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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 >> Pacific Inter-Link Sdn Bhd v Efko Food Ingredients Ltd.  EWHC 923 (Comm) (13 April 2011)
Cite as:  EWHC 923 (Comm),  ArbLR 13
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| Pacific Inter-Link SDN BHD
|- and -
|EFKO Food Ingredients Ltd
Mr Michael Collett (instructed by Clyde and Co) for the Defendant
Hearing dates: 14 - 18 February 2011
Crown Copyright ©
The Hon Mr Justice David Steel :
(a) PIL called Mr. Nakul Rastogi, its Chief Commodity Trader.
(b) EFKO called:
(i) Mr. Evgeniy Lyashenko, its General Director.
(ii) Mr. Adrian Bell, General Manager of Pontus.
"And it is not to be forgotten that, in the present case, the Judge was faced with the task of assessing the evidence of witnesses about telephone conversations which had taken place over five years before. In such a case, memories may very well be unreliable; and it is of crucial importance for the Judge to have regard to the contemporary documents and to the overall probabilities. In this connection, their Lordships wish to endorse a passage from a judgment of one of their number in Armagas Ltd v. Mundogas S.A. (The Ocean Frost),  1 Lloyd's Rep. 1, when he said at p. 57:-
"Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth."
"That observation is, in their Lordships' opinion, equally apposite in a case where the evidence of the witnesses is likely to be unreliable; and it is to be remembered that in commercial cases, such as the present, there is usually a substantial body of contemporary documentary evidence."
In these circumstances it is necessary to set out at some length the background material as it emerges from the contemporary documents.
"FGOS please to confirm as per telecom in writing:
100mt rbd olein each month for shipment JFM 2008 at usd 740 FOB and AMJ 2008 at USD 735 FOB. Transformation to CFR Illychevsk at USD68 inclusive of 125 ppm TBHQ. Payment 15 days before arrival in Illychevsk.
This is the first confirmation for EFKO – well done to us all"
We are pleased to confirm having sold to you the following, subject to our general terms and conditions of sale and as per hereunder.
Other terms and conditions I): Extension of shipment and arbitration, relating to the terms of this contract, with arbitration in London, shall be as per FOSFA-81, about which the parties have knowledge and notice and hereby accept.
NOTE: The Buyers shall acknowledge contents and receipt of this document, by the close of the working hours, today by returning by signed/sealed copy of the sellers. If the signed and sealed copy of the contract is not received as mentioned above, the seller shall reserve the right to cancel the contract."
"…Further to our telephone conversation – I understand that contracts have already been concluded, but yet we would appreciate it very much if you could try to offer them to make some amendments in terms of goods' quality warranties at the port of discharge. And, maybe, any other amendments as you may think fit. As regards our contracts, soon Timur will send you a more detailed message."
"…I understand your concerns regarding the quality and you are right in saying that the contracts have already been concluded. However, I will try to discuss this matter with PIL, taking into account that they were happy to make these 6 contracts with you and, maybe, they will come to terms with you."
"I think that the contract looks reasonable/standard with the exception of missing quality guarantee at disport and the final sentence regarding signature/non-signature (I cannot guarantee on which day it will be signed not least because I must first translate it).
Also I imagine we need an agreement on non-double commitment as we once had with Pontus and OMZhK."
(This latter point was a reference to an earlier transaction involving Pontus and PIL in which there had been two mirror contracts, one between them and the other between PIL and the ultimate consignee (Odessa). The side agreement provided that only the former would be effective.)
"…Please note that these being our first contracts with EFKO and as per our internal control for forward contracts, we need someone authorised from EFKO to stamp and sign these contracts and fax/E mail back to us urgently.
Please ensure that these contracts are received back by us by Monday 17 September".
The response from Mr Bell on the date nominated for receipt of the signed versions was: "Pls bear with me".
i. 17 September 2007 (Bakusev to Bell):
"In accordance with the agreement concluded concerning the delivery of tropical oils to EFKO and the agreed prices, please send us a contract and the specifications of the agreed shipments….I only have one addition to the contract: I propose adding the following documents to point 2.6…"
ii. 18 September 2007 (Bell to Bakusev):
"…I would also ask you to sign a confirmation with PIL which I will send separately now. I ask you not to pick too many faults with them as in any case it will be me as Pontus Trade that will be fulfilling our terms."
iii. 19 September 2007 (Bakusev to Bell):
"I spoke to Lyashenko. I propose you should sign the contract on the agreed terms …."
"Back in the office today. I've sent the contracts to EFKO for signing. As I mentioned in my initial reply to your request that Efko sign your confirmations, I think that we need a (tripartite) letter clarifying that there is no double commitment and that execution of the contracts shall be carried out via Pontus."
"PIL just wants to be careful by making it clear who sold to who at what price. As Pontus does, I myself also have my limits on open contracts with PIL… and because of the fact that this contract's volume could reach a respectable size, PIL is thus showing its auditor / controllers due risk management towards other parties to the contract."
Mr Lyashenko came back to say: "You can show him the agreement between Pontus and Efko then."
"…We regret that despite very clear terms of the contracts that you would sign and stamp these contracts as acceptance of all terms and conditions and send back to us, we have till date, till 24th Sept 07, not received the signed and stamped Sales Contracts from you.
In these circumstances, we have no choice but to exercise our option as mentioned in all the sales contracts and given below and treat the contracts as cancelled and null and void…
Please note that we shall no longer be responsible for these contracts and related obligations."
"Whereas Mr Marwan advised me recently in Istanbul that PIL had cancelled these contracts directly with EFKO (which, to be honest, I found a bit strange as I am the principal as Pontus Trade and thus should have been party to any discussion of cancellation), now it transpires that EFKO has no notice regarding any cancellation. Mr Lyashenko said in no uncertain terms that it would be sheer insanity on behalf of any buyer to cancel contracts made at USD735 & 740 FOB given recent market values of some USD200/mt higher."
"…Therefore, let us concentrate on three items, all of which require your immediate attention:
2. Efko – did you cancel with him or not? If yes, then he is trying to make a fool (and money) out of me. I am his contractual counterparty. If not, then how to proceed?
However you may choose to proceed, Marwan, please do not underestimate EFKO. I am not threatening you on their behalf or anything like that – you know that is neither my place nor role. I simply wish to underline the fact that, IF they were sincere with me today and they truly have no knowledge of any cancellation, then they will go to all ends to spoil your business here unless you fulfil these contracts."
"…I regret to say that the letter from Mr Rastogi looks like a mere formal reply. I still hope the refusal of PIL to effect shipment … results from a misunderstanding between our companies. Such a refusal would seriously undermine the image of your company as perceived by EFKO Group and other partners…."
"…We are once again quite surprised to note the contents of the letter where in you have
Accused PIL of refusing to meet unknown contractual obligations
Referred that PIL has proposed you to file a lawsuit.
Since we are not able to comprehend any of the above two points, we request you to please clarify and let us know the basis of your allegations."
Ad hoc submission
"Our clients are prepared to submit to the jurisdiction of the arbitration panel, to rule on their own jurisdiction as to whether there is a valid arbitration agreement strictly without prejudice, derogation or waiver of any of our client's rights, defences and liabilities, and in particular whether a valid sales contract had come into existence between the parties, all of which are fully hereby reserved."
Section 67 – contract on 7 September 2007
"I was apprehensive of Mr. Bell's/Pontus authority to act on EFKO's behalf, as Mr. Bell could not produce any written authorization to substantiate his/Pontus agency when I asked him to. In particular, during our initial telephone conversations on or about 07 September 2007 I specifically asked Mr. Bell if he could produce any written authority from EFKO, to which Mr. Bell replied that he did not have any written document "at present", but would try to obtain the same. I therefore expressed PIL's intention to deal directly with EFKO, and not through Mr.Bell/Pontus. In the telephone conversations which followed that day, however, Mr. Bell and I agreed to overcome the lack of authority on his/Pontus's part by virtue of the usual manner in which PIL conducts business. In other words, it was agreed that PIL would prepare contract offers on PIL's format, setting out the agreed terms and incorporating PIL's standard terms and conditions of sale, and thereafter pass the same on to Mr.Bell/Pontus, who would then obtain the agreement and acceptance of EFKO. I made it very clear to Mr. Bell that unless and until the offers were returned signed and stamped by an authorized person at EFKO, indicating their complete acceptance within the time provided, as is PIL's standard practice in forward sales, the contracts would not become valid or effective. Mr. Bell, well aware of this procedure and PIL's standard terms and conditions of sale from previous dealings, agreed to do so. This understanding is clear from the email exchange which followed between us in which Mr. Bell informed me that he was trying his best to have the contracts signed and stamped by EFKO. "
a) Although trades in the industry were usually concluded over the telephone, EFKO was a new customer. It was clearly the practice of PIL to insist on signed and stamped contracts in regard to "inaugural" deals.
b) Indeed inaugural or not, it was the general practice to arrange for the signing and stamping of all substantial contracts.
c) It is right that the contemporary e-mails speak of "confirmation" and "fixation" but such merely expresses agreement on the principal terms. The phraseology is neutral as regards the need for a written formal agreement of the full terms as a condition of enforceability.
d) Such a condition was a reflection of the usual contractual terms contained in PIL's agreements e.g. "The contract comes into force from the date of its signing and is valid until the parties fulfil their obligations" as well as PIL standard terms: "Unless otherwise agreed to by Seller, a sale shall be binding and effective only when Seller receives from Buyer the Sales Contract issued by Seller which has been signed by an authorised signatory of the Buyer consenting to the terms and conditions of the sale stipulated in the Sale Contract including the STC".
e) Indeed the Sale Contract was not only expressed as "subject to our general terms and conditions of sale" but also contained a Note: "The Buyer shall acknowledge contents and receipt of this document by the close of working hours today by returning the signed/sealed copy of the Sellers. If the signed and sealed copy of the Contract is not received as mentioned above the seller shall reserve the right to cancel the contract".
f) In accord with the policy of these terms Mr. Rastogi pressed Mr. Bell to arrange for signed and stamped documents. The most striking being his e-mail of 15 September 2007: "…Please note that these being our first contracts with EFKO and as per our internal controls for forward contracts, we need someone authorised from EFKO to stamp and sign these contracts…urgently. Please ensure that these contracts are received back by us by Monday 17 September."
g) Far from challenging the need for signatures and stamping, Mr. Bell pressed Mr. Bakusev of EFKO to arrange it. In this regard I do not accept Mr. Bell's contention in his evidence that he understood the requirement for signature and stamping was from PIL's point of view a purely internal administrative and bureaucratic matter. This explanation does not afford any justification for the urgency on PIL's part to execute a written agreement and thus to achieve the required "control".
h) I also reject the suggestion, if it matters, that Mr. Bell had not been provided with a copy of PIL's standard terms. I accept Mr Rastogi's evidence that a copy had been provided to Mr. Bell in February 2006. In any event the standard terms in this respect were commonplace and reinforced by the specific oral requirements of Mr. Rastogi.
i) The fact that the Sales Contracts sent out on 11 September 2007 were expressed in terms of "having sold" does not assist in determining whether the agreement was "subject to contract". The point is neutral.
j) It is true that the effect of making the sale subject to contract would be to maintain the offered price until a signature was forthcoming. The "Note" in the Sales Contracts contemplated prompt acceptance within such period as may be set by the seller, failing which the seller was entitled to cancel. But with that added protection there was nothing untoward about keeping the offer open for some 10 days if the market remained sufficiently steady given the attraction of capturing a new and substantial buyer.
k) It is also of some note that the purported written authority to Mr Bell did not emerge until very shortly before the trial and was the subject of legitimate critical comment by PIL.
Was there an oral arbitration agreement?
"There were four items contained in the confirmation which Mr. Rastogi and Mr. Bell admitted had not been discussed on the telephone…(6) the reference to FOSFA…"
Were binding arbitration agreements made on 11 September?
a. Mr. Bell's initial response to the proposed contracts on 11 September was to put forward two amendments together with a proposal for a collateral agreement. The proposed amendments were (a) a quality guarantee and (b) a variation of the required timing for signature. The collateral agreement involved a "non-double commitment" agreement as arranged in connection with a previous contract made by PIL through Pontus.
b. There was no acceptance of any of these proposals in this counter-offer prior to 24 September 2007. The only relevant communication between Mr. Bell and Mr. Rastogi was the further insistence in the e-mail of 18 December on a letter "clarifying that there is no double commitment and that execution of the contracts shall be carried out via Pontus".
Did Mr. Bell have authority to act on behalf of EFKO?
(a) In his email of 11 September 2007 to Mr. Bell, Mr. Lyashenko appears to draw a distinction between the contracts "already concluded" and "our contracts".
(b) In his email in reply Mr. Bell confirms that the contracts were concluded but anticipated that PIL might be prepared to introduce amendments because they had been "happy to make these six contracts with you", the inference being that such was an alternative arrangement.
(c) On 18 September 2007, Mr. Bell told Mr Bakusev that it would be unhelpful to pick faults with PIL as "it will be me as Pontus Trade that will be fulfilling our terms".
(d) The same day Mr. Bell requested Mr. Rastogi to provide a letter "clarifying there is no double commitment" and that execution of the contracts would be "carried out with Pontus". This is a reference back to the initial reaction of Mr. Bell to the terms of the Sales Contracts on 11 September 2007 as to the need for a "non-double commitment as we once had with Pontus and OMZUK". (As Mr. Bell explained this proposal flowed from an earlier deal with PIL where that had been both a back to back and a direct sale and where the direct sale was treated as invalid or ineffective).
(e) When Mr. Lyashenko asked on 19 September 2007 why EFKO needed to sign with PIL directly, the answer from Mr. Bell was that Pontus had limits on its open contracts with PIL. Mr Lyashenko came back in turn to suggest that Mr Bell should show PIL the "agreement between Pontus and EFKO".
(f) On receipt of the cancellation, Mr.Bell found it strange on 14 November not to be a party to it "as I am the principal Pontus Trade". Further as mentioned above he delayed for a fortnight before telling Mr Lyashenko of the cancellation.
(g) Mr. Bell asserted in terms to PIL on 15 November 2007 that Pontus was the contractual counterparty.
Note 1 A copy was not sent to Mr Bell. [Back] Note 2 There is no inconsistency between these provisions. The standard terms will identify if there is a binding contract. The Note will identify a right to cancel if the document is not returned promptly. [Back] Note 3 Indeed the point was not raised until his fourth witness statement dated July 2010. [Back]
Note 1 A copy was not sent to Mr Bell. [Back]
Note 2 There is no inconsistency between these provisions. The standard terms will identify if there is a binding contract. The Note will identify a right to cancel if the document is not returned promptly. [Back]
Note 3 Indeed the point was not raised until his fourth witness statement dated July 2010. [Back]