CAFI – COMMODITY & FREIGHT INTEGRATORS DMCC v GTCS TRADING DMCC

DMC/Arbn/25/02

England

CAFI – COMMODITY & FREIGHT INTEGRATORS DMCC v GTCS TRADING DMCC

English Commercial Court: Henshaw J: [2025] EWHC 1350 (Comm): 3 June 2025

Judgment Available on BAILII here: https://www.bailii.org/ew/cases/EWHC/Comm/2025/1350.html]

Benjamin Coffer (instructed by Holman Fenwick Willan LLP) for CAFI (Buyer)

Angharad Parry KC (instructed by Davies Battersby Solicitors) for GTCS (Seller)

CONTRACTS OF SALE OF GOODS: FIRST CONTRACT TERMINATED UNDER TERMS OF SECOND CONTRACT: WHETHER ARBITRATION TRIBUNAL HAD JURISDICTION WHEN INTERPRETING FIRST CONTRACT TO TAKE INTO ACCOUNT TERMS OF SECOND CONTRACT: GRAIN AND FEED TRADE ASSOCIATION (GAFTA) ARBITRATION AWARDS: ARBITRATION ACT 1996: CHALLENGES UNDER SECTIONS 67 (SUBSTANTIVE JURISDICTION) AND 68 (SERIOUS PROCEDURAL IRREGULARITY) AND APPEAL UNDER SECTION 69 (POINT OF LAW)

DMC Rating: Developed

Summary

CAFI (the “Buyer”) bought a cargo of wheat from GTCS (the “Seller”). Subsequently, the Seller alleged that the Buyer repudiated the contract of sale. The Buyer disagreed. The parties entered into a second contract of sale for the same parcel of cargo. The second contract included a term stating that the first contract was “terminated and considered void”. The Buyer’s case was that this term meant the Seller’s claim for damages arising out of the repudiation of the first contract should fail.

The parties took their dispute to GAFTA. The GAFTA Appeal Board held that it had no jurisdiction to consider the effect of the term in the second contract, accepting the Seller’s case that it had been constituted to handle a dispute arising out of the first contract only.

The Buyer challenged the Board of Appeal’s decision and appealed the award to the High Court under sections 67, 68 and 69 of the Arbitration Act 1996. In doing so, the Court held that a tribunal formed pursuant to a contract had jurisdiction to interpret the terms of a subsequent contract purportedly said to vary the terms of the original contract.

Case note contributed by Sheridan Steiger, LLM (International Trade and Commercial Law), LLB (Hons), BA (Hons), Solicitor of England & Wales, and International Contributor to DMC’s Case Notes

Background

CAFI (the “Buyer”) entered into a contract on 11 March 2022 (the “First Contract”) to buy a cargo of 28,000 mt of Russian Milling Wheat (the “Cargo”) with a price of US$ 465 per metric tonne from GTCS (the “Seller”). The First Contract contained an arbitration clause stating:

“Any dispute arising out of or under this contract shall be settled by arbitration in accordance with Arbitration Rule N. 125 of the Grain and Feed Trade Association, in the edition current at the date of this contract. Such Rules forming part of this contract and of which both parties hereto shall be deemed to be cognizant.”

The Cargo was loaded on board a vessel at Novorossiysk, Russia, on 14 March 2022 and the vessel sailed for Egypt. Whilst en route, CAFI informed GTCS that it was having difficulty making the payment for the Cargo because of US sanctions against Russia.

The vessel arrived at Alexandria on 21 March 2022. The Buyer maintained it was unable to pay, leading to the Seller purporting to terminate the First Contract on the grounds of anticipatory repudiatory breach. The Buyer replied to this referring to the payment terms of the First Contract, which allowed for direct or indirect non-performance due to sanctions.

Following further exchanges facilitated by the broker, the parties entered into a second contract on 28 March 2022 (the “Second Contract”), which was backdated to 25 March 2022, for the same Cargo at a price of US$440 per metric tonne. The Second Contract contained the same arbitration clause as found in the First Contract and an additional term (the “Termination Clause”) stating”

“Both parties have agreed that Contract NO. RMW125-11032022-11 dd. 11.03.2022 [the First Contract] … is terminated and considered void.”

The Buyer made payment for the Cargo in accordance with the terms of the Second Contract on 31 March 2022. On 10 April 2022, the vessel berthed and began discharge operations. Discharged was completed on 12 April 2022.

The Seller then brought an arbitration claim seeking damages for repudiatory breach of the First Contract by the Buyer.

The Buyer defended the claim by referring to the Termination Clause found in the Second Contract.

The GAFTA First Tier Tribunal (the “Tribunal”) issued an award concluding that, in entering into the Second Contract, which included the Termination Clause, the Seller had waived its claim for damages.

The Seller appealed the Tribunal’s decision to the GAFTA Appeal Board (the “Appeal Board”).

Amongst other points, the Seller challenged the jurisdiction of the Tribunal and the Appeal Board to consider the Second Contract where the arbitration had been commenced in relation to the First Contract only.

The Appeal Board held that they had no jurisdiction to interpret the terms of the Second Contract nor to look at how its terms impacted the claim arising out of the First Contract.

Having determined that they did not have jurisdiction to consider the terms of the Second Contract, the Appeal Board found in favour of the Seller.

As a result of this finding, the Buyer commenced a second GAFTA arbitration under the Second Contract seeking a determination as to the effect of the Termination Clause. That arbitration was stayed whilst the Buyer appealed the Appeal Board’s award.

Appeal to Commercial Court

The Buyer’s Submissions

The grounds of challenge to the Appeal Board’s award made by the Buyer may be summarised as follows:

1)    The Appeal Board was wrong to hold that it had no jurisdiction to interpret the terms of the Second Contract and how it impacted the First Contract (a challenge under section 67 of the Arbitration Act 1996 (the “Act”)).

2)    Further:

a)    In the alternative, the Buyer’s position was that, if the Appeal Board did lack jurisdiction to interpret the Second Contract, then it had exceeded its  jurisdiction in determining that the Buyer was liable to the Seller (such a finding was only possible having considered the terms of the Second Contract). This was a further challenge under section 67 of the Act.

b)    The Buyer further challenged the Appeal Board’s decision under s.68 of the Act: it was a serious irregularity for the Appeal Board to have held Buyer’s liable for damages notwithstanding that there was a live issue as to whether the Buyer’s liability was extinguished by the Second Contract.

c)     In the further alternative, the Buyer’s also said that in order to have made its award, the Appeal Board must have decided that a party may be held liable to pay damages where it was still a live issue as to whether liability for those damages had been extinguished (and that issue had not been resolved by a competent court or tribunal). This appeal was made by reference to section 69 of the Act for an error on a point of law.

The Seller’s Submissions

The Seller submitted that the Appeal Board did not have jurisdiction to construe the Second Contract nor to consider how its terms impacted the parties’ positions under the First Contract. The Seller maintained that, where the arbitration had been commenced under the First Contract, it was not possible for the arbitrators to consider issues arising under the Second Contract. The Seller’s position was that a separate arbitration under the Second Contract was required.

The Seller also submitted that the questions of law before the Court pursuant to the Buyer’s challenge had never been considered by the Tribunal or the Appeal Board. In support of their submission, they referred to the recent decision in the Supreme Court, Sharp v Viterra (fn.1), which held that:

1)    Any question of law for which permission to appeal is sought falls to be considered “on the basis of the findings of fact in the award”. It reminds all that the English courts’ jurisdiction is limited to appeals on questions of law: they have no jurisdiction in relation to errors of fact and no power to make their own findings of fact.

2)    The point appealed must have been before the arbitration tribunal for determination. If a tribunal was not “asked to consider it, still less determine on it” then there cannot be a question of law for the purposes of a section 69 challenge.

Judgment

The Judge held that the Appeal Board did have jurisdiction, determining that a dispute about whether the Buyer was liable to the Seller for breach of contract, or whether the parties had subsequently reached an agreement to treat the contract as void and, therefore, to waive any such liabilities as might have arisen, was a dispute arising out of the First Contract; this was so even if it might also be a dispute that fell within the Second Contract.

The Judge went on to allow the section 67 challenge described in 2(a) above. The Judge held that, if the Appeal Board did not have the jurisdiction to interpret the Second Contract, then it had exceeded its jurisdiction in determining that the Seller was not precluded from claiming damages from the Buyer.

The Judge allowed the section 68 challenge, finding that the Appeal Board was wrong to have decided that it lacked jurisdiction to interpret the Second Contract whilst then going on to award the Seller damages without first considering the effect of the Second Contract’s Termination Clause.

Finally, the Judge also allowed the section 69 appeal. He determined that it was an obvious error of law to award damages to the Seller when the effect of the Termination Clause on the Buyer’s liability had not first been determined.

Comment

This judgment is a rare example of the Court allowing challenges and an appeal against an arbitration award under sections 67, 68 and 69 of the Act.

At a more practical level, it also assures those entering into multiple contracts that it will suffice to start proceedings under one jurisdiction clause irrespective of whether subsequent contracts may have varied the terms or waived a party’s liability under another contract. Accordingly, this is a good example of the Court looking to adopt a sensible approach that reflects commercial reality.

Footnote 1:  Sharp v Viterra [2024] UKSC 14