CAFI v. GTCS Trading DMCC [2025] EWHC 1350 (Comm): Overlapping arbitration clauses and a hat trick of arbitral failings under the Arbitration Act 1996

Summary

Where parties have entered into two related contracts with identical arbitration clauses, can a Tribunal constituted under the first contract determine the effect of a clause, found in the second contract, on the parties’ rights under the first contract? Yes, said the Commercial Court in CAFI v. GTCS Trading DMCC [2025] EWHC 1350 (Comm), allowing (rather unusually) a hat trick appeal against an arbitration award under each of Sections 67, 68 and 69 of the Arbitration Act 1996.

Facts

On 11 March 2022, GTCS Trading DMCC (GTCS) entered into a contract for the sale of Russian milling wheat to CAFI – Commodity & Freight Integrators DMCC (CAFI) (the First Contract). Whilst the cargo was proceeding to the port of discharge (and again upon arrival at the port of discharge), CAFI informed GTCS that it was struggling to arrange payment because of US sanctions against Russia. GTCS disputed this and purported to terminate the First Contract on grounds of anticipatory breach by CAFI. The First Contract contained a GAFTA arbitration clause for: “[a]ny dispute arising out or under th[at] contract”.

Following discussions, the parties entered into a second contract for the sale of the same cargo, but at a lower price (the Second Contract). That Second Contract too contained a GAFTA arbitration clause. It also contained a termination clause stating that: “Both parties have agreed that [the First Contract] is terminated and considered void” (the Termination Clause).

Notwithstanding the Termination Clause, GTCS brought an arbitration claim against CAFI, seeking damages for CAFI’s alleged repudiatory breach of the First Contract.

The First Tier Tribunal

The First Tier Tribunal concluded that GTCS had waived its claim for damages under the First Contract by entering into the Second Contract on terms which included the Termination Clause. GTCS appealed to a GAFTA Appeal Board.

The GAFTA Appeal Board

The GAFTA Appeal Board allowed the appeal and found in GTCS’ favour (the Appeal Award). It held with respect to:

• Jurisdiction – that because the Tribunal had been appointed under the arbitration agreement contained in the First Contract, it had no jurisdiction to consider the effect of the Termination Clause (found in the Second Contract) on the First Contract. The Second Contract simply remained “good evidence” of what happened after the termination of the First Contract.
• Waiver – that entry into the Second Contract in and of itself did not amount to a waiver by GTCS of its rights under the First Contract. CAFI could not point to any message from GTCS suggesting GTCS had waived its rights under the First Contract.
• Liability – CAFI’s non-payment under the First Contract entitled GTCS to terminate the First Contract. GTCS had “terminated” the First Contract - the Appeal Board found no suggestion that the First Contract should be treated as retrospectively “void” (the parties having not “clearly discussed” this), only that it should be “cancelled” which it interpreted as meaning “terminated”. CAFI was liable for damages.

Grounds for challenge

CAFI challenged the Appeal Award on the following grounds:

1. Challenge 1: The Appeal Board’s determination that it had no jurisdiction to interpret the terms of the Second Contract or how they impacted the First Contract was wrong (s. 67 Arbitration Act 1996).

2. Challenge 2: Challenge 2 was brought in the alternative to Challenge 1 and was premised on the finding of the Appeal Board that it lacked jurisdiction to consider the effect of the Second Contract. Challenge 2 was formulated alternatively as a s.67, s.68 and s.69 appeal:

s. 67 - the Appeal Board had exceeded its jurisdiction by finding CAFI liable in damages to GTCS, which necessarily involved interpreting the terms of the Second Contract and how they impacted on the First Contract.

s. 68 - it was a serious procedural irregularity for the Appeal Board to have held CAFI liable for damages notwithstanding that the issue as to whether CAFI’s liability was extinguished by the Second Contract remained to be determined.

s. 69 - the Appeal Board’s decision that CAFI was liable for damages in circumstances where there was an issue as to whether its liability for damages had been extinguished and that issue had not yet been resolved by a competent court or tribunal, was an obvious error of law.

3. Challenge 3: If the Appeal Board did construe the Second Contract, it made obvious errors of law in (a) concluding that to rely on the Termination Clause, CAFI had to show it had been “freely negotiated” or the subject of “clear discussion” and/or (b) concluding that the effect of the Termination Clause was not to extinguish any right to damages in respect of the First Contract (s. 69 Arbitration Act 1996).

The Commercial Court’s decision

Challenge 1

The Court agreed with CAFI, finding that the Appeal Board did have jurisdiction to determine how the Termination Clause affected the First Contract. The Court reasoned that the dispute had arisen “out of or under” the First Contract and that the parties must have intended for disputes relating to the validity and continuing effect of the First Contract to be resolved under the arbitration agreement of the First Contract. This was even the case where the dispute could have fallen under the scope of the arbitration agreement in the Second Contract.

Challenge 2

The Court also agreed with CAFI that:

s.67 - If the Appeal Board did not have jurisdiction to interpret the terms of the Second Contract, then it had exceeded its jurisdiction in determining the waiver issue (that the Second Contract did not have the effect of precluding GTCS from claiming damages).

s.68 - It was a serious procedural irregularity resulting in substantial injustice for the Appeal Board to have held CAFI liable under the First Contract when the issue as to whether liability for damages had been extinguished due to the Termination Clause remained. Determination of the waiver issue (by reference to the Second Contract) was “logically prior” to any decision that CAFI could be liable for breach of the First Contract.

s.69 - It was an obvious error of law for the Appeal Board to conclude that it could decide the waiver issue without interpreting and giving effect to the Second Contract as a binding agreement between the parties. Accordingly leave to appeal on this point of law was granted.

Challenge 3

The Court found that this challenge did not arise as the Appeal Board had not attempted to construe the Second Contract. However, had the Appeal Board construed it, CAFI would have had a strong case that by searching for “free negotiations” and a “clear discussion” outside the terms of the written agreement, the Appeal Board was obviously wrong on a point of law.

Takeaways

English law has traditionally adopted a “one-stop” approach to the adjudication of disputes subject to related agreements between the same parties (often referred to as the “Fiona Trust principle”). The Commercial Court’s finding in this case, that the dispute could be resolved under the arbitration agreement in the First Contract even though “it might also [have] fall[en] within the [arbitration agreement under] the Second Contract” is therefore significant. Whereas the precise drafting of the arbitration clause (which applied to “any dispute arising out of or under this contract”) was crucial to the outcome, the decision highlights the risk of parallel arbitral proceedings and the related risk of inconsistent outcomes, where arbitration agreements are found in multiple related contracts.

The risk of inconsistent decisions can however be mitigated by including express language in the arbitration agreement providing for consolidation / concurrency of related claims and / or by incorporating arbitral rules that allow for such consolidation / concurrency. Parties should also incorporate consistent dispute resolution provisions across related agreements involving the same parties.