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
		31/07/2009

Mr Justice Gross :

INTRODUCTION

1. There are before the Court a variety of applications, brought under ss. 67, 68 and 69 of the Arbitration Act 1996 ("the Act"). They arise in this way.
2. Kuok Oils & Grains PTE Ltd ("Kuok") alleged and U.R.Power GmbH ("URP") denied that the parties had entered into a contract in October 2006 for the sale by URP to Kuok of 10,000 mt crude palm oil in bulk, CIF European Port, with a shipment date in Nigeria of 1^st – 30^th November, 2006. It is common ground that, in the event, no goods were supplied by URP to Kuok.
3. Subsequently, on 15^th June 2007 Kuok commenced arbitration against URP under the FOSFA Rules of Arbitration and Appeal ("the Rules"). On the 20^th June, 2008, a First Tier Tribunal held ("the first tier arbitrators" and "the first tier award" respectively) that there was a binding contract between the parties and that Kuok was entitled to damages in the amount of US$3,434,260, together with interest and costs.
4. URP appealed against the first tier award and, on the 20^th November, 2008, a FOSFA Board of Appeal held ("the Board of Appeal" and "the appeal award" respectively) that: (1) it had jurisdiction over the dispute; (2) there was a binding contract between the parties; (3) Kuok was entitled to damages but in the lesser amount of US$850,736, together with 50% of the costs of the first tier award and interest.
5. In these proceedings, both URP and Kuok have sought to challenge the appeal award. Essentially, the challenges relate to (1) whether there was a binding contract at all; (2) the quantum of damages.
6. The URP challenges: These are brought under ss. 67 and 69 of the Act:

i) URP contends that the appeal award is of no effect because the tribunal did not have substantive jurisdiction under s.67(1)(b) of the Act; in summary, URP's case is that by reason of Kuok's failure to open a letter of credit, no binding contract was ever concluded between URP and Kuok and, accordingly, there was no arbitration agreement between the parties.

ii) URP seeks leave to appeal, under s.69 of the Act, on the following (alleged) questions of law arising out of the appeal award, in respect of which the Board of Appeal is said to have erred in law:

a) Whether there was a condition precedent to the formation of a contract (i.e., opening a letter of credit) and, if so, whether it was waived;

b) Whether the FOSFA Default Clause (clause 27 of FOSFA Form 80) sets an upper limit of recoverable damages of the difference between the contract price and the market price.

7. The Kuok challenges: These are brought under ss. 68 and 69 of the Act:

i) Under s. 68 (1) and (2)(a) of the Act and going to the date of termination of the contract and hence the quantum of damages, Kuok seeks an order setting aside or remitting parts of the appeal award to the tribunal, on the ground of serious irregularity affecting the appeal award, by reason of the tribunal's breach of its general duty under s.33 of the Act, in particular in:

a) Reaching its conclusions without properly considering evidence put before it by Kuok; and/or

b) Giving undue weight to a point raised at the last moment by URP to which Kuok was not given an adequate opportunity to respond.

ii) Kuok seeks leave to appeal, under s.69 of the Act, on the following (alleged) questions of law arising out of the appeal award, in respect of which the Board of Appeal is said to have erred in law:

a) Whether URP is to be treated as having been in default under the sale contract on the 30^th November, 2006 (as found by the Board of Appeal) or on 31^st May, 2007 (as found by the first tier arbitrators);

b) Whether (as the Board of Appeal found) the effect of an e-mail sent by Kuok to URP on the 20^th December, 2006 was to terminate the sale contract;

c) Even if the answer to question b) is "yes", whether the parties thereafter revived the sale contract, such that URP was in further default on 31^st May, 2007;

d) Whether the Board of Appeal's conclusion as to the 20^th December, 2006 termination date was inconsistent with the remainder of the evidence and/or involved a failure to consider events after that date.

THE S.69 CHALLENGES

8. In the view which I take of the matter it is convenient first to deal with the challenges mounted by both parties under s.69 of the Act. These applications were listed together with the applications under ss. 67 and 68 of the Act. However, the Orders of Andrew Smith J (of the 28^th February and 12^th March, 2009) doing so, left it to the Judge hearing the matter to decide whether or not to allow oral argument on the s.69 applications. In the event, as I indicated to the parties at the hearing, I declined to hear oral argument on these applications, having reached a clear adverse conclusion to all of them on the documents.
9. In the very brief terms which are customary, my reasons are these:

i) None of the challenges raised questions of general public importance; it follows that the test for leave is whether the decisions of the Board of Appeal in question (of course considered individually) were "obviously wrong" (s.69(3)(c)).

ii) I did not consider any of the decisions in question to be obviously wrong; per contra, in each case, I was inclined to the view that they were probably correct.

iii) URP challenge – a binding contract: On the findings contained in the appeal award, read fairly and as a whole, the Board of Appeal was at the least entitled to conclude that, by latest the 27^th October, 2006, the parties had entered into a binding contract and that a letter of credit was not a condition precedent to its formation. Not infrequently, commercial men conclude agreements other than in text book style fashion. (For completeness and the avoidance of doubt, if and insofar as the Board of Appeal analysed the question (in part) in terms of variation rather than waiver, that was an approach it was entitled to adopt.) It is perhaps not inappropriate to add that URP's challenge to the existence of a binding contract flew in the face of the conclusions of both trade tribunals.

iv) URP challenge – the FOSFA Default Clause: The Board of Appeal was entitled to assess damages as it did; that assessment was permissible under cl. 27 of FOSFA Form 80 and was not precluded by Sanhe Hope v Toepfer International [2008] 1 Lloyd's Rep 458, upon which URP sought to rely.

v) Kuok challenge – termination date and revival of the contract: On the findings set out in the appeal award, the Board of Appeal was amply entitled to conclude that the contract was terminated on the 20^th December, 2006 and was not revived thereafter; accordingly, the Board of Appeal was entitled to treat URP as having been in default on the 30^th November, 2006. The Board of Appeal's conclusion as to the 20^th December, 2006 termination date neither involved an error of law as to the remainder of the evidence nor as to any failure to consider events after the 20^th December, 2006. For the purposes of deciding the Kuok s.69 application, I have throughout assumed that it was brought within time; I postpone, until my consideration of the Kuok s.68 challenge, the objection raised by URP that all Kuok's applications were out of time.

THE URP s.67 CHALLENGE

10. Without more ado, I turn to URP's s.67 challenge, which gives rise to three principal questions:

i) Whether URP is precluded from challenging the jurisdiction of the Board of Appeal?

ii) Whether the URP challenge is doomed on the ground of separability?

iii) Whether Kuok's obligation to open a letter of credit was a condition precedent to the conclusion of a binding contract?

In the light of my views as to question iii), it is convenient to take that question first and, thereafter, to comment briefly on questions i) and ii).

11. Question iii): Whether Kuok's obligation to open a letter of credit was a condition precedent to the conclusion of a binding contract? So far as concerns URP's s.67 challenge, the relevant inquiry is whether the Board of Appeal had jurisdiction to determine the issue of whether or not there was a binding contract. The inquiry as to whether, if the Board of Appeal did have jurisdiction, it reached the correct conclusion gives rise to the question which URP sought to raise under s.69 – and which I have already determined adversely to URP. Although, however, the focus of the two applications is distinct, there is necessarily a considerable degree of overlap, given the importance for both applications of URP's contention that Kuok's obligation to open a letter of credit was a condition precedent to the conclusion of a binding contract.
12. At all events, the entire basis upon which the URP s.67 challenge rests is the contention that Kuok's obligation to open a letter of credit was a condition precedent to the conclusion of a binding contract. Its significance here is that, building on this platform, URP goes on to argue that this condition precedent was never satisfied; that no binding contract was concluded and, accordingly (so it is said and itself the subject of question ii)) there was no arbitration agreement between the parties so that the Board of Appeal lacked jurisdiction. If, however, URP fails in its contention that Kuok's obligation to open a letter of credit was a condition precedent to the conclusion of a binding contract, then the entire edifice of its s.67 challenge must crumble – regardless of the answer to questions i) and ii).
13. For my part, I have reached the clear conclusion that the obligation upon Kuok to open a letter of credit was not a condition precedent to the conclusion of a binding contract. It follows that the URP s.67 challenge must fail. My reasons follow.
14. As a matter of law, it is necessary to distinguish between contingent conditions precedent and promissory conditions precedent. As expressed in Chitty on Contracts (30^th ed.), Vol. I, at para. 2-148:

" The word 'condition' may refer either to an event, or to a term of a contract….Where 'condition' refers to an event, that event may be either an occurrence which neither party undertakes to bring about or the performance by one party of his undertaking. The first possibility is illustrated by a contract by which A is to work for B and B is to pay A £50, 'if it rains tomorrow'. Here the obligations of both parties are contingent on the happening of the specified event which may therefore be described as a contingent condition. The second possibility is illustrated by the ordinary case in which A agrees to work for B at a weekly wage payable at the end of the week. Here the contract is immediately binding on both parties, but B is not liable to pay until A has performed his promise to work. Such performance is a condition of B's liability and, as A has promised to render it , the condition may be described as promissory….."

15. In the case, therefore of a contingent condition precedent, a contract will not be binding until the specified event occurs. But in the case of a promissory condition precedent, the contract will be binding, albeit that the performance of an obligation by one party will be a condition precedent to the liability of the other. It is perhaps imprudent to be unduly dogmatic but the distinction between contingent and promissory conditions precedent may well turn on whether the agreement purports to impose on A (as in the second example above) an obligation to bring about the stipulated event; if it does, the condition is or likely to be promissory; if not, the condition is or is likely to be contingent: see Treitel (12^th ed.), at para. 17-016.
16. If there is force in this suggested ground of distinction, then it must be at least likely (subject always to the terms of the individual contractual exchanges) that the obligation to open a letter of credit is a promissory rather than a contingent condition precedent. Certainly, it is by no means untypical to find that such an obligation is treated as a promissory rather than a contingent condition precedent – so that failure to open the letter of credit constitutes a breach of contract, releasing the other party from further performance of the contract, rather than serving to prevent the contract from coming into existence. See: Chitty (op cit), at para. 12-027, fn. 110; Treitel (op cit), at paras. 17-014 – 17-015; Benjamin's Sale of Goods (7^th ed.), at para. 23-083.
17. Against this background, I turn to the facts of the present case, keeping in mind that (as already indicated) my focus concerns the jurisdiction of the Board of Appeal rather than the correctness of its decision if it did have jurisdiction.
18. Negotiations, through a broker, commenced on the 17^th October, 2006. That day, the parties identified the goods (crude palm oil), the quantity (10,000 mt), the price (US$480 per mt) and the fact that the contract was to be on CIF terms. On the 18^th October, documentary requirements were exchanged and payment by transferable letter of credit was requested by URP. In the course of that day, the parties agreed, inter alia, that they would contract on terms "As per FOSFA 80". Interposing there, FOSFA 80 includes the provision (clause 30) for arbitration in accordance with the Rules leading, in the events which happened, to the two tier arbitration which followed. Returning to the narrative and still on the 18^th October, URP asked for Kuok to instruct its bank to prepare the transferable letter of credit and added: "If the bank can send us today the letter of credit, the contract is accepted". A draft letter of credit was sent that day and, as the Board of Appeal noted (para. 6.3 of the Appeal Award), its terms were further discussed in the days which followed.
19. On the 25^th October, Kuok's bank dispatched a letter of credit to URP's bank and Kuok issued a "purchase contract" wording. The wording wrongly stated that payment was to be by way of cash against documents – rather than by letter of credit; that apart and save for a failure to specify the Nigerian origin of the goods, the wording apparently reflected the agreement thus far reached between the parties. By this stage and plainly so, there was agreement on the goods, the quantity, the price, the CIF nature of the contract and the fact that it was on FOSFA 80 terms. So far as concerns the letter of credit, on the same day URP pointed out that it contained errors, in particular, that it was not transferable. It is noteworthy, as the Board of Appeal underlined (para. 6.5 of the Appeal Award) that URP:

"…made no comment or inference that due to the inconsistencies in the offered Letter of Credit that there was no contractual obligation between the parties. ….[URP] only pointed out the mistakes that they wanted to be rectified…."

20. On the next day, the 26^th October, URP's communication to Kuok focussed on the performance of the contract, nominated a load port, added a requirement for a loading certificate from a first class surveyor and spoke of working further on the letter of credit on the 27^th.
21. On the 27^th October, the individuals at Kuok and URP who were negotiating the transaction spoke on the telephone before URP sent an e-mail (timed at 11.09) to Kuok. Most importantly, for present purposes, this e-mail ("the 27^th October e-mail") now contemplated that (1) a Proof of Product ("POP") Certificate would be issued on behalf of URP; (2) thereafter, Kuok would open a transferable letter of credit. URP asked for confirmation from Kuok and its bank; on the evidence, such confirmation was forthcoming on the telephone later that day. Thereafter, so far as it is relevant, the parties' conduct suggests that they proceeded with the intended performance of the contract until, unfortunately, the URP supply failed.
22. For my part, I am not persuaded by anything in these negotiations that any obligation on Kuok to open a transferable letter of credit was a contingent condition precedent to the conclusion of a binding contract. To my mind and much more naturally, the negotiations suggest that the opening of a transferable letter of credit was to be a term of the contract and, no doubt, a promissory condition precedent to any liability on the part of URP for further performance. In the event, following the 27^th October e-mail and the subsequent telephone conversation, even that obligation on the part of Kuok to open a transferable letter of credit was itself postponed until the production of a POP Certificate. It therefore seems plain to me (whether or not more a matter for URP's s.69 application with which I have already dealt) that, at least on the 27^th October 2006, the parties were agreed as to this sequence in respect of their relevant obligations – a sequence not easily reconcilable with any notion that Kuok's obligation to open a letter of credit was a contingent condition precedent. I am fortified in these conclusions when regard is had to the discussion in the text books as to the opening of a letter of credit more typically being treated as a promissory rather than a contingent condition precedent.
23. Still more so – and although it is not in dispute that the s.67 challenge proceeds by way of a re-hearing rather than a review of the Board of Appeal's conclusions – I am fortified by the trenchant and commercially cogent observations of the Board of Appeal as to the status of the obligations, both to open a letter of credit and to produce a POP Certificate. The Board of Appeal said this:

"6.18 We believe that neither of these two potential conditions precedent to a binding contract would make commercial sense.

6.19 If there was an agreed commodity, price, volume, shipment period and origin (as is the case here) and the opening of the Letter of Credit were to be a condition precedent to the Contract being binding, then Buyers would simply not open the Letter of Credit if the market moved down and Sellers would have no recourse.

6.20 If there was an agreed commodity, price, volume, shipment period and origin (as is the case here) and the delivery of the POP Certificate were to be a condition precedent to the Contract being binding, then Seller would simply not deliver the POP if the market moved up and Buyers would have no recourse.

6.21 Neither scenario, in the Board's view, would have been contemplated at the time of negotiations. WE THEREFORE FIND THAT neither the opening of the Letter of Credit nor the delivery of the POP Certificate was a condition precedent to the contract being binding. "

Suffice to say that I emphatically agree.

24. The Board of Appeal went on to conclude (para. 6.24 of the Appeal Award) that the delivery of the POP Certificate was:

"…a condition precedent to the opening of the Letter of Credit. In other words, Sellers were under the contractual obligation to deliver the POP Certificate….and only then were Buyers under the contractual obligation to open the Letter of Credit."

Again, so far as it is a matter for me, I agree.

25. This conclusion as to the status of Kuok's obligation to open a letter of credit is sufficient to dispose of URP's s.67 challenge. The foundation for that challenge has gone.
26. Question i): Whether URP is precluded from challenging the jurisdiction of the Board of Appeal? This is a ticklish point, potentially one of some general importance to two tier arbitrations and arises in this way. It is common ground that URP did not, before the first tier arbitrators, raise any challenge to their jurisdiction. It is also common ground that URP did challenge the jurisdiction of the Board of Appeal and that the Board of Appeal, despite the opposition of Kuok, made a finding in this regard that it indeed had jurisdiction: see, para. 6.16 of the Appeal Award.
27. For Kuok, Ms Hopkins submitted that by virtue of not having raised any jurisdictional challenge before the first tier arbitrators, URP had lost the right to mount a jurisdictional challenge at any later stage; the right, once lost, was lost for good and could not be revived by any ruling of the Board of Appeal. In this regard, Ms Hopkins relied on ss. 31(1) and 73(1)(a) of the Act, which provide, insofar as relevant, as follows:

" s.31

(1) An objection that the arbitral tribunal lacks substantive jurisdiction at the outset of the proceedings must be raised by a party not later than the time he takes the first step in the proceedings to contest the merits of any matter in relation to which he challenges the tribunal's jurisdiction….

s.73

(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 arbitration agreement or the tribunal or by any provision of this Part, any objection –

(a) that the tribunal lacks substantive jurisdiction….

he may not raise that objection later, before the tribunal or the court….."

(Italicisation added.)

28. For URP, Mr Collett focussed instead on the Board of Appeal and on the provisions of ss. 31(4) and 73(2) of the Act, which are in the following terms:

"s.31

(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 –

(a) rule on the matter in an award as to jurisdiction, or

(b) deal with the objection in its award on the merits.

s.73

(2) Where the arbitral tribunal rules that it has substantive jurisdiction and a party to arbitral proceedings who could have questioned that ruling -

(a) by any available arbitral process of appeal or review, or

(b) by challenging the award,

does not do so, or does not do so within the time allowed by the arbitration agreement or any provision of this Part, he may not object later to the tribunal's substantive jurisdiction on any ground which was the subject of that ruling. "

Mr. Collett's succinct submission was that the Board of Appeal had made a ruling on its substantive jurisdiction within s.31(4) of the Act and that URP's s.67 challenge was brought within the time allowed under s.73(2) of the Act. In the alternative, Mr. Collett submitted that, within the meaning of s.31(3) of the Act, the Board of Appeal had, or should be taken as having, admitted:

"…an objection later than the time specified in subsection (1) or (2) if it considers the delay justified."

If so, then the URP challenge fulfilled the requirements of s.73(1) of the Act.

29. As it seems to me, the scheme of the Act proceeds here as follows:

i) The arbitral tribunal is empowered under s.30(1)(a) of the Act to rule on its own "substantive jurisdiction", inter alia, as to whether there is a valid arbitration agreement. The scope of the sub-section extends to a ruling by the tribunal as to whether there is an arbitration agreement in existence.

ii) S.30 of the Act thus gives effect to the concept of "Kompetenz Kompetenz". Accordingly, an issue as to whether the arbitration agreement is itself in existence can be determined by the arbitral tribunal, albeit not conclusively: see Vee Networks Ltd. v Econet Wireless International Ltd [2004] EWHC 2909 (Comm); [2005] 1 Lloyd's Rep 192, at [22].

iii) The right time for a party to object that an arbitral tribunal lacks substantive jurisdiction, is that set out in s.31(1) of the Act (see above).

iv) If a party does not object within the time so allowed under s.31(1) of the Act, then, unless saved by the provisions of s.31(3), s.73(1) provides for that party to lose the right to object, both before the arbitral tribunal and the Court. See, Vee Networks (supra), at [23] – [27].

30. At least at first blush, my inclination is that the submission advanced by Ms Hopkins has much force. Having regard to the scheme of the Act, the right time for URP to object to the jurisdiction of the arbitral tribunal was before the first tier arbitrators. That it did not do. If this be right, then Mr. Collett's argument, focussing on the Board of Appeal, elegantly constructed though it was, fails to grapple with this difficulty.
31. I am, however, in principle, reluctant to express a final view on a point of some general importance in a case where it is unnecessary to decide it. Moreover:

i) Had this point been determinative of the present application, I would have been minded to explore further with the parties and, possibly, the Board of Appeal, whether s.31(3) of the Act could properly be relied upon by URP. But such an inquiry would be wasteful of time and costs, where, as here, the answer would be academic.

ii) The logic of Ms Hopkins' submission does entail an attack on the Board of Appeal's decision to consider and rule upon URP's jurisdictional challenge. Again, more time and costs could easily have been expended in further analysis of any procedural complexities to which this consideration might have given rise.

32. In the circumstances, I content myself with the provisional observations already set out, as to finding Ms Hopkins' argument attractive. I add only this. On any view, the prudent course for a party contemplating a jurisdictional challenge in a two tier arbitration scheme, is to advance such objections before the first tier arbitrators. If not, it may well be at risk of losing that right.
33. Question ii): Whether the URP challenge is doomed on the ground of separability? Ms Hopkins submitted that, regardless of whether Kuok's obligation to open a letter of credit was a contingent or promissory condition precedent, the Board of Appeal had jurisdiction to determine conclusively whether or not there was a binding contract. For this submission, Ms Hopkins relied on the concept of "separability" (as distinct from Kompetenz Kompetenz), now contained in s.7 of the Act, which provides as follows:

" Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement …..shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement."

34. Mr. Collett's response was that Ms Hopkins' submission went too far. It was one thing for the arbitration agreement (and so, the jurisdiction of the arbitrators) to survive the voidness (even ab initio) of the underlying contract, say on the ground of illegality: see Harbour v Kansa [1993] QB 701. But it was straining separability too far to seek to apply it to a case where negotiations had (at least arguably) not yet resulted in a binding agreement. If Ms Hopkins was right, did it mean, for instance, that arbitrators had binding jurisdiction over disputes arising from typical pre-contractual charterparty negotiations, where such negotiations remained "sub details"? Accordingly, Mr. Collett submitted, the arbitrators would not have jurisdic+tion to issue a binding decision on the merits of the issue of whether there was a binding contract between the parties unless it had first been determined that the condition precedent was a promissory rather than a contingent condition precedent; accordingly, here, the only power the arbitrators had was to rule under s.30 (Kompetenz Kompetenz) on their own jurisdiction.
35. As with Question i), this issue raises points of no little difficulty and of some general interest – evidenced by the vast literature on the topic of separability and its true scope. Once again, this does not seem to be the occasion to explore such an issue in depth or to express a concluded view, as for the purposes of this litigation my conclusion would be academic. I therefore do no more than express some provisional thoughts on the matter, essentially in deference to the arguments advanced.
36. In Vee Networks (supra), the judgment of Colman J includes, with respect, extended and careful observations on separability in English law, both before and under the Act. Colman J said this:

" 19. Prior to the coming into force of the 1996 Act the English courts had worked out a doctrine of separability, as expressed in Harbour Assurance Co. (UK) Ltd. v Kansa General Insurance Co. Ltd. …, the substance of which was that, if the scope of an arbitration clause were sufficiently wide to cover the dispute, an arbitrator would, because of the separability of the agreement to arbitrate, have jurisdiction conclusively to determine whether the matrix contract was void ab initio, for example on the grounds of fraud or illegality, or was voidable, for example for misrepresentation or repudiatory breach. This jurisdiction was held to exist provided always that there was a binding agreement to arbitrate. The essence of the separability doctrine was that of insulation of the agreement to arbitrate from the matrix contract to the effect that the agreement to arbitrate would not be rendered void or invalid or avoided solely because the matrix contract was void or invalid or had been avoided. Unless the agreement to arbitrate was independently void or invalid, that agreement would remain in effect and the arbitrator could determine conclusively whether the matrix contract was enforceable. Thus, for example,…..if the matrix contract were illegal and void, that matter of illegality could be conclusively determined by the arbitrator unless the agreement to arbitrate was also independently rendered illegal and void by the legislation in question. However, where one of the parties to the arbitration had not agreed to become a party to the matrix contract it could invariably be said that the party in question was not bound by the arbitration agreement. That, however, is quite different from a case of statutory illegality, which renders the matrix contract void.

20. Section 7 of the 1996 Act reflects this concept of separability. Its effect in substance is to confirm that arbitrators have jurisdiction conclusively to determine issues on the voidness or voidability of the matrix contract to the effect that they do not lose jurisdiction by reason only that the matrix contract may be void or voidable. However, s.7 leaves intact the requirement that the arbitration agreement should be valid and binding. If it is not valid and binding for reasons other than the bare fact that the matrix contract is not valid and binding, then s.7 does not enable arbitrators to exercise conclusive jurisdiction in respect of any issue relating to the matrix contract…… "

37. Intriguingly, both parties placed reliance on these passages. Mr. Collett emphasised the wording at the end of [19] of Colman J's judgment, pointing to the limits on separability. Ms Hopkins pointed to the strength of the passage emphasising the autonomy of the arbitration agreement.
38. Fiona Trust v Privalov [2007] UKHL 40; [2008] 1 Lloyd's Rep 254 concerned a claim by shipowners for rescission of a number of charterparties by reason of bribery and fraud. For present purposes, the issue was whether the arbitration clause, contained in the charterparties, conferred jurisdiction on the arbitrators to determine the effectiveness of owners' purported rescission of the charterparties. Applying the principle of separability, the Court of Appeal and the House of Lords held that the arbitrators did have jurisdiction to determine the dispute; the allegations did not involve an attack on the arbitration agreement as distinct from the underlying charterparties. Of particular relevance to the present case, Lord Hoffmann said this:

"17. The principle of separability enacted in section 7 means that the invalidity or rescission of the main contract does not necessarily entail the invalidity or rescission of the arbitration agreement. The arbitration agreement must be treated as a 'distinct agreement' and can be void or voidable only on grounds which relate directly to the arbitration agreement….

18. …..Even if the allegation is that there was no concluded agreement (for example, that terms of the main agreement remained to be agreed) that is not necessarily an attack on the arbitration agreement. If the arbitration clause has been agreed, the parties will be presumed to have intended the question of whether there was a concluded main agreement to be decided by arbitration.

19. ….Mr Butcher QC, who appeared for the owners, said that but for the bribery, the owners would not have entered into any charter with the charterers and therefore would not have entered into an arbitration agreement. But that is ….exactly the kind of argument which section 7 was intended to prevent. It amounts to saying that because the main agreement and the arbitration agreement were bound up with each other, the invalidity of the main agreement should result in the invalidity of the arbitration agreement….. "

39. Ms Hopkins, unsurprisingly, relies strongly on this passage, in particular Lord Hoffmann's observations at [18]. Mr. Collett maintains his earlier submission and contends that those observations were obiter.
40. On the facts of the present case, my provisional inclination is to prefer Ms Hopkins' submissions on this point. In summary:

i) To my mind, the wording of s.7 of the Act makes it plain that even though the underlying contract never came into existence, the arbitration agreement may still be binding. In this regard, it is worth underlining the wording in s.7 "or was intended to form part of" and "or did not come into existence". See too, Russell on Arbitration (23^rd ed.), at para. 2-008. It is in any event at least a tenable view that, in this context, too much can sometimes be made of the distinction between a contract which is void and one which never came into existence: see, Fouchard Gaillard Goldman on International Commercial Arbitration, at para. 411.

ii) So far as concerns authority, even if Lord Hoffmann's observations at [18] of his speech in Fiona Trust (supra) are obiter, they are, with respect, of very great persuasive force. Moreover, they are very much in point. For my part, I do not read anything said by Colman J in Vee Networks (supra), as telling against the provisional conclusion to which I am attracted; the observations of Colman J at the end of [19] were directed at a somewhat different situation.

iii) In principle, therefore, an arbitration agreement may be binding even though the underlying contract has not come into existence. With respect to Mr. Collett's argument to the contrary, it does not follow that in every case where pre-contractual negotiations have not resulted in a binding (underlying or matrix) contract, an arbitration clause discussed in the course of those negotiations would be binding. Whether it is or not will necessarily be a question of fact and degree, depending on the circumstances of the individual case.

iv) In the present case, by the 25^th October and even more so by the 27^th October, 2006, there was on any view a very considerable measure of agreement between the parties. By the 27^th October, as set out in para. 6.15 of the Appeal Award, such agreement extended to: (1) the goods (Nigerian crude palm oil); (2) the quantity (10,000 mt); (3) the CIF nature of the transaction, including a nominated load and discharge port; (4) the price ($480.00 per mt); (5) the incorporation of FOSFA 80, so including the agreement to arbitrate (cl. 30 of FOSFA 80); (6) payment by transferable letter of credit to be opened and confirmed after delivery of the POP Certificate, with detailed documentary instructions.

v) Against this background, it is at least strongly arguable that the outline of the agreement of which the agreed arbitration clause (cl. 30 of FOSFA 80) was intended to form part, was clear indeed. There was in particular no doubt and had not been since the 18^th October that the parties intended their disputes arising out of their (intended) contract to be referred to arbitration; the incorporation of FOSFA 80 had been agreed since then. All that remained was the discrete question of whether Kuok's obligation to open a conforming letter of credit was or (on one view) remained a contingent condition precedent and so stood in the way of the parties having entered into a binding contract. There is, to my mind, at least a powerful argument for concluding that the parties must be taken to have intended that discrete question to be referred to arbitration in accordance with FOSFA 80. It is perhaps to be underlined that the question here went not to the existence of any consensus ad idem but instead to the nature of Kuok's obligation.

41. However, for the reasons given, I say no more as to Question ii) and leave it there. I turn next to the Kuok s.68 challenge.

THE KUOK s.68 CHALLENGE

42. Under this heading, there are two principal issues:

i) Whether the Kuok s.68 application was brought in time?

ii) The merits of the Kuok s.68 application.

Given the view I take on issue ii), I shall deal with that issue first, proceeding on the assumption that Kuok can overcome such difficulties as it faces under issue i). Thereafter, I shall briefly express my views on the questions raised under issue i).

43. Issue ii): The merits of the Kuok s.68 application. This application is brought and is brought solely under ss. 68 (1) and (2)(a) of the Act, which provide as follows:

" (1) A party to arbitral proceedings may ….apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award…..

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant –

(a) Failure by the tribunal to comply with section 33 (general duty of tribunal);"

In turn, S.33 of the Act is in the following terms:

" (1) The tribunal shall –

(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent…..

(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it."

44. The gravamen of this application is as follows. There is, rightly, no allegation of any want of impartiality. Instead, the application focuses on the manner in which the Board of Appeal dealt with URP's case that the contract was terminated in December, 2006. Two particular complaints are advanced:

i) That the Board of Appeal did not consider post- 20^th December, 2006 materials (with the exception of the invoices referred to under ii) below).

ii) That the Board of Appeal gave undue weight to the Kuok monthly reminders, adduced only the day before the hearing and with which Kuok was not given a proper opportunity to deal.

The underlying aim of the application is of course to push back the date of termination, with a view to increasing the damages awarded to Kuok, ideally restoring the quantum of damages awarded to it under the first tier award.

45. In my judgment and with respect to Kuok's arguments, the first of these complaints is based on a misconception. In para. 6.45 of the appeal award, the Board of Appeal concluded that the contract was terminated on the 20^th December, 2006. Having reached that conclusion, the Board of Appeal said this (still at para. 6.45):

"There are no reasons for the Board to consider any issues after this date."

46. Viewed fairly, however, the Board of Appeal was here doing no more than saying that in the light of its conclusion as to the termination date, it did not need to determine any issues as to subsequent events; it did not involve the Board of Appeal saying that in coming to its conclusion as to the termination date it had not paid regard to post-20^th December materials. In any event, the notion that the Board did not have regard to post-20^th December materials is belied by para. 6.46 of the Appeal Award which was in the following terms:

"Attempts by Sellers to anyhow further try to execute the Contract and the fact that Buyers would most probably have accepted such an execution to replace the invoices for default damages (in a sharply rising market) do not alter the fact that the Contract was terminated on 20 December 2006 and that the only remaining contractual right of Buyers was to receive payment of these default damages. "

For that matter, though admittedly focussed on the invoices (or reminders) of which Kuok next makes complaint, paras. 6.47 – 6.49 of the appeal award are plainly dealing with post- 20^th December materials.

47. Further elaboration is unnecessary. The first Kuok complaint never gets off the ground on the facts. In a nutshell, the Board of Appeal did consider the post-20^th December materials; Kuok's true complaint is as to the conclusion reached by the Board of Appeal; but, self evidently, such a complaint cannot entitle Kuok to relief under or via s.68 of the Act.
48. I turn to the second Kuok complaint. This too can be taken shortly. It involves, curiously, Kuok complaining that it did not have an opportunity properly to address its own invoices sent to URP. So, while it is no doubt correct for Kuok to say that these documents had not been adduced by URP until the day before the hearing, it is important to underline that the documents in question are Kuok's own documents.
49. The significance of these invoices is that from January to May 2007, Kuok sent to URP monthly reminders of "open account statements for …default damages" based upon a 20^th December, 2006 termination. Also over that period, Kuok did not declare the contract reopened. For reasons which are readily to be understood, the Board of Appeal attached importance to this conduct on the part of Kuok: paras. 6.47 – 6.49 of the appeal award. The Board of Appeal's conclusion was set out as follows (at para. 6.49):

" ….one cannot have it both ways: on the one hand declare the contract at an end on 20 December 2006 and invoice default damages in the total amount of US$1,439,432.00 (and keep sending reminders of this invoice) and on the other stimulate a seller to execute a no longer existing contract (at a low contract price compared to a sharply rising market); i.e., never officially reopen the contract but then still declare the seller in default when it becomes clear that he cannot execute this tonnage; and then 'replace' the old default damage invoice with a new one that is about US$2,000,000 higher."

50. It is true that (as is usual in FOSFA arbitrations) Kuok did not have legal representation at the hearing before the Board of Appeal. But the significance of these invoices and the Kuok conduct in dispatching them were readily capable of being dealt with by a commercial man. Moreover, Kuok did not seek an adjournment of the hearing for the purpose of considering or investigating these (its own) documents further.
51. So far as concerns the witness statement of Mr. Leong, upon which Kuok relied, I am, with respect, unable to accept either that Kuok was not in a position to deal with this matter or that it was not given a proper opportunity to do so. The further suggestion by Mr. Leong that the issue of monthly reminders "was simply a mechanical step taken by the…[Kuok] …accounts' department" raises, to my mind, more questions than it answers, quite apart from its misplaced emphasis on Kuok's internal subjective intent rather than the objective appearance of the documents.
52. Ms Hopkins rightly accepted that the burden of persuading the Court that a serious irregularity has occurred is not easily discharged. As has often been said, s.68 is not to be used as a backdoor means of attack on the factual conclusions of an arbitral tribunal. Suffice to say that, with respect to Kuok's arguments, it has not come close to satisfying the burden resting upon it in connection with this complaint. For my part, I can discern no irregularity whatever let alone any serious irregularity causing substantial injustice. It was amply within the Board of Appeal's discretion to admit the materials into evidence, a fortiori, when no adjournment was sought. The weight thereafter given to these materials was very much a matter for the Board of Appeal.
53. For the reasons given, the Kuok s.68 application fails on the merits.
54. Issue i): Whether the Kuok s.68 application was brought in time? In the light of my conclusion as to the merits of the Kuok s.68 application, any view I express on this issue is necessarily academic. Nonetheless, as this is a short point, I shall in this instance express my conclusions - albeit briefly.
55. The issue arises in this way. URP submits that Kuok is not entitled to bring its s. 68 application at all because it was out of time for doing so. The starting point is s.70(3) of the Act, which is in these terms:

" Any application or appeal must be brought within 28 days of the date of the award or, if there has been any arbitral process of appeal or review, of the date when the applicant or appellant was notified of the result of that process."

56. The appeal award was dated the 20^th November, 2008. Kuok's arbitration claim form was issued on the 9^th January, 2009. Accordingly, if, as URP submits, the date of the appeal award is the relevant date for time to start counting, then Kuok's application was out of time. Kuok, however, submits that it was only notified of the result of the appeal award on the 15^th December, 2008; if, as Kuok submits, that is the relevant date for time to start counting, then the Kuok application is within time. Accordingly, a question arises as to the correct interpretation of s.70(3) of the Act.
57. If, contrary to its primary submission here, it should be held that Kuok's application was out of time (on the true construction of s.70(3)), then Kuok seeks an extension of time under s.80(5) of the Act. That extension is opposed by URP. With regard to the consideration of any such extension, s.80(5) cross-refers to the rules of court.
58. The meaning of the wording in s.70(3), "…if there has been any arbitral process of appeal or review…." is, admittedly, puzzling. For my part, however, I am satisfied that whatever the true scope of that wording, Kuok's suggested interpretation cannot be correct.

i) First, I am unable to accept that this wording applies to appeals within well-known two tier arbitration schemes such as FOSFA or that of the Grain and Feed Trades Association ("GAFTA"). I was not referred by either party to any case where it was suggested that this wording was somehow applicable to arbitrations of this nature; if the Kuok construction was correct, it is surprising that there have not been any such authorities. To the contrary, it seems far more likely that the relevant date has been at least assumed to be the date of the appeal award in such schemes. See, for instance, AHT v Tradigrain [2002] 2 Lloyd's Rep. 512, at [64].

ii) Secondly, the construction suggested by Kuok could readily result in a different cut-off date for applications brought by each party; on the Kuok construction, time would start counting only when the individual party was notified of the result in question. At first blush and as a matter of practicality, it would be surprising if Parliament had legislated to produce such an outcome.

iii) Thirdly, there can be no doubting the status of the Advisory Committee of the Department of Industry ("the DAC") and the considerable weight to be given to its views on the clauses of the Bill preceding the Act. In its Report of February, 1996, the DAC said this (at para. 294) of the then cl. 70(3), now s.70(3):

"….It is possible that the time limit in Clause 70(3) will have expired by the time an award is released. However, the DAC is of the view that the date of the award is the only incontrovertible date from which the time period should run. Any other starting point would result in great uncertainty (e.g. as to the exact point at which an award is 'released' or 'delivered'). Further, any difficulties arising from specific circumstances can be easily remedied by way of an extension of time ….."

It is of course fair to say that this passage in the DAC's February 1996 Report does not by itself answer the question of interpretation which has arisen here. It says nothing as to the meaning of the key words in s.70(3) relied upon by Kuok. But the DAC was clearly interested in promoting certainty and the Kuok interpretation of s.70(3) would produce the very uncertainty the DAC was anxious to avoid.

59. For these reasons, I prefer the URP to the Kuok interpretation of s.70(3). In the case of a FOSFA appeal award, time for any challenge starts running from the date of the appeal award.
60. For completeness, I express no concluded view as to the true ambit of the words in s.70(3), "…if there has been any arbitral process of appeal or review….". I am tentatively attracted to the view that they refer to such arbitration schemes which have some particular internal process for reconsideration of the award or appeal award. However that may be, I do not believe that this wording has any application to FOSFA or, for that matter, GAFTA appeal arbitrations. In such cases, it is the date of the award, or appeal award, as the case may be, which starts time counting.
61. It follows that to preserve its s.68 challenge (and, for that matter its s.69 application), Kuok did need an extension of time pursuant to s.80(5) of the Act.
62. Had it mattered, should such an extension have been granted? I propose to take this question almost summarily. Here, URP argued that delay on the part of Kuok was tactical and on this ground opposed the short extension of time required. It is fair to URP to say that the facts were such as to explain how that suspicion might have arisen. However, in his second witness statement, Mr. Leong, Kuok's Singapore solicitor, denies in terms (at para. 35) that the delay was the result of a tactical decision. Instead, the cause of the delay was, Mr. Leong said (at para. 39), his mistaken interpretation (as I have held) of s.70(3). I do not think it would be right and I am not prepared to disbelieve these statements of Mr. Leong.
63. In the circumstances, I am satisfied that in accordance with the criteria set out in Kalmneft v Glencore [2002] 1 Lloyd's Rep 128, at [59], the right course would have been to extend time.
64. It follows that Kuok's ss. 68 and 69 applications would not have failed at the outset on the ground that these were out of time. In the event, given my ruling on the merits of these applications, this conclusion is academic.
65. In the event, the appeal award has survived all the challenges pursued by both parties. I shall be grateful for the assistance of counsel in drawing up an appropriate order and on all questions of costs.