PUBLISHED AWARDS SERVICE
Claimant: Sellers Date of Award 3 February 2010
Commodity: Sunflowerseeds 1.0 INTRODUCTION
1.1 The dispute concerned whether or not there was a legally binding contract and, if so, whether there were damages for non-performance. In this Award we have referred to the parties as “Sellers” and “Buyers” for the sake of clarity and convenience.
1.2 By an alleged contract dated 29 September 2008, Sellers sold and Buyers bought about 3,000 metric tons Black Sea origin Sunflowerseeds in bulk, for shipment 1-15 November 2008 at a price of US$417.00 per metric ton CIFFO named Black Sea Port.
1.3 The terms of the alleged contract were set out in a Confirmation issued by First named Broker. The terms included the terms of FOSFA Contract No 11 and the FOSFA Rules of Arbitration and Appeal. 1.4 FOSFA Contract No 11 was governed by English law. The FOSFA Rules of Arbitration and Appeal
incorporated the Arbitration Act 1996, by section 3 of which the seat of the arbitration is England.
1.5 Disputes arose between the parties which were referred to arbitration at FOSFA in London. Sellers appointed an Arbitrator on 7 November 2008. Buyers did not appoint an Arbitrator and, on application to FOSFA, an Arbitrator was officially appointed.
1.6 Both parties made three submissions each to the Arbitrators, written for them by firms of lawyers. The submissions came to an end at the end of August 2009, and we proceeded to this our Award.
2.0 THE ALLEGED CONTRACT
2.1 The alleged contract contained the following relevant terms:
“COMMODITY: Black Sea Origin Sunflowerseeds – suitable for oil extraction. Good merchantable quality. In bulk.
PAYMENT : 10% pre-payment to be wire transferred latest by Friday, October 10, 2008. Balance to be paid as cash …
SPECIAL CONDITIONS : ….
Proforma invoice with FOB, Freight and Insurance price breakdown and showing quantity at the maximum tonnage allowed by contract and a separate declaration that shows [Buyers] as the buyers and [Sellers] as the sellers, stating that the quantity to be shipped consist of 100% sunflower seeds, is to be presented to buyers latest by October 10, 2008.
All other conditions as per FOSFA 11, including arbitration, when not in condition (sic) with the above.
We kindly ask you to sign and return the attached copy of this contract. The validity of this contract is unaffected by the non-return of the countersigned copy.”
3.0 CORRESPONDENCE
3.1 All dates are 2008 unless otherwise stated.
3.2 On 1 October, Sellers sent their invoice for the pre-payment in the sum of US$125,100.00. 3.3 On 10 October, the Broker wrote to Sellers as follows:
“I had a long and heated argument with [Buyers’] general manager today upon discovering that they failed to make their 10% pre-payment for our contract. I have been in touch with them the last few days checking daily regarding their pre-payment plan and latest as of yester (sic) I was told that all was in order.
apparently had a number of its customers default on their contracts and renegotiated their orders. Due to these cancellations, [Buyers’] general manager asked me if you could ship only the 1500 MT portion of their contract. I know that freight wise, this is not very viable, but at least they are not walking out of the entire contract quantity.
Please don’t get the impression that I find this to be acceptable or tolerable. I already had a huge fight with them explaining their contractual obligations and the unacceptability of their actions. However, it is my duty to inform you of this development and work on resolving it. We may perhaps find a way to get them to perform in the coming days, however, if you will put them on default, it would be better to do it earlier than later as any further drop in market prices will create a large market differential, which will be harder to collect.”
3.4 On 13 October, Sellers held Buyers in default in failing to comply with the 10% pre-payment requirement.
3.5 On 27 October, Buyers wrote to the Brokers stating “as we expressed to you many times in our telephone conversations, in this matter, we have no requests that have been approved with [Sellers] and your company.”
3.6 On 3 November, Sellers sold 3,000 metric tons Ukrainian/Moldavian Sunflowerseeds suitable for oil extraction to named Company at US$312.00 per metric ton CIFFO one Marmara Sea Port (or US$316.00 per metric ton CIFFO named Mediterranean Sea Port) for shipment 18-30 November. 4.0 SUBMISSIONS
4.1 Sellers submitted that a legally-binding contract had been concluded, and that Buyers were in breach for failing to make the pre-payment on 10 October. They claimed the sum of US$315,000.00 being the difference between the contract price of US$417.00 per metric ton and the sale price to named Company of US$312.00 per metric ton, based on the mean contract quantity. In addition, Sellers claimed interest and costs.
4.2 Buyers contended that no contract had been signed. As a State-owned company, contracts were customarily signed and stamped by its officers. As an example they provided a copy of a previous contract with Sellers which had been signed and stamped. As they (Buyers) had not signed and stamped the contract, they could not be deemed to have accepted the terms, and therefore the contract did not exist. Accordingly the arbitrators had no jurisdiction.
4.3 Buyers referred to the Clause in the confirmation which requested a signed copy to be returned to the Brokers. It was not signed, and therefore it was not accepted.
4.4 Sellers contended that the absence of a signature was not a bar to a binding contract having been concluded. Sellers submitted that it was trite law that a contract was concluded upon acceptance of an offer, and provided a Witness Statement from the Broker in which he confirmed that the offer had been accepted orally. The Broker had included on the confirmation a provision that the validity was not affected by the non-return of a countersigned copy. Therefore, in Sellers’ view, the absence of a signed confirmation was irrelevant.
4.5 The Witness Statement from Mr A stated that he had conducted negotiations with Mr B, Buyers’ Purchasing Manager. Mr A stated that he had been specifically assured by Mr B that he (Mr B) had authority to conclude the contract and that it was in fact concluded on 29 September. Mr A stated that he had forwarded the typed confirmation to Buyers on 3 October and that, during the week of 6 October, Mr B had assured him that everything was in order.
4.6 However, according to Mr A, on 10 October he learnt that Buyers had not made the pre-payment. He speculated that the reason was the 10% devaluation of the Turkish lire against the US Dollar. Thereafter he had several telephone calls with Buyers. During these discussions, the General Manager, Mr C, asked him if Sellers would consider shipping half of the contracted quantity and there were discussions up to 26 October, but nothing was agreed.
4.7 Sellers contended that there would have been no need for Buyers to propose amendments to the contracts, as explained by Mr A, if no contract had been concluded in the first place.
4.8 Buyers contended that, as a state-owned company, they were obliged to record all transactions in accordance with the principles of transparency to be approved by their Board of Directors. The crucial procedure was therefore the signing and stamping of the confirmation to demonstrate approval of the transaction. As evidence, Buyers provided copies of 7 contracts (including two with Sellers) which were signed and stamped. Transactions only came into effect on signing and stamping. Buyers did not deny
that there had been negotiations but the essential final consent, evidenced by the signing and stamping, was not given. They had advised the Brokers accordingly, as evidenced by their message of 27 October. 4.9 Furthermore, any dispute on the subject of party authority should be resolved according to the law of the
relevant company.
4.10 Buyers noted that some of Mr A’s messages had been sent to a different broker, Mr D of Second named Broker. Buyers pointed out that Mr D had no authority from Buyers and those messages should be disregarded. As those messages were not central to the dispute, we do indeed disregard them.
4.11 Sellers contended that neither they nor Mr A had received signed and stamped copies of previous contracts. Both those previous contracts had been performed and thus it was evident that it was not necessary to obtain signed and stamped copies of contracts in order to perform.
5.0 FINDINGS
5.1 The FOSFA Arbitration Rules provide that arbitrators can investigate their own jurisdiction. Rule 5(a) states: “The arbitrators may rule on their own jurisdiction as to whether there is a valid arbitration agreement”. The confirmation before us referred expressly to a FOSFA form of contract and to its Arbitration Clause. Under the doctrine of “Kompetenz-Kompetenz”, the terms of the contract for the sale of goods and the contractual arbitration agreement may be separable. Accordingly we are entitled to investigate our own jurisdiction and to find that we have jurisdiction over the dispute, even if we find that the contract for the sale of goods was not properly concluded.
5.2 It was common ground that there had been negotiations up to 29 September and it was common ground that there had been conversations after 10 October.
5.3 The crux of Buyers’ case was that final authority to conclude the contract had not been given, and that authorisation would be demonstrated by the signing and stamping of the contract terms sent to them by the Brokers. As a State-owned company, final authorisation had to come from a Board of Directors. 5.4 Buyers contended that this had been the practice with other contracts they had concluded. This “course
of dealing” point was somewhat undermined by the absence, in Sellers’ files, of signed and stamped confirmations of previous transactions.
5.5 It was noteworthy, however, that the previous transactions adduced in evidence by Buyers all referred to FOSFA forms of contracts. All FOSFA forms of contract are subject to English law in accordance with the Domicile Clause:
“28. DOMICILE: This contract shall be deemed to have been made in England and the construction, validity and performance thereof shall be governed in all respects by English Law. Any dispute arising out of or in connection therewith shall be submitted to arbitration in accordance with the Rules of the Federation. The serving of proceedings upon any party by sending same to their last known address together with leaving a copy of such proceedings at the offices of the Federation shall be deemed good service, rule of law or equity to the contrary notwithstanding.”
5.6 The alleged contract also referred to FOSFA terms and WE FIND THEREFORE THAT the construction and validity of the contract is subject to English law. Under English law, a contract is formed when an offer has been unequivocally accepted. Mr A, in his Witness Statement, stated that the offer was accepted on the telephone; the contract document was therefore no more than a confirmation of what had been agreed on the telephone, but nevertheless good evidence of what had been agreed. There was no proviso making the agreement subject to further confirmation from Buyers and, crucially, there was no witness statement from Buyers contesting Mr A’s evidence.
5.7 WE FIND THEREFORE THAT the contract was validly concluded and is binding on the parties.
5.8 We are supported in this finding by the fact that Buyers made no objection or reservation on the terms of the contract until 10 October; if they had contested the validity of the contract, then surely they would have done so on receipt and not a week later.
5.9 Having found that the contract was validly concluded, we turn now to the default and the damages claimed. The contract required Buyers to make a pre-payment by 10 October. They did not object to Sellers’ invoice dated 1 October and did not pay. The pre-payment was a condition of the contract, and Buyers’ failure to pay it was a breach of that condition, AND WE FIND THAT Sellers were therefore entitled to terminate the contract and seek damages.
5.10 Sellers provided evidence of a contract sold to named Company on 3 November, some three weeks after the breach. The goods under this contract were sold either to a port in the Marmara Sea or named Mediterranean Sea Port, whereas the goods in the contract in dispute were sold to named Black Sea Port on the Black Sea coast. In terms of distance, named Black Sea Port was further from the possible loading ports than Marmara, and so for comparison purposes we preferred to use the named Company price to named Mediterranean Sea Port. The named Company contract was not ideal evidence of the market price, but it was not contested and no other evidence was provided. Accordingly we accept the sale to named Company as good evidence of the market.
5.11 WE FIND THEREFORE THAT Sellers are entitled to damages of US$315,000.00 in accordance with their claim.
5.12 We have awarded interest at a commercial rate from the day after the breach. Sellers had claimed on the basis of 8% per annum but we considered this to be excessive.
5.13 Sellers claimed their costs. It was not clear to us if they intended to include their legal costs. If they did, we will exclude them: this was a straightforward case with little or no content requiring legal analysis. The costs of the arbitration, however, shall be for Buyers’ account.
6.0 AWARD
6.1 WE DO HEREBY AWARD THAT Buyers are in default and shall pay damages to Sellers in the sum of US$315,000.00 (Three Hundred and Fifteen Thousand United States Dollars), calculated as the difference between the contract price of US$417.00 per metric ton and the market price of US$312.00 per metric ton applied to the mean contract quantity of 3,000 metric tons, together with interest at 5% (Five per Cent) per annum, compounded three-monthly, from 11 October 2008 to the date of payment of this Award.
6.2 WE FURTHER AWARD THAT each party shall bear its own legal fees.
6.3 WE FURTHER AWARD THAT the fees, costs and expenses of this Award shall be for Buyers’ account. If Sellers have paid any or all such costs in the first instance, they shall be entitled to immediate reimbursement.
6.4 WE FURTHER AWARD THAT Buyers shall pay to Sellers the fee paid for the official appointment of an Arbitrator on Respondents’ behalf.
THIS AWARD WAS SUBJECTED TO APPEAL BY BUYERS THE AWARD OF THE APPEAL BOARD IS SET OUT BELOW
PUBLISHED AWARDS SERVICE
Appellant: Buyers Date of Award 5 November 2010
Commodity: Sunflowerseeds
We, the Board, having met to hear the Appeal lodged by Buyers against Award of Arbitration dated 3 February 2010, DO HEREBY FIND, DETERMINE AND AWARD as follows.
1.0 BACKGROUND
1.1 In the First Tier Arbitration, named Lawyers, acting on behalf of Appellants, submitted, as a defence to claim(s) against their clients, that no contract had been concluded between themselves as buyers and Respondents as sellers. The Tribunal, however, found that a contract was entered into on 29 September 2008 and awarded damages for Buyers’ non-performance of the Contract in the sum of US$315,000.00. 1.2 This Appeal against the First Tier Arbitration award was lodged on behalf of Appellants in accordance
with the FOSFA Rules of Arbitration and Appeal. 2.0 RECORD OF PROCEEDINGS AT APPEAL
All dates in this section are 2010, unless stated otherwise.
2.1 On 11 March, the lawyers acting for Appellants, lodged their appeal at FOSFA with their notice of appeal in copy to both Respondents, and to their acting lawyers at First Tier.
2.2 The deposit required on account for appeal fees, costs and expenses was paid by Appellants within 7 days in accordance with Rule 7(b) of the FOSFA Rules of Arbitration and Appeal.
2.3 The Federation acknowledged receipt of the deposit in a faxed letter dated 15 March, which also called upon the parties to nominate representatives at the appeal and advised that a hearing would be scheduled within eight to ten weeks.
2.4 On 31 March, Appellants’ lawyers provided to Respondents, their lawyers and the Federation a copy of their Outline Reasons for Appeal in accordance with Rule 7(d).
2.5 By an email dated 11 May, Respondents’ lawyers declared their intention to have named Trade Representative represent them at the Appeal, but sought details of the likely scheduling of the hearing in order to confirm his availability.
2.6 In reply on 20 May, copied to Appellants, FOSFA indicated that a hearing was being considered for either the period 12 – 15 July or 19 –22 July for a one day anticipated hearing. Respondents were asked if this matched their nominated representative’s availability.
2.7 Respondents’ Lawyers replied that named Trade Representative was not available in July and sought a scheduling of the hearing in the second half of August.
2.8 In reply on 2 June, FOSFA highlighted the problem of constituting appeal boards for an August hearing and suggested to both parties that, in the alternative, September might be considered. In the same communication it was recorded that Appellants had yet to nominate their representative. Subsequently, in fact, FOSFA were able to schedule a Hearing for August.
2.9 On 11 June, the Federation notified the parties that it had set a Board and fixed the Appeal Hearing at the FOSFA offices for Tuesday 24 August. The same letter advised the constitution of the Board. At the conclusion of the letter sent by fax, the Federation, once again, sought the details of Appellants’ representative at the hearing, requesting that Respondents also be notified of their nomination. A transmission error or oversight of the sending of the second page of this faxed letter was rectified on 15 June following an email request from Appellants’ lawyers.
2.10 On 5 July, Respondents asked FOSFA if Appellants had nominated a representative in order to arrange/coordinate any evidence exchange and hearing documentation. Appellants were put in copy of this email.
2.11 By a fax letter dated 6 July, the Federation, under the directions provided by the Board Chairman provided both parties with a timetable for the exchange of new evidence and/or case law and applicable procedures. The letter also called upon Appellants, once again and as soon as possible, to provide details of their representative.
2.12 On 16 July, Appellants’ lawyers sought an extension of time of 3 days to provide to Respondents with their evidence and the name of the person who would represent them at the hearing. On Monday 19 July, Respondents’ Lawyers agreed to the extension of time on the basis that it was to be final, that no further extension of time would be granted, and that there was to be no change to the date of the scheduled hearing due to a non-availability of any representative nominated on behalf of Appellants. 2.13 By a fax on 20 July, FOSFA acknowledged the agreed extension of time, but pointed out that the
nomination of a representative was not a time driven rule procedure which Respondents were now trying to impose, but was necessary not only as advice to the other party but also a matter for the Board to determine eligibility if any objection was raised to the nominee. In addition, the Federation’s faxed letter pointed out that procedurally the Board was unlikely to grant a postponement of a fixed hearing date on the basis of a deliberate and late notification of an unavailable trade representative. The same letter called upon Appellants to declare their representative.
2.14 On 23 July, by fax and post Appellants’ Lawyers nominated Ms E to represent Appellants at the scheduled hearing on 24 August. FOSFA, on the same day, by fax, sought clarification as to the status/ capacity of the nomination, to which they replied immediately that she was an employee of their firm and a practising lawyer.
2.15 Also on 23 July, FOSFA highlighted the eligibility criteria for representatives at FOSFA appeals in accordance with the Rules. The letter, copied to Respondents, stated:
“I refer to your reply of today concerning the details of [Ms E].
Please be referred to the Federation’s Rules of Arbitration and Appeal, in particular, Rule 9(a) which states:
“9. PROCEDURE AT APPEALS
(a) Each party may state their case orally and/or in writing and may appear either personally or be represented by a listed representative in the appropriate section of a Trading, Full Broker or Full Non-Trading member of the Federation and duly appointed in writing, but shall not be represented by or have present at the hearing of such appeal, Counsel or Solicitor, or any member of the legal profession wholly or principally engaged in legal practice, unless, at the sole discretion of the Board of Appeal, the case is of special importance, and in such cases the other party shall have the same rights.””
2.16 Aside from the question of representation it is relevant to record Appellants’ conduct regarding the provision of their evidence. Following the agreement between the parties to serve Appellants’ evidence by latest 23 July, on 26 July Respondents, who had not received any evidence, enquired with the Federation as to whether or not any evidence had been received at the FOSFA offices. The Federation, in response on the same day, confirmed that they had received neither evidence nor any message relating to the provision of evidence from Appellants.
2.17 On 30 July, following an application made on behalf of Respondents, the Board issued a Peremptory Order requiring service of Appellants’ evidence by latest 6 August, failing which they (the Board) would be at liberty to determine issues on the basis of Respondents’ evidence only.
2.18 Since no evidence was served by Appellants by the set deadline, Respondents applied to the Board for the appeal to be dismissed. In an Order dated 10 August, however, the Board declined the application to dismiss the appeal but granted Respondents additional time, until latest 16 August, to serve their bundle of evidence, which was subsequently duly received.
2.19 On 19 August, with reference to the Federation’s letter dated 11 June, Appellants’ lawyers faxed a letter stating that they intended to rely on their Outline Reasons of Appeal (served as recorded at 2.4 above) and on three sets of the First Tier Defence Submissions, dated 27 January, 15 May and 21 August 2009. Appellants’ documentation was delivered to the FOSFA offices, and to Respondents’ Lawyers, on 23 August.
2.20 Also on 19 August, the Federation once again sought details of the name of the person who would represent Appellants at the Appeal Hearing. No answer to this enquiry was received.
2.21 On Tuesday 24 August at 10.30 hours, the Board, as notified to the parties and recorded at 2.9 above, convened at the FOSFA offices to hear the Appeal. Whereas Respondents’ Representative was in attendance no representative was there on behalf of Appellants. After waiting ten minutes the Chairman asked the Secretary to the Board to enquire whether Appellants were likely or intending to be present. Over a further 40 minute period during which two telephone calls to Appellants’ law firm offices were made, promises were given that one or other of the case handlers would be contacted and asked to telephone the FOSFA offices as a matter of priority. Despite the promises no communication was received from Appellants’ Lawyers although it was ascertained that Ms E (Appellants’ nominated Representative as recorded at 2.14) was in Istanbul that morning and therefore incapable of attending this hearing in London.
2.22 Notwithstanding the disrespect shown on behalf of Appellants to the FOSFA Appeal process, after due consideration the Board, having taken into account representations made on behalf of Respondents, agreed and directed that the hearing should proceed on the basis that Appellants’ Outline Reasons of Appeal would be treated as their ‘submissions’ and the Defence Submissions at first tier arbitration would be admitted for consideration. Respondents would then be granted an audience to present their submissions at appeal together with the evidence relied upon, which had been previously served to FOSFA and to Appellants’ Lawyers as recorded at 2.18, the hearing was conducted accordingly.
2.23 After the presentation by Respondents’ Trade Representative’s response to the Appeal, the Chairman declared submissions and the hearing closed and directed the Secretary to the Board to convey a message to Appellants accordingly together with a summary of the process adopted and followed by the Board.
3.0 APPELLANTS’ CASE
3.1 We set out below a verbatim recital of the Reasons for Appeal as served by Appellants’ Lawyers (2.4 above refers):
“Ref: Reasons for Appeal of the Award of Arbitration No: [ ] Dated 3rd February, 2010 between [Respondents] (the “Claimant”) and [Appellants] (the Appellant”)
Reasons for Appeal
1. Please kindly accept the below mentioned reasons for appeal of the Appellant, [Appellants] in respect of the Award of Arbitration No: [ ].
2. As explained previously in our defence submissions, the Appellant being a State owned company has duty to sign and stamp every transaction that he enters. This matter has been evidenced to the Arbitral Tribunal through the submissions of the previous contracts which were executed between the Appellant and the Claimant and/or different companies established in Europe. Accordingly, Contract No. [ ] has never been approved by the Appellant therefore signed and stamped copy of the contract has never been returned to the Claimant or the Claimant’s broker [Mr A].
3. If one looks through the file, specifically to the documents, which are alleged to be the evidences of the Claimants, it is clear that the Claimant, who should prove its allegations, could not demonstrate that there is a legally binding contract which is signed and stamped by the Appellant. On the other hand it is clear through the evidences submitted by the Appellant to the Arbitral Tribunal that Appellant customarily executes its transactions and compromises after being materialised by a contract signed and stamped by its authorised officers.
4. The Claimant has represented the witness statement of [Mr A] of [First named Brokers] (hereinafter referred as the “broker”), who allegedly acted as a broker in this transaction. However, we are obliged to ask to the Appeal Panel of the Federation to take into consideration the fact that the broker is acting for and paid by the Claimant, therefore could not act as an impartial party. Accordingly, the statement of the broker should be removed from the file.
5. On the other hand, the Claimant has submitted in their own list of evidences, the email message dated 27th October, 2008 whereby the General Manager for the Appellant stated the following to the broker “as we expressed to you many times in our telephone conversations in this matter, we have no requests that they have been approved with [Respondents] and your Company”. It is clear through this foregoing evidence, submitted by the Claimant itself, that there is no binding contract which has never been approved by the Appellant.
valid arbitration clause agreed between the parties. Considering the absence of any valid arbitration clause, it is clear that the FOSFA Arbitration is not the competent jurisdiction in order to resolve this matter.
7. Furthermore, we are obliged to ask to Appeal Panel of the Federation to take into consideration the impartiality of the two arbitrators who rendered the award no: [ ]. [First named Arbitrator] and [Second named Arbitrator], both acting as the arbitrator are the officers of above referred reputable trade companies having the same status of the Claimant, [Respondents]. which is in the position of the seller/trader. Accordingly any decision rendered by the Arbitral Tribunal can effect any pending conflict before FOSFA Arbitration, therefore the arbitrators, shall be acted with the motivation of safeguarding the status of the Claimant, [Respondents]. which is trader for selling the goods, such as [First and Second named Arbitrator Companies] and which is totally different than the Appellant who is the consumer.
Under these circumstances, the Appellant asks for the cancellation of the Award of Arbitration No: [ ] which is rendered under incompetent jurisdiction of the Arbitral Tribunal and the reimbursement of the appeal costs and expenses from the Claimant.”
3.2 As recorded in the proceedings section of this Award the Defence Submissions from Appellants were also admitted for consideration.
4.0 RESPONDENTS’ SUBMISSIONS
4.1 This reference is a simple one, raising in essence but one substantive issue: was there or was there not a contract? Sellers say there was; Buyers say there was no contract. There is no contest as to whether or not Buyers paid a 10% deposit as was clearly stipulated in the Contract: they did not. Neither is there any debate between the parties as to the quantum of Sellers’ loss. The crucial issue is whether a contract had been concluded. Sellers say there was.
4.2 Buyers’ Outline Reasons for Appeal raise the following issues: a. FOSFA’s jurisdiction in this reference;
b. The existence of the contract; and c. Bias in the First Tier Arbitrators. Jurisdiction
4.3 Buyers argue that if, as they allege and as Sellers do not concede, there was no contract between the parties, then there is no Arbitration Clause on which the First Tier and the Board of Appeal, the First Tier Arbitrators or this Board could ground jurisdiction.
4.4 This argument is misconceived. It is clear law that even if, on their case, there was no contract, the Arbitration Clause contained in the alleged contract subsists in order to provide arbitrators with jurisdiction to find whether or not there was indeed a contract. The Arbitration Clause is, as it were, severable from the rest of the contract. This makes practical sense because without this principle of severability, no arbitration would proceed where it was argued that there was no contract.
4.5 Moreover, FOSFA arbitrators have the right to rule on their own jurisdiction. This is clear not just from the general law of arbitration but also, in this particular case, from the clear terms of Rule 5(a) of the FOSFA Rules of Arbitration and Appeal: “The arbitrators may rule on their own jurisdiction as to whether there is a valid arbitration agreement.”
4.6 For these reasons, Sellers ask the Board to reject Buyers’ challenge to its jurisdiction and to that of the jurisdiction of the First Tier Arbitrators.
Existence of Contract
4.7 It is Sellers’ case that it is clear on the facts that a contract was indeed concluded between the parties: the Contract was concluded orally on 29 September 2008 and recorded in the Confirmation Note of the same date.
4.8 Sellers rely upon the evidence of the oral exchanges through which the Contract was concluded orally contained in the Witness Statement of Mr A, the Broker who acted in this trade.
4.9 Buyers, in their Outline Reasons for Appeal, urge the Board to discount Mr A’s Witness Statement because he was “acting for and paid by the claimant” and “therefore could not act as impartial party”. It is well known that brokers’ fees are typically paid for by the seller and that this is not regarded as a bar to a broker acting as an impartial intermediary in the fixing of a transaction. Moreover, it should be noted that nowhere in their Outline Reasons for Appeal do Buyers contradict any statement of fact contained in Mr A’s Witness Statement. Neither have they been able to identify any particular illustration of partial conduct by Mr A. Sellers therefore ask the Board to reject Buyers’ request to discard Mr A’s Statement and to accept that Statement as an accurate account of the oral conclusion of the Contract between the parties on 29 September 2008.
4.10 Sellers urge the Board also to find that the Confirmation Note issued by Mr A on the same date, 29 September 2008, further proves that there was a contract between the parties. Of particular reference in the Note before the Board, is the last two lines on page 3: “We kindly ask you to sign and return the attached copy of this contract. The validity of this contract is unaffected by the non-return of the countersigned copy.”
4.11 The crux of Buyers’ case is that set out in the second paragraph of their Outline Reasons for Appeal: “the Appellant being a State owned company has duty to sign and stamp every transaction that he enters.” Their point is: no signature no contract; no contract, no breach, no breach no liability.
4.12 Sellers’ case in rebuttal is two-fold. First, any “duty” which Buyers may or may not have under Third named Country law is not relevant to whether or not a contract exists under English law, which requires no signature. Sellers’ alternative case is that, even if Buyers were under a duty to sign, and even if that duty were to persuade the Board that this Confirmation Note needed a signature for its validity under English law, then Buyers were precluded, through their conduct with Sellers in previous contracts, from raising this point in order to escape from their obligations towards Sellers under this Contract.
4.13 It is Sellers’ standpoint that a signature is not necessary under English law. Lines 233 and 234 of FOSFA Contract No 11, incorporated into the Confirmation Note, states that “the construction, validity and performance [of the contract] shall be governed in all respects by English law.” (Sellers’ emphasis added). It is clear therefore that, whether or not Buyers were under any duty under Third named Country law to sign contracts, a duty which they have not proven and which we do not concede, is quite irrelevant to the issue before this Board; i.e. is signature necessary for the conclusion of a contract under English law?
4.14 It is trite law that under English law there is a contract as soon as terms have been offered and accepted in exchange for each other, and, as already argued by Sellers, terms were offered and accepted orally on 29 September 2008. Even if there had been no confirmation note recording that agreement, there would have been a contract. The existence of the Confirmation Note simply makes its existence and its terms easier to prove; which Sellers have done. To go beyond that and suggest, as do Buyers here, that a third stage was necessary, i.e. signature, simply does not run under English law, particularly in a case where the Confirmation Note expressly stated that the validity of the contract was unaffected by the failure to return a signed copy of the Confirmation Note.
4.15 For this main reason, Sellers urge the Board to find that the absence of Buyers’ signature on the Confirmation Note did not affect the validity of the Contract concluded on 29 September 2008.
4.16 Sellers now turn to Buyers’ conduct in previous contracts. Even if the Board were to find, contrary to Sellers’ main case, that any duty which Buyers may or may not have been imposed on them by Third named Country law might have had an impact on the validity of the Contract under English law, Sellers urge the Board to find against Buyers on a second, alternative, ground and rely upon two other contracts concluded between the parties. These contracts are dated 17 April and 24 October 2007. Both contracts contained the same wording in the last two lines of the relevant confirmation notes as that contained in the Confirmation Note in this dispute: i.e. “We kindly ask you to sign and return the attached copy of this contract. The validity of this contract is unaffected by the non-return of the countersigned copy.”
4.17 In neither contract is there evidence of a signed copy of the confirmation note being returned to Sellers by Buyers, or of any reluctance by Buyers to perform their contractual duties on the ground that they had not signed the relevant confirmation note. In these circumstances, even if the Board were to find that an unproven duty under Third named Country law were to affect the validity of the contract under English law, then Buyers had led Sellers to believe in previous contracts that they would not insist on signing before the contract was executed. It would be patently unfair, in Sellers’ view, for Buyers to be allowed to escape from their liability on that ground under this contract in circumstances where the market had moved against them because of a fluctuation in exchange rate.
Confirmation Note of 29 September 2008 did not affect the validity of the contract recorded in that Note, either because signatures are not required for the conclusion of a contract under English law or because Buyers had on previous occasions had led Sellers to believe that they were content to contract with Sellers without signatures.
4.19 Buyers have not, in their Outline Reasons for Appeal, made any complaint against the Findings of the First Tier Arbitrators regarding quantum, i.e. their findings at 5.9 to 5.11 of the First Tier Award. Those Findings therefore stand and would fall to be confirmed in the Board’s Award.
Allegations of Bias at First Instance
4.20 Buyers make comments regarding alleged bias in the First Tier Arbitrators. Sellers’ point on these comments can be made very simply. Such comments should be discounted by the Board: had Buyers wished to object to the appointment of the First Tier Arbitrators, they should have done so at the start of the reference at First Tier. Allegations of bias can easily be made, and should as easily be discounted - after a party has defended but lost a reference.
4.21 In conclusion and for the reasons set out above Sellers ask the Board for the following remedies in their Award:
a. To confirm in all respects the First Tier Award; and consequently b. To order Buyers to pay to Sellers the principal sum of US$315,000.00; c. Together with interest as ordered by the First Tier Arbitrators;
d. And to order Buyers to pay the fees and costs of this arbitration both at First Tier and before this Board;
e. And to order Buyers to pay Sellers’ legal costs; and
f. And to order Buyers to pay Sellers’ Trade Representative’s fee and costs. 5.0 FINDINGS
5.1 In the light of Appellants’ expressed reasons for this Appeal the Board undertook a review of the issues, which we identified as:
a. Was a contract concluded between the parties?
b. Was an agreement on dispute resolution reached between the parties?
c. If an agreement on dispute resolution was reached did that agreement incorporate FOSFA arbitration?
d. Was there bias in the First Tier Arbitration?
e. If a contract was concluded was a fundamental breach subsequently committed by Buyers and, if so, what damages are recoverable?
We deal with each of these issues in turn.
Was a Contract Concluded Between The Parties?
5.2 Our primary focus in assessing this question was on the evidence adduced by each party.
5.3 Respondents first presented a contract confirmation dated 29 September 2008, issued by First named Brokers, who had signed the document “as Brokers Only”. The accuracy of the terms agreed, as recorded in this confirmation, was not contested by Appellants.
5.4 Respondents also presented a Witness Statement from Mr A of First named Brokers in which he attested to the fact that he had negotiated with Buyers’ Purchasing Manager and concluded a contract between the principals to this Appeal. Appellants’ challenge to this evidence (as recited at sub paragraph 4 of 3.1 above) was that “the broker (was) acting for and paid by the Claimant”. WE REJECT the premise of this assertion since, in our assessment, the fact that a broker is paid by the seller (as is usual in the commodity trading business) does not detract from his role as an honest intermediary. Further, as
a matter of commercial reality, whether the broker is paid by the seller or the buyer the commission payable for this service will effectively be reflected in the price agreed for the goods since, if the seller pays brokerage the contract price will be higher and if the buyer pays brokerage the contract price will be lower. The payment of a broker’s commission is, therefore, properly to be recognised simply as a cost to the business, rather than any form of indicator that the intermediary is partial towards either of the contracting principals. Significantly (as Respondents noted in their submissions at 4.9 above) whereas Appellants sought to impugn the role of the Broker they neither contested the accuracy of the facts as recorded in his Witness Statement nor adduced any evidence which conflicted with its factual content.
5.5 In contemporary correspondence between the parties and the Broker in our assessment clear indications were evident that Appellants (up until, at least, the point at which they denied outright that a contract had been concluded) acknowledged that they had certain responsibilities which arose from the alleged trade with Respondents. On 10 October 2008, in particular, the Broker sent an e mail message to Respondents stating:
“I had a long and heated argument with [Appellants’] general manager today upon discovering that they failed to make their 10% pre-payment for our contract. I have been in touch with them the last few days checking daily regarding their pre-payment plans and latest as of yester I was told all was in order.
During the week the Turkish Lira lost about 10% of its value against the US$ and [Appellants] apparently had a number of its customers default on their contracts and renegotiated their orders. Due to these cancellations [Appellants’] general manager asked me if you could ship only the 1500 MT portion of their contract. I know that freight wise, this is not very viable, but at least they are not walking out of the entire contract quantity.”
Whilst we recognise that this communication was, by its nature, “second hand”, Appellants adduced no document or Witness Statement to contradict the accuracy of the advices given by the Broker to Respondents.
5.6 After considering all of the evidence before us, therefore, WE FIND THAT a contract was concluded between Respondents as Sellers and Appellants as Buyers for the sale and purchase of 3,000 metric tons of Black Sea Origin Sunflowerseeds suitable for Oil Extraction on CIFFO named Black Sea Port terms AND THAT the contract incorporated “other terms and conditions” as per FOSFA Contract No 11.
5.7 WE FURTHER FIND THAT the confirmation of the Contract dated 29 September 2008 (which was not challenged by Appellants, as recorded at 5.3 above) was an accurate recital of the terms agreed between the principals. The Contract was, accordingly, subject to English Law (as provided under the Domicile Clause of FOSFA Contract No 11) which states as follows:
“This contract shall be deemed to have been made in England and the construction, validity and performance thereof shall be governed in all respects by English Law...”
5.8 Appellants asserted that, since they were a state-owned company, every transaction had to be signed and stamped before any contract became binding. WE REJECT this assertion since, as we have found above, it was agreed that the subject contract was to be governed by English Law. Any obligation or duty which Buyers may or may not have had under Third named Country Law to sign a document is accordingly irrelevant since English Law does not require signature(s) on a contract to become valid. 5.9 In English Law a contract comes into existence when an offer has been unconditionally accepted and
there is consideration (something of value) under the agreement. Through a process of negotiation through the intermediary Broker (as confirmed in Mr A’s Witness Statement referred to at 5.4 above) WE FIND THAT a contract was concluded between the principals AND WE FURTHER FIND THAT the document which First named Brokers issued on 29 September (referred to at 5.7 above) was simply a confirmation that this contract had been entered into by the two named parties. Our findings are reinforced by the wording inserted at the foot of the confirmation which stated as follows:
“We kindly ask you to sign and return the attached copy of this contract. The validity of this contract is unaffected by the non-return of the countersigned copy”
5.10 According to the Broker’s Witness Statement the contract confirmation was sent to Buyers on 3 October as an attachment to an e mail, a copy of which translated into English, was adduced in evidence. If Appellants were dissatisfied with any aspect of the confirmation why did they not immediately communicate such dissatisfaction (as we would have expected) to the Broker?
same principals which, they stated (as recorded at 4.16/4.17), were duly performed by Appellants. Appellants did not contradict these submissions. Since neither of these confirmations were countersigned by Buyers and both contained the “non-return” clause included in the subject contract (as above), they are strongly indicative that a course of dealing had been established between the parties which did not require the countersignature of confirmations to become valid.
5.12 In short our answer to the question “Was a Contract Concluded between the Parties?” is “YES” and WE SO FIND.
Was Reference to FOSFA Arbitration for Dispute Resolution Agreed Between the Parties?
5.13 Under the internationally recognised doctrine of “Kompetenz – Kompetenz” an arbitration tribunal is allowed to make a decision on whether or not it has jurisdiction over an issue and whether or not an arbitration agreement is valid. This competence to deal with matters of jurisdiction is expressly reinforced under Rule 5(a) of the FOSFA Rules of Arbitration and Appeal which provides that “The arbitrators may rule on their own jurisdiction as to whether there is a valid arbitration agreement.”
5.14 In this case we have found, as above, that the Broker’s Confirmation of the Contract was an accurate recital of the terms agreed. Since, within this confirmation it was recorded “All other conditions as per FOSFA 11, including Arbitration, when not in condition (sic) with the above.” WE FIND THAT the Arbitration Clause under FOSFA Contract No 11 applies and this provides as follows:
“30. ARBITRATION: Any dispute arising out of this contract, including any question of law arising in connection therewith, shall be referred to arbitration in London (or elsewhere if so agreed) in accordance with the Rules of Arbitration and Appeal of the Federation of Oils, Seeds and Fats Associations Limited, in force at the date of this contract and of which both parties hereto shall be deemed to be cognizant.
Neither party hereto, nor any persons claiming under either of them, shall bring any action or other legal proceedings against the other of them in respect of any such dispute until such dispute shall first have been heard and determined by the arbitrators, umpire or Board of Appeal (as the case may be), in accordance with the Rules of Arbitration and Appeal of the Federation, and it is hereby expressly agreed and declared that the obtaining of an Award from the arbitrators, umpire or Board of Appeal (as the case may be), shall be a condition precedent to the right of either party hereto or of any person claiming under either of them to bring any action or other legal proceedings against the other of them in respect of any such dispute.”
5.15 WE FIND ACCORDINGLY THAT the parties agreed that any dispute arising under the Contract had to be referred to arbitration and that the FOSFA Rules of Arbitration and Appeal applied to this agreement. 5.16 Since FOSFA Contract No 11 also contains a Domicile Clause which provides as follows:
“DOMICILE: This contract shall be deemed to have been made in England and the construction, validity and performance thereof shall be governed in all respects by English Law. Any dispute arising out of or in connection therewith shall be submitted to arbitration in accordance with the Rules of the Federation.
The serving of proceedings upon any party by sending same to their last known address together with leaving a copy of such proceedings at the offices of the Federation shall be deemed good service, rule of law or equity to the contrary notwithstanding.”
WE FURTHER FIND THAT the juridical seat of this arbitration, as defined by Section 3 of the 1996 Arbitration Act, is England AND THAT the applicable law is English Law.
Was There Bias in the First Tier Arbitration?
5.17 Whereas it was asserted on behalf of Appellants (as recited at 3.1(7) above) that the impartiality of the First Tier Arbitrators was questionable because their employment backgrounds were with shippers/ sellers/trading companies, WE REJECT the premise of this allegation which casts doubt, without evidence, on the integrity of the two named Arbitrators and suggests, without reason, that an employment history with a “supply or trade side” company pre-disposes an individual towards parties of that ilk in arbitration. There is, therefore, no foundation to Appellants’ assertion. Moreover, whatever the supposed justification for this challenge, the allegation should properly have been made when the two arbitrators were first appointed and not at this stage in proceedings.
Contract Performance
5.18 The contract terms relevant in this dispute (as recorded in the Broker’s Confirmation) are as follows: “SELLER [Respondents]
BUYER [Appellants]
COMMODITY BLACK SEA ORIGIN SUNFLOWERSEEDS – Suitable for oil Extraction. Good merchantable quality. In bulk.
QUANTITY 3,000 Metric Tons + / - 10% at seller’s option SHIPMENT November 1 – 15, 2008.
PRICE $ 417.00 per Metric Ton in bulk, CIF FO [named Black Sea Port].
PAYMENT: 10% pre-payment to be wire transferred latest by Friday, October 10, 2008.”
5.19 Having considered the intents and purposes of the Contract WE FIND THAT the Payment Clause as above set a condition precedent to Sellers’ obligation to ship goods. The condition required Buyers to transfer ten per cent of goods value to Sellers by the agreed deadline and this requirement was fundamental to contract performance.
5.20 Under an invoice dated 1 October Sellers called for pre-payment from Buyers by 10 October of 10% of contract goods value in the sum of US$125,100.00.
5.21 In an e-mail to Sellers dated 10 October, the Broker referred to his recent communications with Buyers. The content of the first half of this e mail has been recited at 5.5 above. For completeness we record below the remainder of the e-mail below:
“Please don’t get the impression that I find this to be acceptable or tolerable. I already had a huge fight with them explaining their contractual obligations and the unacceptability of their actions. However, it is my duty to inform you of this development and work on resolving it. We may perhaps find a way to get them to perform in the coming days, however, if you will put them on default, it would be better to do it earlier than later as any further drop in market prices will create a large market price differential, which will be harder to collect.
Please contact me as soon as you can so that we can discuss your intentions and formulate a plan of action.”
5.22 In an e-mail dated 13 October to Buyers, via the Broker, Sellers stated: “Contract No. [ ]
3,000 MT + / - 10% SO BLACK SEA ORIGIN SUNFLOWERSEEDS
We refer to your message dated [no date inserted] informing us that due to the fall in value of the Turkish Lire against the US Dollar you are unable to perform your obligations under the above contract.
We regret that following this failure to comply with the 10% pre-payment terms contained in the contract, we have no alternative but to place you in default and claim all losses arising from your breach.
Without prejudice to our position generally, we will of course take all steps to mitigate our losses. In the meantime, we will consider your request for shipment of a reduced quantity of 1,500 MT + / - 10% SO, which will of course be the subject of a separate contract on similar terms to those set out in our original agreement.”
5.23 Given the evident failure of Buyers to fulfil the pre-payment condition (which Appellants did not deny) WE FIND THAT Sellers were entitled to terminate the Contract and pursue a claim for any damages arising.
5.24 The Default Clause under FOSFA Contract No 11 provides as follows:
“27. DEFAULT: In default of fulfilment of this contract by either party, the other party at his discretion shall, after giving notice, have the right either to cancel the contract, or the right to sell or purchase, as the case may be, against the defaulter who shall on demand make good the loss, if
any, on such sale or purchase. If the party liable to pay shall be dissatisfied with the price of such sale or purchase, or if neither of the above rights is exercised, the damages, if any, shall, failing amicable settlement, be determined by arbitration. The damages awarded against the defaulter shall be limited to the difference between the contract price and the actual or estimated market price on the day of default. Damages to be computed on the mean contract quantity. If the arbitrators consider the circumstances of the default justify it they may, at their absolute discretion, award damages on a different quantity and/or award additional damages.
Prior to the last day for making a declaration of shipment a Seller may notify his Buyer of his inability to ship but the date of such notice shall not become the default date without the agreement of the Buyer. If, for any other reason, either party fails to fulfil the contract and is declared to be in default by the other party and default is either agreed between the parties or subsequently found by arbitrators to have occurred, then the day of the default shall, failing amicable settlement, be decided by arbitration.”
5.25 In support of their claim for damages Sellers presented a contract which they had concluded, on 3 November 2008, with named Company for 3,000 metric tons of Ukrainian/Moldovian Sunflowerseeds on CIFFO terms at US$312.00 per metric ton. Since Appellants neither challenged the quantum of Sellers’ claim nor adduced any contrary evidence WE ACCEPT THAT US$312.00 is a reasonable reflection of the market price for goods of the contract description on or about the date of default AND WE FIND THAT Sellers are entitled to recover damages based on the difference between this price and the contract price.
Legal Costs
5.26 Whereas Sellers claimed legal costs, together with interest thereon, for both the First Tier and Appeal proceedings we were not persuaded, given the essentially commercial nature of the issues, that the engagement of lawyers at First Tier was necessary. In line with the Arbitrators’ decision, therefore, in our assessment each party should bear their own legal costs up until the date of the Arbitration Award (3 February 2010).
5.27 In respect of these proceedings Sellers were obliged, in response to the legalistic appeal lodged by lawyers acting on behalf of Appellants (as detailed under Section 2 above), to respond and it was not unreasonable, in the procedural circumstances described, for Sellers to have instructed lawyers to do this. WE FIND ACCORDINGLY THAT Sellers are entitled to recover their legal costs for the Appeal, as set out below.
6.0 AWARD
6.1 WE DO HEREBY AWARD THAT Buyers shall forthwith pay to Sellers damages for their default on contract performance in the sum of US$315,000.00 (Three Hundred and Fifteen Thousand United States Dollars), calculated as the difference between the contract price of US$417.00 per metric ton and the market price on the date of default of US$312.00 per metric ton on the contract quantity of 3,000 metric tons, together with interest thereon at the rate of 5% per annum (Five per Cent) compounded at three monthly intervals, commencing on 11 October 2008 and continuing until the date of payment pursuant to this Award.
6.2 WE FURTHER AWARD THAT the fees, costs and expenses of the First Tier Award shall be for Buyers’ account. If Sellers have paid any or all such costs in the first instance, they shall be entitled to immediate reimbursement.
6.3 WE FURTHER AWARD THAT each party shall bear its own legal fees in respect of First Tier Arbitration. 6.4 WE FURTHER AWARD THAT Buyers shall pay to Sellers the fee paid for the official appointment of an
arbitrator on Respondents’ behalf in the First Tier Arbitration.
6.5 WE FURTHER AWARD THAT the fees, costs and expenses of this Appeal shall be for Buyers’ account. If Sellers have paid any or all such costs in the first instance, they shall be entitled to immediate reimbursement.
6.6 WE FURTHER AWARD THAT Buyers shall reimburse Sellers for their reasonable legal costs in this case from 4 February 2010 to the date of this Award. Such costs shall be taxed by a Costs Judge if not agreed.
6.7 WE FURTHER AWARD THAT Buyers shall reimburse Sellers for their reasonable fees and expenses of their Trade Representative at this Appeal. Such costs will be assessed by the Board if not agreed.
