Black Sea Commodities Ltd v Lemarc Agromond Pte Ltd

An arbitration agreement requires objective consensus as to the arbitration clause itself. The separability principle in s 7 of the Arbitration Act 1996 does not create an arbitration agreement where the parties never agreed to one. Where draft contractual conditions are exchanged as a whole, a party cannot selectively accept an arbitration clause while other terms remain disputed. A trade custom implying arbitration must be invariable, certain and general, and must be proved by sufficient market evidence. Individual traders’ usual practice is insufficient. The court therefore rejected an attempt to establish a GAFTA arbitration agreement either through the parties’ negotiations or by implied trade usage.

The claimant challenged under s 67 of the Arbitration Act 1996 arbitration awards made in favour of the defendant concerning the sale of Ukrainian corn on FOB Odessa terms. The tribunal had found that a binding sale contract was concluded on 9 March 2018 and that it included GAFTA arbitration rules. The claimant accepted that a sale contract might have been formed, but argued that no arbitration clause was agreed on 9 March or during subsequent exchanges of draft conditions. The defendant relied alternatively on an arbitration agreement arising from the negotiations, or on a term implied by trade custom. The central issue was whether the tribunal had jurisdiction.

1. The s 67 application succeeded. The court accepted that the essential terms of a sale contract had objectively been agreed on 9 March 2018. The language used in the communications, the speed of the market and agreement on the essential terms supported that conclusion, despite ancillary terms remaining open [14].
2. That conclusion did not establish an arbitration agreement. There was no reference to GAFTA arbitration in the 9 March communications. The later draft conditions containing the clause were not agreed [15]–[16].
3. The defendant’s “pick and mix” argument failed. Where draft conditions are supplied as a package and are not accepted as a whole, an arbitration clause cannot be treated as separately agreed merely because it was not specifically objected to. The separability principle in s 7 of the Arbitration Act 1996 presupposes an arbitration agreement; it does not dispense with the need for consensus as to that agreement [18], [21]–[23].
4. The approach was supported by May & Butcher v The King, where the arbitration clause was ineffective because there was no binding underlying contract, and by Pacific Inter-Link SDN BHD v EFKO Food Ingredients Ltd and Hyundai Merchant Marine Company Ltd v Americas Bulk Transport Ltd, which rejected selective acceptance of an arbitration clause in the absence of consensus on the contract [20], [22].
5. The alternative implied-term case also failed. A trade custom had to be invariable, certain and general, with binding effect throughout the relevant market. The evidence consisted principally of two traders’ practice and was uncorroborated. It did not establish the alleged custom. Further, the proposed term was insufficiently certain and the absence of reference to a written arbitration clause raised an additional difficulty under s 6(2) of the Arbitration Act 1996 [28]–[34].