Transition Feeds LLP (formerly known as Advanced Liquid Feeds LLP) v Itochu Europe Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Field |
| Judgment Date | 15 November 2013 |
| Neutral Citation | [2013] EWHC 3629 (Comm) |
| Docket Number | Claim No 2012 Folio 207 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 15 November 2013 |
And in the Matter of An Arbitration Between
[2013] EWHC 3629 (Comm)
Mr Justice Field
Claim No 2012 Folio 207
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
IN AN ARBITRATION CLAIM BETWEEN
The Rolls Building
London EC4 1NL
Simon Rainey QC (instructed by Holman Fenwick Willan LLP) for the Claimant/Buyers
Luke Parsons QC and Paul Toms (instructed by Baker & McKenzie LLP) for the Defendant/Sellers
Hearing dates: 12 November 2013
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.
Introduction
There are two separate sets of applications before the court brought by Transition Feeds LLP, formerly known as Advanced Liquid Feeds LLP ("the Buyers"). The first is an application under section 68(2)(d) of the Arbitration Act 1996 ("the Act") for the remission of an arbitration award made by a FOSFA Board of Appeal ("the Board") and contained in arbitration appeal award no 1049, dated 12 January 2012 ("the Award") in an arbitration between the Buyers and Itochu Europe plc ("the Sellers"). Secondly, there are two appeals under s. 69 of the Act in respect of two further arbitration awards made by the same FOSFA Board of Appeal contained in arbitration appeal award no 1050 dated 12 January 2012 (the " Chemstar Yazoo award") and arbitration appeal award no 1051 dated 12 January 2012 ("the Oak Galaxy award") in two further arbitrations between the Buyers and Sellers.
The background to the s.68 (2) (d) applications
The background to the s. 68(2) applications is as follows. By a contract in writing dated 21 August 2008 ("the Supply Agreement") the Sellers agreed to supply to the Buyers a minimum of 72,000 metric tons per year of Crude Palm Oil Feed Grade ("CPO") and Palm Fatty Acid Distillate ("PFAD") for three years from October 2008 to September 2011 on the basis of delivery "Cif Mersey Gladstone Dock", but with the Buyers' option of discharge at Rotterdam subject to the Sellers' or the shipowners' consent, but without discount.
The supply agreement was subject to FOSFA rules, the FOSFA arbitration clause and, where otherwise applicable, FOSFA contract nos 80 (for CPO) and 81 (for PFAD).
Under clause 2 of both FOSFA contract forms, the Sellers undertook that "At time and place of shipment the oil shall be of good merchantable quality of the agreed description and specifications." Clause 2 of FOSFA 80 for CPO provided in full:
2. QUALITY AND SPECIFICATIONS: Minimum flashpoint of 250° F (121° C).
Free fatty acid should be expressed as Palmitic Acid with a molecular weight of 256.
On shipment: FFA maximum ………….. %.
At time and place of shipment, the oil should be of good merchantable quality of the agreed description and specifications.
If the oil is shipped in more than one tank of the same ship, the analysis details of the oil in each separate tank shall conform to the above.
At discharge: FFA basis ……………… %.
Each per cent FFA over the agreed basis should be credited to Buyers and each per cent FFA below that basis should be paid for by Buyers at the rate of 1% of the contract price, fractions in proportion.
Moisture and impurities: basis pure.
Each per cent moisture and impurities shall be credited to Buyers at the rate of 1% of the contract price, fractions in proportion.
Should the oil on arrival not prove equal to the above, or should the oil contain sea water or other admixture, this contract not to be void, but the oil is to be taken with an allowance to be agreed upon or fixed by arbitration, provided always that the oil shall conform to the above.
The arbitration concerned seven individual contracts, three for CPO and four for PFAD, the goods for which were shipped on board the vessel Chemstar Venus at Dumai, Indonesia, and Pasir Gudang, Malaysia. During the carriage from the Far East and Liverpool, the vessel was seized by Somali pirates and was detained by them from 15 November 2008 to 13 February 2009. As a result of the detention of the vessel and its cargoes, the Buyers contended that the goods were not of contract quality in that they were no longer of good merchantable quality ("GMQ") and would not be allowed to be used in the feed industry for which they had been purchased. The Buyers' stance was prompted by being informed by Product Authentication International ("PAI") that the unambiguous view was that the goods must not be used in feed and by Sefton Borough Council ("Sefton"), the authority responsible for enforcing EU regulations that the goods should not be allowed to enter the food or feed chain. These views were not based on any physical examination of the goods after the vessel had been released from detention but on the fact of the detention itself.
The Buyers proposed that the Sellers withdraw the Chemstar Venus cargoes and replace the shipment with conforming goods on other vessels. The Sellers refused and demanded payment, to which the Buyers responded by saying that that was a repudiatory breach for which they were terminating the contract. In their turn, the Sellers treated the Buyers as being in repudiatory breach and discharged the goods at Rotterdam where they were sold with notice of the hijack and on the basis, in respect of two parcels, that they would not be used in food or the feed chain industries.
There were numerous issues raised in the arbitration before the First Tier Tribunal ("the Tribunal") including whether: (1) the contracts were CIF or ex-tank Liverpool? (2) the Sellers were obliged to deliver goods which, pursuant to section 14(3) of the Sale of Goods Act 1979, were fit for the Buyers' purposes, namely to sell the goods for use in feed; (3) under clause 2 of FOSFA 80 the Sellers were obliged to deliver goods at Liverpool which were GMQ and, if so, whether, pursuant to the Precautionary Principle laid down in Article 7 of EU Regulation 178/2002, and in light of the position taken by PIA and Sefton, the CPO goods would not have been GHQ had they been delivered at Liverpool; (4) the goods were not GMQ on arrival by reason of arsenic contamination; (5) if the Buyers had wrongfully repudiated the contract, the Sellers' measure of damages was the difference between the contract price and the resale prices achieved in Rotterdam or the difference between the contract price and the market value in Liverpool of goods in the condition and of the quality as they were required to be under the contract; (6) on the basis that the CPO would not have been GMT on arrival at Liverpool because it could not have been sold for use in feed or the food chain, the price payable under the CPO contract should be reduced and the Sellers' damages reduced accordingly.
The Tribunal held, inter alia, that: (1) the contracts were CIF contracts and not ex-tank; (2) the Buyers had wrongfully repudiated the contracts; (3) the words "the above" in clause 2 of FOSFA 80 meant the whole clause including the requirement of GMQ at shipment so that the CPO had to be GMQ on arrival, which it was not, because by reason of the position adopted by the regulatory authorities, it could not be used for its intended purpose of sale for use in feed or the food chain; (4) such arsenic contamination as there was did not render the goods non GMQ. (5) the buyers were not entitled to any allowance against the price under clause 2 of FOFSA 80 because the CIF value at Rotterdam was about dollars $600 per ton and the goods had been re-sold at dollar $640 per ton; (6) the sellers were entitled to damages based on the difference between the contract price and the resale price achieved in Rotterdam, the latter being evidence of the value of the goods in the sellers' hands
Both sides appealed to the FOSFA the Board. The Buyers repeated the contentions as to contractual quality of the goods and price allowance under clause 2 of FOSFA 80 that they had advanced before the Tribunal. Thus, the Buyers contended on appeal, inter alia: (1) the goods had to have been of satisfactory quality and fit for their intended purpose pursuant to section 14(2) and (3) of the Sale of Goods Act 1979; (2) the Buyers were entitled to an adjustment of the price under clause 2 of FOSFA 80 because, if the goods had been delivered at Liverpool they would not have been GMQ on arrival there; (3) the Tribunal should have calculated the price allowance by taking the difference between the contract price and the value of the cargo fit for the purpose intended had it arrived at Liverpool; (4) the goods were not GMQ by reason of arsenic contamination; (5) the Sellers had not complied with the obligation to ship GMQ goods because they had not provided loading samples.
The Sellers contended that: (1) the Tribunal had (a) misconstrued clause 2 of FOSFA 80; the words "the above" should be construed as referring only to divergences from the detailed contractual specification as to FFA and moisture and impurities and not to GMQ; (b) misinterpreted the letters from PAI and Sefton which were not legally binding; (2) the precautionary principle had no application; (3) even if the Buyers were entitled to an allowance under clause 2 of FOFSA 80, the Tribunal's decision that the allowance was zero was correct.
In paragraph 4.2(a)(ii) of the Award, the Board summarised the issues raised by the Buyers, inter alia, as follows:
(a) Breaches of contract on the part of Sellers in relation to: (i) … (ii) Duty to ensure goods in conformity with contractual requirements on arrival; in respect of quality, known dealings of Buyers with an awareness as...
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