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Palmat NV v. Bluequest Resources AG: A Case of Interest
This article discusses the recent decision of the High Court of Justice of England and Wales in Palmat NV v. Bluequest Resources AG [2023] EWHC 2940 (Comm), which involved a challenge to an arbitral award under the Arbitration Act 1996 (AA). The case is interesting for several reasons, including the court's approach to setting aside an award for serious irregularity under section 68 AA, and the implications for parties seeking interest on arbitration and legal costs.
Background
The dispute arose from a contract for the sale of liquid caustic soda (LCS) between Palmat NV (Palmat), a Curaçao registered company, and Bluequest Resources AG (Bluequest), a Swiss company. The contract was governed by English law and provided for LCIA arbitration in London.
According to Palmat, the contract was part of a complex barter arrangement involving two Venezuelan state-owned companies, Bauxilum and Venalum, whereby Palmat would deliver LCS to Bauxilum and receive aluminium from Venalum in exchange. Palmat claimed that Bluequest was aware of this arrangement and agreed to cooperate with it.
However, Bluequest denied any knowledge or involvement in the barter arrangement and asserted that it had entered into a straightforward sale contract with Palmat. Bluequest claimed that Palmat had failed to pay for the LCS delivered by Bluequest and sought payment of the outstanding amount plus interest.
The dispute was referred to LCIA arbitration before a sole arbitrator, who issued an award in favour of Bluequest on 14 May 2022. The arbitrator found that there was no evidence of any barter arrangement or any agreement by Bluequest to cooperate with it. The arbitrator also awarded Bluequest interest on the principal sum due, as well as on its arbitration and legal costs, even though Bluequest had not expressly claimed interest on these sums.
Palmat challenged the award before the High Court under sections 67 and 68 AA. Section 67 allows a party to challenge an award on the grounds of lack of substantive jurisdiction of the tribunal. Section 68 allows a party to challenge an award on the ground of serious irregularity affecting the tribunal, the proceedings or the award.
Jurisdictional Challenges:
Palmat's attempt to characterise the contracts as a single "barter" transaction, contending that the LCIA arbitration clause did not apply, faced the court's scrutiny. The judge's analysis emphasised the parties' intent, dismissing Palmat's argument and affirming the applicability of the arbitration clause. The court, adopting a pragmatic approach, considered the definitions in each contract, concluding that they represented two distinct sale contracts, not a barter transaction.
Time Bar Considerations:
Palmat's argument asserting a time bar clause in the LCS Contract as a jurisdictional challenge met a swift dismissal. The court's concise observation clarified that the time bar operated unilaterally against Palmat, reinforcing the importance of a clear and straightforward interpretation of contractual clauses.
Interest Challenges:
The crux of the legal saga emerged in the tribunal's award of interest on Bluequest's arbitration and legal costs, despite Bluequest not explicitly claiming it. The court, guided by Section 68 of the Arbitration Act 1996, set aside this portion, highlighting the necessity for claimed interest to be "in play" during proceedings. The decision underscored the principle that issues not expressly contested should not find a place in the final award. While the court retained the award of interest on the claimed sums, it refused to set aside the tribunal's award of interest totalling US$764,544.08, emphasizing the lack of calculations provided by the parties.
Unsuccessful Section 68 Challenges:
Palmat's array of challenges under Section 68, described as "scattergun," faced rejection by the court. The judge meticulously considered each challenge, noting their misconceived nature or Palmat's failure to read the award reasonably and commercially. The court's dismissal underscored the importance of presenting challenges grounded in reason and commercial understanding.
The High Court's Decision
The High Court dismissed Palmat's challenge under section 67, holding that the arbitrator had correctly determined that he had jurisdiction over the dispute and that there was no barter arrangement or any agreement by Bluequest to cooperate with it.
However, the High Court partially upheld Palmat's challenge under section 68, setting aside the part of the award that granted interest to Bluequest on its arbitration and legal costs. The court found that this amounted to a serious irregularity under section 68(2)(a) AA, which provides that a serious irregularity occurs if "the tribunal has exceeded its powers (otherwise than by exceeding its substantive jurisdiction)".
The court applied the test laid down by the Court of Appeal in Terna Bahrain Holding Company WLL v Al Shamsi [2013] 1 Lloyd's Rep 86, which requires the applicant to show that:
- The tribunal has acted outside its powers;
- The excess of power has been serious; and
- The excess of power has caused or will cause substantial injustice to the applicant.
The court held that the arbitrator had acted outside his powers by awarding interest on arbitration and legal costs without any claim or submission by Bluequest on this issue. The court noted that under section 49(3) AA, "the tribunal may award simple or compound interest from such dates, at such rates and with such rests as it considers meets the justice of the case". However, this power is subject to section 49(4) AA, which provides that "the tribunal may only award interest if and to the extent that it is empowered to do so by (a) the arbitration agreement; or (b) any provision of law applicable to the arbitral proceedings or to the contract out of which they arise".
The court found that neither condition was satisfied in this case. There was no provision in the arbitration agreement or in any applicable law that empowered the arbitrator to award interest on arbitration and legal costs without any claim or submission by Bluequest. The court rejected Bluequest's argument that section 49(3) AA gave the arbitrator wide discretion to award interest as he considered just. The court held that section 49(3) AA only applied where there was a power to award interest under section 49(4) AA, and that such power could not be implied from general principles of justice or fairness.
The court also held that the excess of power was serious, as it involved a significant departure from what was agreed by the parties or required by law. The court observed that the arbitrator had effectively decided on behalf of Bluequest, without giving Palmat any opportunity to make submissions on the issue of interest. The court said that this was "a serious breach of the principle that the parties should be given a reasonable opportunity of putting their case and dealing with that of their opponent".
Finally, the court held that the excess of power had caused substantial injustice to Palmat, as it had resulted in an award of interest that was not claimed or justified by Bluequest, and that increased the amount payable by Palmat by a considerable sum.
The court therefore set aside the part of the award that granted interest to Bluequest on its arbitration and legal costs and remitted the matter to the arbitrator for reconsideration per the court's judgment.
Implications
The case illustrates the importance of making clear and specific claims for interest in arbitration proceedings, and of giving the other party a fair opportunity to respond to such claims. It also shows that the courts will intervene to correct serious irregularities in arbitral awards that exceed the tribunal's powers or breach the parties' right to due process.
The case also raises some interesting questions about the scope and application of section 49 AA, which governs the power of arbitral tribunals to award interest. For instance, what constitutes a "provision of law applicable to the arbitral proceedings or to the contract out of which they arise" for section 49(4)(b) AA? Does this include statutory or common law rules on interest or only contractual or arbitral provisions? How should such provisions be interpreted and applied by arbitral tribunals? How should parties draft their arbitration agreements or submissions to ensure that they have a valid claim for interest or a valid defence against it?
These are some of the issues that may arise in future cases involving interest claims in arbitration, and that may require further guidance from the courts or arbitral institutions.
- High Court decision in Palmat NV v. Bluequest Resources AG addresses challenges to an arbitral award under Arbitration Act 1996, focusing on serious irregularities and interest implications.
- Key aspects include jurisdictional challenges, with the court affirming the arbitration clause's applicability, and a partial challenge under section 68 setting aside interest on Bluequest.
- The case emphasizes the need for clear claims in arbitration, and the court's role in correcting irregularities breaching due process.
