CR Sugar Trading Ltd v China National Sugar & Alcohol Group Corporation

For the purposes of the Financial Services Act 1986, an option is assessed when it is granted, not when it is exercised. A later sale contract cannot remove the option from the regulatory regime.

Under Schedule 1, Part I, paragraph 8, the parties’ intention concerning delivery is assessed at the time the contract is made. A trader who merely buys and sells commodities does not thereby use them in his business. Conditional or hypothetical willingness to deliver may be insufficient where the parties’ arrangements persistently contemplate no delivery. The relevant indications may therefore establish that contracts were made for investment rather than commercial purposes.

CR Sugar Trading Ltd appealed under section 69 of the Arbitration Act 1996 against an award holding that two sugar sale contracts were unenforceable under section 5(1)(a) of the Financial Services Act 1986. The contracts arose from put options granted by China National Sugar and Alcohol Group Corporation. The arbitration tribunal concluded that the arrangements were investment business because the parties did not intend physical delivery.

CR challenged the construction and application of the statutory indications concerning commercial purpose, including the meaning of using a commodity in business and the time at which intention to deliver was to be assessed. It also sought, if unsuccessful, relief under section 5(3) and remission concerning the award’s quantum.

1. The appeal was dismissed. The application under section 68 of the Arbitration Act 1996 was allowed by consent, and the application notice under section 5 of the Financial Services Act 1986 was struck out.
2. Section 1(2) and Schedule 1 of the Financial Services Act 1986 brought both commodity contracts for future delivery and options to acquire or dispose of commodities for future delivery within the concept of investments. Investment business included buying and selling such options.
3. The tribunal was entitled to conclude that CR, a sugar trader, and CSW, an importer and distributor, did not use sugar in their businesses within Note 4(a). In its ordinary meaning, using a commodity involves putting it into service or consuming it. Mere purchase and sale is distinct from use, particularly when contrasted with production.
4. The relevant intention under Note 4(b) was the intention existing when the contract was made. For an option, that meant when the option was granted, rather than when it was exercised. Treating the exercise date as decisive would substantially exclude options from the regulatory scheme. A later change of intention did not alter the status of the original contract.
5. The question whether a conditional intention to deliver was sufficient was highly fact-sensitive. The tribunal had found that the parties persistently left delivery out of account and believed that delivery would never be required. It was therefore entitled to find that the contracts had not been shown to have been made for commercial purposes.
6. The section 5(3) application could not properly reopen the final arbitration award. If the tribunal had jurisdiction to consider the discretion, CR had lost on the merits; if it had no jurisdiction, the discretion was redundant. Any jurisdictional challenge should have been made under section 67 of the Arbitration Act 1996, but was out of time and barred by section 73. Reopening the issue would also have been an abuse of process.

The judgment was a first-instance appeal from an arbitration award of the Sugar Association of London dated 11 February 2002. Permission to appeal under section 69 of the Arbitration Act 1996 had been granted by Thomas J.