitrator had referred to certain sources to determine Shari'a law issues and should have given the parties the opportunity to deal with that material. That was a breach of duty even though the arbitrator was also acting as an expert on Shari'a law. However there was no injustice to SPL. SPL also complained of certain inferences drawn by the arbitrator but those complaints would be an issue of law and not a serious procedural irregularity relating to the arbitrator introducing evidence of his own.
David Mackie QC:
1. This is a challenge by the applicant, Sanghi Polyesters Ltd (India) (“SPL”) to an ICC arbitration award obtained against it in London by the respondent, The International Investor KCFC (Kuwait) (“TII”). The applications are made under s. 68 of the Arbitration Act 1996, and for leave under s. 69. There is a separate application by TII for a declaration that the award is final, binding and enforceable against SPL. I heard these applications on 12 January and was assisted by the submissions of Mr Basit for SPL and Mr Neill for TII.
2. I first summarise the underlying dispute. It appears that early in 1995 SPL asked TII to arrange finance to enable SPL to produce and export polyester yarn. By two agreements dated 2 May 1995 TII agreed to advance US$5m for a period of 18 months with an agreed “profit rate” of nine per cent per annum in a form known as “estisna” intended to ensure that the transaction complied with Shari'a requirements for what might be claimed to be interest. TII agreed to advance US$5m to SPL to finance the purchase of the yarn to be delivered in November 1996 and an associated company of SPL (“SIL”) agreed to purchase the yarn in November 1996 for US$5,688,750 yielding a profit to TII of US $688,750. TII paid the US$5m to SPL in May 1995 but SIL, as a result of delayed delivery, failed to pay the US$5,688,750 in November 1996. TII agreed to assist SPL and on 5 November 1996 entered into an extension agreement by which SPL would pay US$688,750 on 8 November and delivery would be postponed to 9 December 1996. SIL and SPL did not comply and on 9 December the three companies entered into conditional agreements known as “Islamic financing cycle No. 2” extending repayment of the US$5m until May 1998. This second cycle was governed by a “master agreement” one of the pre-conditions to which was that SPL were to obtain permission from the Reserve Bank of India for an extension of this facility. The bank refused so the second cycle never took effect. The bank advised SPL on 28 February 1997 to repay the US$5m to TII. In that month 1997 SPL paid TII US$458,333.33. TII claimed repayment of the US$5m and the outstanding profit of US$230,417 and, after SPL did not pay, TII started arbitration. TII requested arbitration on 17 June 1997. The ICC appointed Mr Samir...
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