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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> S Ltd v C Ltd [2009] EWHC B23 (Comm) (27 February 2009) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2009/B23.html Cite as: [2009] EWHC B23 (Comm)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Admiralty & Commercial Registry Strand, London WC2A 2LL
		27th February 2009

JUSTICE SMITH:

1. This is an application under Section 67 of the Arbitration Act 1996. I am grateful to Mr. Collins for the Applicant and Mr. Lewis for the Respondent for their assistance, both in their helpful written submissions and in their oral presentations.
2. Section 67 provides, so far as is material, that a party to arbitral proceedings may apply to the court challenging any award of the Arbitral Tribunal as to its substantive jurisdiction. S Limited seeks to overturn a decision of a panel of arbitrators appointed by the London Metal Exchange, that decision being dated 27^th November 2008.
3. The arbitration agreement, which is in three contracts made by S Limited with C Limited, to whom I will refer as 'C, is in the following terms:

"Arbitration, if any, by the LME according to the Rules, Regulations and Bye Laws of the LME, such that any and all disputes, controversies or claims arising out of or in connection with this contract, including any question regarding its existence, validity, payment, or termination, shall be finally resolved by arbitration under the rules of the London Metal Exchange in force at the date hereof, which Rules are deemed to be incorporated by reference into this clause, for settlement in accordance with the Rules Regulations and Bye Laws relating to the arbitration rules of the LME."

The contracts were governed by and to be construed in all respects in accordance with English law and under English jurisdiction.

4. The issue is whether the Tribunal have jurisdiction over some claims making defamation allegations that S Limited wish to pursue against C. The decision of the Tribunal was quite short and was in these terms:

"The Tribunal has determined that it does not have jurisdiction over the defamation issue for the following reasons:

1. Although there have been examples of tort, including defamation, being arbitrable, these have been special cases where either the tort was the principle or only point of claim, or where the tort had a direct definite and material relationship to the contract, such as claims for negligence or breach of fiduciary responsibility. In cases of defamation, however, it has generally been the practice to appoint arbitrators specially experienced in defamation claims.

2. It is the Tribunal's opinion that neither party concluding the contract - and in particular the arbitration clause - could have contemplated that defamation was a likely event or a contributory factor in any commercial claim. The Tribunal takes into account that both parties must agree to arbitrate and both must therefore have contemplated at the time the possible contingencies that might arise from a commercial contract for the purchase and sale of base metals. In choosing LME arbitration both parties evidenced [sic] their desire for experts in metal trading to determine the issues, otherwise they might have chosen a different court".

5. It is well established that an appeal to this court under Section 67 is by way of re-hearing, albeit of course the court pays proper respect to the decision of the Tribunal and its reasons.
6. I shall say a little more about the background to the dispute. The contracts between S Limited and C were for the sale by S and the purchase by C of nickel and copper cathodes. More specifically, a contract dated 5^th October 2007 was for the supply and sale of about 24 metric tons of cut nickel cathodes in a single shipment to CIF India. The second contract was dated 16^th October 2007 and was for the supply and sale of about 24 metric tons again of cut nickel cathodes, this time in three shipments, CIF India. The third contract was dated 6^th November 2007 and was for the supply and sale of about 435 metric tons of copper cathodes in three shipments, again CIF India.
7. What S Limited say happened was this: after the contracts were made disagreements arose about the amount of deposit to be paid by C and retained by S Limited under the contract. Nevertheless, in the period between November 2007 to January 2008 S Limited performed its obligations under the contracts by making deliveries. C accepted the shipments, although not always in accordance with the timescale contemplated by the contracts. It arranged for the "avalisation" of shipping documents relating to the shipment by its bank, IC Bank, that is to say it arranged a form of bank endorsement or guarantee of the bills of exchange.
8. However, towards the end of January 2008/February 2008, disagreements between the parties intensified. In the middle of February 2008 C informed S Limited that unless it returned all the deposits it held it would not instruct its bank to avalise any further shipping document. S Limited considered that C was not entitled to the return of deposits and to payment for the goods received, that is to say it was not entitled to lay down that pre-condition for avalising the documents, and declined to accede to C's demands.
9. When this became apparent, in particular in relation to the final shipment, S Limited instructed the shippers, who were X Limited, to return the final cargo of nickel without discharging it in India. On 24^th February 2008 S Limited informed C that C's conduct entitled it to discharge future performance of its obligations under the second and third contracts and held C liable for losses. It retains the deposit funds.
10. The communications that are said to be defamatory are communications with the shipper, to whom I have referred, with S Limited's banker in relation to the transaction, who were Y Bank PLC and with the LME. As far as the communication to the shipper is concerned, the allegation relates to a letter dated 26^th February 2008. According to S Limited, C stated that the shipper was engaged in an illegal act as a result of acting on S Limited's instructions and that the goods did not belong to S Limited but that IC Bank was a 'co-owner' of the goods.
11. As far as the communications to S Limited's bank is concerned, the communications relied upon include a letter dated 17^th March 2008. It is said that in that letter C stated that S Limited had fraudulent intentions and a dishonourable attitude, and was trying to make quick money in a thoroughly dishonourable and unethical manner. It spoke of S Limited going to lengths to defraud C. It is said that as a result of C's communications with S Limited's bank, S Limited's bank declined to renew credit facilities and that the communication 'sealed the fate' of a rolling credit facility of $5m.
12. As far as the communication with the LME is concerned, the focus of that is a letter dated 3^rd April 2008. It is alleged that in it C claimed that S Limited had boasted that it had never lost an arbitration and that it could influence and manipulate the outcome of LME arbitral proceedings to its advantage. I shall have to return to say something more about some of those communications, but that sets the scene for the time being.
13. It is Mr. Collins' submission that the issue that the court has to determine on this application, in broad terms, is whether the tort falls within the scope of the arbitration agreement and that that involves two questions. First, the question of the construction of the arbitration agreement, and, secondly, the connection between the tort and the contracts. For my part I would prefer to couch the second issue in terms of the connection between the contracts and the facts giving rise to the tort, and subject to that clarification - I understand that it is a clarification rather than a qualification - with that clarification I accept the starting point identified by Mr. Collins. Support for it is found in the decision of the United States Federal Court of Appeal Ryan v Rhone Poulenc Textile AS 863 F.2d 315, to which Mr. Collins referred me.
14. As far as the first question of construction is concerned, guidance is given to the proper approach in the speeches of the House of Lords in Fiona Trust v Privalov. It suffices to refer to two paragraphs of the speech of Lord Hoffman. In paragraph 5, having observed that arbitration is consensual, Lord Hoffman continued:

"It depends upon the intention of the parties as expressed in their agreement. Only the agreement can tell you what kinds of disputes they intended to submit to arbitration. But the meaning which the parties intended to express by the words which they used will be affected by the commercial background and the readers' understanding of the purpose for which the agreement was made. Businessmen in particular are assumed to have entered into agreements to achieve some rational commercial purpose and an understanding of this purpose will influence the way in which one interprets their language".

15. At paragraph 13 Lord Hoffman said:

"In my opinion the construction of an arbitration clause should start from the assumption that the parties as rational businessmen are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter should be decided by the same Tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction".

16. The question therefore, on the facts of this case, seems to me to be whether the facts relied upon in support of the defamation allegations are matters which arise out of, or in connection with, the contracts within the meaning of the arbitration clause. It seems to me that another way of putting it for practical purposes is by reference to Astro Vencedor Compania Naviera SA v Mabanaft GmbH, [1971] Lloyd's 502 in which Lord Denning MR, referring to a question as to whether a tort of wrongful arrest was covered by an arbitration clause, spoke of the arrest being 'simply the follow up to that claim', that is to say a claim of breach of contract. In other words, one can properly ask oneself whether it could be said that the defamation allegations are in reality simply the follow up to the contractual dispute. I permit myself to approach the matter that way, not least encouraged by the deprecation of fussy distinctions of language expressed by Lord Hope in the Fiona Trust case at paragraph 27.
17. It follows from this, I think, that some of the points made by Mr. Lewis are, at best, of secondary importance. The categorisation of the complaint, as being one of defamation, does not in itself significantly inform the question as to whether there is a sufficient connection between these claims and the contract to satisfy the arbitration clause.
18. It also follows, it seems to me, that it is of secondary importance, although not entirely irrelevant, that the parties might have agreed by the arbitration agreement to forego the procedures which would govern a defamation claim in the English courts. That is a consequence of the clause rather than an aid to construction. That is so although it is rightly observed that a defamed party would on such a construction be taken to have foregone the right to clear his name in public proceedings. That does not seem to me a consequence manifestly and inherently improbable. It seems to me not necessarily improbable that a businessman, preferring arbitration to deal with standard and predictable contractual disputes, might be prepared to forego public vindication of a defamation against him, a risk that he might think when entering the contract to be small, as a price for resolving all disputes in one tribunal. I cannot accept that that consequence would defeat some commercial interest such that it would be an irrational agreement for a businessman to make.
19. Similarly, it does not seem to me to be an objection to the construction that Mr. Collins urges, that defamation can involve criminal offences: fraud and bribery are commonly covered by arbitration agreements. Similarly, the fact that questions of foreign law would be involved is not a consideration, it seems to me, of great persuasive force. I refer to the judgment of Lord Justice Leggatt in the Angelic Grace [1995] 1 Lloyd's Report 87, 91.
20. What does seem to me a more important consideration, to which Mr. Lewis draws my attention, is the reference in the contracts, and indeed the arbitration clauses, to the arbitration being under the rules of the LME, and it is, I accept, proper to have in mind, when considering whether the connection between the contract and the facts said to have given rise to the defamation are such that the parties are to be taken to have intended the defamation to be covered by the clause, that they contemplated a reference under the rules of the LME. However, that is no more than one consideration to be brought into account.
21. Mr. Lewis submits that the defamation allegations are connected not with the contracts but with the letters that were said to have been sent by C. That does not seem to me a permissible approach; it is based upon a false dichotomy. The simple question is whether there is the connection between the contracts and the matters said to give rise to the tort. It is right that the letters were written after the breakdown of the relationship, and as S Limited would assert, as I understand it, the termination of the contract.
22. That said, Mr. Collins is able to submit this in connection with the letters written to the shipper and S Limited's bank: First, that the focus of the allegations in the letters is the performance to the contract. Secondly, that it follows from that that the truth of the allegations depends in large part upon whether and how the contract was performed. Thirdly, the publication was to others involved in the contract, or in its performance, and was a publication in connection with the contract to that extent. I consider that to be the case not only as far as the letter to the shipper is concerned but also with regard to the letter to S Limited's Bank . In doing so I do not overlook that the letter to S Limited's bank refers to the conduct of S Limited, or the alleged conduct of S Limited, in relation to a separate Sri Lankan business. But the focus of the complaint is about the performance of the instant contracts, or some of them, against the background of ('especially since') the Sri Lankan matters.
23. The position with regard to letter to the LME seems to me more finely balanced. The nature of the allegation, as it seems to me, is this: it is said that in relation to other matters S Limited had behaved improperly or corruptly. The suggestion is that as a result it might be inferred that they could be expected to behave improperly or corruptly in relation to a reference to the LME under the arbitration clauses in the instant contracts.
24. I readily accept that a connection to the arbitration provision of the contracts is a connection to the contracts. The question is whether the inference based upon collateral matters that there might be improper behaviour, is a sufficient link to the arbitration agreement in the three contracts under consideration in this case. I accept that here the connection with the three contracts is more tenuous than in the case of the other two letters, and I found it a nicer question as to whether it is proper to be said that within the meaning of the clause in these circumstances the facts giving rise to alleged defamation are properly said to arise out of or in connection with the contract.
25. I am persuaded that it is unlikely that it the parties to the contract are to be taken to have intended that this sort of distinction should mean that claims of this sort relating to past conduct should go to the Tribunal but defamatory inferences of the sort said to have been made in the LME letter should go to another Tribunal. I am therefore persuaded, although it is nearer the line, that the arbitration agreements cover the claim of the defamation said to have been made in the LME letter.
26. It follows from this that I do consider that these claims are covered by the arbitration provision. While respecting the views of the Tribunal, it seems to me as a matter of the legal construction of the clause, I should allow the appeal and shall seek counsel's assistance as to the form of order that I should make.