England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Leeds Combined Court Centre 1 Oxford Row Leeds LS1 3BG
		16/07/2013

Mr Justice Norris :

1. Wholecrop Marketing Limited ("Wholecrop") sells seed potatoes to growers and then markets the resulting crop when harvested. Wolds Produce Limited ("Wolds") is a specialist seed potato supplier. Wolds supplied some seed potatoes to Wholecrop under a contract recorded in a letter dated 5 August 2008. The letter said that the sale was "subject to the BPTA Terms & Conditions of May 2007 (conditions attached) in accordance with English law".
2. The attached conditions were those of the British Potato Trade Association, and were the Conditions of Sale for Seed Potatoes (English law version). Condition 18 (which was headed "Disputes") was in these terms:-

"Any dispute arising out of the Contract shall be settled by Arbitration according to the Arbitration Rules of the British Potato Trade Association in force as the date of receipt by the Secretary of the request for Arbitration referred to below, and all parties, whether members of such Association or not, shall by their respectively entering into the Contract be deemed to have full knowledge of such rules and to have elected to be bound thereby. A request for Arbitration must be addressed to the Secretary WITHIN 12 MONTHS AFTER RECEIPT BY ONE PARTY OF NOTICE IN WRITING from the other party of the basis of the claim or dispute". (The emphasis is in the original).

3. The Arbitration Rules of the BPTA in force at the date of the agreement and thereafter were those prescribed on the 1 July 2007. Rule 1 was headed "Notice to Refer and Time Bar". Rule 1.1 provided:-

"A dispute shall be deemed to arise when a claim or assertion made by one party to a contract arising out of Conditions is rejected by the other party to the contract and that rejection is not accepted. Either party may then invoke Arbitration by (a) serving a notice to refer on the other party and (b) simultaneously sending a copy of the Notice to Refer to the Arbitration Secretary together with payment, made payable to the Association, of a non-returnable Registration Fee… and a Security Deposit…"

4. Rule 1.2 then provided:-

"It is an essential requirement of these Rules that the Notice to Refer shall have been issued so as to be received by the other party and by the Arbitration Secretary (together with payment of the Registration Fee and the Security Deposit) by a date which is not more than 12 calendar months after the date on which the existence on the dispute is first recorded in writing between the parties or their agents. After the expiry of the said 12 month period prosecution of the dispute shall be Time Barred". (The capitalisation is in the original)

5. It is alleged by Wholecrop that the seed potatoes supplied by Wolds had been contaminated with and contained Glyphosate, a herbicide which kills the capacity for germination in the seed potatoes, thereby rendering them useless.
6. Out of this a dispute arose. There is disagreement between Wholecrop and Wolds as to the date upon which the dispute arose. Wolds say that the dispute arose on the 9 October 2009 (so that the 12 month period referred to in Condition 18 expired on the 9 October 2010). Wholecrop say that the dispute arose on the 28 September 2010 (so that the 12 month period referred to in Condition 18 expired on the 28 September 2011). For the purposes of this appeal it is not necessary to decide who is right.
7. It is clear that Wholecrop complained about the Glyphosate contamination, claimed a full refund of the money paid for the seed potatoes and asserted that if the money was not paid then court proceedings would follow without further communication. Further, Wholecrop claimed additional loses, to include all the losses claimed by individual growers to whom they had supplied the seed potatoes (including consequential losses).
8. Correspondence between solicitors ensued in which the solicitors for Wolds asserted that the claim advanced by Wholecrop must fail because:-

a) Clause 9 of the BPTA Terms & Conditions said that Wolds would not be responsible for any failure of the seed potatoes to germinate and/or crop:

b) Clause 10 of the BPTA Terms & Conditions said that Wolds would not be liable for any patent defect unless complaint was made immediately upon discovery or in any event within 14 days after the arrival of the seed potatoes at their destination:

c) Clause 11 of the BPTA Terms & Conditions said that in relation to any defect that was not discoverable by reasonable inspection at the time of arrival of the seed potatoes or within 14 days thereof then it was "specially provided and agreed that in no case whatsoever shall the seller be liable for latent defects":

d) Clause 12 of the BPTA Terms & Conditions said that all implied conditions and warranties were excluded:

e) Clause 13 of the BPTA Terms & Conditions said that in any event compensation and damages arising out of the contract should not in any circumstances exceed the contract price of the seed potatoes.

9. When Wholecrop's solicitors said that it was "inevitable" that court proceedings would be necessary Wolds' solicitors responded on the 17 August 2010 (and therefore within the 12 calendar month period on any footing) saying:-

"The BPTA terms provide that disputes shall be referred to its Arbitration Scheme. Why then is your client threatening to issue court proceedings?"

adding that if Wholecrop did issue proceedings then Wolds would be entitled to dispute the Court's jurisdiction.

10. To this Wholecrop's solicitors responded on the 7 September 2010 (and so again within the 12 calendar month period, whoever is right about when it expired) saying that they required the matter to go to a commercial mediation, and that if that was not agreed within 14 days:-

"…then it appears inevitable given the content of your letter that Arbitration proceedings would have to be commenced".

There was no response within 14 days, but arbitration proceedings were not commenced. On 28 September 2010 (and so still within the 12 calendar month period) Wolds' solicitors said that if Wholecrop embarked on arbitration then it must explain its position or be at risk as to costs. But still no arbitration proceedings were commenced.

11. After a long silence, on 28 March 2011 Wholecrop's solicitors wrote to press for a commercial mediation saying that "the matter can of course be formally referred to arbitration if in fact any mediation is unsuccessful". After a further long delay (in the course of which Wolds' solicitors expressly reserved all of their rights howsoever arising) there was a mediation: but that failed. So in March 2012 Wholecrop commenced court proceedings. The immediate response from Wold was:-

"Could you please explain the basis on which you propose to commence court proceedings in the light of clause 18 of the British Potato Trade Association's conditions of sale".

And by a further letter:-

"The deadline to commence arbitration proceedings pursuant to the British Potato Trade Association's Conditions of Sale has now passed. The 12 month deadline ran from 9 October 2009. There is, therefore, no basis for any claim by your client".

12. When Wholecrop's proceedings were served Wolds (slightly oddly) applied for a stay under section 9 of the Arbitration Act 1996.
13. This application came before His Honour Judge Kaye QC on the 19 November 2012. Wholecrop's solicitor (Mr Largan) had filed a somewhat argumentative witness statement in which he set out a variety of grounds as to why a stay should not be granted. But the judge said that the question was really one of construction of Condition 18 of the BPTA Terms & Conditions. He noted that Condition 18 referred to the Arbitration Rules of the BPTA, holding:-

"So those rules too, by necessary implication, were incorporated into the contract so far as dealing with any arbitration is concerned".

14. As to the construction of Condition 18 and the Arbitration Rules he held (in essence):-

a) That the language (with its reference to a "request for arbitration" and to the fact that "either party may then invoke arbitration") conferred an option on the parties as to one way in which they might resolve their differences:

b) That if a party did make a request for arbitration within the time specified then the Courts would have little hesitation in staying the proceedings to enable the arbitration to proceed:

c) That the present application was not an attempt to fulfil the commercial purpose of the reference to arbitration, i.e. to have the matter decided quickly and speedily, but was an attempt to stifle a claim in circumstances where neither party (for whatever reason) had referred the matter to arbitration:

d) That much stronger language and much clearer language was required to oust the jurisdiction of the court:

e) That in the circumstances even though an arbitration was "Time Barred" it was still open to Wholecrop to pursue court proceedings: and

f) That a stay would be refused.

15. Wolds appeal that outcome. They submit that the judge was wrong as a matter of law to hold that upon the true construction of Condition 18 of the BPTA Terms & Conditions and Rule 1 of the Arbitration Rules what was provided for was merely a time limit for commencing an optional arbitration, leaving undisturbed Wholecrop's right to bring legal proceedings. They argue that lapse of time under those provisions bars the cause of action, not simply the remedy of an arbitral award. There was no Respondent's Notice to say that the judge's conclusion could be upheld on any of the other grounds set out in Mr Largan's witness statement.
16. There is no argument about the incorporation of the relevant terms into the contract made between Wholecrop and Wolds (although counsel for Wholecrop argues that the mode of incorporation of the Arbitration Rules had certain consequences when one came to construe their terms). The judge was plainly right about that and also to focus on the question of construction of the contract so concluded. It was agreed that the task for the court was to determine what an informed and reasonable observer would have understood the parties to have meant by Condition 18 of the Terms & Conditions. Did the parties mean that a Claimant had to commence arbitration proceedings within the 12 month period or lose the right to make a claim? Or did the parties mean that a Claimant had to commence arbitration proceedings within the 12 month period or lose the right to proceed by arbitration (whilst retaining the right to commence Court proceedings for another 4 or more years)?
17. Wolds' argument is that the language of Condition 18 (reinforced by the crystal clear terms of Rule 1.2 of the Arbitration Rules) means that at the expiration of 12 months it is not the remedy of arbitration that is time barred but the cause of action itself that is time barred. Accepting that the question is one of construction, and not for the application of general rules of law, counsel for Wolds nonetheless submits that this construction is consistent with the way such terms have been construed in other cases.
18. In Metalfer Corporation v Pan Ocean Shipping [1997] CLC 1547 a charterparty contained the following clause:-

"Any dispute arising out of this charterparty to be referred to the London arbitrators within 30 days of completion of the voyage and English law to apply."

19. The charterers did not commence an arbitration within 30 days of completion of the voyage, and came to court to seek a declaration that their claims were not time barred (and alternatively for an order under section 12 of the Arbitration Act 1996 extending the time for the commencement of arbitral proceedings). Longmore J recorded that:-

"[Counsel for the charterers] submitted that the clause does not expressly say that any claim made after 30 days is barred, nor does it say that arbitration is a condition precedent to the making of a claim or that it is the only way of making a claim. He submits that parties' rights to proceed for damages for breach of contract are not to be taken away without clear words…"

20. Longmore J reviewed the authorities. He gave particular consideration to Smeaton's Case [1953] 1 WLR 1468 (in which it had been said that a preferable interpretation of a clause requiring notice to be given within a certain number of days is that if notice is not given then the claim is barred); and to Metalinex [1962] 1 Ll Rep. 378, (in which the judge said he could give no effect to such a clause other than that if the claim was not made within 6 months then the claim could not be made at all). Longmore J decided that the effect of such a clause was to bar the claim (and not simply the remedy of arbitration) and that to read it otherwise involved a forced and somewhat artificial construction which he could not think would have been the parties' intention. He continued:-

"I am also persuaded by the observation of Mustill & Boyd "Commercial Arbitration" 2^nd edition p.203 that it is easy to understand why parties to a commercial contract should wish to bar a claim entirely that is not put forward promptly, but it is not at all easy to understand why, when they have troubled to stipulate that all claims should be referred to arbitration, they should go on to provide that a stale claim should be litigated rather than arbitrated".

21. David Steel J was faced with the same argument in Nanjing Tianshun Ship Building [2011] EWHC 164. There a party had the right to dispute the other party's cancellation of a contract by way of arbitration "if such institution of arbitration is made within 30 days of the buyer's cancellation". The sellers sought to dispute the buyer's entitlement to cancel the contract: but they failed to institute arbitration proceedings until shortly after the prescribed 30 day period. The judge recorded:-

"As a result, the buyers contended that the sellers' claim was time barred. The response of the sellers was that any failure to institute arbitration proceedings timeously did not bar the right to dispute the cancellation but merely barred the remedy to be obtained by way of an arbitral award".

The judge had little hesitation in preferring the former argument holding (at paragraph [11]):-

"It is difficult to discern any commercial purpose in granting the sellers an option either to be able to institute a private arbitration within 30 days or, whether by choice or indolence, be able to institute public litigation after 30 days but within 6 years".

He, too, relied on the passage from Mustill & Boyd which I have cited above.

22. It had been submitted before him that a cause of action could only be extinguished by clear language, and that the matter ought to be put beyond question by the use of such terminology as:-

"Where this provision is not complied with the claim shall be deemed to be waived and absolutely barred".

The judge however held that the absence of such express barring words was not conclusive (citing Metalfer as an example).

23. In my judgment the arguments in support of this general approach to arbitration clauses containing a time limit are compelling. So far as the present case is concerned (and without seeking in any sense to lay down a rule applicable in all cases) for my part I would read Condition 18 in a sense different from that adopted by HHJ Kaye QC (although I well understand the considerations that led him to his view).
24. The parties chose to adopt the BPTA Terms and Conditions. These were the terms of a trade association (not those of a monopolist supplier exploiting a position of market dominance). I would hold that the intention of the parties in adopting those standard terms to govern their own contract was that all disputes should be settled by arbitration (and not litigated) in accordance with the trade scheme, and that if a party failed to commence an arbitration within 12 calendar months after raising the claim, then the claim itself was time barred. I think that that is abundantly clear from the express words of Arbitration Rule 1.2 which (as the judge held) are incorporated by reference. It seems to me that an informed reasonable observer would have understood the parties to have meant by those words exactly what the words mean on their face i.e. "after the expiry of the said 12 month period prosecution of the dispute shall be time barred". They did not intend them to mean: "after the expiry of the said 12 month period prosecution of the dispute by arbitration shall be time barred but proceedings may be brought in court during the remainder of the statutory limitation period". I consider that my reading is reinforced by the consideration that both parties would know that the 12 month period was itself not inflexible and that section 12 of the Arbitration Act 1996 contained a machinery for extension of that time limit in appropriate circumstances (a machinery that Wholecrop did not invoke and probably could not have successfully invoked).
25. Counsel for Wholecrop invited me not to reach this conclusion by advancing the following argument:-

a) The parties clearly recognised that it would be sensible to arbitrate if at all possible.

b) If a matter is to go to arbitration then it makes sense that it should do so within a defined timescale.

c) It was always possible in a contract of this sort that the arbitration could not in fact proceed within that given timescale since third parties might bring claims against one of the parties to the contract (e.g. there could be crop failure).

d) So although the parties recognise that arbitration was "a good thing" they would also have realised that a prosecution of third party claims against one of the parties to the arbitration might mean that "the wheels come off" the arbitration process.

e) They would not in those circumstances have thought that there should be no remedy at all. If one party had said to the other: "If you have a dispute with me, and 365 days elapse without you commencing arbitration proceedings, I will say that you are not entitled to any remedy at all: do you agree?" the other party was unlikely to have said "Yes".

f) Accordingly, Condition 18 of the Terms & Conditions must be regarded as aspirational (rather than definitive of rights).

g) Whilst the terms of Arbitration Rule 1.2 are clearer, they are only incorporated into the contract to a degree because they only become effective once there is a "request" for arbitration, which there never was. So the Arbitration Rules can be ignored.

h) The language of "request" shows both that the process is optional and that its use may be objected to (perhaps because the dispute is legally complex). Thus the parties have always regarded litigation as a continuing alternative.

26. I am unable to accept this argument. When the parties agreed that "any dispute arising out of the contract shall be settled by arbitration" they did not mean that a dispute arising out of the contract might optionally be settled by arbitration or might optionally be settled by litigation. They recognised that although the terms of the contract (if enforceable) provided for only very limited circumstances in which complaint could be made about the seed potatoes, nonetheless it might take sometime to put the claim together: they provided a 12 month period for that. Since any alleged breach of the supply contract must become apparent either when the seed potatoes fail to germinate or when they fail to produced a crop, and since the contract then provides a 12 month period within which the claim shall be brought, it does not seem to me at all likely that an informed reasonable observer would have understood them to mean that they could decline to prosecute a claim within that period and should have another 4 years or more to commence court proceedings. The absence of an express reference to a time bar in Condition 18 is not compelling given the tenor of the clause itself and the prominence given to the time limit: but the incorporation of the Arbitration Rules to my mind makes the position crystal clear. I do not accept that the terms of the Arbitration Rules only become relevant if an arbitration is actually commenced: Condition 18 says that the parties are bound by them "by their respectively entering into the contract".
27. I would therefore allow the appeal.
28. Although there was no Respondent's Notice I did afford Counsel for Wholecrop the opportunity to address me on the other grounds raised in Mr Largan's witness statement. The argument in essence was that because it had agreed to undertake a commercial mediation Wolds was estopped from relying on the terms of Condition 18 or had alternatively waived reliance on the time bar element (and instead agreed that if the commercial mediation failed then there could be an arbitration outside the BPTA scheme on terms to be agreed).
29. I am satisfied that there is nothing in these arguments. First, although in principle a refusal by one party to carry through an arbitration process might create an estoppel (Halvanon Insurance [1995] LRLR 303), in practice, as Prof Robert Merkin observes in "Arbitration Law" at para 8.33.2 :-

"It might be thought that, in general terms, the English courts should, in the interest of holding the parties to their bargain be slow to reach a finding that a party is estopped from relying upon an arbitration clause, particularly given that there is no requirement in s.9 of the Arbitration Act 1996 that a party must be ready willing and able to arbitrate in order to obtain a stay. What may be required, therefore, is some form of implied agreement not to arbitrate…..".

I agree with the tenor of this observation.

30. Second, counsel could not point to any "offer" or representation that was made during the currency of the 12 calendar months after the dispute had arisen (whichever commencement date was selected) the acceptance of or reliance upon which could found an estoppel. Indeed, as my reference to the correspondence shows, it was Wolds that was drawing to the attention of Wholecrop the existence of the arbitration provision (and, indeed, Condition 18) as a matter to be complied with, not ignored. Third, once the period within which to commence arbitration proceedings had expired, nothing Wolds said or did could revive any cause of action that had by then (under the contract) expired. Fourth, any argument that tends to the conclusion that there remains a right to arbitrate does not assist Wholecrop, since it would mean that Wolds' application for a stay was well founded.
31. So the absence of a Respondent's notice has not disadvantaged Wholecrop.
32. At the conclusion of the hearing I invited submissions as to whether there were any grounds on which the depart from the general rule as to costs provided for in CPR 44.3(2)(a): but neither side wished to advance any argument. Accordingly I will order that Wholecrop shall pay Wolds' costs of the appeal and of the hearing below, those costs to be subject of a detailed assessment in default of agreement. I will order an interim payment of costs in the sum of £9000 payable by 4.00pm 12 August 2013.
33. It either party wishes to challenge this Order as to costs then they may do so by applying to set aside the costs order in accordance with CPR 23 (such application notice to be issued no later than 4.00pm 23 July 2013). To avoid satellite litigation any such application will itself be determined without a hearing in the light of any submissions made within 14 days of the issue of the application.