JVL Agro Industries Ltd v Agritrade International Pte Ltd

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 13 July 2016
• Neutral Citation: [2016] SGHC 126
• Plaintiff Counsel: Andre Yeap, SC (instructed) (Rajah & Tann Singapore LLP), Prakash Pillai and Koh Junxiang (Clasis LLC)
• Docket Number: Originating Summons No 5 of 2014
• Date: 13 July 2016
• Hearing Date: 30 November 2015,28 November 2014,28 May 2014,30 October 2015,30 April 2014,29 April 2015,30 May 2014
• Subject Matter: Setting aside,Arbitration,Recourse against award,Award
• Year: 2016
• Citation: [2016] SGHC 126
• Defendant Counsel: Kelly Yap and Kelly Toh (Oon & Bazul LLP)
• Court: High Court (Singapore)
• Published date: 07 September 2016

Vinodh Coomaraswamy J: Introduction

In an arbitration commenced in 2011, the plaintiff sought damages against the defendant for breach of contract.¹ A three-member arbitral tribunal dismissed the plaintiff’s claim in 2013, albeit by a majority.² The plaintiff applied to set the award aside in 2014, arguing that there had been a breach of natural justice in the arbitration which had caused it prejudice. After hearing the parties’ submissions, and at the defendant’s invitation, I decided not to set the award aside but instead to suspend the setting aside proceedings and to remit the award to the tribunal. The purpose of the remission was for the tribunal to consider whether it was necessary or desirable, and if so to what extent, to receive further evidence or submissions on three specific issues (see [126] below) on which the plaintiff complained the tribunal had not afforded it a reasonable opportunity to be heard.³ After hearing submissions from the parties towards the end of 2014, the tribunal found that it was neither necessary nor desirable to receive either evidence or submissions on those three issues.⁴ The tribunal recorded its findings in an addendum to the award.

Shortly after the tribunal issued the addendum, my suspension of these proceedings expired. The plaintiff’s application came back before me in 2015. The plaintiff argued that the tribunal’s addendum had failed to address the basis for its setting aside application and once again invited me to set aside the award.

I have accepted the plaintiff’s submission and have set aside the award. I have done so because the tribunal dismissed the plaintiff’s claim on an issue which the defendant had never chosen to advance as part of its case. This issue was one which originated from the tribunal and which it put to the plaintiff’s counsel only in the course of his oral closing submissions. Despite having several opportunities thereafter to adopt the issue and to advance it as part of its own case, the defendant never did so. Indeed, it could be said that the defendant rejected this issue as part of its case by the forensic choices it made in pleading its case and presenting its submissions to the tribunal. Further, the tribunal did not direct the plaintiff to address this issue even though it formed no part of the defendant’s case. Finally, the plaintiff suffered prejudice because the tribunal’s decision on the ultimate issue before it – whether the defendant was liable in damages to the plaintiff for breach of contract – turned entirely on the tribunal’s finding against the plaintiff on this issue.

The defendant has appealed against my decision to set the tribunal’s award aside. I therefore set out my reasons.

The parties’ dispute The parties

The plaintiff, JVL Agro Industries Limited (“JVL”), is a company incorporated in India.⁵ It manufactures edible oils at its factories there. One of the basic raw materials which its factories require is palm oil.⁶ Indeed, its factories require an uninterrupted supply of palm oil in order to maintain uninterrupted production.

The defendant, Agritrade International Pte Ltd (“Agritrade”), is a company incorporated in Singapore.⁷ Agritrade, as its name suggests, trades in agricultural commodities. One of those commodities is palm oil.⁸

The High Price Contracts

By a series of 29 contracts entered into between March and August 2008, JVL agreed to buy from Agritrade a total of 18,000 metric tonnes of palm oil to be shipped to JVL’s factories in India between July and November 2008.⁹ In the second half of 2008, however, the market price of palm oil fell significantly below the prices which JVL had committed itself to pay under each of these contracts.¹⁰ For that reason, these initial 29 contracts have been called “the High Price Contracts”.

The collapse in the price of palm oil made it commercially disadvantageous for JVL to perform the High Price Contracts.¹¹ As a result, JVL approached Agritrade in August 2008 through a broker by the name of Mr Gobind Ram Poddar.¹² Through Mr Poddar, JVL and Agritrade agreed to what the parties have called the “price-averaging arrangement”. The purpose of the price-averaging arrangement was to allow JVL additional time to discharge its obligations to Agritrade under the High Price Contracts and also to average down the overall unit price at which it had bought and was to buy palm oil from Agritrade.¹³

The price-averaging arrangement

The price-averaging arrangement operated as follows. JVL and Agritrade kept the High Price Contracts on foot but deferred delivery under them. At the same time, JVL continued entering into new contracts with Agritrade to buy palm oil at the prevailing market price. These new contracts have been called “the Market Price Contracts”.

Whenever Agritrade was ready to ship a fresh cargo of palm oil to JVL, the parties would carry out a price-averaging exercise. Each price-averaging exercise required the parties to discuss and agree two issues: (i) the quantity of palm oil which was to be shipped in that particular cargo; and (ii) the ratio in which the palm oil comprising that cargo was to be attributed to the palm oil deliverable under a selected High Price Contract and to the palm oil deliverable under a selected Market Price Contract. Once they had agreed these two issues, Agritrade would issue a revised contract for the total tonnage of palm oil comprised in that cargo. The unit price for the cargo would be equivalent to the average of the price per tonne of the palm oil under the selected High Price Contract and the selected Market Price Contract, weighted in accordance with the agreed ratio.¹⁴ The parties would then perform the revised contract by shipment and payment.¹⁵ As each cargo shipped, the parties would treat JVL’s obligation to accept the agreed tonnage of palm oil under the selected High Price Contract and the selected Market Price Contract as having been discharged.¹⁶

Under the price-averaging arrangement, the unit price for each cargo of palm oil which Agritrade would actually ship to JVL would fall somewhere between the high price which JVL had agreed in the selected High Price Contract and the market price which Agritrade had agreed in the selected Market Price Contract. In this way, the overall unit price at which JVL purchased its supply of palm oil from Agritrade was to be averaged down over time.

Over the ensuing months, as the parties carried out the price-averaging arrangement, some of the Market Price Contracts which they had entered into remained unperformed, even after their shipment dates had passed. These contracts have been called the “Unperformed Market Price Contracts”. The parties agreed to treat these Unperformed Market Price Contracts as though they were High Price Contracts and thereby to discharge them under the price-averaging arrangement.¹⁷

The price-averaging arrangement would necessarily come to an end when all of the parties’ unperformed contracts had been discharged. Notably, however, the parties left the price-averaging arrangement open-ended as to time.¹⁸ In other words, they imposed no deadline by which all unperformed contracts had to be discharged.

Each price-averaging exercise had two parts, both of which required the parties to negotiate with each other and reach a commercial agreement. First, the parties had to continue entering into fresh Market Price Contracts. This was essential. Without a queue of fresh Market Price Contracts – and in particular, without agreeing on the market prices to be reflected in those contracts – there could be no countervailing market price to average with the historical price reflected in the selected High Price Contract. Second, the parties had to negotiate and agree three commercial terms for each shipment of palm oil: (i) the tonnage to be shipped; (ii) the ratio in which that tonnage should be attributed to the selected High Price Contract and the selected Market Price Contract; and (iii) the shipment date.¹⁹

The parties’ cooperation on both parts of the price-averaging exercise was therefore essential if successive price-averaging exercises were to be successfully carried out and if the commercial purpose of the price-averaging arrangement was to be achieved. If the parties failed or refused to cooperate, the price-averaging arrangement would necessarily break down. The breakdown of the price-averaging arrangement would give rise to a difficult question which the parties wholly failed to anticipate and address: what legal consequences were attached to the High Price Contracts and the Market Price Contracts which remained unperformed? That is precisely the question which eventually came before the tribunal.

All except five contracts discharged by June 2010

The price-averaging arrangement was first applied to run down the High Price Contracts. By the end of August 2009, JVL had discharged virtually all of its purchase obligations under these contracts.²⁰ All that remained then was for JVL to discharge in the same way its purchase obligations under the Unperformed Market Price Contracts.

The parties duly turned their attention to the Unperformed Market Price Contracts. By June 2010, only five Unperformed Market Price Contracts remained to be discharged.²¹ It is these five contracts which, subject only to minor variations which are undisputed and immaterial, form the subject-matter of the parties’ dispute. The five disputed contracts were entered into between January 2009 and September 2009 and obliged Agritrade to deliver, and obliged JVL to purchase, 9,000 metric tonnes of palm oil between February 2009 and October 2009.²²

By June 2010, however, the market price of palm oil had risen significantly.²³ The parties found themselves unable to agree on the prices to be reflected in the fresh Market Price Contracts necessary for the price-averaging arrangement to continue,²⁴ let alone to agree on the...