UK: Did GAFTA Tribunal Exercise Its Discretion To Admit An Otherwise Lapsed Claim?

Last Updated: 2 June 2014
Article by Stuart Shepherd and James Rose

Bunge SA v. Nibulon Trading [2013] EWHC 3936 (Comm)

The GAFTA Arbitration Rules (Form No. 125) provide for the lapse of claims in circumstances where there has been a failure of the parties to submit any documentary evidence or submissions within one year of the date of the notice claiming arbitration. The Rules do, however, allow the parties to serve a notice renewing the claim for a further year before the initial one year period expires (and to repeat this renewal process for up to six years).

A failure to renew a claim in this way is not necessarily fatal. A first-tier GAFTA tribunal may still exercise its discretion to admit an otherwise lapsed claim and, if it does so, there can be no appeal to a GAFTA Board of Appeal against that exercise of discretion. Where the first-tier tribunal refuses to admit the time-barred claim, however, a Board of Appeal can overturn that decision and decide to admit the claim.

The issue for the Commercial Court in this case was whether, in fact, the first-tier tribunal had exercised its discretion in deciding to admit a claim that had otherwise lapsed. If so, then the GAFTA Board of Appeal was not entitled to find that the claim was time-barred, as it did, but should have considered the merits of the substantive claim instead.

The background facts

The Buyers under a sale contract for Ukrainian wheat brought a claim for non-performance of the contract against the Sellers by serving notice of arbitration against them on 1 December 2006, pursuant to the GAFTA Arbitration Rules. Rule 4.10 provides as follows:

"4.10 Lapse of Claim

If neither party submits any documentary evidence or submissions as set out in this Rule or as ordered by the tribunal, within 1 year from the date of the notice claiming arbitration, then, the claimant's claim shall be deemed to have lapsed on the expiry of the said period of 1 year unless before that date the claim is renewed:

  1. by a notice served by either party on the other, such notice to be served during the 30 consecutive days prior to the expiry date, or
  2. by the service of documentary evidence or submissions by either party,

in which case the claim and counterclaim are each renewed for a further year.

The claim may be thus renewed for successive periods of 1 year, but not to exceed more than 6 years from the date of the first notice served in accordance with Rule 2. Wherever a claim is renewed any counterclaim is also deemed to be renewed."

Rule 21 is also relevant:

"21. Non-compliance with Time Limits and Rules

If any time limit or provisions imposed by these Rules are not complied with, and when such matters are raised as a defence to the arbitration claim, then, subject only to the discretion of the tribunal or board of appeal conferred by this Rule, the claimant's claims and/or appellant's appeal as the case may be, shall be deemed to be waived and absolutely barred, except: -

  1. where the tribunal may in its discretion admit a claim if satisfied that the circumstances were outside the reasonable contemplation of the parties when they entered into the contract and that it would be just to extend the time, or when the conduct of one party makes it unjust to hold the other party to the strict terms of the time limit in question. Otherwise the tribunal may determine that the claim is waived and barred and refuse to admit it. There shall be no appeal to the board of appeal against the decision of the tribunal to exercise its discretion to admit a claim. If a tribunal decides not to admit the claim, then the claimant shall have the right to appeal pursuant to Rule 10, and the board of appeal shall have the power in its absolute discretion to overturn that decision and to admit the claim;
  2. upon appeal if any of the provisions of Rules 10 to 20 have not been complied with, then the board of appeal may, in its absolute discretion, extend the time for compliance (notwithstanding that the time may already have expired) or dispense with the necessity for compliance and may proceed to hear and determine the appeal as if each and all of those Rules had been complied with. Any decision made pursuant to this Rule shall be final, conclusive and binding."

The Buyers sent a first renewal notice to the Sellers on 2 November 2007, which was undisputedly a valid renewal. Subsequent renewal notices were, however, given by the Buyers in October 2008, 2009 and 2010, which the Sellers contended were invalid because they were premature.

The first-tier GAFTA Tribunal

The Tribunal found that the renewal notices were not premature and upheld their validity. If it was wrong on this, the Tribunal indicated that it would in any case have exercised its discretion to admit the Buyers' claim. The Tribunal did not make specific reference to Rule 21(a), however, which would allow it to admit the Buyers' claim where (i) the circumstances were outside the reasonable contemplation of the parties when they entered into the contract and it would be just to extend the time, or (ii) when the conduct of one party makes it unjust to hold the other party to the strict terms of the time limit in question.

The Sellers appealed to the GAFTA Board of Appeal.

The GAFTA Board of Appeal

The Board of Appeal held that the Buyers' second renewal notice dated October 2008 had been sent too early and was thus ineffective. The Buyers' claim had, therefore, lapsed.

The Board also found that the Tribunal had not unequivocally exercised its discretion under Rule 21(a) to admit what was an otherwise time-barred claim. Rather, the Tribunal's indication that it would have exercised its discretion in the Buyers' favour was conditional on its findings of fact, namely that the renewal notices were valid. The Board added that the Tribunal had made no mention of the circumstances in this case being outside the reasonable contemplation of the parties at the time they entered into the contract, which might have justified the exercise of the Tribunal's discretion in allowing the lapsed claim. In the Board's opinion, this was not an exercise of discretion pursuant to Rule 21 and the Board was not bound by it.

Further, the Board held it had no power under Rule 21(b)  to exercise its own discretion to allow the Buyers' claim because they only had a discretion to do so under Rule 21(a) and only if the Tribunal has exercised its discretion not to admit the claim, which it had not. The claim was, therefore, time-barred.

The Buyers appealed to the Court.

The Commercial Court Decision

Mr Justice Walker found in favour of the Buyers. He concluded that there was a clear admission of the claim by the Tribunal whether it was right or wrong about the validity of the renewal notices and that decision to admit the claim can only have been an exercise of the discretion provided for under rule 21(a).

Accordingly the Board was wrong to conclude that the Tribunal had not exercised its discretion to admit the Buyers' claim. The appeal was allowed and the matter was remitted to the GAFTA Board to consider the merits of the case.

Comment

On a general level, this dispute highlights the importance of being familiar and complying with the relevant procedural and arbitration rules that apply to sale contracts concluded pursuant to standard trade association forms, which vary from one association to another. This case also draws attention to the intricacies of the GAFTA Arbitration Rules and the appeal process and, in particular, to the importance to a claimant who is faced with a potential time-bar defence of seeking to ensure that the first tier tribunal makes a finding on the exercise of discretion to admit the claim irrespective of its finding on the time-bar defence itself. If the tribunal fails to do so then, due to the terms of Rule 21 of the GAFTA Arbitration Rules (at least as interpreted by the Board of Appeal in this case), the claimant will be deprived of the opportunity of asking a Board of Appeal to exercise its discretion to admit the claim if either tribunal concludes it is time-barred.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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