In the recent case of Palmat NV v Bluequest Resources AG [2023] EWHC 2940 (Comm), the English Commercial Court set aside part of an award rendered in an LCIA arbitration under s68 Arbitration Act 1996 (the 1996 Act) that awarded interest to Bluequest Resources AG (Bluequest) on its arbitration and legal costs, despite Bluequest not having claimed interest on these sums. The Court declined, however, to uphold other challenges made by the award debtor, Palmat NV (Palmat), under s68, alongside Palmat’s challenges to the tribunal’s jurisdiction under s67 of the 1996 Act.
Background
Under an agreement involving CVG Bauxilum SA (Bauxilum), Industria Venezolana de Aluminio CA (Venalum) and a Palmat-related entity, Palmat Venezuela, Palmat Venezuela was to supply Bauxilum with a quantity of liquid caustic soda (LCS) and “would receive as payment in kind aluminium to be produced and supplied by Venalum” (the “Tripartite Agreement“).
In order to perform under the Tripartite Agreement, Palmat in turn entered into two further contracts with Bluequest. The first was concerned with the supply of a quantity of LCS to Palmat (the LCS Contract), which would ultimately be delivered to Bauxilum, while the second was concerned with the delivery of a quantity of aluminium to Bluequest (the Aluminium Agreement). Under the LCS Contract, Palmat was expressly defined as “Buyer” and Bluequest as “Seller“, while under the Aluminium Agreement Palmat was expressly defined as “Seller” and Bluequest” as “Buyer“.
Both the LCS Contract and Aluminium Agreement expressly sought to incorporate the relevant sets of Bluequest’s standard terms and conditions applying to contracts to which it was a party as a “Buyer” or “Seller“. Each set of terms included an arbitration clause providing for London-seated arbitration under the LCIA Rules.
Bluequest shipped the LCS in accordance with the LCS Agreement and Bauxilum ultimately took delivery of the cargo. Despite repeated requests for delivery of the aluminium, Palmat failed to deliver, alleging that the Venalum plant had ceased manufacturing aluminium. Bluequest commenced LCIA proceedings under the LCS Agreement against Palmat for payment for the LCS. In its award, after finding it had jurisdiction and ruling in favour of Bluequest in the dispute, the tribunal awarded interest on Bluequest’s arbitration and legal costs despite Bluequest not claiming interest on these sums. The tribunal additionally awarded interest amounting to US$764,544.08 in respect of the sums claimed, despite Bluequest only claiming US$718,620.11 in interest.
Before the English court, Palmat sought to challenge the award by alleging multiple procedural irregularities and that the tribunal lacked jurisdiction.
Decision
After finding that the LCIA arbitration clause applied and that the tribunal had jurisdiction, the Court dismissed all of Palmat’s challenges under s68 1996 Act, save for that in respect to the award of interest on Bluequest’s arbitration and legal costs.
The s67 Jurisdictional Challenges
For barter or worse: Did the LCIA arbitration clause apply?
Palmat argued that the tribunal did not have jurisdiction as, properly understood, the LCS Contract and the Aluminium Agreement represented a single “barter” transaction in which LCS would be traded for aluminium, rather than two separate sale contracts. Palmat argued that as a matter of law it was not a “Buyer” under the LCS Agreement and Bluequest was not a “Seller”, and therefore the LCIA arbitration clause did not apply as it was contained in standard terms and conditions which applied to contracts where Bluequest was a “Buyer” or “Seller“.
In rejecting this argument, the judge considered that “no reasonable person in possession of all of the information known or readily available to the parties down to the date the [LCS Contract] and Aluminium Agreement were entered into could have concluded that the general conditions were not intended to apply to the parties’ agreement or agreements“. The Court noted that Palmat was expressly defined as “Buyer” and Bluequest as “Seller” and placed weight on the term of the LCS Agreement incorporating the general terms which provided that they “including, but not limited to the arbitration agreement… form an integral part of this contract“. The Court considered that this meant the arbitration clause was to apply regardless of whether the relationship in law was that of seller and buyer.
The judge also concluded, in the alternative, that even though the LCS Contract and Aluminium Agreement ought to be read together, the arrangement was, as a matter of law, two contracts for sale and not a barter transaction. In reaching this conclusion, the Court observed that the LCS Contract specified a price for the LCS, and that there were payment terms to the effect that a cash price would be payable in certain circumstances provided for in the LCS Contract, including in the event that the aluminium was not shipped by a particular date. The Court also looked to the Aluminium Agreement, noting that it too fixed a price for the aluminium to be supplied (paid 100% as against the LCS), and considered that the effect of a clause in that agreement setting off the sums owed in respect of the aluminium as against the price of the LCIA was that the parties contemplated a cash price being payable in whole or in part (in the case of the balance) for the aluminium.
Now or never: Was Bluequest’s claim time barred?
Palmat additionally argued before the Court that the tribunal lacked jurisdiction because of a time bar clause in the LCS Contract. The Court made short shrift of this argument, observing that “on its correct construction, the bar… operates as a one way time bar that operates against Palmat, not against Bluequest“.
S68 – The Interest Challenges
The Court reiterated that where it was alleged that a tribunal had decided a point on which a party did not have a fair opportunity to deal with, the relevant question was whether “the point is “in play” or “in the arena” in the proceedings, even if it is not precisely articulated“, and that this is a fact sensitive inquiry.
Noting that it was “common ground [among Bluequest and Palmat] that interest on arbitration and legal costs was not in play in the relevant sense at the final hearing“, with Bluequest not having made any claim for interest on these costs, and recalling its power under s68 of the 1996 Act to set aside part of an award, the Court had “no hesitation” in setting aside that part of the award. While before the Court Palmat had initially requested the issue be remitted to the tribunal, Bluequest preferred that part of the award simply be set aside on the basis that remitting it would not be cost effective.
The Court refused, however, to set aside the tribunal’s award of interest totalling US$764,544.08 in respect of the sums claimed. The Court considered that the balance of approximately US$46,000 related to interest issues that were, unlike interest on the arbitration and legal costs, “in play” for the purposes of s68, and neither Bluequest nor Palmat had “set out any calculations that would enable [the judge] to analyse whether interest in excess of that claimed by the defendant had been awarded“.
The unsuccessful s68 challenges
The Court rejected the remainder of Palmat’s challenges under s68, which were described by Bluequest as “scattergun“. The Court considered each in turn, noting that they were misconceived or otherwise involved Palmat failing to read the award in a “reasonable and commercial way” or “picking holes and combing through awards to find inconsistencies and faults“, or involved points that were “in play” for the purposes of s68,
Comment
The case serves as a useful reminder that although tribunals in London-seated arbitrations often possess the power to award interest (either under the default provisions of s49 of the 1996 Act or under any applicable institutional rules, here Article 26.4 of the LCIA Rules 2014), parties should still expressly plead or claim any desired interest. The tribunal’s power alone to award interest is not sufficient: like any other issue, the desired interest must be “in play”.
The decision also illustrates the commercial approach of the English courts to determining which disputes parties should be taken as intending to resolve by arbitration in complex sale arrangements and multi-contract transactions. When it comes to determining whether the given dispute falls within the scope of an agreement to arbitrate, English Courts are prepared to go beyond a formalistic analysis of the relationship and consider what commercially minded parties are likely to have intended.
For further information, please contact:
Craig Tevendale, Partner, Herbert Smith Freehills
craig.tevendale@hsf.com
