Thursday, May 23, 2024

LMAA Tribunal determined that English Law was the substantive law of the contract

The MOA did not specify the substantive law of the contract. A panel of three LMAA Arbitrators considered this matter in a dispute that arose under a Memorandum of Agreement along with other issues referred to below. The tribunal held that although the MOA contained no express choice of law clause, there was an implied choice of English law, and it was determined that English law was thus the substantive law of the contract.

The tribunal had to consider whether the Seller induced the Buyer to enter into the MOA and open the Letter of Credit in its favour by means of fraudulent misrepresentations. There is a lengthy discussion on the law of fraudulent misrepresentations that this short post does not refer to.

The arbitration clause

If any dispute should arise in connection with the interpretation and fulfilment of this agreement, same shall be decided by arbitration in the City of London, United Kingdom., and shall be referred to a single arbitrator to be appointed by the parties hereto. If the parties cannot agree upon the appointment of the single arbitrator, the dispute shall be settled by three arbitrators, each party appointing one arbitrator, the third being appointed by the London Maritime Arbitrators Association. If either of the appointed arbitrators refuses or is incapable of acting, the party who appointed him shall appoint a new arbitrator in his place. If one of the parties fails to appoint an arbitrator, either originally or by way of substitution, for 2 (two) weeks after the other party having appointed his arbitrator has sent the party making default notice by mail, cable, telex or fax to make the appointment; the party appointing the third arbitrator shall, after application from the party having appointed his arbitrator, also appoint an arbitrator on behalf of the party making default.

The substantive law

The MOA did not specify the substantive law of the contract. By e-mail dated 19 October 2021 to the Parties, the tribunal noted that Section 46 of the Act provided as follows: Rules applicable to substance of dispute. (1) The arbitral tribunal shall decide the dispute— (a) in accordance with the law chosen by the parties as applicable to the substance of the dispute, or (b) if the parties so agree, in accordance with such other considerations as are agreed by them or determined by the tribunal. (2) For this purpose the choice of the laws of a country shall be understood to refer to the substantive laws of that country and not its conflict of laws rules. (3) If or to the extent that there is no such choice or agreement, the tribunal shall apply the law determined by the conflict of laws rules which it considers applicable. Prior to making its decision in this matter, the tribunal requested the Parties to make submissions on which conflict of laws would apply and which substantive law was to be applied. By e-mail dated 3 November 2021, the Buyer made submissions on the issues. The Seller did not respond.

A clause choosing London arbitration is not without more and ipso facto a choice of English law but nevertheless it can in certain contexts constitute sufficient grounds for finding an implied choice of English law. A clause choosing London arbitration has been held to be such a strong indication and sufficient basis for finding an implied choice of English law where (a) the clause contemplates maritime arbitration in London, (b) the contract is in English, using legal expressions with well-known meanings in English law, and (c) the parties are of different nationalities and can therefore be presumed to have intended to choose the neutral substantive law of a major commercial and maritime law jurisdiction like England; see e.g. Oldendorff v Liberia Corporation [1996] 1 Lloyd’s Rep 380, 390 Clarke J, and Enka v Chubb [2020] 1 WLR 4117, §114 Supreme Court. All of these characteristics were present in this case.

In any event there is a default rule that English law will be applied where neither party has pleaded foreign law (FS Cairo (Nile Plaza) LLC v Brownlie [2021] UKSC 45). There is also in the absence of contrary evidence (as to which none was presented here) a presumption that any relevant foreign law is materially similar to English law.

Clause 6 of the 2017 LMAA Terms provides, inter-alia, that “in the absence of any agreement to the contrary, the parties to all arbitral proceedings to which these Terms apply agree: (a) that the law applicable to their arbitration agreement is English and; (b) that the seat of the arbitration is in England.”

In light of the above, the tribunal held that although the MOA contained no express choice of law clause there was an implied choice of English law, and determined that English Law was thus the substantive law of the contract.

On the other issues, the tribunal held that:

The Seller induced the Buyer to enter into the MOA and open the Letter of Credit in its favour by means of fraudulent misrepresentations.

The Seller made further fraudulent misrepresentations to the Buyer after contracting.

The Seller procured payment under the Letter of Credit by means of fraudulent misrepresentations.

The Buyer was entitled to damages and an indemnity as aforesaid for breach of Clause 8 of the MOA in a sum to be assessed by the tribunal in and by a further award.

Declaratory award, 9 December 2021

Note: This website removes the names of the parties and the tribunal. For more information, you can visit:https://jusmundi.com/en

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