QUEENS BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| PETERSON FARMS INC
|- and -
|C & M FARMING LIMITED
(Formerly known as Nasik Breeding and Research Farm Limited)
Mr A. Marriott QC (instructed by Messrs Debevoise & Plimpton LLP) for the Defendant
Hearing dates : 26 and 27th January 2004
Crown Copyright ©
Mr Justice Langley :
"(1) A party to arbitral proceedings may … apply to the court –
(b) for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction.
A party may lose the right to object (see section 73) ….
(3) On an application under this section challenging an award of the arbitral tribunal as to its substantive jurisdiction, the court may by order –
(c) set aside the award in whole or in part.
"(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the … tribunal … any objection –
(a) that the tribunal lacks substantive jurisdiction,
he may not raise that objection later, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection.
"All disputes … which may arise between the parties out of or in relation to or in connection with this agreement or for the breach thereof, shall be finally settled by International Chamber of Commerce, UK."
"This agreement shall be interpreted and construed in accordance with the laws of Arkansas, USA."
i) Losses suffered by C&M itself, consisting of lost sales because of the reduced numbers of parent male chicks and hatching eggs it was able to produce and lost market share and loss of future profits. The total of this award ("the grandparent losses") was US$ 1,222,448. There is no challenge to this part of the award.
ii) Losses suffered by the other C&M group entities consisting also of lost sales, lost market share and loss of future profits ("the parent losses") in the total sum of US$ 5,524,769. It is this part of the award which is the subject of Peterson's challenge. Essentially it is Peterson's submission that the tribunal had no jurisdiction to entertain claims by entities which were not named as parties to the Agreement.
THE BASIS OF THE DISPUTED AWARD
(2) Any objection during the course of the arbitral proceedings that the arbitral Tribunal is exceeding its substantive jurisdiction must be made as soon as possible after the matter alleged to be beyond its jurisdiction is raised.
(3) The arbitral tribunal may admit an objection later than the time specified in subsection … (2) if it considers the delay justified
(4) Where an objection is duly taken to the tribunal's substantive jurisdiction and the Tribunal has power to rule on its own jurisdiction, it may –
(b) deal with the objection in its award on the merits.
If the parties agree which of these courses the Tribunal should take, the Tribunal shall proceed accordingly.
i) First, and primarily, by application of what has come to be known as "the group of companies doctrine". The "doctrine" finds its origin in the interim award of an ICC tribunal dated 23 September 1982 in case No 4131 in which the Claimants were a number of companies in the Dow Chemical "group"; and
ii) Second, on the basis that C&M entered into the Agreement as agent for the other entities in the group who were thus parties to the Agreement and the arbitration clause contained in it.
THE ISSUES ON THE APPEAL
RE-HEARING OR REVIEW
"Claimant suffered direct losses in the amount of $5million due to high mortality … in the imported [grandparents] as well as high mortality … in the progeny of such [grandparents] …. Claimant also suffered consequential damages in the amount of $10million due to loss of market share and loss of reputation. Claimant possesses detailed proof of such direct and consequential damages which affected Claimant's domestic as well as export markets."
The balance of the claim was for triple damages for alleged RICO violations.
"Mr Shah appears to have attempted to calculate losses for C&M Farming Limited which he also refers to as C&M Group. By Mr Shah's testimony, C&M Group includes the following companies: Nasik Breeding and Research Farm Limited, C&M Farming Limited, C&M Hatcheries Limited, Nicholas Breeders (India) Limited, Central Breeders Limited, Nasik Egg Enterprises, Silvassa Poultries, and Nicholas Poultries. As the lawsuit is between Nasik Breeding and Research Farm Limited and Peterson Farms, Inc, Mr Shah needs to indicate what portion of the damages he has calculated relate to Nasik Breeding and Research Farm Limited and what portion is related to other members of the C&M Group."
THE APPROACH OF THE TRIBUNAL
"86. The Tribunal does not accept Peterson's arguments. Under the doctrine of separability, an arbitration agreement is separable and autonomous from the underlying contract in which it appears. The autonomy of arbitration agreements has become a universal principle in the realm of international commercial arbitration. A corollary to the separability doctrine is that the law applicable to the arbitration agreement may differ from the law applicable both to the substance of the contract underlying the dispute and to the arbitral proceedings themselves. The right of C&M to make claims for the C&M Group is a question of interpretation of the arbitration agreement contained in the Agreement, including the intention of the parties. In the absence of any choice of law made by the parties with regard to the arbitration agreement itself, this Tribunal will determine this question in accordance with the common intent of the parties.
87 The Tribunal considers that Peterson was aware throughout the negotiating period and at the time of contracting that it was dealing with the C&M Group. Furthermore, Peterson intended to deal with C&M Group. This is apparent from the correspondence and internal reports ….
91 Furthermore, the draft Sales Right Agreement attached to Peterson's Submission in Response to the Claimant's Memorandum on Jurisdiction dated 28 June 2002, again indicates the parties understanding and intention. The Tribunal finds that this supports C&M's contention that Peterson knew it was contracting with and would have obligations to all C&M Group companies.
92 The Tribunal considers that it was logical to have the name of one member of that group as the contracting partner with Peterson. One company had to take formal legal responsibility for the contract with Peterson. C&M Group, as such, was not a legal entity and therefore could not contract in its own name. There would have been greater uncertainty had it sought to do so. Nasik contracted on behalf of and as the agent for the whole C&M Group. This was clearly understood by Peterson.
93 The Tribunal does not consider that it is legally precluded from considering C&M's damages claims to cover and embrace the damages of all C&M Group companies. The group of companies doctrine provides that an arbitration agreement signed by one company in a group of companies entitles (or obligates) affiliate non-signatory companies, if the circumstances surrounding negotiation, execution, and termination of the agreement show that the mutual intention of all the parties was to bind the non-signatories. Following the Dow Chemical decision and ICC case numbers 2375 and 5103, the Tribunal recognised that because a group of companies constitute the same "economic reality" one company in the group can bind the other members to an agreement if such a result conforms to the mutual intentions of all the parties and reflects the good usage of international commerce. This Tribunal considers that such circumstances are present in this case.
96 …. Thus, Peterson was aware not only of the integrated nature of the poultry business but also that an agreement with Nasik would impact the operations of all of the C&M Group.
99 Peterson, therefore, was aware of the integrated nature of the poultry business. It also fully recognised and expected that on the international level, providing grandparent level stock to a company like Nasik was but the first step in the process under which Nasik would, through the integrated complex of businesses of which it was a part, complete the further production and distribution of the Peterson Breed. In short, it understood that the Agreement with Nasik was, in effect, an agreement with and would impact the operations of all the entities comprising the C&M Group.
100 In summary, the record of correspondence between the parties and internal documents of Peterson, the preliminary documents exchanged between the parties, and the general nature of the poultry business demonstrate that Peterson intended to enter into and perform under a contract with all the entities forming the C&M Group of companies. Peterson knew that it was contracting with the group as a whole and that its product would be used in an integrated operation that involved all members of the C&M Group. The Tribunal considers that C&M is fully entitled to claim all damages suffered by the C&M Group and arising out of the contractual relationship with Peterson."
THE GROUP OF COMPANIES DOCTRINE
"As regards oral evidence on Arkansas law, there are two issues on which we believe there may be disagreement between the experts which would require oral evidence:
1. It is unclear to us to what extent the parties disagree on the issue of equitable estoppel. Please confirm whether or not your client accepts that the law as stated by Mr Hollingsworth at para. 29 of his statement (commenting on paras. 23 to 27 of Ms Stewart's) is correct.
2. Please also confirm whether or not your client intends to maintain the argument set out at para. 15 of Ms Stewart's statement that submission of the dispute to an ICC tribunal entails an agreement to enable the Tribunal to decide the dispute by applying the group of companies doctrine."
"We remain of the view that oral evidence on Arkansas law is not necessary and we seek your urgent agreement to this. You refer to two issues which might require oral evidence. Neither of these, in our opinion, justify the costs and effort of bringing Ms. Stewart and Mr. Hollingsworth to London for what would effectively be the best part of a week. On both the issues which you mention, Mr. Hollingsworth has had an opportunity to answer Ms. Stewart in his witness statement. Both of these expert views will be before the Judge, who will be perfectly able, with the assistance of whatever authorities on which the parties seek to rely, to take a view. As to the questions which you ask in your letter, Ms. Stewart's witness statement stands for itself and we do not see the need to comment further. Equitable estoppel and group of companies are both doctrines which we can expect any Commercial Court Judge to be sufficiently familiar with and to come to his own view."
"On the issue of equitable estoppel, we agree that, with the exception of the first sentence of paragraph 29, Mr. Hollingsworth has correctly stated the law in that paragraph. However, as you will expect, we do not accept Mr. Hollingsworth's application of such general principles to the circumstances of this case. In any event, as noted earlier, any Commercial Court Judge will be sufficiently familiar with the doctrine of equitable estoppel to make his own determination of this issue.
As to your second question, it is our primary case that the Tribunal was correct in holding that it was the intention of the parties that C&M should enter into the SRA with Peterson as agent for all the companies in the C&M Group. We say there is no impediment in Arkansas law to the Tribunal's finding of fact on this point or to its application of the principles of agency. We also maintain the quite independent argument that the Tribunal, acting pursuant to the agreement for arbitration under ICC Rules and given its finding of fact as to the intention of the parties, was free to apply ICC jurisprudence, part of which is the Group of Companies doctrine. You will, of course, respect that the point about the Group of Companies doctrine is not simply a question of Arkansas law, nor is it a question we anticipate taking up any great amount of time at the hearing."
"We note that there appears to be no significant dispute as to the principles of Arkansas law regarding equitable estoppel.
As regards the application of ICC rules, please confirm that on your client's case, the position as to the applicability of the Group of Companies doctrine would be the same if the Sales Right Agreement were governed by English law rather than Arkansas law. If our understanding is correct, we can agree to dispense with live expert testimony on Arkansas law."
AD HOC JURISDICTION