Petrochemical Industries Company (KSC) v The Dow Chemical Company

Factual and Procedural Background

The Plaintiff applied under section 68 of the Arbitration Act 1996 for an order to remit to the Tribunal for reconsideration two paragraphs of an arbitration award and the question whether the Plaintiff should pay damages for consequential losses, also referred to as "loss of opportunity" damages. The arbitration had been conducted before the International Court of Arbitration of the International Chamber of Commerce ("ICC") involving a dispute about the Plaintiff's failure to complete a Joint Venture Formation Agreement ("JVFA") dated 28 November 2008 with the Defendant, under which the Plaintiff was to pay $7.5 billion for a 50% interest in certain petrochemical assets. The Tribunal, composed of three arbitrators, had found the Plaintiff in breach of contract and awarded damages for consequential losses to the Defendant. The Plaintiff challenged only the award of damages for consequential losses, not the liability or other cost awards. The dispute centered on whether the Defendant’s consequential losses, arising from having to refinance a prior acquisition commitment, were within the scope of the Plaintiff’s assumed responsibility under the contract. The Plaintiff argued that assurances given by the Defendant before the JVFA meant that such losses were not reasonably foreseeable or assumed by the Plaintiff.

Legal Issues Presented

1. Whether the Tribunal failed to deal with all issues put to it, specifically the "assumption of responsibility" question regarding the Plaintiff's liability for consequential losses.
2. Whether the Tribunal complied with its general duty under section 33 of the Arbitration Act 1996.
3. The proper application of the remoteness principle in contract damages, particularly the interplay between foreseeability and the assumption of responsibility test.
4. Whether the assurances given by the Defendant before the JVFA affected the Plaintiff’s liability for consequential losses.

Arguments of the Parties

Appellant's Arguments

• The Tribunal failed to properly consider the "assumption of responsibility" question, particularly assurances from the Defendant that funding for a related acquisition was fully secured and independent of the Plaintiff’s payment.
• The Tribunal conflated the foreseeability test with the assumption of responsibility test and did not address the Plaintiff’s contention that the Plaintiff did not assume liability for the extraordinary refinancing losses.
• The Plaintiff argued that the Defendant’s assurances negated any assumption of responsibility for consequential losses relating to the refinancing.
• The Plaintiff submitted that the Tribunal breached its general duty under section 33 by overlooking relevant evidence and by incorrectly relying on information from the Plaintiff’s financial advisers rather than the Defendant’s assurances.
• The Plaintiff contended that the Tribunal did not deal with all issues put to it, thus causing substantial injustice under section 68(2)(d).

Appellee's Arguments

• The Defendant maintained that consequential losses were recoverable under both limbs of the remoteness test established in Hadley v Baxendale.
• The Defendant argued that the Plaintiff was well aware of the commercial circumstances, including the Defendant’s intention to apply the funds to the acquisition, through its advisers and direct communications.
• The Defendant contended that the Tribunal properly considered the assumption of responsibility question and found that the Plaintiff should reasonably have expected to be liable for the consequential losses.
• The Defendant rejected the Plaintiff’s contention that only direct communications from the Defendant to the Plaintiff could establish knowledge of special circumstances.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hadley v Baxendale [1854] EWHC Exch J70	Established the two-limb test for remoteness of damages in contract: losses arising naturally or due to special circumstances communicated.	The Court referred to the two limbs as the framework for assessing remoteness and consequential losses in the arbitration award.
Transfield Shipping Inc v Mercator Shipping Inc (The "Achilleas") [2008] UKHL 48	Developed the "assumption of responsibility" test as a refinement to the foreseeability test in remoteness of damages.	The Court accepted that the assumption of responsibility test was relevant and that the Tribunal’s reasoning echoed the objective test from this case.
Supershield Ltd v Siemens Building Technologies FE Ltd [2010] EWCA Civ 7	Applied and explained the assumption of responsibility test in the context of remoteness.	The Court acknowledged the legal framework as developed in this case for the assumption of responsibility test.
Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SA (The "Pegase") [1981] 1 Lloyd's Rep 175	Considered whether knowledge of special circumstances must be communicated directly to the defendant for liability to arise.	The Tribunal cited this case to support a case-specific inquiry into how knowledge of special circumstances is acquired.
C Czarnikow Ltd v Koufos (The "Heron II") [1969] 1 AC 350	Discussed foreseeability in the context of remoteness of damages.	The Tribunal referenced this authority in relation to the standard of foreseeability applied.
Hussman (Europe) Ltd v Al Ameen Development & Trade Co [2000] 2 Lloyd's Rep 83	Clarified the standard for determining whether an arbitral tribunal has dealt with an issue.	The Court applied its principles to assess whether the Tribunal had dealt with the assumption of responsibility issue.
Buyuk Camlica Shipping Trading and Industry Co Ltd v Progress Bulk Carriers Ltd [2010] EWHC 442	Addressed the threshold for establishing serious irregularity under section 68 of the Arbitration Act 1996.	The Court cited this case to emphasize the high threshold for serious irregularity and the need for substantial injustice.
Lesotho Highlands Development Authority v Impergilo SpA and ors [2005] UKHL 34	Discussed the concept of serious irregularity affecting arbitration awards.	Referenced in relation to the standard for serious irregularity under section 68.
Margulead Ltd v Exide Technologies [2004] EWHC 1019	Held that a tribunal does not fail to deal with an issue merely because it gives no or inadequate reasons.	Applied to reject the argument that lack of detailed reasoning amounted to failure to deal with an issue.
Checkpoint Ltd v Strathclyde Pension Fund [2003] EWCA 84	Considered the assessment of substantial injustice arising from procedural irregularities in arbitration.	Used to illustrate that the court should not substitute its own view but assess whether a procedural irregularity caused substantial injustice.
Arduina Holdings BV v Celtic Resources Holdings plc [2006] EWHC 3155	Considered when overlooking evidence might amount to breach of the tribunal’s general duty.	Supported the approach that genuine oversight of important evidence can be a ground for challenge under section 68.
Schwebel v Schwebel [2010] EWHC 3280	Also addressed the tribunal’s general duty and the effect of overlooking evidence.	Reinforced the distinction between oversight and factual conclusions in evaluating evidence.
London Underground Ltd v Citylink Telecommunications Ltd [2007] EWHC 1749	Discussed the test for whether an arbitrator might realistically have reached a different conclusion but for irregularity.	Cited to explain the approach to assessing substantial injustice under section 68.

Court's Reasoning and Analysis

The Court analyzed the Plaintiff’s application under section 68 of the Arbitration Act 1996, focusing on whether the Tribunal had failed to deal with the assumption of responsibility issue and whether it breached its general duty under section 33. The Court acknowledged the legal framework that remoteness of damages is governed not only by foreseeability but also by an assumption of responsibility test as developed in The "Achilleas" and related authorities.

The Court found that the assumption of responsibility question was indeed an "issue" within the meaning of section 68(2)(d) and that the Plaintiff had put this issue to the Tribunal in their memorials and submissions. Despite the issue not being separately listed in the parties’ lists of issues, the Court held that the Tribunal was aware of it and that it was properly presented to them.

Regarding whether the Tribunal dealt with the issue, the Court examined the relevant paragraphs of the award and concluded that the Tribunal addressed the assumption of responsibility question succinctly but effectively, applying the objective test and relying on the Plaintiff’s knowledge acquired through its advisers and direct communications. The Court rejected the Plaintiff’s argument that the Tribunal failed to consider the assurances on which the Plaintiff relied, finding that the Tribunal gave appropriate weight to the evidence overall and that the absence of explicit reference to those assurances did not amount to a failure to deal with the issue.

On the alleged breach of the Tribunal’s general duty under section 33, the Court considered whether overlooking evidence or errors in evaluating evidence amounted to a breach. The Court held that genuine oversight of critical evidence could amount to a breach, but mere evaluation or factual conclusions that one party dislikes do not. The Court found no basis to infer that the Tribunal overlooked relevant evidence and thus rejected this complaint.

Lastly, the Court considered whether any failure caused or would cause substantial injustice. It noted that a failure to deal with a substantial issue would likely cause such injustice, but since the Tribunal did deal with the issue, no substantial injustice arose. The Court also emphasized that it must not substitute its own view on the merits of the dispute but only assess procedural irregularities.

Holding and Implications

The Court REFUSED the Plaintiff’s application under section 68 of the Arbitration Act 1996.

The direct effect is that the arbitration award, including the Tribunal’s findings on consequential damages and the assumption of responsibility, stands without remittance or modification. No new legal precedent was established; rather, the Court applied established principles concerning remoteness, assumption of responsibility, and the threshold for serious irregularity under section 68. The decision underscores the limited scope of court intervention in arbitration awards and confirms that a tribunal’s succinct but reasoned treatment of issues generally suffices to meet statutory requirements.