ENGLISH HIGH COURT GRANTS APPEAL ON A POINT OF LAW UNDER S69 ARBITRATION ACT 1996

In a rare example of a successful appeal of an arbitral award on a point of law under s69 Arbitration Act 1996 (the “Act”), the High Court (the “Court”) in Alegrow SA v Yayla Argo Gida San ve Nak A.S [2020] EWHC 1845 (Comm) varied and remitted an award of the GAFTA Appeal Board (the “Board”) having found that the Board had made an error in law in deciding that Alegrow SA (“Alegrow”) had repudiated its contract with Yayla Argo Gida San ve Nak (“Yayla”), with Yayla being entitled to treat the contract as having come to an end.

Background

Alegrow and Yayla had entered into a contract for the sale of rice by Alegrow to Yayla (the “Contract”). Approximately half of the rice was not shipped in accordance with the Contract (the “Outstanding Rice”). Yayla sought an amended shipment schedule, allowing Alegrow until 31 December 2016 to ship the rice, but Alegrow failed to ship the Outstanding Rice by the end of December 2016.

On 29 March 2017, Yayla sent an  email (the “March Email”) to Alegrow informing Alegrow that Alegrow had until the evening of 30 March 2017 to provide a shipment schedule. There was no response to this email, or to a subsequent email in April which indicated Yayla’s intention to bring arbitral proceedings if Alegrow continued to fail to respond. Later that month, Yayla then confirmed to Alegrow that it had referred the matter to arbitration and attached the notice of arbitration.

The Awards

A first tier GAFTA tribunal (“FTT”), found in Yayla’s favour. Alegrow appealed the decision to the GAFTA Board, which concluded in its award (the “Award”) that it would “uphold the [FTT’s] award to the extent that the Sellers [Alegrow] were in default by their failure to provide [the Outstanding Rice]”, but concluded that Alegrow was “in breach of the Contract on the next business day after the deadline for receipt of a schedule for the outstanding shipment” (i.e. 31^st March 2017).

Alegrow then appealed to the English High Court under s69 of the Act, arguing that the Board had made an error in law, because the Award was based on a finding that Alegrow had breached a contractual obligation to provide a shipment schedule, and that Alegrow’s breach of this obligation was repudiatory, when no such obligation in fact existed.

The decision

The High Court allowed Alegrow’s appeal, notwithstanding the “deference to be accorded to trade arbitrators when interpreting contractual documents or correspondence passing between members of an arbitrator’s own trade or industry”. In doing so, the Court agreed with Alegrow that Yayla had in fact renounced the Contract by its notice of arbitration.

In reaching its conclusion, the Court reiterated that English courts “strive to uphold arbitration awards”, and accordingly read arbitration awards in a “reasonable and commercial way”, expecting that “no substantial fault” would be found, and in such a way to make an award valid rather than invalid. The Court made it clear that awards ought not be read with a “meticulous legal eye to pick holes, inconsistencies and faults in awards and with the object of upsetting or frustrating the process of arbitration” and that when considering whether a tribunal had dealt with a question of law, English courts will “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”.

These general principles applied more strongly here, where the tribunal consisted of sector specialists,  since “no one is entitled to expect from trade arbitrators the accuracy or cogency of expression which is required of a judge”.

Analysis of the Award

Whilst the Court observed that it was “unclear precisely what the Board did decide”, after considering a number of inconsistencies in the Board’s reasoning, the Court concluded that the Award must have been based on a finding that there was an obligation on Alegrow to provide a shipping schedule by 31 March 2017, and Alegrow’s breach of this obligation was repudiatory (even though the Board made no finding as to where any such obligation could be found in the contract or how it was implied).

(i) Inconsistencies in the Award

Had the Board considered Alegrow to be in breach by failing to ship the Outstanding Rice by 15 December 2016, the Court considered this would be inconsistent with the Board’s finding that Yayla “waived their rights to be delivered in accordance with the original stipulated period of the contract”. Conversely, if the Board considered Alegrow was in breach by failing to deliver after 15 December 2016, having reviewed the case law authorities on time being of the essence, the Court considered that the Board would have needed to determine a “reasonable time for delivery”, which it had not done.

The Court further observed that a finding of breach through actually failing to deliver the Outstanding Rice was “not logically connected” with the finding that the March 2017 email made time of the essence, resulting in Alegrow being in breach on 31 March 2017. As the Board did not consider the March 2017 Email to require delivery of the Outstanding Rice by 31 March 2017, the only way the Board could have considered Alegrow to be in breach was through a failure to provide a shipment schedule by this date. If the Board had interpreted the March 2017 email as requiring shipment by 15 April 2017 (and not merely a shipping schedule until that date), then the Board would have had to consider whether this was a reasonable period of time (which it did not do), and Alegrow’s repudiatory breach could only have taken place after this date (which would be inconsistent with the finding that Alegrow defaulted on 31 March 2017).

(ii) Other Possible Grounds

In reaching its conclusion, the Court rejected the possibility that the lack of reasoning in the Award on contractual obligation to provide a shipment schedule meant that the Board considered that the failure to provide a shipment schedule was a renunciation of the Contract by Alegrow.

The Court observed that the Appeal Board did not explicitly address any possibility of renunciation, or record Yayla’s case as having been advanced on this basis. The Court considered that Yayla’s case had not in fact been brought on this basis, and Alegrow was not given the opportunity to meet any such case. Additionally, in order to have decided the case on the basis of renunciation, the Board would have needed to have found that Alegrow “clearly and unequivocally indicated that it would not deliver” the Outstanding Rice but no such finding was made by the Board. The facts, as found by the Board, were also insufficient to find renunciation of the Contract by Alegrow.

In light of the above, the Court determined that (i) the Award was wrongly based on a finding that Alegrow had repudiated the Contract; (ii) that the Board did not, and could not, have based the Award on a finding that Alegrow had renounced the Contract, and (iii) that Yayla had renounced the contract. The Court therefore remitted the Award to the Board to consider Alegrow’s counterclaim and for the award to be varied so as to conclude that Alegrow was not in repudiatory (or renunciatory) breach of the contract.

Comment

The Court’s decision in this case demonstrates that, whilst the English court adopts a light touch standard of review under s69 of the Act into the findings of law made by arbitration tribunals, it will intervene in appropriate cases. The courts are reluctant to overturn arbitral awards and successful applications of this kind are therefore rare, but where clear errors of law have been made by an arbitral tribunal the English courts will grant appeals under s69.

It is important to note that, as s69 is not a mandatory provision, appeal on a point of law under s69 of the Act is excluded by the rules of most of the major arbitral institutions, including the LCIA and ICC. The availability of a right of appeal under s69 is a factor that should be carefully considered at the arbitration clause drafting stage.

For more information, please contact Craig Tevendale, Partner, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.