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Tribunal’s findings in commodities dispute result in substantial injustice

Insights / / London

PBO v. DONPRO & others [2021] EWHC 1951 (Comm)

While the English Court retains supervisory jurisdiction over English-seated arbitrations, it will generally only interfere with an experienced tribunal’s findings in limited circumstances.

In this commodities dispute, however, the Court found that the way in which the arbitration proceedings had been conducted had resulted in serious irregularity that had caused the Buyer substantial injustice.  The Appeal Board had not complied with its general duty to act fairly as between the parties and, therefore, the Court found it appropriate to remit the case back to the Appeal Board concerned.

The background facts

In 2017, PBO bought cocoa beans from DONPRO pursuant to a number of contracts (DONPRO contracts). DONPRO then assigned the debts under three of the DONPRO contracts/invoices to 2DON. In 2018, PBO entered into 11 contracts with CODON which were allegedly intended to replace the outstanding DONPRO contracts. All the contracts were governed by English law and incorporated the Federation of Cocoa Commerce Contract Rules for Cocoa Beans (FCC Contract Rules) which, in turn, provided for FCC arbitration.  

DONPRO and 2DON claimed against PBO in respect of the three outstanding DONPRO invoices. CODON was joined as a party to the arbitration so that PBO could bring a counterclaim against CODON for non-performance of the CODON contracts and for wrongfully seeking to cancel those contracts. PBO argued that its losses under the CODON contracts should be set off against any amounts owed to DONPRO/2DON.

The FCC first instance tribunal found that PBO was liable to pay the amounts due under the three invoices to DONPRO/2DON. Further, PBO had not declared CODON in default in accordance with FCC Rule 19.1.1. As a result, the shipment periods of the CODON contracts were implicitly extended beyond the original shipment periods such that the contracts remained in force and PBO's counterclaim was rejected.

PBO then sent CODON two contractual notices of default in December 2019 and January 2020 and appealed the award to the Appeal Board. It argued that CODON had not attempted to make any deliveries since receiving the notices of default and that the Board should consequently assess the relevant compensation for non-performance according to the FCC Rules. In addition, prior to the close of the appeal proceedings, PBO sought to amend its statement of case because its new legal representatives had identified a number of new grounds of appeal.

The Appeal Board refused to allow the amendments. It also found that CODON had been entitled to cancel the CODON contracts because PBO had displayed an intention not to perform within Rule 19.5 of the FCC Rules. In respect of PBO’s claim for additional losses relating to jute bags, which had not been raised before the first instance tribunal, the Board held that this fell outside the scope of disputes within its jurisdiction. PBO was ordered to pay DONPRO/2DON the amounts owed under the DONPRO invoices. PBO appealed to the Court. It challenged the award pursuant to s.68 of the Arbitration Act 1996 (the Act), arguing that there had been serious irregularity in the arbitral proceedings causing it substantial injustice.

The Commercial Court decision

The Court found that in deciding that PBO had evinced an intention not to perform within Rule 19.5, the Appeal Board had relied on a combination of matters that had not been put in issue by the parties. In doing so, the Board departed from the way in which the case had been presented by both parties and it did so without warning. Among other things, PBO did not know it was facing an argument based on Rule 19.5 and was not, therefore, given the opportunity to make submissions as the meaning and effect of that Rule. Furthermore, the Sellers had not argued that PBO’s failure to pay certain invoices meant that it had displayed an intention not to perform all the contracts, yet that was what the Board had concluded.

The Board should have warned the parties and given them the opportunity to address the relevant points. It was at least reasonably arguable that had it done so and heard arguments accordingly, it might well have reached a different conclusion and produced a significantly different outcome.

Furthermore, the Board’s jurisdiction over the jute bag claim was not in issue. The Sellers’ arguments as to why the claim should not be allowed were put on a different basis. If the Board wished to consider, of its own motion, whether or not it had jurisdiction, then it should have given the parties the opportunity to address the point. The Court added that, while the additional losses claimed in relation to the jute bags had not been raised earlier, PBO was entitled to raise new issues at the appeal stage because the FCC Arbitration Rules provided that appeal proceedings were new proceedings in which fresh submissions and evidence might be submitted. Again, the Court found there was serious irregularity leading to substantial injustice to PBO.

As to the Board’s refusal to allow PBO to amend its statement of case, s.33 of the Act  imposes a general duty on a tribunal to act fairly and impartially as between the parties, including giving the parties a reasonable opportunity to put their case and to deal with their opponent’s case. While a case management decision would rarely be so unfair as to amount to serious irregularity leading to substantial injustice, the Court found that this was one of those cases.

Specifically, the Board did not: attempt to identify the amendments or consider their perceived merits; address the applicable principles as to whether the amendments should be allowed; or consider the potential prejudice to PBO if the amendments were not allowed. Disputes were best determined on their true merits and there would have been little, if any, prejudice to the Sellers if the amendments had been allowed. The amendments could have led to a significantly different outcome. In conclusion, no reasonable tribunal could have refused the amendments.

The Court, therefore, permitted the proposed amendments and remitted the award back to the Board for reconsideration after receiving submissions from both parties on all matters raised.

Comment

It is clear that challenges under s.68 of the Act have, historically, proven to be difficult to mount.  The English Court, naturally, respects the autonomy of arbitration proceedings and the trade experience of specialist tribunals. However, this case is an example of the Court stepping in where it felt that it was necessary to address procedural irregularities that led to substantial injustice for one of the parties. It clearly considered that, although there was no suggestion of bias, the tribunal had failed in its obligations under s. 33 of the Act to give PBO a voice on important issues, and its failure to do so was prejudicial and offended the tribunal’s duty to allow a party to the reference to raise/respond to points which would determine the outcome of the reference.  

Paul Griffiths

Paul Griffiths Partner

Reema Shour

Reema Shour Professional Support Lawyer

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