Palmat NV v Bluequest Resources AG

Contractual arbitration clauses incorporated by express reference remain effective according to their terms, even where the underlying transaction is characterised as barter rather than sale. Related agreements should be construed together, but their commercial interdependence does not necessarily make them one contract.

An express one-way contractual time bar cannot be rewritten to protect the other party merely because that appears commercially sensible in hindsight. A challenge under Arbitration Act 1996 section 68 requires serious irregularity and substantial injustice. The statutory threshold is high, but a party must have a fair opportunity to address a point that is genuinely outside the issues in play. The court should read an award reasonably and commercially, without scrutinising it to identify immaterial defects.

Bluequest supplied liquid caustic soda under an agreement with Palmat. Payment was to be made by delivery of aluminium under a related agreement, subject to a contractual cut-off date and agreement of applicable premiums and discounts. The aluminium was not shipped or appropriated, and the caustic soda invoice remained unpaid.

An LCIA tribunal, by majority, rejected Palmat’s jurisdictional challenge and awarded Bluequest the caustic soda price, interest and costs. Palmat challenged the award under sections 67 and 68 of the Arbitration Act 1996, arguing that the agreements formed a single barter contract, that a contractual time bar deprived the tribunal of jurisdiction, and that the tribunal had committed serious irregularities by deciding issues without a fair opportunity to address them.

1. Jurisdiction. The jurisdictional challenge was dismissed. The LCS Agreement expressly incorporated Bluequest’s general terms, including the arbitration agreement. The contractual descriptions of Bluequest as seller and Palmat as buyer supported incorporation whether the arrangement was characterised as sale or barter. In any event, the two agreements were properly construed as separate but related contracts for the sale and purchase of goods, rather than one pure barter transaction.
2. The agreements fixed cash prices and contemplated payment by set-off against aluminium. If the aluminium was not shipped by 30 June 2017, or if the relevant premiums and discounts were not agreed after the aluminium had been ascertained, the caustic soda price became payable. The Aluminium Agreement was a separate contract and became null and void under its express terms when no aluminium was appropriated and no applicable premium or discount could be agreed.
3. The time bar in clause 11.2 of the LCS Agreement operated only against Palmat’s claims. Its language could not be rewritten to give equivalent protection to Bluequest. That would amount to rectification by construction, for which the requirements identified in Chartbrook Ltd v Persimmon Homes [2009] AC 1101 were not satisfied.
4. Section 68. The challenge under section 68 failed save in one respect. The requirements of breach, serious irregularity and substantial injustice are cumulative, and the threshold is deliberately high. Nevertheless, a tribunal must give a party a reasonable opportunity to address a point that is not in play. A point is sufficiently in play where its essential building blocks are present, even if the argument is not articulated in the tribunal’s eventual form. The award must be read reasonably and commercially.
5. The alleged errors concerning the parties’ receipt of the goods, the invoice, the contractual structure, shipment and premiums or discounts were either matters in play, immaterial, or caused no substantial injustice. The tribunal had addressed the material issues and was not required to repeat its analysis.
6. The tribunal awarded interest on arbitration and legal costs although that issue had not been in play. That part of the award was set aside. The remaining interest award was left undisturbed because the issue had been in play and no sufficient basis for recalculation was shown. Subject to that limited setting aside, the claim was dismissed.

First-instance decision on challenges under sections 67 and 68 of the Arbitration Act 1996. The court dismissed the challenges save for setting aside the award of interest on the defendant’s arbitration and legal costs.