Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Company Ltd

The court dismissed Habas’s challenges under section 67 and section 69 of the Arbitration Act 1996. The central issues were whether there was a binding London arbitration agreement and whether the tribunal erred in the date for assessment of damages. The judge applied the English objective approach to consensus and found that, on the facts, a binding arbitration agreement existed because (i) agents Steel Park and Charter Alpha had ostensible authority under an agency letter from Habas to agree the contract terms (including arbitration), and (ii) there was an objective consensus to the London arbitration clause when VSC was presented with a signed original contract and countersigned it. The court held that the law governing the arbitration agreement is English law; arguments that Turkish formalities or other Turkish-law incapacity points could defeat the arbitration agreement were either new grounds barred by section 73 or insufficiently established. The section 69 challenge to the tribunal’s choice of date for assessing damages was refused as not properly a point of law before the tribunal and, in any event, not obviously wrong.

This case concerned whether an arbitration agreement in a disputed international sale contract was valid and whether the court should set aside the arbitrator's award under sections 67 and 69 of the Arbitration Act 1996.

Background and parties:

• Claimant: Habas, a Turkish steel manufacturer. Defendant: VSC, a Hong Kong steel purchaser. Intermediaries: Steel Park (UK) and Charter Alpha (Hong Kong), both acting as intermediaries/agents.
• Negotiations ran through agents. Habas issued an Agency Letter dated 30 October 2009 which, by VSC’s account, clothed the agents with authority to conclude contracts on Habas’s behalf.
• No Steel was delivered; VSC commenced arbitration and obtained an award finding Habas in breach and awarding damages. Habas sought to challenge the tribunal’s substantive jurisdiction under s.67 and to challenge the tribunal’s approach to the date for assessing damages under s.69.

Nature of the applications: (i) a rehearing under s.67 that the tribunal lacked jurisdiction because the agents had no actual or ostensible authority or because there was no consensus on the London arbitration clause; (ii) permission to appeal under s.69 on the date for assessment of damages (date of breach v date of termination).

Issues framed by the court:

• Whether Habas had lost the right to object to jurisdiction by participating in arbitration (section 73 issue).
• Whether there was a binding consensus to a London arbitration agreement.
• Which law governs the arbitration agreement and related authority/ratification issues (English or Turkish law), and whether the Overseas Companies (Execution of Documents) Regulations 2009 affected the analysis.
• Whether the tribunal’s choice of date for assessment of damages was a matter of law open on s.69.

Court’s reasoning and conclusions:

• Section 73: The court adopted the established approach that a party who participates in arbitration must ordinarily raise all grounds of objection to jurisdiction in the arbitration. Habas could not raise a new ground based on Turkish formalities because that was a new ground not raised before the tribunal.
• Consensus and authority: Applying the English objective test the court found a binding London arbitration agreement. The Agency Letter gave ostensible authority to the agents to bind Habas. Even if signature had been contemplated, VSC was presented with an "original" signed contract and countersigned it; under those facts there was objective consensus. The judge rejected Habas’s account as insufficiently supported by evidence and found that Steel Park either made or acquiesced in the amendment substituting London for Paris.
• Applicable law: The court followed the approach in Sul América and related authorities that the law governing the arbitration agreement is determined by English conflicts rules; where there is no express choice of law in the main contract the law of the seat is usually decisive. The judge rejected Habas’s novel submission that questions of authority should be governed by Turkish law merely because the agent may have exceeded actual authority.
• Overseas Companies Regulations: The court held the Regulations concern formalities of execution and do not affect ostensible authority; the authorities (Azov and subsequent cases) supported that conclusion.
• Section 69: Permission refused because the point was not a question of law put to the tribunal and, alternatively, because the tribunal’s approach was not obviously wrong.

Result: Both the s.67 and s.69 applications were dismissed; the tribunal’s award and jurisdiction were upheld.

This was a first instance determination. The court dismissed Habas’s applications under sections 67 and 69 of the Arbitration Act 1996. The judge held there was a valid and binding arbitration agreement governed in its validity by English law, because the agents had ostensible authority under the Agency Letter and there was objective consensus to the London arbitration clause when VSC was presented with and countersigned the signed hard-copy contract; further, the challenge based on Turkish formalities was a new ground and barred by section 73 and in any event was not made good. Permission to appeal under section 69 was refused as not a matter of law before the tribunal and not obviously wrong on the merits.