TRANSITION FEEDS LLP V ITOCHU EUROPE PLC

[2013] EWHC 3629 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Field, 15 November 2013

Arbitration - Sale of goods - FOSFA arbitration - Board's failure to deal with an issue before it - Measure of damages - Relevant market to determine good merchantable quality - Costs following the event - Arbitration Act 1996, sections 61, 68 and 69

These were two separate sets of applications: one in relation to an alleged failure to deal with issues before the board in a reference regarding damages for breach, and the other in relation to the board's costs decision in an award pertaining to other cargoes. The factual basis of the first issue was as follows. By a contract in writing dated 21 August 2008 the defendant sellers had agreed to supply to the claimant buyers a minimum of 72,000 mt per year of Crude Palm Oil Feed Grade ("CPO") and Palm Fatty Acid Distillate ("PFAD") for three years from October 2008 to September 2011 on the basis of delivery "Cif Mersey Gladstone Dock", but with the buyers' option of discharge at Rotterdam subject to sellers' or the shipowners' consent, but without discount. The supply agreement was subject to FOSFA rules, the FOSFA arbitration clause and, where otherwise applicable, FOSFA contract numbers 80 (for CPO) and 81 (for PFAD). Buyers rejected seven cargoes on the basis that they were not of merchantable quality as a result of detention of the transporting vessel Chemstar Venus for three months by Somali pirates. Sellers demanded payment and buyers treated this as a repudiation, which sellers in turn treated as a repudiatory breach and disposed of the goods at Rotterdam. Following awards by a FOSFA arbitrator and an appeal to the FOSFA Appeals Board, the buyers appealed to the High Court on the basis that from the paragraphs of the award dealing with the quality of goods on shipment and on arrival, it was manifest that the Board had failed to deal with the buyers' contention that under clause 2 of FOSFA 80 they were entitled to an allowance against the price on the basis that if the goods had been delivered at Liverpool in accordance with the contracts, they would not have been of good merchantable quality (GMQ). It followed, argued the buyers, that the board had been guilty of a serious irregularity within section 68(2)(d) of the Act.