Midgulf International Ltd v Groupe Chimiche Tunisien

Contract formation is determined objectively from the parties’ communications and the relevant background reasonably available to both parties. Agreement on main commercial terms may be enforceable while detailed terms remain to be agreed, but an arbitration clause is included only if objectively incorporated into the agreement. A party’s undisclosed internal approval procedures cannot ordinarily be attributed to the reasonable observer. Where a purported acceptance sets out the conditions on which the offeree is willing to contract and omits detailed incorporated terms, it may operate as a counter-offer rather than acceptance of the original offer.

Midgulf sought the appointment of an arbitrator under section 18 of the Arbitration Act 1996 and continuation of an anti-suit injunction. Following an earlier judgment, the court tried whether the parties’ July 2008 sulphur purchase contract contained a London arbitration clause.

Midgulf relied on an oral agreement, the parties’ written exchanges, or a counter-offer accepted by Midgulf. The central issue was whether the communications objectively incorporated the detailed terms of an earlier draft contract, including its English law and London arbitration provisions.

1. Application dismissed. The July contract did not contain a London arbitration clause. Midgulf’s application to appoint an arbitrator and to continue the anti-suit injunction was dismissed.
2. The court assessed the parties’ communications objectively, taking account only of background reasonably available to both parties. The telephone conversation of 4 July 2008 established, at most, agreement to purchase 150,000 metric tonnes of sulphur at US$895 per tonne. It did not objectively incorporate all the detailed terms of the earlier draft contract. Agreement on main terms can be enforceable with detailed terms left for later agreement, as illustrated by Pagnan v Feed Products [1987] 2 Lloyd’s Rep. 601 at p.619, but the oral agreement did not include London arbitration.
3. The fax of 7 July 2008 was not an unconditional acceptance of the 2 July offer. It stated the conditions on which GCT confirmed the purchase and omitted the detailed terms which Midgulf sought to incorporate from the earlier draft. It therefore constituted a counter-offer, accepted by Midgulf’s fax of 9 July. The resulting contract was confined to the conditions stated in GCT’s fax and contained no London arbitration clause.
4. The court rejected the submission that the reasonable observer should be attributed knowledge of GCT’s internal practice of referring contract details to its legal and financial departments where that information was not reasonably available to Midgulf. The court respectfully disagreed with that aspect of the reasoning relied on from IRC v Fry [2001] STC 1715 at para 6, while accepting that the decision could stand on its other reasons.

The judgment records an earlier judgment in the same proceedings, reported as [2009] EWHC 963 (Comm). Following that judgment, the court directed a speedy trial of whether the July contract contained a London arbitration clause. This judgment determined that issue at first instance.