Arbitration Act 1996: First Appeal To Succeed on All of Sections 67, 68 & 69

Summary

In what is, as far as we are aware, the first and only reported case¹ of its kind, the Court has today allowed an appeal against an arbitration award under all three of Sections 67, 68 and 69 of the Arbitration Act 1996 (the AA 1996).

The Court’s key findings were that: (i) where a party agrees to vary or extinguish rights under an earlier contract via the terms of another contract, a Tribunal formed under the earlier contract has jurisdiction to determine the meaning and effect of the terms of that later contract; (ii) where a Tribunal finds that it does not have jurisdiction to determine an issue which is vital to the question of the respondent’s liability, and that vital issue has not yet been determined in a competent forum, the Tribunal cannot then proceed to make an award of damages against the respondent; and (iii) the terms of an agreed written contract will be key to determining the parties’ agreement, and it does not matter whether its terms have been clearly negotiated in prior discussions between the parties.

Background

(i) GAFTA Arbitration

The dispute concerned two contracts for the same cargo of Russian milling wheat. Under both contracts, CAFI Commodity & Freight Integrators DMCC (CAFI) was the buyer and GTCS Trading DMCC (GTCS) was the seller. The original contract (the First Contract) was not performed.

CAFI blamed its non-performance under the First Contact on payment issues due to the possible impact of sanctions against Russia and sought to rely on a clause in the First Contract which excused performance for that reason (the Sanctions Issue). GTCS disagreed, arguing that payment was not, in fact, prevented by the sanctions and so CAFI was not excused from performance.

After discussions through a broker, the parties then agreed to a second contract for the sale of the same goods (the Second Contract). The Second Contract was duly performed.

GTCS later commenced GAFTA arbitration proceedings against CAFI under the First Contract (the Arbitration) for damages arising from CAFI’s failure to pay for and take delivery of the goods under that contract. The price agreed for the cargo under the Second Contract was USD 25 per MT lower than it had been under the First Contract and GTCS used this price difference as the basis of its damages claim.

In the Arbitration, alongside its position on the Sanctions Issue, CAFI argued that GTCS had agreed to forego any claim for damages under the First Contract by agreeing to the terms of the Second Contract. This was because the Second Contract included the following clause (the Termination Clause): “Both parties have agreed that [the First Contract] … is terminated and considered void.”.

CAFI’s case was that the effect of the Termination Clause was to deem the First Contract void and thereby to extinguish any rights and liabilities that may have arisen under it.

The First-Tier Tribunal in the Arbitration rejected GTCS’ claims. GTCS succeeded on the Sanctions Issue, but the First-Tier Tribunal accepted that the parties had waived any right to claim damages under the First Contract.

GTCS appealed to a GAFTA Appeal Board, which involved a full rehearing of the claim.

In its award (the Award), the Appeal Board held that because it had only been appointed under the arbitration clause in the First Contract, it had no jurisdiction to consider the effect of the Termination Clause on the First Contract. As such, it appeared that the Appeal Board ignored altogether the wording of the Termination Clause when considering whether the parties had intended liability to remain under the First Contract. CAFI also lost on the Sanctions Issue. As a result, the Appeal Board proceeded to find CAFI liable for damages for the price difference.

Despite its finding that it had no jurisdiction to consider the effect of the Termination Clause, the Appeal Board did include comments on it in the Award (albeit these were said to be discussed “as a matter of principle“). It noted that there was no evidence of any discussions prior to the signing of the Second Contract (in a form which included the Termination Clause), and that this suggested the parties had not “freely negotiated” the specific wording deeming the First Contract void. It also noted that it would have expected to see “some clear discussion” on the effect of the Termination Clause (i.e. rendering the First Contract void) before it was agreed. Therefore, the Appeal Board concluded that there was no evidence that the First Contract should have been considered void, only that it was cancelled or terminated (the issue of termination having been clearly discussed in correspondence).

(ii) Appeal to the Commercial Court

CAFI appealed to the Court under each of Sections 67, 68 and 69 of the AA 1996. Its challenges can be summarised as follows:

GTCS resisted all the Challenges on various grounds. Primarily, GTCS argued that the Appeal Board had no jurisdiction to interpret the Second Contract or to assess how it impacted the First Contract. This was because the Arbitration was commenced under the First Contract and no arbitration notice was issued under the Second Contract.

Citing the recent Supreme Court decision in Sharp Corp Ltd v Viterra BV ², GTCS also argued that the questions being asked of the Court were not asked in the Arbitration, so that it was not open to CAFI to base its appeal on them.

Decision

(i) Challenge 1

The Court allowed the s.67 appeal under Challenge 1 on the basis that the arbitration clause in the First Contract was broad enough to cover disputes about whether a later agreement (here, the Second Contract) affected rights under the First Contract. It noted that the arbitration clause covered any dispute “arising out of or under the First Contract” and considered that the dispute as to the effect of the Termination Clause was a dispute arising in that manner. This applied whether or not the dispute might also fall within the scope of the arbitration clause in the Second Contract.

(ii) Challenge 2

On the three grounds under Challenge 2 (all premised on the Appeal Board finding it had no jurisdiction in respect of the Second Contract but nevertheless making a decision on liability), the Court held as follows:

• allowing the s.67 appeal, that if the Appeal Board lacked jurisdiction to interpret the Second Contract, it also lacked jurisdiction to decide whether liability had been extinguished by that contract (but which it nevertheless proceeded to decide).
• allowing the s.68 appeal, that when the Appeal Board found (wrongly) that it lacked jurisdiction to interpret the Second Contract, it committed a serious procedural irregularity by nevertheless finding CAFI liable for damages without the effect of the Termination Clause having been decided.
• allowing the s.69 appeal, that the Appeal Board made an obvious error of law by deciding on liability where the issue as to whether the terms of the Second Contract extinguished that liability had not yet been resolved.

(iii) Challenge 3

Challenge 3 did not arise because of the previous findings. However, the Court noted in obiter comments that CAFI would have had a strong case that it would have been obviously wrong on a point of law for the Appeal Board to have required “free negotiation” and “clear discussion” outside the terms of the parties’ written agreement before accepting that the wording of the Termination Clause was applicable and binding on the parties.

As to the arguments around Sharp v Viterra, the Court stated that the issues as to jurisdiction were “crystallised” before the Appeal Board simply when the parties made competing submissions as to the effect of the Second Contract on the dispute and, generally, as to whether that contract was relevant to the dispute.

HFW Comment

This judgment will be welcomed by trading parties for several reasons. Most importantly:

(i) it confirms that parties should not need to start multiple arbitrations where they have agreed a contract (and under which there is a dispute) but where there are also subsequent agreements between them which might, for example, vary the terms of that underlying contract or “washout” any liability under it. A tribunal appointed in respect of a dispute under the main contract can (and should), for the purposes of the dispute, interpret the main contract in light of the terms of the later agreements.

(ii) its obiter comments confirm that the terms of a final written and agreed contract will be key to interpreting it. This will be a relief for commercial parties whose contracts might otherwise have been open to challenge. It is common practice to negotiate terms through the exchange and updating of drafts before a written agreement is signed and the Appeal Board’s comments about the need for additional evidence of “free negotiation” and “clear discussion” outside of the terms of the final agreement, if followed, could have created significant difficulties for this process, both for trading parties and the courts. (It is also a salient reminder that draft contracts should always be read in full before they are agreed.)

HFW’s Damian Honey and Joshua Prest represented the successful CAFI in these proceedings.

Footnote

1. CAFI – Commodity & Freight Integrators DMCC v GTCS TRADING DMCC [2025] EWHC 1350 (Comm)
2. [2024] UKSC 14