MRI Trading AG v Erdenet Mining Corporation LLC

A commercial contract does not fail for uncertainty merely because matters such as charges or a delivery schedule remain to be agreed. The court must determine objectively whether the parties intended to remain free to agree or disagree, or intended an enforceable bargain whose outstanding terms could be determined by reasonable and objective criteria.

The court will strive to preserve a bargain where its language, commercial context and place within a wider performed transaction demonstrate an intention to be bound. It may imply reasonable terms, particularly where an expert arbitral tribunal can determine disputes. A settlement agreement and the contracts forming its consideration must be construed as an integrated transaction.

MRI Trading AG and Erdenet Mining Corporation LLC settled an earlier dispute by terminating an arbitration and entering three contracts for the supply of copper and molybdenum concentrates. Two contracts were fully performed. The third provided for delivery during 2010, while leaving treatment charges, refining charges and the shipping schedule to future agreement.

An LME tribunal held that those outstanding matters were material agreements to agree. It therefore found no enforceable obligation to deliver. On appeal under the Arbitration Act 1996, Eder J held that the tribunal had applied the wrong legal principles, varied the award and otherwise set it aside: [2012] EWHC 1988 (Comm).

The central issues were whether the 2010 contract was enforceable through the implication of reasonable terms and whether the award should instead be remitted to the tribunal.

1. Appeal dismissed. The 2010 contract was legally enforceable. Its language and the Settlement Agreement showed beyond doubt that the parties intended a binding obligation to sell and deliver the specified quantity of copper concentrates. They did not intend to remain free to agree or disagree about the charges and shipping schedule according to their own interests.

2. The contract had to be construed as an integral part of the wider settlement. The tribunal erred by excluding the Settlement Agreement, despite the 2010 contract expressly preserving it from the entire-agreement provision. MRI had abandoned its earlier claim, both parties had received benefits under the settlement, and the two contracts concerning 2009 had been performed. This context strongly supported preservation of the final part of the agreed transaction.

3. Reasonable treatment and refining charges and a reasonable shipping schedule were to be implied. The use of “shall”, the detailed agreement of every other material aspect, and the decision to postpone those matters until conditions in 2010 were known were inconsistent with an intention that failure to agree would destroy the bargain. The arbitration clause supplied a commercial mechanism through which a market tribunal could determine any dispute about reasonable terms.

4. This conclusion accorded with Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD [2001] 2 Lloyd’s Rep 76 and BJ Aviation Ltd v Pool Aviation Ltd [2002] 2 P & CR 25. The statutory implication of a reasonable price under the Sale of Goods Act 1979 did not exhaust the circumstances in which reasonable terms could be implied. The observation in May and Butcher Ltd v The King did not preclude a common-law implication.

5. The award could not be saved by deference to arbitral decision-making. The tribunal failed to address what the parties intended if agreement was not achieved and whether they had supplied machinery for resolving uncertainty.

6. Remission was inappropriate because only one answer was legally possible. The contractual question could be decided from the award and documents, and no undisclosed contextual evidence could justify a different construction. The merits of the dispute compromised by the Settlement Agreement could not properly be reopened to construe the new contract.

Tomlinson LJ gave the judgment. McCombe and Pill LJJ agreed.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The court upheld the conclusion that the 2010 contract was enforceable and that remission to the arbitral tribunal was inappropriate: [2013] EWCA Civ 156.
2. High Court, Commercial Court: Eder J allowed the appeal from the arbitral award, varied the award in accordance with the correct legal principles and otherwise set it aside. He refused remission but granted permission to appeal generally: [2012] EWHC 1988 (Comm).
3. LME arbitral tribunal: The tribunal held that the outstanding charges and shipping schedule were agreements to agree, found no enforceable delivery obligation and dismissed MRI's claim.