UR Power GmbH v Kuok Oils and Grains Pte Ltd

In challenges to an arbitral award under the Arbitration Act 1996, an obligation to open a letter of credit will ordinarily be a promissory rather than a contingent condition preventing contract formation, subject to the contractual exchanges. A contract may therefore be binding before the letter of credit is opened.

An arbitration agreement may bind the parties even where the underlying contract has not come into existence, if the arbitration agreement itself was agreed. A section 68 challenge is not a means of rearguing factual conclusions or evidential weight. In a two-tier FOSFA arbitration, time for a court challenge runs from the appeal award.

Kuok alleged that URP had agreed to sell 10,000 metric tonnes of crude palm oil on CIF European port terms. URP failed to supply the goods. A FOSFA first-tier tribunal found a binding contract and awarded Kuok US$3,434,260. The Board of Appeal upheld the finding of a binding contract but reduced damages to US$850,736.

Both parties challenged the appeal award. URP relied on sections 67 and 69 of the Arbitration Act 1996, disputing jurisdiction, contract formation and damages. Kuok relied on sections 68 and 69, alleging serious irregularity and errors concerning termination and damages. The central issues were whether the letter of credit was a condition precedent to contract formation, whether the challenges were timely, and whether the Board of Appeal had committed a serious irregularity.

1. URP’s section 69 challenges. The applications for leave to appeal were dismissed. None raised a question of general public importance, and none of the Board of Appeal’s decisions was obviously wrong. The Board was entitled to find that a binding contract existed by 27 October 2006, that the letter of credit was not a condition precedent to formation, and that damages were permissible under clause 27 of FOSFA Form 80. Sanhe Hope v Toepfer International [2008] 1 Lloyd’s Rep. 458 did not preclude that assessment.
2. URP’s section 67 challenge. The obligation to open a transferable letter of credit was not a contingent condition precedent. The negotiations indicated a promissory condition: the contract was binding, while opening the letter of credit governed further performance or liability. The obligation was postponed until production of a proof of product certificate. The challenge therefore failed.
3. The judge made provisional observations that a jurisdictional objection should be raised before the first-tier arbitrators. The point was left undecided because the challenge failed on the condition-precedent issue.
4. Separability raised difficult questions. Section 7 permits an arbitration agreement to remain binding although the underlying contract has not come into existence, provided the arbitration agreement itself is valid and binding. Whether an arbitration clause was agreed during pre-contractual negotiations remains a question of fact and degree.
5. Kuok’s section 68 challenge. The Board had considered post-20 December materials and was entitled to attach weight to Kuok’s own monthly reminders recording default damages. Kuok showed neither serious irregularity nor substantial injustice. Section 68 could not be used as a backdoor challenge to factual findings.
6. Time and final order. Time under section 70(3) for a FOSFA appeal award ran from the date of the appeal award, not notification of its result. Kuok therefore required an extension under section 80(5), which would have been granted under the criteria in Kalmneft v Glencore [2002] 1 Lloyd’s Rep. 128. The appeal award survived all challenges.

The judgment records the arbitral history rather than an appeal through the courts.

• FOSFA First Tier Tribunal: found a binding contract and awarded Kuok US$3,434,260, with interest and costs.
• FOSFA Board of Appeal: upheld jurisdiction and contract formation, but reduced damages to US$850,736, together with 50% of the first-tier costs and interest.
• High Court (Commercial Court): rejected all challenges to the appeal award.