Soujuznefteexport v Joc Oil Ltd

• Jurisdiction: Bermuda
• Judgment Date: 08 March 1989
• Date: 08 March 1989
• Docket Number: Civil Appeal No. 18 of 1987
• Court: Court of Appeal (Bermuda)

In the Court of Appeal for Bermuda

In the Court of Appeal for Bermuda

Da Costa, JA

Roberts, JA

Blair-Kerr, P

Blair-Kerr P.

Civil Appeal No. 18 of 1987

Civil Appeal No. 18 of 1987

BETWEEN:

Soujuznefteexport

Appellant (Plaintiff-Claimant)

and

Joc Oil Limited

Respondent (Defendant-Respondent)

Vsesojuznoje Objedinerije Sojuznefteexport

Appellant (Claimant)

and

Joc Oil Limited

Respondent (Defendant)

Mr. Sydney Kentridge Q.C., Mr. U.U. Veeder Q.C. and Mr. Narinder Hargun for the Appellants.

Lord Alexander Q.C, Mr. Peter Gross and Mr. Jai Pachai for the Respondents.

Parkasho v SinghELR [1968] P 233

Dalmia Dairy Industries Ltd. v National Bank of PakistanUNK [1978] 2 Lloyds Rep. 223

‘The Saudi Prince’UNK [1988] 1 Lloyds Rep. 1

Joyce v YeomansWLR [1981] 1 WLR 549

Rouyer Guillet et Co. v Rouyer Guillet Ltd.UNK [1949] 1 All ER 244

Lazard Bros. & Co. v Midland Bank Ltd.ELR [1933] AC 289

Bank Mellat v Helliniki Techniki SAELR [1984] 1 QB 91

Parsons and Whittenmore Overseas Co Inc v Rakta 508 F 12D 969

Scherk v Alberto-Culver 417 US 506 (1974)

Mitsubishi Motor Corp. v Soler Chrysler-Plymouth Inc. 87 L. Ed. 12D 444 (1985)

Fertilizer Corp. of India v 101 Management IncUNK 517 F Supp 948 1981

Werner A. Block KG v the N's Co. Ltd. [1978] HKLR 281

DST v RakoilUNK [1987] 2 Lloyds Rep. 246

Heyman v Darwins Ltd.ELR [1942] AC 356

Bremer Vulkan v South India ShippingELR [1981] AC 909

Paal Wilson & Co. v PartenreedereiELR [1983] AC 854

Heilbut, Symons & Co v BuckletonELR [1913] AC 30

Voegel v KohnstamELR [1971] 1 QB 133

Christopher Brown v Genowensehaft OestereichischerELR [1984] 1 QB 8

Ashville Investments Ltd v Elmer Contractors Ltd.WLR [1983] 3 WLR 867

Drennan v Pickett [1983] 1 QDR 445

Kathmer Investments Pty Ltd v Woolworths Pty Ltd [1970] 2 SA 498

Prima Paint Corp v Flood & Conkin Manufacturing Co (1967) 18 L Ed 12D 1270

Pollux Marine Agencies Inv. v Louis Dreyfus CorpUNK 455 F Supp 211

Tarrapore CaseECAS 1974 Case no 102/1967

Mackender v FeldiaELR [1967] 2 QB 590

Government of Gibraltar v KenneyELR [1956] 2 QB 410

Charon v Montreal Trust CoUNK (1958) 15 DLR (2d) 240

Bodley Head Ltd v Flegon [1972] 1 WLR

Riche v Ashbury Railway Carriage Co. (1875) 7 HL 653

Arbitration (Foreign Awards) Act 1976, s. 3(1)

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York 1958

Conflict of laws — Enforcement proceedings of arbitral award from foreign arbitration tribunal — Validity of sale contract and effect of validity on arbitration agreement — Choice of law — Capacity to contract — Contract void ab initio or contract non-existent — Nature of arbitration clause — Doctrine of separability — Jurisdiction of arbitration tribunal — Enforceability of arbitral award under s. 3(1) of the Bermuda Arbitration (Foreign Awards) Act 1976 — Restitution — Role of Court of Appeal — Proof of foreign law — Burden of proof — Expert evidence

JUDGMENT

Introduction

This appeal arises out of consolidated proceedings begun by Originating Summons dated December 5, 1984 and Writ of Summons dated September 18, 1985, in which the plaintiff seeks to make the defendant liable for the payment of an arbitral Award for the total amount of US$199,255,719.95. Melville J. gave judgment for the defendant. The formal judgment in favour of the defendant dismissing the action was entered on July 16, 1987. The plaintiff has appealed from that decision.

The hearing before the learned Judge took some twenty-four days of hearing. A number of the issues which he had to decide have disappeared, but the appellant has by its notice of appeal again raised the principal issues which engaged the attention of the learned judge.

Section I

The Facts: The Arbitration and the Award

(a)The Parties

V/O Sojuznefteexport (‘SNE’) is a Foreign Trade Organization. It is an independent legal entity whose capacity to act is limited by Soviet legislation and at all material times, by its 1948 charter. It was empowered to trade in certain commodities. It has its seat and principal office in Moscow. At the material time its Chairman was Mr. V.E. Merkulov.

JOC OIL Ltd.(‘JOC OIL’) is a Bermuda exempt company incorporated in 1973 under Bermudian legislation, with its registered office in Hamilton, Bermuda. At the material time, it maintained an office in Berg en Dal in the Netherlands, where its parent company JOC OIL BV had its principal office. Its President was Mr. Johannes Deuss.

(b) The November 1976 Contract

The trading relationship between these two companies commenced in November 1975. Halcyon days of trade followed. On November 17, 1976 a contract No. 1306–70048 for the sale and purchase of 3,850 million metric tons of crude oil, fuel oil and gas oil on FOB and CIF terms was signed in Paris, on behalf of JOC OIL by Mr. J. Deuss and on behalf of SNE by Mr. V. Merkulov. The document provided for deliveries by SNE to JOC OIL to be spread equally within 1977 and to be made in certain named countries. Payment was to be made by JOC OIL by letter of credit opened in favour of SNE. There is no doubt that both parties then believed that they were entering into a valid and binding agreement. In the classic terminology of contract, there was undoubtedly consensus ad idem as to the terms of the contract.

The document which was signed incorporated SNE's standard conditions for FOB and CIF sales. Clause 10 of the FOB standard terms stipulated for arbitration as follows:

‘All disputes or differences which may arise out of this contract or in connection with it are to be settled, without recourse to the general Courts of Law, in the arbitration order by the Foreign Trade Arbitration Commission of the U.S.S.R. Chamber of Commerce and Industry in Moscow, in conformity with the rules of procedure of the above Commission.’

Clause 11 of the CIF standard terms similarly stipulated for arbitration. There is no material difference between the two clauses in the CIF and FOB contracts. These standard forms also contained a clause providing that ‘The U.S.S.R. is regarded as the place of conclusion and fulfillment of the contract.’

It is important to note that certain amendments were made to the November 1976 contract (‘the sale contract’). Their importance arises from the argument which was addressed to the Foreign Trade Arbitration Commission of the U.S.S.R. Chamber of Commerce & Industry (‘FTAC’) at the arbitration hearing, that even if the main contract of 17 November 1976 was invalid, it was subsequently ratified.

The November 1976 contract was amended by an Addendum of the date of signature i.e. November 17 1976. It was further amended by:-

• i. an Addendum No. 1 dated December 21, 1976;

• ii. an Amendment letter dated January 7, 1977, and

• iii. a Memorandum and Agreement dated April 22, 1977.

The Addendum dated December 21, 1976 and the subsequent Amendment letter and Memorandum referred to above were all agreed by U.L. Morozov and B.M. Petukhov. At the hearing before FTAC, it was common ground that the Memorandum and Agreement dated April 22, 1977 were validly signed.

Implementation by SNE of its obligations under the sale contract proceeded apace. Between January and June 1977 SNE made 39 shipments to JOC OIL totalling 1,277,723 metric tons of oil and oil products. Bills of lading were made out to the order of First Curacao International Bank (FCIB), based in the Netherland Antilles. FCIB had originally opened a letter of credit in favour of SNE to cover payments under an earlier contract of 1975 and extended this letter of credit to cover payments under the sale contract. Title to the oil and oil products shipped by SNE passed to JOC OIL, the latter re-selling the goods to third parties. At one stage, JOC OIL complained of short shipments and shipments not in accordance with the time schedules agreed by the parties, but of nothing more.

JOC OIL started to fall behind in its obligations to make payments under the FCIB letter of credit, which was covered by a guarantee given by N.V. Slavenburg's Bank in the Netherlands (Slavenburg). In May 10, 1977 Slavenburg made a payment of $3,282,435 to SNE for a shipment delivered on January 18, 1977. This payment was 22 days late. Another payment of $14,195,276 on May 30, 1977 by Slavenburg, for the second, third and fourth shipments delivered in late January and early February 1977 was also late.

On June 24, 1977, SNE suspended further shipments under the sale contract for non-payment by JOC OIL. A meeting in Amsterdam between the parties followed in early August 1977, and JOC OIL made a payment to SNE of $3,931,890 for the fifth and sixth shipments delivered in February 1977. On August 17, 1977, SNE wrote to JOC OIL demanding payment of $101,801,529 for the 33 other shipments. JOC's reply of August 30, 1977 was on a note of high indignation. It accused SNE of breaches of contract; it asserted that—‘JOC OIL, did not breach or infringe the contract but merely took steps to protect its rights in the light of the gross failures of Sojuznefteexport to meet its obligations and responsibilities." It ended with a flourish of trumpets—‘In accordance with internationally accepted principles of law, we reserve the right to set-off our losses and damages from the amount due to you.’ JOC OIL however, did not deny that it had received the 33 shipments and that it had not paid for them.

At meetings in Amsterdam in early September, certain proposals were made by JOC OIL for ‘repayment of the oustanding indebtedness’, but nothing came of them.

At this stage, an event occurred which is mentioned here only to complete the historical record. By a letter dated September 21, 1977 SNE wrote a letter to Herr Lehne, a Dusseldorf lawyer, purporting to assign its claim under the sale contract against JOC OIL to him. SNE claimed that this letter only amounted to a ‘collection authority’. JOC OIL averred that it was an...