Integral Petroleum SA v Melars Group Ltd

Factual and Procedural Background

This opinion concerns an application under section 67 of the Arbitration Act 1996 to set aside an arbitral award dated 13 November 2013, made by a sole arbitrator in a reference under the London Court of International Arbitration (LCIA) rules. The applicant, a Swiss trading company referred to as Plaintiff, challenges the award which declared that certain claims were not within the arbitration agreement and therefore failed. The Plaintiff seeks to set aside the award and remit the claims for determination on the merits.

The underlying dispute arises from a contract dated 14 December 2011 (the "December agreement") under which Plaintiff agreed to sell and Defendant agreed to buy 300 metric tons of gasoil for delivery FOB at a Caspian Sea port. The contract contained an arbitration clause providing for disputes to be resolved under English law and by arbitration in London.

Subsequently, the parties entered into a cancellation agreement on 16 April 2012 which settled claims under the December agreement, including a broad release and indemnification clause (the "settlement clause"). After the cancellation, Defendant initiated debt collection and criminal proceedings against Plaintiff in Switzerland related to a separate contract (the "Dartex agreement") involving a third party. Plaintiff commenced LCIA arbitration seeking injunctive and declaratory relief against these proceedings, alleging breach of the arbitration agreement and the settlement clause.

The arbitrator held that the claims in the Swiss proceedings were outside the scope of the arbitration agreement under the December agreement and dismissed Plaintiff's claims. Plaintiff then applied to the court under section 67 for the award to be set aside.

Legal Issues Presented

1. Whether the arbitral tribunal had jurisdiction to determine disputes arising from or relating to the settlement clause in the cancellation agreement, including whether the Swiss proceedings breached that clause.
2. Whether the court should set aside the arbitral award under section 67 of the Arbitration Act 1996 on the basis that the tribunal erred in its jurisdictional decision.

Arguments of the Parties

Appellant's Arguments

• The arbitration agreement in the December agreement, as varied by the cancellation agreement, covers disputes arising from the settlement clause and the Swiss proceedings generally.
• The tribunal erred in concluding it had no jurisdiction over the claims because it failed to recognize that the settlement clause extended the scope of arbitration to disputes about the Swiss proceedings.
• The commercial context, including the mixing of cargo and the interconnected contracts, supports a broad interpretation of the arbitration clause to include all related disputes.
• Settlement clauses are analogous to arbitration clauses and should be interpreted to avoid fine distinctions that undermine commercial efficacy.

Respondent's Arguments

• The claims in the Swiss proceedings do not arise under or relate to the December agreement but rather to the separate Dartex agreement.
• The arbitration clause is limited to disputes "hereunder" the December agreement and does not extend to claims under other contracts or proceedings.
• The cancellation agreement does not broaden the scope of disputes subject to arbitration beyond the December agreement.
• The tribunal correctly concluded it lacked jurisdiction over the Swiss proceedings claims.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by reviewing the arbitration agreement in the December agreement and the subsequent cancellation agreement containing the settlement clause. It noted the arbitrator's interpretation that the arbitration clause covered only disputes "hereunder" the December agreement and did not extend to claims arising from the separate Dartex agreement or the Swiss proceedings.

The court acknowledged that the parties accepted the arbitration clause applied to disputes about the settlement clause itself, including whether the Swiss proceedings breached it. This indicated that the tribunal erred in concluding it had no jurisdiction over any disputes before it.

However, the court found that this jurisdictional error was inconsequential because the arbitrator would have rejected Plaintiff's claims on their merits regardless. The court emphasized that the arbitration agreement's scope depends strictly on its wording and that extending it beyond disputes under the December agreement or the settlement clause was impermissible.

The court also considered the commercial context and the principles from Fiona Trust and Starlight Shipping but concluded that the arbitration agreement did not cover the broader claims related to the Swiss proceedings.

Accordingly, the court exercised its discretion under section 67 and refused to set aside the award, concluding the tribunal was correct in rejecting all claims.

Holding and Implications

The court refused the application under section 67 of the Arbitration Act 1996 to set aside the arbitral award.

The direct effect is that the arbitral award stands, and Plaintiff's claims in the arbitration are dismissed. The court found the tribunal erred in jurisdictional reasoning but that the error was immaterial because the claims would have been rejected on their merits. No new legal precedent was established; the decision reaffirms the importance of the precise wording of arbitration agreements and the limited scope of judicial intervention under section 67.