Black Sea Commodities Ltd v Lemarc Agromond Pte Ltd  EWHC 287 (Comm)
This case will be of interest to those operating in the commodities and chartering space, where short form agreements on key terms are often reached before negotiations continue on more formal terms. Sometimes this occurs with the effect that a binding contract comes into existence at an early stage, and sometimes not. The case serves as a reminder that whatever the position, parties who wish to make provision for arbitration in their agreements should take care to expressly agree to it early on in their negotiations.
The case arose out of two GAFTA awards – one on jurisdiction (in which the Tribunal found that the parties had agreed to GAFTA arbitration) and a later award on the merits.
The background to the case was a negotiation between the parties for a trade in Ukrainian corn back in 2018. The negotiations were conducted via a broker. Some simple terms were agreed (price, commodity, loading period). However, at this stage there was no agreement for a GAFTA, or any other, arbitration clause. The agreed terms were never reduced into a recap or contract. The parties later on continued to negotiate further detailed terms, at which point a GAFTA arbitration clause was included in various draft long form contracts that were being sent to and fro between the parties. Ultimately the negotiations broke down, and no formal signed contract was ever executed. The Claimant contended that a contract was never concluded (either initially or subsequently when more detailed terms were being discussed). The Defendant contended that there was a contract and the Claimant had breached it by refusing to perform it.
The Defendant commenced GAFTA arbitration. The Claimant challenged the Tribunal’s jurisdiction on the basis that there was no contract, and even if there was, it did not contain an arbitration agreement. The Tribunal held that it did have jurisdiction in its first award, and then proceeded to find for the Defendant in its second award on the merits. The Claimant challenged both awards under section 67 of the Arbitration Act 1996.
Sir Michael Burton GBE, sitting as a Judge of the High Court, allowed the Claimant’s claims to succeed, setting aside both awards.
The Judge found that whatever had been agreed when the parties were initially negotiating, no arbitration agreement had been settled upon. The Judge rejected an argument raised by a late amendment from the Defendant that a GAFTA arbitration agreement should be implied into the parties’ early agreement on the basis of an alleged custom. The alleged custom in question was argued to be that all trades concerning Ukrainian corn out of the Black Sea contain a GAFTA arbitration clause in the form set out in GAFTA form 49. The Judge found that there was not sufficient evidence to support the existence of the alleged custom, and so he rejected the argument. He also indicated that he was not satisfied that an arbitration agreement constituted as an implied term via the effect of a custom would comply with section 6(2) of the Arbitration Act 1996 in any event.
The Judge also rejected an argument that an arbitration agreement had come into existence passively during the later negotiation between the parties of full long form contract terms. The argument had been that because the arbitration agreement in those long form contracts had not been challenged during the negotiation of the draft terms (other terms being challenged and negotiated), it should be viewed as having been agreed to, and having become binding on the parties for the resolution of disputes about the very existence / conclusion of the contract ab initio (which was the substantive dispute between the parties). The Judge held this argument was contrary both to authority in a case in which the parties’ consensus ad idem itself was under challenge, and to the general principles of offer and acceptance.
Oliver Caplin acted for the successful section 67 claimant in the above case instructed by Brian Perrott and Stephanie Morton at HFW.