It is with great pleasure that we announce that Monty Birley, having successfully completed his training contract at Jackson Parton, has accepted the post of Assistant Solicitor, continuing the firm’s aim of developing and retaining outstanding legal talent.
Read MoreJackson Parton (Andrew Patrinos and Alex Askew) and Mr Timothy Hill QC (20 Essex Street) acted for the successful Sellers, Alegrow SA, in Alegrow SA v Yayla Argo Gida San ve Nak A.S [2020] EWHC 1845 (Comm).
This was a rare example of a successful appeal of an arbitral award on a point of law under s69 Arbitration Act 1996 (the “Act”), before Mr Justice Henshaw in the Commercial Court (the “Court”). The judge varied and remitted a GAFTA Appeal Board (the “Board”) Award finding that the Board had made an error in law in deciding that the Seller had repudiated its contract with the Buyer, with the Buyer being entitled to treat the contract as having come to an end and so entitled to substantial damages.
Background
The dispute involved a contract for the sale of 24,000 mts of Russian paddy rice Rapan type Crop 2016 CIF FO Mersin. The shipment period was between 1 September 2016 and 15 December 2016 and there were detailed contractual specifications. The rice was to be shipped on various vessels. Two shipments were made. However, the shipment on the mv KIOWA, despite the rice having been inspected and cleared by the GAFTA approved surveyor at the load port, was initially rejected by the Turkish authorities who alleged that there was a presence of nematode (roundworm). As the rice had been produced by the same supplier, harvested from the same fields etc this caused consternation and concern. On 27 February 2017, the Turkish authorities allowed the mv KIOWA to berth and discharge.
In the meantime, the balance of 11,385.58 mts had not been shipped.
On 29 March 2017, the Buyer, Yayla Agro Gida San ve Nek AS, sent an email to the Seller informing them that they had until the evening of 30 March 2017 to provide a shipment schedule and to 15 April to ship the remaining rice. There was no response to this email, nor to an email on 1 April which indicated the Buyer’s intention to bring arbitral proceedings if the Seller failed to respond by 4 April. On 7 April the Buyer confirmed to the Seller that they had referred the matter to arbitration and attached the notice of arbitration.
The Awards
The first tier GAFTA tribunal (“FTT”), having considered the matter on paper, found for the Buyer. The FTT concluded that
“The Buyer having indulged the Seller for a reasonable period of time, finally made time of the essence by their email of 29 March 2017 when they required the Seller to declare by 30 March 2017 the tonnage that would/would not be loaded by the latest shipment date of 15 April 2017 AND WE SO FIND. The Seller failed to respond and on 1 April 2017 the Buyer once again gave notice that they would apply for Arbitration, thereby ending their indulgence if they did not receive a decision by 4 April 2017. With time of the essence once again preserved and the Seller failing to react, the Buyer finally brought the Contract to an end and held the Seller in default on 7 April 2017 and claimed arbitration. WE THEREFORE FIND that the date of default is 7 April 2017.”
The Sellers appealed the decision to the GAFTA Appeal Board and an oral hearing took place. The Board concluded that
“Buyers gave a final deadline to Sellers of 30th March 2017 for them to receive a schedule for the shipment of the outstanding balance. Sellers failed to respond to or meet this deadline and provide a schedule. Buyers notified Sellers of their intention to go to arbitration on 1st April 2017 and declared Sellers in default on 7th April 2017. We therefore uphold the first tier Tribunal’s Award to the extent that Sellers are in default by their failure to provide the balance of rice outstanding of 11,385.580mt rice. It is important to note that Buyers were not, on 29th March 2017, insisting on shipment before the end of March, but were requesting a shipment schedule AND WE FIND THAT the notice gave adequate time for Sellers to provide a schedule.
With regard to the date of default by their failure to respond to the deadline of 30th March 2017, Sellers were in breach of the Contract on the next business day after the deadline for receipt of a schedule for the outstanding shipment and the default date was 31st March 2017.”
The Seller appealed to the English High Court under s69 of the Act, on the following questions of law
“i) “Was the Buyer contractually entitled to demand a ‘shipment schedule’ on 29 March 2017?”; and
ii) “Was the Seller in repudiatory breach of the Contract in failing to provide such a shipment schedule by the Buyer’s deadline of 30 March 2017?”.
The Court’s decision
Despite the fact that “Trade tribunal decisions are generally to be accorded deference where the arbitrators’ experience assists it in determining a question of law, such as the interpretation of contractual documents or correspondence passing between members of an arbitrator’s own trade or industry” Mr Justice Henshaw allowed the Seller’s appeal.
The judge (relying on the judgment in Bunge SA v. Nibulon Trading BV [2013] EWHC 3936 (Comm); [2014] 1 Lloyd’s Rep 393, §§ 35-36 per Walker J, referring to statements of the Court of Appeal in MRI Trading AG v Erdenet Mining Corporation LLC [2013] 1 Lloyd’s Rep. 638) made clear that “the English court strives to uphold arbitration awards”, and accordingly the court should read an award in a “reasonable and commercial way, expecting as is usually the case, that there will be no substantial fault that can be found with it”. Awards should not be read with a “meticulous legal eye endeavouring to pick holes, inconsistencies and faults … and with the object of upsetting or frustrating the process of arbitration”. Moreover, in cases of uncertainty, “the court will, so far as possible, construe the award in such a way as to make it valid rather than invalid”.
In deciding whether a tribunal had dealt with a question of law, English courts should “read [the relevant] paragraphs [in the award] in a fair and reasonable way in the context of the award as a whole. They must not be taken in isolation and subjected to minute textual analysis” (Kershaw Mechanical Services [2006] EWHC 727 (TCC) at [77]-[78] per Jackson J). However, as Popplewell J explained in Novasen v Alimenta [2013] EWHC 345 (Comm), the appropriate degree of deference may sometimes be tempered:
“26. I would naturally be reluctant to differ from a trade tribunal such as the FOSFA Board of Appeal on a question of the interpretation of one of its standard clauses unless I were satisfied that despite the collective experience of the Board it were wrong. Nevertheless in this case the deference due to their views is somewhat tempered by the fact that the tribunal did not articulate any reasoning for their conclusion, either as to the wording of the clause, or as to the commercial considerations which might have influenced the effect which they found the clause to have. …” .
With these considerations in mind, the judge nevertheless came to the view that the FTT reasoning that “ time ceased to be of the essence, but that [the Buyer’s] 29 March 2017 email made it of the essence again, and that on 4 April 2017 [the Buyer] then withdrew its ‘indulgence’ due to [the Seller’s] failure to provide a shipping schedule by 30 March 2017... [which] was in substance a finding of breach by failure to deliver, time having once more become of the essence” was unsupportable. “In order to find time thereby to have been made of the essence again, the FTT would have had to conclude that the period from 29 March to 15 April 2017 was a reasonable time to ship the remaining goods. No such finding is evident from its award. Further, if [the Buyer] had made time of the essence by requiring shipment by 15 April, it could not then in law have treated [the Seller] as in breach for failing in the intervening period to provide a shipment schedule that was not contractually required…”
In analysing the Award, after highlighting a lack of clarity in certain respects, and identifying various inconsistencies in the Board’s reasoning, Mr Justice Henshaw concluded that “it was the failure to respond to the request for a shipment schedule that led the Appeal Board to find [the Seller] to have been in default by 31 March”, and that the Seller’s breach of this obligation to provide a shipment schedule was repudiatory given that, as the judge pointed out, “the Appeal Board made no finding as to where any obligation to provide a shipment schedule is to be found in the Contract, or why one should be implied”.
The Court therefore found that
“i) the Buyer was not contractually entitled to demand a shipment schedule on 29 March 2017; and
ii) the Seller was not in repudiatory breach of the Contract in failing to provide such a schedule by the Buyer’s deadline of 30 March 2017.”
The appeal was allowed and the judge ordered that the Award “must be varied so as to conclude that [the Seller] was not in repudiatory (or renunciatory) breach of the Contract, but that [the Buyer] renounced the Contract by its notice of arbitration”. The Seller’s counterclaim was ordered to be remitted to the Board for determination of liability and quantum.
The Buyer also sought to run an argument based on renunciation. The judge observed that the Board did not explicitly address any case of renunciation, nor record the Buyer’s case as having been advanced on this basis at any time. In those circumstances the Seller had not been “given the opportunity to meet any case based (expressly or in substance) on renunciation”. To decide the case on the basis of renunciation it would have been necessary for the Board to have found that the Seller “had indicated, clearly and unequivocally, that it refused to perform or could not perform.” There was no such finding. Finally, the judge rejected an argument of renunciation by silence.
Points to note
1. In situations where, under a contract, time is of the essence for delivery and such delivery is late the buyer may expressly waive the breach or treat it as a breach of warranty only.
2. However, the parties may also, by a process of mutual affirmation, agree to keep the contract on foot, in which case the seller bound to deliver in a reasonable time when so instructed by the buyer. The question of what amounts to a reasonable time is a matter to be decided based on all the relevant facts that apply at the time.
3. If the buyer has by his words or actions agreed to keep the contract on foot and then made time of the essence again by instructing the seller to deliver within a reasonable time, if he seeks to treat a failure to deliver as a repudiation of the contract before the reasonable time has expired the buyer will be in repudiatory breach of contract which the seller can accept as bringing the contract to an end, entitling the seller to claim any damages that may result.
4. The judgment reiterates the court’s approach and general reluctance to interfere with arbitration awards when parties seek to appeal an award on a question of law under s69 of the Act. Successful challenges are therefore rare under English law but, in appropriate circumstances, where there has been a clear and manifest error of law, this case demonstrates that the court will intervene as the requirements of justice trumps the desire for finality in such circumstances.
5. However, it is important to note that, as s69 is not a mandatory provision, some major arbitral institutions’ rules expressly exclude any right of appeal on a point of law under s69 of the Act and that parties are always free to exclude the right of appeal by appropriate wording in their contracts.
Article Author: Andrew Patrinos
As a result of the current Covid-19 pandemic, much has been written about force majeure clauses in contracts; in particular, whether they can be used to escape contractual obligations.
Under English law the message is clear: the validity of a force majeure claim is governed strictly and exclusively by the specific wording of the contract.
This article provides guidance on force majeure clauses in contracts governed by English law and offers parties three warnings on the usage of force majeure during the Covid-19 pandemic.
Whilst not defined by English law, ‘force majeure’ is generally understood to mean an unforeseeable event, over which the parties have no control, that prevents, hinders, or delays the performance of a contract.
The contract defines the meaning, circumstances, procedure, and effect of force majeure within the context of that specific agreement. There is no separate concept of force majeure in English law aside from this; consequently, without a force majeure clause, neither party will be able to claim its protection.
This means that a party cannot claim force majeure to avoid their obligations during Covid-19, simply because they have become more difficult or expensive to perform. For Covid-19 to constitute force majeure, the contract must prescribe for this to be the case.
Force majeure claims can therefore be complex: parties should think twice before submitting or accepting one.
Parties declaring force majeure due to Covid-19 must do so strictly in accordance with the wording of their contract. If this is not the case, then the claim is likely to be invalid.
(1) There must be a force majeure clause in the contract.
(2) The force majeure event relied upon must fall within the specific events as set out in the clause and the party claiming force majeure must prove that the clause covers the event relied upon.
A contract’s force majeure clause will state how, to what events, and in which circumstances force majeure will apply. Pursuantly, for Covid-19 to constitute force majeure, there must be clear wording in the contract to this effect.
Typically, force majeure clauses refer to an ‘Act of God’, but there has been little guidance on whether Covid-19 amounts to this. Reference to more specific events in the clause, such as ‘epidemics’, plagues’ or ‘pandemics, are more likely to encompass Covid-19 situations, as are ‘quarantine’, ‘embargo’, and ‘government action’, which may include trade restrictions or vessel quarantines, that prevent or hinder performance.
Quite often a general catch all provision is included at the end of the list of events defined as force majeure in the contract. These apparently wide-ranging provisions should be treated with caution since, depending on the precise words used, an English court may limit the apparent generality to events similar in kind to those specifically listed earlier in the clause.
For a valid force majeure claim, the claiming party must prove that the facts fit the exact wording of an event in the clause. Failing this, there will be no force majeure and the parties’ contractual obligations will continue.
(3) The party seeking to rely on the clause must comply with the procedural requirements prescribed by the clause.
The mere occurrence of a force majeure event will not necessarily mean that a party is entitled to walk away from or suspend the performance of a contract. Often force majeure clauses prescribe notice requirements and limitation periods as well. These must be complied with strictly, or the right to invoke the force majeure clause may be lost for that claim.
(4) The event must be beyond the party’s control and the party must have taken steps to mitigate the event’s effect on the contract.
The party relying on the clause must demonstrate that their inability to perform was neither their own, nor their agent’s fault. Accordingly, if their unreasonable act or omission contributed to the occurrence of the event, or if they could have mitigated the effect of the event by taking reasonable steps, then it is unlikely that they will be able to successfully claim force majeure.
This is primarily a question of fact. For example, in contracts concluded after the initial outbreak in Wuhan, an issue may be whether the effect of Covid-19 on the contract was reasonably foreseeable, and/or open to mitigation. Indeed, if the parties were aware of Covid-19 at the time of contracting, then it may be arguable that ‘quarantine’ or ‘government action’ was foreseeable in certain locations.
If that were the case, the party’s claim to force majeure may be invalid. Their counterparty may point out, that both parties agreed to the contract with their eyes open, when Covid-19 was a known risk. Furthermore, they may maintain that the virus’ impact on performance could have been mitigated by, perhaps, the party considering whether to perform at an alternative, unaffected and contractually permitted location. Fundamentally, if the party may have foreseen, or exercised, a degree of control over the occurrence or impact of the event, then their claim is likely to fail.
Note: There may also be other clauses in the contract which need to be considered in such circumstances (such as one of the BIMCO Infectious or Contagious Diseases Clauses, or the safe port clause).
(5) The consequences of the force majeure event must have caused the contractually agreed effect on performance (usually either impossibility, hindrance or delay).
It is very important to note that, absent specific wording in the relevant clause, economic hardship does not qualify as force majeure under English law (i.e. insufficient cashflow or a market downturn as a result of Covid-19). Equally, it is not a force majeure, where prior to the occurrence of an otherwise valid force majeure event, the claiming party was already unable or not intending to fulfil performance for financial reasons.
(6) Any additional requirements of the clause must also be complied with.
If all the conditions are met, then the clause will set out if a party’s contractual obligations are suspended or terminated. It should also be noted that if every aspect of the clause is not complied with entirely, then the party claiming force majeure could be liable in damages for the wrongful repudiation of the contract.
If there is no express provision allowing for termination, then the only way for the contract to be validly ended, absent agreement, is by placing reliance on the doctrine of frustration; yet this is notoriously difficult to substantiate under English law. A negotiated extension, suspension or alteration of obligations may therefore offer parties a superior and more commercial route.
The economic fallout following Covid-19 has presented businesses with significant challenges. Performing previously negotiated contracts may be difficult, undesirable or impossible as a result of the pandemic. Force majeure clauses, however, are not to be regarded as general purpose escape clauses and may not be applied solely for economic reasons.
A good example of this has been the increase in force majeure claims in long-term commodity supply contracts. Although some of these claims will be valid, others may simply be responses to market volatility. In trading circles these have been coined as ‘price majeure’ claims, meaning a claim of force majeure borne out of a price drop, as opposed to contractually defined circumstances arising.
A party should consider whether there is a genuine force majeure event under the contract, or whether the purported reliance on the clause is a disguised attempt to escape from the contract due to economic hardship.
This is clearly fertile ground for disputes. For example, in February 2020, it was reported that Shell and Total rejected the force majeure notices served by CNOOC, China’s largest importer of LNG, on the ground that, despite a record crash in LNG prices, the event was not covered by the contract.
Similarly, facing the biggest slowdown in Indian economic growth in the 21st century, it was reported that Oil India Limited, Adani Ports and The Uttar Pradesh Power Corporation Limited respectively declared force majeure in their supply contracts.
Under English law, claims of force majeure are unlikely be valid if their basis is solely economic in nature, but, of course, each case will depend on its individual facts and the contractual terms agreed. Parties should therefore always look carefully at the specific wording of the contract, whilst being on guard against price majeure tendencies in the market.
During the current epidemic, China has endorsed its companies’ use of force majeure clauses in unfavourable international supply contracts. In similar circumstances, India has condemned force majeure claims in order to protect the cashflow of essential domestic companies.
It is reported that in February 2020, the China Council for the Promotion of International Trade (CCPIT) began issuing ‘force majeure certificates’ to companies whose contracts had been affected by the impact of Covid-19. As of 25 March, it was estimated that the authority had issued 6,454 certificates, covering a total contract value of circa $89.42 billion.
Under English law, force majeure is governed by the contract alone: the policy of a government will only be determinative where the contract provides for this to be the case.
Unless the contract provides otherwise, a state-endorsed force majeure certificate, issued on the basis of local law’s definition of force majeure, will not necessarily amount to conclusive evidence of the validity of a claim to force majeure under English law.
Accordingly, before accepting at face value such a notice from any government body or authority, it is recommended that a party consider the terms of the contract very carefully.
Force majeure claims are usually far more complex than they first appear. They frequently involve complicated questions of law and fact which can have significant commercial consequences. A party who accepts an invalid claim may lose the benefit of their contract; a party who submits an invalid claim may be liable in damages for a repudiatory breach of contract. Under English law the message is clear: the validity of a force majeure claim is governed strictly and exclusively by the specific wording of the contract.
Economic hardship caused by a global pandemic or state-backed certificates will not change this. If someone seeks to rely on force majeure to avoid their contractual obligations, we suggest the first step is to obtain proper legal advice.
Article Authors: Jonathan Clyne, Partner, and Monty Birley, Trainee Solicitor.
Jonathan Clyne of Jackson Parton successfully acted for the Appellants/Claimants, Simetra Global Assets Ltd and Richcroft Investments Ltd, in an appeal against the judgment of Mr. Justice Robin Knowles CBE given in October 2018.
The Claimants alleged they were victims of a Ponzi scheme operated by a Mr George Daskaleas and companies controlled by him, with the assistance of a number of companies and individuals in the Ikon Group of companies. The Claimants’ claims against the Ikon Group of companies and individuals for dishonest assistance in the fraudulent Ponzi scheme and for deceit were dismissed by Mr Justice Robin Knowles CBE in a surprisingly brief 13 page judgment following a 3 week trial in the Commercial Court. The Claimants appealed, at which stage Jackson Parton were instructed.
Only the Ikon Group companies and individuals took part in the appeal. Lord Justice Males, with whom Lord Justice McCombe and Lord Justice Peter Jackson agreed, found in favour of the Appellants, that the Appellants’ submissions were well founded and that, however unpalatable the prospect, a retrial was the only just course.
In the appeal the Appellants contended that the judgment at first instance failed to address many of the issues which arose at trial, the conclusions of the judge were cursory and his reasoning was limited, he failed properly to analyse the witness and documentary evidence on a number of critical issues and as a result many of his findings were unexplained and unjust. The Appellants therefore argued justice required a retrial before a different judge.
For the Court of Appeal to order a retrial before a different Commercial Court judge is an extremely rare occurrence. The court held “that there was a plainly arguable case of dishonesty on the part of Ikon which needed to be addressed and with which the judge did not engage, and that the judge’s findings on the absence of reliance are inadequately reasoned” They also held that “this judgment plainly does not take into account the evidence which needed to be taken into account”.
The Court of Appeal judgment briefly summarises the law on dishonest assistance in breach of a fiduciary duty, deceit and conspiracy, the approach of an appellate court to the judge’s findings of fact and contains important guidance on the requirements for a properly reasoned judgment. After citing the relevant authorities, drawing especially from Flannery v Halifax Estate Agencies Ltdand English v Emery Reimbold & Strick Ltd, Males LJ summarised, without attempting to be comprehensive or prescriptive, what is required in a judgment:
“First, succinctness is as desirable in a judgment as it is in counsel’s submissions, but short judgments must be careful judgments. Second, it is not necessary to deal expressly with every point, but a judge must say enough to show that care has been taken and that the evidence as a whole has been properly considered. Which points need to be dealt with and which can be omitted itself requires an exercise of judgment. Third, the best way to demonstrate the exercise of the necessary care is to make use of “the building blocks of the reasoned judicial process” by identifying the issues which need to be decided, marshalling (however briefly and without needing to recite every point) the evidence which bears on those issues, and giving reasons why the principally relevant evidence is either accepted or rejected as unreliable. Fourth, and in particular, fairness requires that a judge should deal with apparently compelling evidence, where it exists, which is contrary to the conclusion which he proposes to reach and explain why he does not accept it.”
He also made clear that, if these requirements were not followed, the reasoning of the judgment would need to be particularly cogent if it was to satisfy the demands of justice.
In the judgment, Males LJ also emphasised the importance of contemporary documents and especially instantaneous messages, which nowadays, in his view, are “where true thoughts are plain to see”. When considering documents that appeared on their face to provide cogent evidence contrary to the judge’s conclusion, the judge ought to have considered the oral evidence in the light of the telling contemporaneous documentation.
This judgment is a great result for our clients and goes to show what can be achieved by our small, but very effective, team, working closely with counsel. One lesson learned, which is of particular importance to our more usual shipping and international trade clients, is that the courts will place considerable reliance on the contemporaneous documentary evidence, which these days will include instantaneous communications such as WhatsApp, Viber and other similar instantaneous messages. When these are available they can be extremely revealing of what is really going on in the minds of the parties involved in a dispute. Whilst disclosure is often a hotly contested part of the litigation process, obtaining copies of this type of unofficial correspondence, required to be disclosed under the Civil Procedure Rules, can be vital to a successful, and just, outcome.
View full judgement of Simetra Global Assets Limited v IKON Finance Limited.
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