Broda Agro Trade (Cyprus) ltd v Alfred C Toepfer International GmbH [2010] EWCA Civ 1100

Background

The background to this litigation arose out of a claim in GAFTA arbitration proceedings by Toepfer against Broda for alleged breach of a contract for the supply of milling wheat. Broda had initially argued that there was no validly concluded contract between Toepfer and themselves for the supply of milling wheat, so that they were not bound by the GAFTA arbitration clause in the alleged contract. The first tier GAFTA tribunal issued an Interim Award, concluding that there was a binding contract between Broda and Toepfer and that disputes thereunder were subject to GAFTA jurisdiction. Broda went on to participate in the arbitration proceedings in relation to Toepfer's claim for breach of contract and were found liable by the GAFTA tribunal in its Final Award on liability and ordered to pay damages.

In addition to appealing to the GAFTA Board of Appeal to set aside the Final Award on liability, Broda also sought relief from the Commercial Court under sections 72 and 67 of the Arbitration Act 1996. Section 72 allows a person to seek a declaration that an arbitral tribunal lacks jurisdiction but it can only be relied upon by a person who has taken no part in the arbitration proceedings. Section 67 allows a person to seek to set aside an arbitration award on the grounds of the tribunal's lack of jurisdiction but, pursuant to section 70(3) of the Arbitration Act 1996, an application under section 67 must be made within 28 days from the award and Broda were well out of that time-frame (by about 14 months) in making their application. They therefore sought an extension of time from the court under section 80(5) of the Arbitration Act 1996 to apply for relief under section 67.

Mr Justice Teare in the Commercial Court dismissed Broda's claims. He held that Broda had taken part in the arbitration proceedings and could not therefore seek relief under section 72. He also refused to exercise his discretion to grant Broda an extension of time to make their section 67 application. However, he granted Broda permission to appeal.

Court of Appeal decision

The Court of Appeal has dismissed Broda's appeal. Lord Justice Stanley Burton gave the leading judgment and his reasons for dismissing the appeal can be summarised as follows.

Application under section 72 of the Arbitration Act 1996

In the Commercial Court, the judge had held that Broda had taken no part in the arbitration proceedings leading up to the tribunal's Interim Award on Jurisdiction but they had participated in the arbitration proceedings on the merits (i.e. the substantive proceedings relating to alleged breach of the contract). In Mr Justice Teare's opinion, it followed that Broda could not challenge the Interim Award under section 72.

Before the Court of Appeal, Broda argued that the reference in section 72 to a "person who takes no part in the proceedings" related only to participation in the proceedings relating to the tribunal's determination of its substantive jurisdiction. In other words, the fact that Broda had participated in the arbitration by defending Toepfer's claim for breach of contract should not disqualify them from relying on section 72. Significantly, there is apparently no previous case-law on this exact point.

Mr Justice Stanley Burton concluded that there was no basis to restrict the words "takes no part in the proceedings" to the proceedings relating to the determination of the substantive jurisdiction of the arbitrators. He added that a person who considers he has not entered into an arbitration agreement is entitled to ignore the arbitration proceedings and he can then claim relief from the court afterwards under section 72 because he did not participate in those proceedings. However, where he chooses to participate in the proceedings, whether in relation to the jurisdiction of the arbitrators or in relation to the arbitrators' exercise of their substantive jurisdiction to decide the dispute on its merits, and is disappointed by the arbitrators' decision, he can then challenge the arbitration award under section 67 within the time-limit set i.e. 28 days.

Extension of time to apply to the Court under section 67 of the Arbitration Act 1996

The Court of Appeal had to consider whether Mr Justice Teare had erred in the exercise of his discretion by refusing to extend time for Broda's application under section 67. The appeal judges concluded that he had not. In the words of Mr Justice Stanley Burton, "indeed, it is difficult to see the practical point of a time limit if an extension as long as that required in the present case should be given to a commercial organisation such as Broda, which, faced with a very substantial claim in London, did not see fit to consult an English lawyer". This was in reference to the fact that Broda had apparently relied on Russian lawyers to advise them and on Cypriot lawyers to check documents drafted by the Russian lawyers for errors of grammar and syntax, to sign the documents and send them to GAFTA. English lawyers were not instructed until five months after the GAFTA tribunal's Final Award on liability. Mr Justice Teare's refusal to extend time to Broda was therefore upheld.

Comment

The Court of Appeal's decision serves as a stark warning to international traders who are faced with a commercial dispute that may be governed by English law to get English legal advice early in the day, particularly with regard to (i) applicable time limits and (ii) procedural requirements, as well as on the merits of the substantive dispute.

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