COMMERCIAL COURT
B e f o r e :
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CHOIL TRADING SA |
Claimant |
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- and - |
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ADDAX ENERGY SA |
Defendant |
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Geraldine Clark (instructed by Davies Johnson (Geneva)) ) for the Respondent
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Crown Copyright ©
MR. JUSTICE FIELD:
(1) The joint venture ("the JVA") covered three inter related areas of trading activity:
(a) sales of low sulphur fuel oil (LSFO), which Addax would buy from suppliers in West Africa and sell to Choil, and which Choil would re-sell to third parties for delivery in the US Gulf;
(b) sales of high sulphur fuel oil (HSFO), which Choil would buy from suppliers in the US Gulf and elsewhere and sell to Addax for delivery into West Africa to supply Addax's bunkering service in West Africa, and
(c) entering into oil futures and other oil-based derivative contracts, partly to hedge the LSFO and HSFO physical sales and partly as an independent trading strategy seeking profits for the benefit of the joint venture.
(2) The joint venture would run for an initial six months.
(3) There would be one cargo of approximately 30,000 MT per month of each of LSFO and HSFO.
(4) Each physical sale would be the subject of a separate sale contact between the parties, and each party was to be responsible for shipping the cargo in accordance with the terms of the sale contract.
(5) All derivative trades under the joint venture were to be discussed and agreed between the parties before any trade was executed.
(6) The parties would trade exclusively with each other in respect of LSFO for delivery into the US Gulf, and HSFO for delivery into West Africa.
(7) The profit/loss of the joint venture was to be calculated:
(a) as regards LSFO, by taking the difference between the sale price from Addax to Choil and Choil's sale price into the US Gulf;
(b) as regards HSFO, by taking the difference between the sale price from Choil to Addax and Addax's re-sale price into West Africa, and
(c) as regards the derivative trades, the balances on the account as positions were closed.
(8) The profits or losses made by the joint venture were to be shared, with Addax taking 70% and Choil taking 30%.
"(1) If the parties, one or more of whom is domiciled in a contracting state, have agreed that a court or the courts of a contracting state is to have jurisdiction to settle any disputes which have arisen, or which may arise, in connection with a particular legal relationship, that court, or those courts, shall have exclusive jurisdiction. Such an agreement conferring jurisdiction shall be either:
(a) in writing, or evidenced in writing; or
(b) in a form which accords with practices which the parties have established between themselves, or
(c) in international trade or commerce in a form which accords with the usage of which the parties are or ought to have been aware, and which in such trade or commerce is widely known to and regularly observed by parties to contracts of the type involved in the particular trade or commerce".
(i) The burden is on Choil to demonstrate "clearly and precisely" that it is the subject of a consensus between the parties that the English court should have jurisdiction over it;
(ii) The concept of consensus for the purposes of Article 17 is an autonomous concept;
(iii) Choil must establish a good arguable case that it has discharged the burden on it, which generally means that it must show that it has a much better argument than does Addax that the requirements of Article 17 are satisfied (see Salotti [1976] ECR 1831; Bells Distilleries BV v Superior Yacht Services Limited [2007] 1 WLR 12).
"Law and Jurisdiction – This contract shall be governed by and construed in accordance with English law. Any controversy, dispute or claim whatsoever arising out of or in connection with this contract, or the breach therefore, shall be subject to the exclusive jurisdiction of the High Court in London…"
"(a) This charter shall be construed and the relations between the parties determined in accordance with the Laws of England.
(b) Any dispute arising under this charter shall be decided by the English courts to whose jurisdiction the parties hereby agree.
(c) Notwithstanding the foregoing, but without prejudice to any parties' right to arrest, or maintain the arrest, of any maritime property, either party may by giving written notice of election to the other party elect to have any such dispute referred … to arbitration in London".
"The overall purpose of clause 41 is identified in the two opening paragraphs. These are the choice of law and jurisdiction clauses. There is no sign here – leaving aside the question of arbitration for a moment – that the parties intended that the disputes which were to be determined in accordance with the Laws of England, and be decided by the English courts, were not to include disputes about the charters validity. The simplicity of the wording is a plain indication to the contrary. The arbitration clause which follows is to be read in that context. It indicates to the reader that he need not trouble himself with fussy distinctions as to what the words "arising under" and "arising out of" may mean. Taken overall, the wording indicates that arbitration may be chosen as a one stop method of adjudication for the determination of all disputes. Disputes about validity after all are no less appropriate for determination by an arbitrator than any other kind of dispute that may arise. So I do not think that there is anything in the appellant's point that it must be assumed that when the charters were entered into one party was entirely ignorant that they were induced by bribery. The purpose of the clause is to provide for the determination of disputes of all kinds whether or not they were foreseen at the time when the contract was entered into. Then there are consequences that would follow if the appellants are right. It is not just that the parties would be deprived of the benefit of having all their disputes decided in one forum, the jurisdiction clause does not say where disputes about the validity of the contract will be determined if this is not to be in the forum which is expressly mentioned. The default position is that such claims would have to be brought in the jurisdiction where their opponents were incorporated, however unreliable that might be, while claims for breach of contract had to be brought in England. But why, it may be asked, would any sensible businessman wish to agree to this. As Bingham LJ said in Ashville Investments Limited v Elmer Contractors Limited [1988] 2 LR 73, [1989] QB 488 at p.517:
One should be slow to attribute to reasonable parties an intention that there should in any foreseeable eventuality be two sets of proceedings. If the parties have confidence in their chosen jurisdiction for one purpose why should they not have confidence in it for the other? Why, having chosen their jurisdiction for one purpose, should they leave the question which court is to have jurisdiction for the other purpose unspoken, with all the risks that this may give rise to. For them everything is to be gained by avoiding litigation in two different jurisdictions. The same approach applies to the arbitration clause".
"11. … I turn to the question of construction. Your Lordships were referred to a number of cases in which various forms of words in arbitration clauses have been considered. Some of them draw a distinction between disputes "arising under" and "arising out of" the agreement. In Heyman v Darwins [1942] AC 356 at p.399 Lord Porter said that the former had a narrower meaning than the latter, but in Union of India v EBA Aabys Rederi AS [1975] AC 797, Viscount Dilhorne, at page 814, and Lord Salmon, at page 817, said that they could not see the difference between them. Nevertheless, in Overseas Union Insurance Limited v AA Mutual International Insurance Company Limited [1988] 2 Lloyd's Rep 63 at page 67 Evans J. said that there was a broad distinction between clauses which referred to: "…only those disputes which may arise regarding the rights and obligations which are created by the contract itself" and those which "show an intention to refer some wider class or classes of disputes". The former may be said to arise "under" the contract while the latter would arise "in relation to" or "in connection with" the contract. In Fillite (Runcorn) Limited v Aqua-Lift [1986] 26 Con 66 at page 76 Slade LJ said that the phrase "under a contract" was not wide enough to include disputes which did concern obligations created by or incorporated in the contract. Nourse LJ gave a judgment to the same effect. The court does not seem to have been referred to Machender Hill & White v Feldia AG [1967] 2 QB 590, in which a court which included Lord Denning MR and Diplock LJ, decided that a clause in an insurance policy submitting disputes "arising thereunder" to a foreign jurisdiction was wide enough to cover the question whether the contract could be avoided for non disclosure.
12. I do not propose to analyse these and other such cases any further because, in my opinion, the distinctions which they make reflect no credit upon English commercial law. It may be a great disappointment to the judges who explained so carefully the effects of the various linguistic nuances if they could learn that the draftsmen who have so widely used the standard form of Shelltime 4 obviously regarded the expressions "arising under this charter" in clause 41(b), and "arisen out of this charter" in clause 41(c)(1)(a)(i), are mutually interchangeable. So I applaud the opinion expressed by Longmore LJ in the Court of Appeal (at para.17) that the time has come to draw a line under the authorities to date and make a fresh start. I think that a fresh start is justified by the developments which have occurred in this branch of the law in recent years, and in particular by the adoption of the principle of separability by Parliament in Section 7 of the 1996 Act. That section was obviously intended to enable the courts to give effect to the reasonable commercial expectations of the parties about the questions which they intended to be decided by arbitration. But section 7 will not achieve its purpose if the courts adopt an approach to construction which is likely in many cases to defeat those expectations. The approach to construction therefore needs to be re-examined.
13. In my opinion, the construction of an arbitration clause should start from the assumption that the parties as rational businessmen are likely to have intended any dispute arising out of the relationship into which they have entered, or purported to enter, to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrators' jurisdiction. As Longmore LJ remarked at para.17: "if any businessman did want to exclude disputes about the validity of a contract it would be comparatively easy to say so".
"82. Are these claims within the Dealers' Confirmation jurisdiction clause? I accept UBS' submission that the proper approach to the construction of clauses agreeing jurisdiction is to construe them widely and generously, Donohue v Armco Inc. [2002] 1 LR 425 at para.14. I also accept that in the usual case the words "arising out of" or "in connection with" apply to claims arising from pre-inception matters such as misrepresentation: Fiona Trust & Holding Corporation v Privalov [2007] 2 Lloyd's Rep 267; Deutsche Bank AG v Asia Pacific Broadband Wireless Communications Inc. [2008] 2 Lloyd's Rep 691; Ashville Investments Limited v Elmer Contractors Limited [1989] 2 QB 488.
83. But the essential task is to construe the jurisdiction agreement in the light of the transaction as a whole, as I suggested in Satyam Computer Services Limited v Upaid Systems Limited [2008] EWCA Civ 487, at para.93, whether a dispute falls within one or more related agreements depends on the intention of the parties as revealed by the agreements.
84. Plainly the parties did not actually contemplate at the time of the conclusion of the contracts that there would be litigation in two countries involving allegations of misrepresentation in the inception and performance of the agreements, but in my judgment sensible business people would not have intended that a dispute of this kind would have been within the scope of two inconsistent jurisdiction agreements. The agreements were all connected and part of one package, and it seems to me plain that the result for which UBS contends would be a wholly uncommercial result and one that sensible business people cannot have intended.
95. …. Whether a jurisdiction clause applies to a dispute is a question of construction. Where there are numerous jurisdiction agreements which may overlap the parties must be presumed to be acting commercially and not to intend that similar claims should be the subject of inconsistent jurisdiction clauses. The jurisdiction clause in the dealers' confirmation is a "boiler plate" bond issue of jurisdiction clause and is primarily intended to deal with technical banking disputes. Where the parties have entered into a complex transaction it is the jurisdiction clauses in the agreements which are at the commercial centre of the transaction which the parties must have intended to apply to such claims as are made in the New York complaint and reflected in the draft particulars of claim in England."
(1) It arises out of the same legal relationship between the parties as the claims for profit share under the Argironissos and Maersk Rugen contracts.
(2) It is connected to the two earlier contracts because the parties intended that the profit share would be the balance on a running account that reflected the outturn profit or loss under those earlier contracts.
(3) Proof of the profits lost by reason of Addax's repudiation of the contract involves reliance on the prices achieved in earlier contracts performed under the JVA, as pleaded in paragraphs 15 and 16 of the particulars of claim.
(4) The parties intended that all sales contracts made under the JVA would contain English jurisdiction clauses.
(1) A witness statement signed by a solicitor, Mr. McCunn, who has many years experience in legal work in the oil industry, and a witness statement from Mr. Andrew Choynowski, the Administrator, i.e. the Managing Director of Choil, who has been involved in the international oil business for 22 years. Both of these witnesses say that a very large part of international oil trading is done on terms that the deals are governed by English law and subject to English jurisdiction.
(2) Choil always contracts on English law on jurisdiction terms.
(3) Addax does not deny that it too routinely contracts under English law and jurisdiction.
(4) The pre JVA trades made by Choil with a company in the Addax group, Addax BV, which is also based in Geneva, contain Choil's standard English law on jurisdiction clause.
(5) The un-commerciality of having disputes under different aspects of the JVA determined in different jurisdictions under different laws, especially when all aspects under the JVA are subject to global accounting.
"It would be unreasonable to expect that different parts of the global accounting deal would have to be sorted out, if a dispute arose, in different countries; the accounting under the physical deals in one, and derivatives and overall accounting in another. I am sure that both Addax and Choil as commercial companies would want any disputes under the JV whether under the physical sale, the derivatives, or generally to be decided in the same place by the same court. To do otherwise is risky, expensive and uncommercial".
"Choil's claim sets out what I believe was agreed as to the form of the joint venture. I understand there to be disputes with Addax about exactly what was agreed. However, I am confident that an English law and jurisdiction basis for the contracts to be performed was agreed. This is very much standard practice in the international oil trade, and the fact that both parties were based in Geneva is of no relevance. We trade with other counter-parties in Geneva and always on the basis of English law and jurisdiction. I agree with what Andrew Choynowski says in his statement about this".
"Jim Fleet: "Cancel the deal, he's out of his mind". James Robins: "Yes". Jim Fleet: "Done is done, we're under English law here and done is done".
That exchange is to be contrasted with Mr. Fleet's record of the meeting on 30th April 2008 that was composed on the same day as the meeting. That record is contained in an e-mail which it was proposed should be sent to Addax recording the principal matters agreed between the parties. The e-mail deals with seller, buyer, delivery, payment, the split of profits under the joint venture, hedging and other related matters. There is nothing which records that the parties agreed that the joint venture should be subject to English law and/or English jurisdiction.
"At the meeting Addax orally agreed with Choil to enter into a JV in respect of trades for low sulphur fuel oil which Addax would source from West African oil refineries by reason of Addax's market knowledge in that region and sell to Choil for Choil to sell on in the US Gulf, which was Choil's area of expertise. The profits of these trades after deducting freight inspection and ancillary costs and profits and losses from hedging would be split 70% for Addax and 30% for Choil. There was no exclusive agreement for trades in low sulphur fuel oil. Trades which would be entered into under the JV were determined on a contract by contract basis. The subject of choice of jurisdiction for the JV was not the subject of any discussions at the meeting, let alone any agreement".
"I am certain that we mentioned "English law" at the 30th April meeting as the legal basis of the deal. In my view "English law" means that the contract is subject to English law and jurisdiction. As a matter of simple trading practice I would not draw any distinction between the law and jurisdiction. You cannot sensibly have one without the other".