SOS Corporacion Alimentaria SA v Inerco Trade SA [QBD (Comm)]

JurisdictionEngland & Wales
JudgeMR JUSTICE HAMBLEN,Mr Justice Hamblen
Judgment Date08 February 2010
Neutral Citation[2010] EWHC 162 (Comm)
Docket NumberCase No: 2009/FOLIO NOS. 1381 & 1383
Date08 February 2010
CourtQueen's Bench Division (Commercial Court)

[2010] EWHC 162 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Before: Mr Justice Hamblen

Case No: 2009/FOLIO NOS. 1381 & 1383

Between
(1) Sos Corporación Alimentaria, S. A. (formerly Known as Sos Cuetara S.A.)
Claimants
(2) Mataluni Spa
and
Inerco Trade Sa
Defendant

Mr Simon Picken QC and Ms Josephine Higgs (instructed by Reed Smith LLP) for the Claimants

Mr Michael Collett (instructed by Clyde & Co LLP) for the Defendant

Hearing dates: 27 th January 2010

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.

MR JUSTICE HAMBLEN Mr Justice Hamblen

Mr Justice Hamblen:

INTRODUCTION

1

The Claimants make two applications:

(1) under Section 12 of the Arbitration Act 1996 (“the Act”) for an extension of the time within which they were required to give notice of claim to begin arbitral proceedings; and

(2) for permission to appeal pursuant to Section 69(2)(b) of the Act against awards in the underlying arbitrations, and, if permission is granted, the Claimants appeal.

2

The Claimants have brought claims in two arbitration proceedings conducted under the Rules of Arbitration and Appeal of the Federation of Oils, Seeds and Fats Association Ltd, FOSFA International (“FOSFA”):

(1) The first arbitration (FOSFA Arbitration No. 4048 / FOSFA Appeal No. 984) was commenced by SOS Cuetara SA (“SOS”) and Mataluni SpA (“Mataluni”) (together, “the Claimants” or “the Buyers”) on 1 August 2008 against Inerco Trade SA (“Inerco” or “the Sellers”). The dispute concerns a cargo of about 3,000 metric tons of Ukrainian sunflower seed oil supplied by Inerco that was allegedly found to be contaminated with mineral oil. The cargo was shipped from the Ukraine to Italy aboard the “MT Rhone” and this arbitration is therefore referred to as the “Rhone Arbitration”.

(2) The second arbitration (FOSFA Arbitration No. 4049 / FOSFA Appeal No. 985) was commenced by SOS on 19 August 2008 against Inerco. This dispute concerns another cargo of about 3,000 metric tons of Ukrainian sunflower seed oil supplied by Inerco that was allegedly also found to be contaminated with mineral oil. This cargo was shipped from the Ukraine to Spain aboard the “MT Joran”, and this arbitration is accordingly referred to as the “Joran Arbitration”.

3

In both arbitrations the Sellers contended that the claims were time-barred under the Rules of Arbitration and Appeal of FOSFA (“the FOSFA Rules”). Since both arbitrations involved the same and/or related parties, the parties agreed that the time-bar issue in both arbitrations should be dealt with in a consolidated, preliminary procedure.

4

The Arbitrators concluded in two separate Awards, one for each arbitration, that they should exercise their discretion under Rule 2(d) of the FOSFA Rules to allow the claims to proceed.

5

The Sellers then appealed, and on 22 September 2009, a FOSFA Board of Appeal published two Awards (“the Board's Awards”) reversing the Arbitrators' Awards, refusing to exercise their discretion to allow the claims to proceed and holding that accordingly the claims were time-barred.

Factual Background

6

Both parties have served witness statements setting out the factual background to the claims in the arbitrations: namely, the first witness statement of Shai Wade on behalf of the Claimants and the first witness statement of Michael Swangard on behalf of the Defendant.

7

Both the Rhone and Joran contracts incorporated FOSFA 54, including its arbitration clause; this provides that any dispute would be referred to arbitration in accordance with the FOSFA Rules, Article 2 of which provides, inter alia, as follows (with emphasis supplied):

“2. PROCEDURE FOR CLAIMING ARBITRATION AND TIME LIMITS

(a) Claims on quality and/or condition:

(i) If the claim is not to be supported by certificate/s of contractual analysis/ses, the party claiming arbitration shall despatch the notice of claim with the name of his appointed arbitrator to the other party within 21 consecutive days from the date of completion of discharge of the goods

(b) Claims other than on quality and/or condition shall be notified by the claimant with the name of an arbitrator to the other party and to the Federation within the time limits stipulated in this Rule:

(i) For goods sold

(1) On CIF, CIFFO … and similar contract terms: not later than 120 consecutive days after the expiry of the contract period of shipment or of the date of completion of final discharge of goods whichever period shall last expire.

(d) In the event of non-compliance with any of the preceding provisions of this Rule, and of such non-compliance being raised by the respondents as a defence, claims shall be deemed to be waived and absolutely barred unless the arbitrators, umpire or Board of Appeal referred to in these Rules shall, in their absolute discretion, otherwise determine. Either party has a right of appeal against the arbitrators'/umpire's decision, in which case the Board of Appeal have the same rights as the arbitrators under this clause.”

8

The relevant timings are as follows:

(1) Discharge of the Rhone cargo was completed on 17 December 2007. Accordingly, the Rule 2(a)(i) time-limit for a claim in respect thereof expired on 7 January 2008 and the Rule 2(b)(i)(1) time limit expired on 18 April 2008.

(2) Discharge of the Joran cargo was completed on 3 January 2008. Accordingly, the Rule 2(a)(i) time-limit for a claim in respect thereof expired on 24 January 2008 and the Rule 2(b)(i)(1) time limit expired on 2 May 2008.

9

The Certificates of Analysis issued at loading for both cargos confirmed that the percentages of moisture and impurities, Free Fatty Acids, and Linolenic acids were in accordance with contractual specifications. The testing carried out did not reveal the contamination by mineral oil as, in accordance with what the Buyers' contend is normal practice, the tests did not include analysis for mineral oil.

10

In April 2008, the EU issued an urgent alert concerning industry wide contamination of Ukrainian sunflower oil with mineral oil, following the discovery of such contamination in various shipments. I was referred, by way of example, to the following documents evidencing the emergence of the contamination problem and the industry and regulatory response to it: Minutes of FEDIOL's Crisis Management Meeting in Brussels on 15 April 2008; Minutes of FEDIOL's Crisis Management teleconference on 18 April 2008; FEDIOL's Question & Answer document regarding the current status of the contamination crisis dated 26 April 2008; FEDIOL's statement regarding the contamination dated 27 April 2008; and a Public Ledger report dated 5 May 2008. The European authorities recommended withdrawing contaminated goods to safeguard consumer health as set out in the European Commission alert dated 30 April 2008.

11

As to the Joran contract, SOS became aware of the industry wide contamination issue on 14 April 2008. At that time, it says that it held in Spain stocks of Ukrainian sunflower oil from 13 different shipments, including the Joran oil and that it had already processed and sold, for various uses, a significant quantity of the Joran oil.

12

On 15 April 2008 SOS began testing all stocks to determine which were affected. The Joran oil was identified by such internal analysis as being contaminated on 24 April 2008; and this was confirmed by external testing of the discharge samples by Dr Verwey on 23 May 2008.

13

SOS notified the Sellers of this contamination and the fact that it held the Sellers responsible for any loss arising by a letter dated 16 May 2008, to which the Sellers did not respond.

14

SOS was at this stage engaged in the exercise of recalling all products which contained contaminated oil. Details are given in the statement of Mr Romualdo Lopez San Miguel who oversaw the recall exercise. To give some sense of the scale of this exercise it was said that around 100 SOS employees were engaged on a full-time basis until the end of July 2008, and 3 external companies were employed; 245 customers throughout Spain had received products prepared with contaminated oil; over 6 million bottles of oil and sauces needed to be recalled.

15

SOS contended that the recall exercise, rather than its own financial recovery, was the focus of its immediate attention and that it was not in fact aware of the FOSFA time limits for commencing arbitration. However, when SOS learnt of these from Carapelli at the end of July, it appointed solicitors and commenced the Joran arbitration on 19 August 2008.

16

As to the Rhone contract, SOS says that it had purchased the Rhone cargo as agents for Mataluni, who had sold it to Carapelli, a company within the SOS Group and that Carapelli, only became aware of the industry wide contamination issue towards the end of April 2008—as a result of the EU alert and notifications by the Italian health authorities. At that stage, Carapelli held stocks from 4 separate consignments of Ukrainian sunflower oil, including the Rhone shipment.

17

Carapelli carried out in-house testing on 25, 26 and 27 April 2008 which revealed the fact (but not the extent) of mineral oil contamination in the Rhone oil. The extent of the contamination was not known until the results of a further analysis had been received on 15 May 2008.

18

Carapelli was at this time also engaged in an equally extensive recall exercise, as described in the statement of Nicola Pellero. It is said that in addition to the Rhone oil, two further consignments of oil had been found to be contaminated and all products made from these had to be recalled. The recall process involved 10 Carapelli employees working over approximately 20 weeks, and an...

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