Sale of Goods and Arbitration Provisions

SALE OF GOODS

Export Licence Clause Did Not Override GAFTA Prohibition Clause

Several cases have come before the Courts as a result of the Ukrainian Government’s restrictions on export of agricultural products in 2010. In the latest case, Public Company Rise -v- Nibulon, the Commercial Court had to consider the relationship between the ‘prohibition’ clause in a standard GAFTA contract form, and a specially negotiated clause which obliged the seller to obtain an export licence at his own risk and expense. The Ukrainian Government imposed grain export quota restrictions which limited the quantity of grain which would be licensed for export in a stated period. The sellers (R) had contracted to sell three shipments of Ukrainian corn to the buyers (N) but despite their best endeavours they were not granted export licences, so they purported to cancel the three contracts under the prohibition clause (clause 17). N treated this as a repudiation and claimed default damages of more than US$17 million. The GAFTA Appeal Board found in favour of N, on the basis that R had undertaken an absolute obligation to obtain export licences and this overrode clause 17. If there had been a total ban on exports this would have excused R’s non-performance, in the Board’s view, but there was no total ban and licences had in fact been granted for export of 3 million metric tons of grain during the relevant period. On appeal to the Court, the judge took as the starting point that clauses in a contract must be read together where possible, and there is no inconsistency unless that cannot sensibly be done. Although the obligation to obtain export licences was absolute, in the sense that it was not merely an obligation to use best endeavours, it could still be qualified by other clauses in the contract. The Board had in fact accepted that it would be qualified by clause 17 in case of a total ban, but N had argued that this was wrong and the export licence clause overrode clause 17 in all circumstances. The judge disagreed with both of these interpretations. The wording of clause 17 was not limited to absolute prohibition but also covered Government acts restricting export, partially or otherwise. The clause therefore qualified the export licence clause, and would relieve R of its obligation to obtain a licence in case of a partial restriction as well as a total ban. However, the judge confirmed that R still had to prove that their inability to obtain export licences was in fact caused by the quota restrictions, and he remitted the case to the Appeal Board for further findings on this point.

ARBITRATION

Two Decisions Arising From Inconsistent Arbitration Provisions in Charterparties

At the time of negotiating a fixture, the parties and their brokers do not usually expect disputes to arise, and arbitration clauses are rarely discussed in any detail. Two recent cases in the Commercial Court illustrate the kind of problem that can arise as a result. In the first case, Transgrain Shipping -v- Dieulemar Shipping (the ‘Eleni P’), the charterparty included two arbitration clauses, providing for slightly different arbitration procedures. One clause provided for a tribunal of two arbitrators and an umpire, and stated that if the second party failed to appoint an arbitrator within 20 days the first party could appoint a second arbitrator on the other party’s behalf. The other clause was the standard BIMCO arbitration clause, providing for a tribunal of three arbitrators, and stating that if the second party did not appoint an arbitrator within 14 days the first party could appoint its arbitrator as sole arbitrator. A dispute arose as to which clause applied, and who were the validly appointed arbitrators, and this had to be resolved by the Court before the arbitration could proceed. The judge held that the inconsistency should be resolved in favour of the BIMCO clause. Since both clauses referred to the LMAA, and the use of the BIMCO clause was recommended by the LMAA, it was objectively more likely that the parties intended this clause to apply. Accordingly the three arbitrators appointed under this clause had jurisdiction to deal with the dispute on the merits. In the second case, Shagang South Asia Trading -v- Daewoo Logistics, a fixture note stated ‘Arbitration to be held in Hong Kong. English law to be applied’. However, it also referred to ‘other terms/conditions based on Gencon 1994 charterparty’. This charterparty form allows the parties to choose between three options: English law and London arbitration; US law and New York arbitration; or arbitration in a place chosen by the parties, subject to the law of that place. The reference to Hong Kong arbitration and English law did not fit any of those options. The judge pointed out that whilst it is not unusual for parties to specify that the substantive law applying to a dispute is not the law of the country where the arbitration takes place, it is usually implied that the law of that country is the law governing the arbitration procedure itself (sometimes called the ‘curial law’). It would, therefore, be unusual if the parties had intended the arbitration in Hong Kong to be conducted according to English procedural law as set out in the Arbitration Act 1996. In the absence of clear wording indicating that this was their intention, he interpreted the clause in the fixture note as a provision for the dispute to be decided in Hong Kong under Hong Kong procedural law, but with English law as the substantive law governing the dispute. Accordingly, a sole arbitrator who had been appointed under the default provisions of the English Arbitration Act did not have jurisdiction to decide the dispute. In both cases, significant legal costs and delays could have been saved if more care had been taken in drafting the arbitration provisions at the time of concluding the charters.

Reproduced with the kind permission of Mr N Walser, Gateley LLP (NWalser@gateleyuk.com).

 

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