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In the recent case of Sharp Corp Ltd v Viterra BV [2024] UKSC 14, the Supreme Court held that the Court of Appeal had impermissibly acted beyond the limits of section 69 of the Arbitration Act 1996 (the Act) by (i) deciding a question of law which the tribunal was not asked to determine and on which it did not make a decision and (ii) making findings of fact on matters on which the tribunal had made no finding. This judgment provides important guidance on the limits of judicial review under s69 and demonstrates that the Court can only rule on points that have been put fairly and squarely before the tribunal for determination.

Background

The dispute arose from two contracts for the sale of Canadian peas and lentils respectively by Viterra BV (the Seller) to Sharp Corporation Ltd (the Buyer). The Seller contracted under cost and freight free-out terms (C&FFO). In other words, the Seller agreed to bear the shipping charges and transport the pulses from Vancouver to the final destination port in Mundra, India. The contracts provided that all terms and conditions not conflicting with the express terms of the contracts should be as per a standard form Grain and Feed Trade Association (GAFTA) contract.

The Buyer failed to pay for the goods on their arrival as required under the contracts. The Seller subsequently re-sold the peas and lentils to its associated company.

The Seller declared the Buyer in default and commenced arbitration proceedings seeking damages. In two awards, the GAFTA Appeal Board found that the Buyer was in default and awarded damages. Although the Buyer contended that damages should be assessed by reference to the market value of the goods on the domestic market in India, this was rejected. Damages were assessed based "on the market value of the goods on or about 2 February 2018 C&FFO Mundra in bulk", with "market value" referring to the international market given that the goods had been shipped in bulk from Vancouver.

Appeals to the High Court and Court of Appeal

The Buyer was permitted to appeal the awards under section 69 of the Act. The question of law was whether damages should be assessed by either (i) reference to the market value of the goods at the discharge port or (ii) combining the theoretical cost on the date of default of buying the goods at the original port of shipment and the market freight for transporting the goods from that port to the discharge port.

The High Court found that the Appeal Board had not erred in law and dismissed the appeal. Cockerill J concluded that the Appeal Board was faced with two "imperfect proxies" and was entitled to conclude that "the Seller's evidence offered the better match".  

On appeal, the Court of Appeal determined that damages were to be assessed on the basis of a notional substitute contract for the goods on the same terms as the parties' contract, save as to price, at the date of default. However, it found that the contracts had been varied by the date of default so as to become contracts for the sale of goods ex warehouse rather than C&FFO Mundra contracts. This meant that the Appeal Board had not assessed damages on the correct basis, and so the awards needed to be remitted to the Appeal Board.

The Seller then appealed to the Supreme Court. Amongst others, the Seller argued that the Court of Appeal had erred in its decision by (i) deciding a question of law which the Appeal Board was not asked to determine and (ii) making findings of fact on matters on which the Appeal Board had made no finding.

The Buyer also cross-appealed to the Supreme Court regarding the measure of damages awarded to the Seller.

Supreme Court decision

The Supreme Court began by setting out the relevant principles relating to appeals under s69 of the Act. In particular:

(1) A party may appeal on “a question of law arising out of an award” (section 69(1)).

(2) The question must be one “which the tribunal was asked to determine” (section 69(3)(b)).

(3) The application for permission to appeal must “identify the question of law to be determined” (section 69(4)).

(4) At the permission to appeal stage, the court must be satisfied (inter alia) that “on the basis of the findings of fact in the award”, the decision of the tribunal is “obviously wrong” or “the question is one of general public importance and the decision of the tribunal is at least open to serious doubt” (section 69(3)(c)).

(5) When determining whether the tribunal made an error of law in relation to the question of law, the court must proceed on the basis of the findings of fact in the award.

Did the Court of Appeal err in deciding a question of law which the Appeal Board was not asked to determine and on which it did not make a decision?

This issue was based on section 69(3)(b) of the Act, which provides that leave to appeal may only be given in relation to a question of law “which the tribunal was asked to determine.” On the meaning of this phrase, the Supreme Court stated that the point had to be "fairly and squarely before the arbitration tribunal for determination".  

The Supreme Court commented that the Court of Appeal's decision was founded on its conclusion that the contracts had been varied. However, the question of whether and if so how the contracts had been varied was neither argued before nor addressed by the Appeal Board. Accordingly, it was not open to the Court of Appeal to introduce such a question on an appeal.

Did the Court of Appeal err in making findings of fact on matters on which the Appeal Board had made no finding?

The Supreme Court emphasised that the Court had no jurisdiction in relation to errors of fact and no power to make its own findings of fact. Although it may be possible to infer that the tribunal has made a finding of fact, such circumstances would be limited – it is necessary for a party to show that the inferred finding is one which inevitably follows from the findings which have been made.

The Seller argued that there were two findings of fact which the Court of Appeal had impermissibly made. The Supreme Court held that one of these (relating to the Court of Appeal's finding that the cargo had been discharged from the Vessel against presentation of the original bills of lading) was a finding of fact which it was no open to the Court of Appeal to make, and that this was critical to the Court's conclusion that the contracts had been varied.

Cross-appeal on the measure of damages

Although a detailed assessment of the decision on the law of damages is beyond the scope of this blogpost, the Supreme Court held that the value of the goods fell to be measured by reference to a notional sale of the goods in bulk ex warehouse Mundra. If there was no available market, then the value of the goods had to be assessed on the basis of as and where they were on the date of default, as that was their realisable value. The Supreme Court remitted the awards to the Appeal Board for reconsideration in light of its judgment and the guidance contained therein.

Comment

This is a rare example of a successful appeal under s69 of the Act, which is a unique feature of English-seated arbitration.

The Supreme Court’s decision highlights its adherence to the principle of minimal court intervention, which is a cornerstone of arbitration under the Act. The judgment helpfully confirms that the Court will only rule on points of law that have been put fairly and squarely before the tribunal for determination, and that the circumstances in which the Court will infer a finding of fact will be limited.

In light of this judgment, parties should be careful in the preparation and presentation of their legal case during arbitration proceedings, ensuring that all relevant questions of law are argued before the tribunal and that findings of fact are expressly elucidated by tribunals.

For more information, please contact James Doe, Partner, Liz Kantor, Professional Support Lawyer, Stephanie Lam, Associate, or your usual Herbert Smith Freehills contact. 

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