Inta Navigation Ltd & Anor v Ranch Investments Ltd & Anor

On an appeal under section 69 of the Arbitration Act 1996, contractual construction requires the court to identify what the agreement, read as a whole and against its relevant commercial background, would reasonably be understood to mean. Practical and commercial consequences are relevant, but the court must construe the contract rather than improve it.

A right of first refusal for a vessel under construction may require the buyer to purchase on the terms negotiated with the third-party buyer, including novation terms, where the clause arises only after the seller has decided to sell on those terms and requires evidence of the document constituting the sale.

Two appeals under section 69 of the Arbitration Act 1996 concerned arbitration awards arising from sales of vessels under construction. The buyers of one vessel had contractual rights of first refusal over a sister vessel. The sellers notified them of proposed sales on novation terms, and the buyers purported to exercise their rights by offering one United States dollar more.

The tribunal held that any resulting contracts were on the terms of the original memoranda of agreement, save as to price, and awarded damages when the sellers did not proceed. The central issue was whether clause 25 required a sale on the original memorandum terms or on the terms agreed with the third-party buyer.

1. Appeals allowed. The tribunal had construed clause 25 incorrectly. The awards of damages were set aside.
2. In an appeal from an arbitration award, the court should read the award fairly and reasonably, avoid minute textual analysis, and accord appropriate deference to an experienced tribunal on matters within its commercial expertise. The court may nevertheless intervene where satisfied that the tribunal reached the wrong legal answer.
3. Clause 25 granted a right of first refusal only after the sellers had decided to sell the sister vessel to a third party and had agreed the terms of that sale. The “best price” necessarily reflected those terms. The reference to evidence of the sale recap or other document constituting the sale required evidence of the terms constituting the sale, not merely the existence of a recap or its main heads of agreement.
4. Accordingly, where the sellers had chosen to sell on novation terms, an election by the buyers resulted in a contract on those terms, subject to the contractual mechanism in clause 25. The buyers had no right to require a sale on the terms of the original memorandum of agreement, and the shipyard’s consent could remain relevant where novation was part of the negotiated terms.
5. The additional argument that the relevant notice was an offer containing an extra contractual condition failed. The notice and response operated pursuant to clause 25, and the response was effective under that clause. The tribunal was entitled to reject the alleged estoppel by convention. Those additional conclusions could not affect the outcome once the construction issue had been decided.

Arbitration tribunal: Awards were made awarding US$2,249,999 damages against the sellers in each appeal.

High Court (Commercial Court): Burton J granted permission to appeal under section 69 of the Arbitration Act 1996. Teare J allowed both appeals and set aside the awards.