England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/11/2007

Mr Justice Flaux:

1. This application is made by Gulf Import and Export Co ("Gulf") under one or other of sections 67 to 69 of the Arbitration Act 1996 seeking to challenge an Appeal Award of the Board of Appeal of FOSFA dated 14 June 2007 in favour of Bunge S.A. ("Bunge"). The matter arises in the following circumstances.
2. Bunge was the seller and Gulf was the buyer of a quantity of about 60,000 metric tons of Brazilian soyabeans in bulk for shipment between 15 April and 10 May 2004 on C&F terms, Free Out one safe berth Jebel Ali. The contract of sale, so far as relevant, provided for demurrage at the discharge port at the rate of US$55,000 per day. The contract incorporated the FOSFA 22 form, including clause 26 providing for arbitration and appeal pursuant to the FOSFA Rules of Arbitration and Appeal.
3. The shipment was loaded on the vessel MASTROGIORGIS B, of which Bunge was the time charterer. At the discharge port cargo damage was allegedly found. Gulf applied to the local court in Dubai and the vessel was arrested, with security for the cargo claim ordered to be provided by the shipowners, initially in the sum of US$9,012,500. The vessel was thus detained in Dubai and remained so for some three months. So far as the security ordered in respect of the cargo claim is concerned, in September 2005, the Court of Cassation, the ultimate appeal court in Dubai, reduced the security ordered to US$3,997,036.50.
4. Bunge as time charterer placed the vessel off-hire when she was first under arrest and as a consequence a dispute developed with the shipowners, who commenced arbitration against Bunge in October 2004. Quite independently, because the vessel had been detained at the discharge port, demurrage had accrued under the sale contract in an amount of some US$5.5 million. On 10 November 2004, Bunge's solicitors faxed Gulf's lawyers stating that Bunge had appointed Mr Tony Scott as its arbitrator to resolve all disputes arising under Rule 2(b) of the FOSFA Rules of Arbitration and Appeal. On 8 December 2004, Gulf responded by appointing Roger Rookes as its arbitrator.
5. Thereafter, nothing was done by Bunge to progress the arbitration for more than a year. It is said by Bunge that this was because, whatever the strict legal position, the arbitration claim by Bunge against Gulf was contingent upon the shipowners pursuing Bunge for hire in the arbitration under the time charter, in the sense that Bunge would not pursue Gulf unless it was itself pursued by the shipowners. Although the shipowners had commenced arbitration, nothing had been done to progress that arbitration. It is worth noting at this stage that, whilst no doubt for good commercial reasons of maintaining a profitable business relationship, Bunge may not have wished to pursue the claim for demurrage against Gulf unless it was pursued itself by the shipowners, the entitlement to recover demurrage under the sale contract was not dependent in any sense upon liability to the shipowners.
6. Rule 3 of the FOSFA Rules of Arbitration and Appeal provides as follows:

"3. LAPSE OF CLAIM "

If neither the claimant nor the respondent submits any documentary evidence or submissions to the arbitrator appointed by or for him with the copy to the other party within the period of one year from the date of appointment of the first named arbitrator, then the claim to arbitration shall be deemed to have lapsed on expiry of the said period of one year unless before that date the claim is renewed by a further claim for arbitration to be made by either party notifying the other before the expiry date. Any such renewal shall be for a period of one year from the date of the giving of notice of renewal when it shall lapse again unless renewed in the like manner as the first renewal or unless by then documentary evidence or submissions have been submitted by either the claimant or the respondent. In the event of failure to renew a claim as provided in this Rule such claim shall be deemed to have been withdrawn and abandoned unless the arbitrator/s shall in his/their absolute discretion otherwise determine upon such terms as he/they may think fit."

7. Bunge did not serve any submissions or documents within the twelve month period provided by that Rule, nor did it renew its claim within that period. It was not until 20 January 2006, 71 days late, that Bunge wrote to the arbitrators asking them to use their absolute discretion under Rule 3 to renew the reference for a further twelve months. This was disputed by Gulf and both parties served written submissions supporting their respective positions. For present purposes, all that it is necessary to note is that Bunge had two strings to its bow. First, it contended that its claim for demurrage was not within the scope of the reference to arbitration so that it did not need to be renewed. Second, if wrong about that, it contended that the arbitrators should exercise their discretion to renew the claim, because Bunge would suffer very substantial prejudice if the claim were deemed to be abandoned, whereas Gulf had suffered no prejudice by reason of the failure to renew. The failure to renew was also said to be justified on the basis of the mutual understanding that Bunge's claim was of a contingent nature.
8. These contentions were disputed by Gulf. The arbitrators were unable to agree and the matter was submitted by them to an umpire, Mr Hans Ensing. He issued an Award dated 8 February 2007 in which he dismissed Bunge's claim, holding that (i) the claim for demurrage was within the reference to arbitration and (ii) there was no good reason to exercise his discretion to allow the claim to continue. It is not necessary to set out more than three paragraphs of his Award which set out his reasoning, such as it is:

"4.8 The reasons cited by Sellers were that they were waiting for the claim submissions from shipowners in an LMAA Arbitration, which was not subject to the same time constraints. They have claimed that Buyers knew that the claim for demurrage was forthcoming and that, in their opinion, Buyers would not be prejudiced by any delay. It would be, in Sellers' view, unjust to exclude their claim.

4.9 I do not accept Sellers' contentions. The substantive dispute on demurrage was known at the time of the claim for arbitration on 10 November 2004 and also prior to or on the one year claim anniversary, the time by which the arbitration should have been renewed. Sellers, in their message of 10 November 2004 did refer to "all disputes arising under Rule 2(b)", which encompassed all items of dispute which could have arisen under this contract, with the exception of quality and/or condition claims; the subject of Rule 2(a) provisions.

4.10 There was no indication that Buyers waived the time limit or acquiesced in any way to excuse Sellers from the applicable time limit. The failure to renew within a year was clearly an error, but I am not persuaded that there are any good reasons why I should exercise my discretion to waive the time limit in Rule 3 and admit Sellers' claim. Sellers' case, therefore, fails."

9. On 26 February 2007, Holman Fenwick & Willan ("Holmans"), solicitors for Bunge wrote to FOSFA informing them that Bunge intended to appeal that Award to the Board of Appeal pursuant to rule 7 of the Rules. A copy of this letter was also sent to Gulf's solicitors, Middleton Potts. The next day, Holmans sent FOSFA and Middleton Potts Bunge's "Outline of Reasons for Appeal" as required by Rule 7 (e). This stated:

"Further to our notice of appeal Bunge SA sets out, in outline, its reasons for appeal.

A. Bunge SA exercises its right to appeal pursuant to Rule 7 which states:

"any party to an award of arbitration shall have the right to appeal to the Appeal Panel of the Federation …".

B. In accordance with the Guide to Arbitrations and Appeals (and indeed the Rules) any Appeal entails a complete re-hearing of the matter.

C. Bunge SA wishes the Board of Appeal to re-hear the matter on the following grounds inter alia:

(i) Bunge SA will address the Board of Appeal as to the interpretation, scope and application of Rule 3 in the circumstances of this case.

(ii) Bunge will seek to persuade the Board of Appeal that it should exercise its discretion to allow the matter to proceed.

(iii) The Board of Appeal can exercise its discretion by imposing terms as they think fit.

(iv) Bunge SA will demonstrate that Gulf have suffered no prejudice as a result of any omission to renew.

(v) Bunge SA will suffer significant prejudice if renewal is not allowed.

(vi) Bunge SA will wish the Board of Appeal to consider new evidence as part of the re-hearing.

(vii) Bunge SA will wish to make submissions as to the scope of the reference.

(viii) Bunge SA reserves its legal rights, including all its rights under S.67 of the Arbitration Act 1996.

In line with the orthodox appeal procedure, our client's representative will state his case orally and hand up to each member of the Board of Appeal a typed statement of the Appellant's case. Any new evidence, not submitted at the first tier arbitration and/or any case law on which either party intends to rely, should be provided in good time prior to the Hearing of the appeal.

We await the Board of Appeal's direction as regards new evidence. We await details of the Respondent's representative and the five Board of Appeal members when appointed. We are happy for the appeal date to be set in the usual way so that prompt progress can be made.

Please acknowledge safe receipt to ensure safe transmission."

10. From that Outline it must have been clear to Gulf and its legal advisers that Bunge was seeking to appeal both the issue of whether the claim for demurrage was within the reference and the issue as to the discretion to allow the claim to continue. At that stage, no protest was made by Middleton Potts about the Board of Appeal hearing an appeal on the latter issue. Instead, they sought a ruling from FOSFA on the exchange of submissions in good time before the appeal hearing. This was resisted by Bunge and FOSFA ruled that its normal procedure, which does not require the service of written submissions in advance of an appeal hearing, should apply.
11. On 19 March 2007 FOSFA fixed the appeal hearing for 1 May 2007, identified the members of the Board of Appeal and set out the timetable for service of any new evidence and case law. Bunge served new evidence and case law on 2 April 2007 which included evidence as to the prejudice suffered by Bunge if the claim had lapsed, which obviously went to the issue of whether the Board of Appeal should exercise its discretion. In turn, on 17 April 2007, Middleton Potts for Gulf served a "bundle of new documents and evidence for the forthcoming appeal, together with the authorities upon which we rely" which also included evidence as to prejudice, thus going to the issue of whether the Board of Appeal should exercise its discretion. On 25 April 2007, Bunge served evidence in reply which went to prejudice and to the exercise of discretion, to which Middleton Potts objected the next day as being too late.
12. At the hearing before the Board of Appeal on 1 May 2007, Bunge was represented by Mr. De Zwart, and Gulf was represented by Mr. Hintermann (both trade representatives). At the outset of the hearing, Mr Hintermann asked the Board to shut out Bunge's reply evidence, an application to which the Board acceded. Mr De Zwart then presented in full Bunge's case as to why the Board should exercise its discretion to allow the claim to continue. Bunge's alternative ground of appeal, that the claim for demurrage was not within the reference, was abandoned. Mr Hintermann then made Gulf's submissions. At the outset of those submissions, he raised for the first time an argument that the Board of Appeal had no power to exercise its own discretion on appeal to allow a claim to continue, because on the correct construction of the Rules of Arbitration and Appeal, the discretion as to whether to allow the claim to continue or not was an absolute discretion conferred only on the first tier arbitrators (including the umpire) and not on the Board of Appeal.
13. It is right to record at this stage of the narrative that Mr De Zwart says that he was taken by surprise by this submission, although neither he nor the Board of Appeal itself raised any objection to it being argued. Mr Hintermann went on to make submissions as to why (if Gulf were wrong on this preliminary point) the Board should not exercise its discretion to allow the claim to continue.
14. In its Appeal Award dated 14 June 2007, the Board of Appeal rejected Gulf's contentions in their entirety. In summary, the Board held:

i) That Gulf's construction of Rule 3 as excluding the Board of Appeal from exercising its own discretion, was totally at variance with the fundamental two tier system of arbitration under the FOSFA Rules of Arbitration and Appeal and the fundamental right in FOSFA arbitration to appeal a decision at first instance to the Board of Appeal. As the Board put it:

"If Gulf are right, the Board of Appeal will never be able to correct an erroneous decision at first instance by an Umpire. Thus, even if one of the arbitrators at first instance were in favour of the exercise of discretion and five members of the Board of Appeal were similarly disposed, nothing could be done to reverse the decision of one man (or woman), namely, the Umpire. As this would render the exercise of discretion of a late-renewed claim subject to no appeal process and solely up [to] the determination of one man at first instance, it is singularly out of phase with FOSFA's two-tier system for the adjudication of disputes."

ii) That this construction was "neither reasonable nor just" and that if the law was such as to deny Bunge any right of appeal in this case, then "the law is an ass". However, the Board concluded that this was not the law because the generic term "the arbitrator/s" in Rule 3 was wide enough to cover the Board of Appeal as well as the first tier arbitrators and umpire.

iii) The failure to renew was an "administrative omission" so that if the punishment for that "crime" would be the loss of the right to pursue a prima facie well-substantiated claim for US$5.5 million, then "there is clearly an enormous imbalance between the crime and the punishment".

iv) In contrast, the Board considered that Gulf could "show absolutely no prejudice suffered by reason of Bunge's failure to send them a renewal of claim notice" so that the "balance of prejudice was undoubtedly on the side of Bunge". Accordingly, the Board admitted Bunge's claim pursuant to the exercise of its absolute discretion.

15. Gulf now seeks to challenge that Appeal Award. By its Amended Application Notice (for which I formally give permission to amend) it does so on one or other of three grounds:

i) It seeks an order under section 67 of the Arbitration Act 1996 that, on the true construction of the FOSFA Rules of Arbitration and Appeal, the Board of Appeal had no jurisdiction to hear the appeal from the Award of the umpire, so that the latter Award stands.

ii) Alternatively, it seeks an order under section 68(2) (b) of the Arbitration Act 1996 for remission of the Award to the Board on the basis that in exercising the discretion which the Board purported to exercise, it exceeded its powers on the true construction of the Rules.

iii) Alternatively it seeks permission to appeal under section 69 of the Arbitration Act 1996 and thereafter invites the Court to decide the appeal in its favour on the question of law as to whether the Board of Appeal can exercise the discretion under Rule 3 at all, in circumstances where the first tier tribunal exercised the discretion against Bunge.

16. Whichever section the application falls under, the application raises two questions:

i) Whether on the true construction of the FOSFA Rules of Arbitration and Appeal the Board of Appeal had jurisdiction or power to exercise a discretion of its own in determining whether or not to allow Bunge's claim to continue.

ii) Whether Gulf is precluded from contending that the Board of Appeal did not have such jurisdiction or power because Gulf did not seek to raise any such contention until the hearing of the appeal on 1 May 2007.

17. The issue as to which of the sections of the Arbitration Act the application properly falls under assumes more relevance in relation to the second of those two questions and, in a very real sense, may not matter when one is considering the first question. Having said that, it seems to me important to establish at the outset of the analysis exactly what the juridical basis is said to be for any challenge to the Appeal Award.
18. In my judgment, since the issue concerns the correct construction of the FOSFA Rules of Arbitration and Appeal, rather than the correct construction of the underlying contract of sale or any other underlying dispute between the parties, this is not an appropriate case for deployment of the appeal procedure under section 69. Rather, the issue concerns the jurisdiction or power of the arbitrators, so that either section 67 or section 68 is in play.
19. Mr Nicholas Hamblen QC for Bunge argues that the issue concerns the substantive jurisdiction of the Board of Appeal so that the correct section to be deployed by Gulf is section 67. He contends that the present case is concerned with the "substantive jurisdiction" of the Board of Appeal as defined in section 30 (1) (c) of the Act: "what matters have been submitted to arbitration in accordance with the arbitration agreement". Of course, Mr Hamblen is keen to establish that what is involved here is a question of substantive jurisdiction, because that brings into play sections 31 and 73(1) of the Act which form part of his overall argument that half way through the appeal hearing was too late for Gulf to raise its objection to the Board of Appeal exercising a discretion to allow the claim to continue.
20. Mr Stephen Males QC for Gulf submits that "matters" in section 30 (1) (c) is referring to the claims that can be submitted to arbitration, not the way in which discretion is exercised in relation to a claim which has been validly submitted to arbitration. It seems to me that this must be right. The question in the present case is about the scope of the Rules pursuant to which the arbitration is being conducted. Accordingly, it is not the substantive jurisdiction of the Board of Appeal which is in issue, but rather whether the Board has exceeded the powers which it is given under the Rules. It follows that the correct basis for Gulf's challenge to the Appeal Award is section 68(2) (b) of the Act, that there has been serious irregularity because the tribunal exceeded its powers.
21. Mr Males rightly accepts that an applicant under section 68 faces a high hurdle in establishing serious irregularity, reflecting the reluctance of the courts to interfere with the conduct of arbitration by the relevant tribunal: see The Magdalena Oldendorff [2007] EWCA Civ 998 per Waller LJ at paragraphs 32 to 38, approving the decision of Tomlinson J in ABB AG v Hochtief Airport GmbH [2006] EWHC 388 (Comm) [2006] 2 Lloyd's Rep 1 at paragraphs 61 to 67. However, Mr Males says that Gulf can overcome that high hurdle here, because it is clear that, on the proper construction of the Rules, no discretion is conferred on the Board of Appeal to allow a claim which has lapsed to continue. Rather the discretion to allow a claim to continue is conferred exclusively on the first tier tribunal by Rule 3.
22. Gulf's argument on the correct construction of the Rules can be summarised as follows:

i) The reference to "arbitrator/s" in Rule 3 does not include the Board of Appeal. Where the Board of Appeal is referred to in the Rules, it is either referred to as the Board of Appeal or the Appeal Panel of the Federation. As such it is referred to in addition to the "arbitrators", so that it is never encompassed within the meaning of the "arbitrators" which refers exclusively to the first tier arbitrators, including, where the context requires, the umpire. The contrary construction of the Rule, adopted by the Board of Appeal at paragraph 8.14 of the Appeal Award, is simply wrong.

ii) Where the Rules are conferring a discretion upon the Board of Appeal as well as upon the first tier tribunal, they say so expressly. Mr Males contrasts the wording of Rule 3 with that of other Rules, particularly Rule 2 (d). In relation to a discretion to extend the original time limits for bringing a claim, that Rule provides:

"In the event of non-compliance with any of the preceding provisions of this Rule, and of such non-compliance being raised by the respondents as a defence, claims shall be deemed to be waived and absolutely barred unless the arbitrators, umpire or Board of Appeal referred to in these Rules, shall, in their absolute discretion, otherwise determine. Either party has a right of appeal against the arbitrators'/umpire's decision, in which case the Board of Appeal have the same rights as the arbitrators under this clause."

23. Mr Males points out quite correctly, that the reference to the Board of Appeal in the penultimate sentence and the whole of the last sentence of Rule 2 (d) are absent from Rule 3. Mr Males submits that the draftsman of the Rules may have drawn this contrast deliberately. The limits for commencing arbitration under Rule 2 are short and the provision is somewhat complex, so that it may have been thought appropriate to give the Board the same discretion to extend time on appeal as the first tier arbitrators. In contrast, the twelve month period under Rule 3 is not out of line with time limits in other commercial contexts and the procedure for renewal of a claim is very simple. Also because the first tier arbitrators are already seized of the claim, they are peculiarly well placed to determine whether or not to exercise their discretion. In those circumstances it may have been thought appropriate to give only them the discretion.
24. However, whether the omission from Rule 3 of the words and phrases found in Rule 2 (d) is deliberate or accidental, Mr Males submits that omission is fatal to Bunge's construction of the Rules as permitting the Board of Appeal to exercise the discretion under Rule 3 afresh.
25. That conclusion is reinforced by other provisions in the Rules which refer to discretion of the Board of Appeal or to a right of appeal in certain circumstances. Mr Males refers in particular to (i) Rule 4 (d) which provides:

"...d) A sole arbitrator or the arbitrators, by mutual agreement, or the umpire, or the Board of Appeal, as the case may be, shall have discretion to extend the time limits under Rule 4(a)"

and (ii) to Rule 5 which contains express provisions enabling the arbitrators or umpire to rule on their own jurisdiction and then by Rule 5(e) provides an express right of appeal in respect of such a ruling to the Board of Appeal.

26. Viewing those contrasting provisions, Gulf submits that it is simply impossible to construe Rule 3 as conferring on the Board of Appeal a discretion to allow a claim to continue where the first tier arbitrators or umpire have declined to exercise such a discretion, particularly where the Rule says that their discretion is "absolute".
27. If all one were doing in this exercise of construction was comparing and contrasting the terms of Rule 3 with those of Rules 2(d), 4(d) and 5(e), there would be considerable force in those submissions. It is indeed striking that there is no reference in Rule 3 to the Board of Appeal having a discretion nor anything which corresponds with the last sentence of Rule 2 (d). As to why this is, one can only speculate. It may be that the Rules were not all drafted at once, but by different people at different times, but there is no evidence about that. It may be that, as I suggested in argument, the draftsman, whoever it was, included the references to there being a right of appeal to the Board of Appeal in those other Rules because of a perceived concern that those Rules covered situations where there might never be an Award of the first tier arbitrators or umpire as such, and the right to appeal under Rule 7 is predicated upon there being such an Award. Nonetheless, as Mr Males pointed out, the same would be equally true of the situations covered by Rule 3, where the arbitrators or umpire might simply make a decision without an Award.
28. However, when one considers the Rules as a whole and specifically the two tier structure with an unlimited right of appeal to the Board of Appeal enshrined in Rule 7, the submissions made on behalf of Gulf seem to me to lose a great deal of their force. Rule 7 (a) provides:

"...a) Any party to an award of arbitration shall have the right to appeal to the Appeal Panel of the Federation provided that payment of the fees and expenses of the arbitration was made to the Federation within 42 days of the date of the award as per Rule 6(b) and that notice of appeal is received by the Federation not later than 12.00 hours on the 28th consecutive day after the date on which the award is sent to the parties, in accordance with Rule 6(b)."

29. I agree with Mr Hamblen that there is nothing in the wording of that Rule, which is in wide mandatory terms, to suggest that, in any particular category of case, the right to appeal against whatever decision the arbitrators or umpire have made is fettered. Nor does it seem to me that there is room for the implication of such a fetter into Rule 7 from the fact that Rule 3 does not refer expressly to the Board of Appeal having discretion to allow a claim to continue. The point can be tested in this way: even if Rules 2(d), 4(d) and 5(e) did not refer to the right of appeal or to the Board exercising its discretion, would the right of appeal be fettered, either in relation to those Rules or Rule 3? In my judgment clearly not. Provided that there was an Award to be appealed, there would be an unfettered right of appeal to the Board of Appeal under Rule 7(a), which would in an appropriate case involve the Board exercising the relevant discretion anew for itself. I do not consider that the position is changed merely because those Rules have spelt out expressly what would be the correct analysis anyway, whereas Rule 3 has not.
30. I am fortified in that conclusion by the fact that a construction of the Rules which meant that there was no right to challenge on appeal the way in which the first tier tribunal had exercised the discretion under Rule 3, whereas there was such a right under Rule 2 (d), would be anomalous and uncommercial. I agree with Mr Hamblen that the absence of a right of appeal would make even less sense where the claim has been made but has then been allowed to lapse, as here, in circumstances where the period of delay involved has caused Gulf no prejudice whatsoever. I am unimpressed by Mr Males' submission that the explanation for this may be that in a Rule 3 case, the first tier arbitrators are peculiarly well placed to exercise the relevant discretion, because they are seized of the matter, whereas in a Rule 2(d) situation they are not. By definition, the discretion under Rule 3 only falls to be exercised where nothing at all has happened in the arbitration for a year since the original appointment. How that puts the arbitrators in any better position than if asked to consider whether their initial appointment is out of time defeats me. Certainly, their position after a year is not such as could begin to justify an absence of a right to appeal against the way they exercise the discretion under Rule 3.
31. Mr Males seeks to alleviate the starkness of the conclusion that Bunge has no right of appeal against the exercise of discretion by the umpire by saying there will be a right to appeal a decision under Rule 3 if, for example, the arbitrators or umpire have made an error of law or misinterpreted the facts. Thus he says, the appeal in the present case originally included a contention that the claim to demurrage was not included in the reference. If that aspect had been maintained and had succeeded then it would be an example of the Award of the first tier tribunal under Rule 3 being susceptible to appeal. However, in my view, such situations where the tribunal has erred in law or on the facts in relation to lapse of time are unlikely to arise often in practice. The real mischief which an appellant will be seeking to attack in a lapse of time case will be the way in which the first tier tribunal has exercised the discretion under Rule 3.
32. Another possible attack on an Award of the first tier tribunal which was debated in argument was where the appellant could demonstrate that the decision of the first tier tribunal was so perverse as to be one that no reasonable tribunal could have reached, in effect a decision which was Wednesbury unreasonable. In principle, it seems to me that the Court could set aside an Award on that basis under section 68 although it must be highly debatable whether the Board of Appeal could exercise a similar jurisdiction on appeal. Mr Hamblen said that he would not shy away from alleging that the umpire's decision here was Wednesbury unreasonable if he had to. I agree with Mr Males that I simply do not have the evidence or materials from which I could conclude that the umpire's decision was one which was perverse in that sense and I decline to so conclude.
33. In a sense, that makes good the overall submission which Mr Hamblen made, that the construction for which Mr Males contends is a recipe for confusion and uncertainty: would the Board of Appeal (rather than the Court) have jurisdiction to decide that the decision of the first tier tribunal was Wednesbury unreasonable and, even if it did, how would the Board of Appeal be in any better position to decide whether the first tier tribunal's decision was Wednesbury unreasonable than the Court is? This demonstrates that the limited right of appeal which Gulf's case recognises is more illusory than real.
34. There may be cases where only one construction of a contract is possible and that construction leads inexorably to a result which is unreasonable or uncommercial. However, where more than one construction is possible and one construction makes commercial sense whereas another does not, the Courts have recognised that, so far as possible, the construction which makes commercial sense should be adopted. The well-known formulation of the principles of construction in Lord Hoffman's speech in ICS v West Bromwich Building Society [1998] 1 WLR 896 at 912-3 is an example of that approach. In the present case, Mr Hamblen's argument that the right of appeal under Rule 7 is unfettered and the Board of Appeal could exercise its own discretion to allow the claim to continue is both the correct construction of the Rules as a whole and, to the extent that Mr Males' construction is another possible construction, Mr Hamblen's construction is sensible and commercial. It accords with the result arrived at by the Board of Appeal as commercial men, if not entirely with its reasoning.
35. I should add that, in reaching the conclusion I have, that the Board of Appeal is unfettered and can exercise its own discretion to allow the claim to continue, I have not been influenced by considerations as to whether the drafting of the Rules is poor or not. Although Mr Hamblen was able to demonstrate numerous inconsistencies running through the Rules as to whether what is being referred to is the arbitrators including the umpire or the arbitrators alone, those do not seem to me to be anything like as significant as he suggested. It will also be apparent from my reasoning that I have concluded that Rule 7 gives an unfettered right of appeal irrespective of the precise wording of Rule 2 (d) or Rule 3, rather than adopting the approach of the Board of Appeal, which construed "arbitrator/s" as including the Board of Appeal, an approach which I do not consider justified. As Mr Hamblen put it, once one concludes that the right of appeal and the powers of the Board of Appeal under Rule 7 are unfettered, the absence of a reference to the Board of Appeal in Rule 3 is irrelevant, because the right of appeal necessarily involves the Board reconsidering the question of discretion.
36. It follows that Gulf's application is dismissed, under whichever section of the Arbitration Act it is pursued. In those circumstances it is not strictly necessary to consider the further factual issue whether in this case, Gulf is precluded from pursuing its application by the lateness of its objection. Nonetheless, the matter having been fully argued, I shall deal with it, although perhaps more briefly than I otherwise would if it were central to my decision.
37. The primary way in which Mr Hamblen puts his case is that he says that there was an ad hoc submission to the Board of Appeal of the issue of discretion. He submits that the correct test as to whether the conduct of the parties is such as to amount to an ad hoc submission to arbitration is the one formulated by Mr Richard Field QC (as he then was) in Athletic Union of Constantinople (AEK) v National Basketball Association [2002] 1 Lloyd's Rep 305 at paragraph 36. This test is whether a reasonable observer, knowing the background, would have concluded from Gulf's conduct up to the moment when the objection was raised mid way through the appeal hearing, that Gulf had consented to an arbitration on the merits before the Board of Appeal of the issue whether discretion should be exercised to allow the claim to continue.
38. In AEK the judge concluded that a reasonable observer would have so concluded primarily in relation to a letter from AEK to the arbitrator asking for the hearing to be put back for a short time to enable it to present its case properly. Mr Hamblen submits the present case is an a fortiori one compared with AEK. Here Gulf sought a ruling from FOSFA for the exchange of submissions before the appeal hearing and, given that Gulf had Holmans' Outline of Reasons for Appeal, it must have known that those submissions would include submissions on the merits of the issue of discretion and prejudice. It was submitted that I should not conclude that any written submissions from Gulf would in fact have raised an objection to the Board of Appeal reconsidering the question of discretion. Gulf had not said in any evidence before the Court when it or its legal advisers first appreciated that an objection could be raised. Accordingly, Mr Hamblen invited me to infer that such appreciation had not arisen until immediately prior to the appeal hearing.
39. Then it was pointed out that Gulf had put in new evidence before the Board seeking to answer Bunge's new evidence and that such new evidence had clearly gone to the question of prejudice, which could only be relevant to an exercise of discretion by the Board. Finally, reliance was placed on the fact that at the outset of the hearing, Gulf made a successful application to the Board to exclude Bunge's reply evidence (which also dealt with the question of prejudice). Mr Hamblen emphasised that both parties here were represented by solicitors experienced in arbitration practice and that part of the objective background was that everyone in arbitration practice knows that a challenge to the jurisdiction of arbitrators needs to be made at the earliest opportunity, a point underlined by the provisions of the Arbitration Act 1996. Putting all these matters together and applying the AEK test, Mr Hamblen submitted that there had clearly been an ad hoc submission.
40. Mr Males for Gulf challenged that conclusion, essentially on two related grounds. First he contended that the test in AEK was not the correct test to apply. Rather the correct test was the same as for the implication of a contract adopted by the Court of Appeal in Baird Textiles Holdings v Marks & Spencer [2001] EWCA Civ 274; [2002] 1 All ER (Comm) 737. This is essentially the test laid down by Bingham LJ in The Aramis [1989] 1 Lloyds Rep 213 at 224:

"...it would, in my view, be contrary to principle to countenance the implication of a contract from conduct if the conduct relied upon is no more consistent with an intention to contract than with an intention not to contract. It must, surely, be necessary to identify conduct referable to the contract contended for or, at the very least, conduct inconsistent with there being no contract made between the parties. Put another way, I think it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract."

41. The Court of Appeal in Baird Textiles concluded that the principle in The Aramis was not confined to the limited circumstances of that case but applies generally to the implication of a contract from conduct: see per Sir Andrew Morritt V-C at paragraph 21; per Judge LJ at paragraph 48 and per Mance LJ at paragraphs 60-62.
42. Applying that test to this case, Mr Males next contends that Gulf's conduct here was consistent with reserving its position on whether the Board of Appeal had the relevant power until the appeal hearing, a point which he submitted was all the stronger if, as he submitted (and I have found), this case is really within section 68 of the Act rather than a challenge to the substantive jurisdiction under section 67.
43. Mr Hamblen's riposte was that the Baird Textiles principle is concerned with the need to find an intention to create legal relations and it therefore required a more stringent test than the present situation, where there undoubtedly is an arbitration agreement and the Court is merely concerned with ascertaining its scope. I am not convinced by that argument. As the passages in the judgment of the Court of Appeal demonstrate, the principle is a general one for the implication of a contract from conduct. If one is trying to spell out an ad hoc submission from conduct, it seems to me that that is an example of the implication of a contract from conduct to which the principle in Baird Textiles applies. It may be that, if the implication is sought to be made against the background of an existing agreement to arbitrate, the Court will more readily interpret the parties' conduct as only being consistent with an intention to make an ad hoc submission of some other issue. However, that is a factual question and does not affect the application of the legal principle.
44. Furthermore, I am not at all sure from where the learned judge in AEK derived the test which he adopted. When I asked Counsel whether it came from some other case of ad hoc submission, they were unable to help. Certainly, Baird Textiles does not seem to have been cited to the judge. It seems to me that the correct test to apply is the one applied in Baird Textiles.
45. Applying that test to the facts of this case, there is undoubtedly considerable force in Mr Hamblen's submissions about the various steps taken by Gulf. I have not found this an easy question, but on balance I prefer Gulf's case that its conduct was not such as was only consistent with an ad hoc submission of the issue of discretion to the Board of Appeal. One factor which has particularly influenced me in reaching that conclusion is the absence of any protest from Mr De Zwart or the Board of Appeal itself when the objection was raised by Mr Hintermann. It was not once suggested that it was not open to argument because the issue had been submitted to the Board of Appeal. I accept that Mr De Zwart may have been taken by surprise and may not therefore have had that reaction immediately, but six weeks then passed between the appeal hearing and the Appeal Award. If Bunge really thought that there had been an ad hoc submission, surely something would have been said during that period. The fact that nothing was said seems to me to reinforce that Gulf's conduct before the objection was raised was as consistent with leaving the right to object open as with conferring the Board of Appeal with the relevant power. Since this is an objective question, it is not necessary to consider in that context when precisely Gulf and its legal advisers first became aware of the possibility of objection and I decline to draw any inference in that regard.
46. If there was no ad hoc submission, then the parallel argument that there is an estoppel by representation or convention must fail for essentially the same reasons, as Mr Hamblen accepted in the course of argument.
47. That leaves Bunge's arguments that the objection came too late, based upon sections 31 and 73 (1) of the Arbitration Act 1996. If, as I have held, the application falls within section 68 rather than section 67, those provisions are not applicable because they are only concerned with challenges to the substantive jurisdiction of the tribunal, not with serious irregularity. It is not necessary to consider sections 31 and 73 (1) further, save to say that I consider that Mr Males is right in his submission that, in circumstances where the Board of Appeal allowed the objection to the exercise of discretion by it to be fully argued on the merits and decided the point, albeit against Gulf, it would be bizarre if Bunge could successfully argue before the Court that the objection was too late by reference to either section 31 or section 73 (1). In effect, Gulf would be worse off than if Bunge or the Board of Appeal had protested about the point being raised late and the Board had then ruled that the objection could still be argued. It seems to me that the Board has allowed the point to be argued and if it would otherwise have been too late, it is not precluded by section 31 or section 73(1), either because section 31(3) comes into play or because the objection has been raised "within such time as is allowed by…the tribunal" within the meaning of the opening words of section 73(1).
48. In any event, as I have indicated, the issue as to the lateness of the application is an academic one, because I have already concluded that the application must be dismissed on the merits.