London Export Corp v Jubilee Coffee Roasting Co
Citations:  1 WLR 271;  1 All ER 494;  1 Lloyd’s Rep 197; (1958) 102 SJ 178.
The parties contracted to sell ground nuts. The contract incorporated the terms of Contract Form No 75 of the Incorporated Oil Seed Association (‘IOSA’).
The IOSA Contract included an arbitration clause. Under that clause, each party would appoint an arbitrator. The arbitrators could appoint an umpire if they disagreed. Both the arbitrators and the umpire had to be ‘be a member of the association, or a partner in a member’s firm, or a director of a company represented by a member’.
The contract also included the right to appeal the arbitrators’ decision to a board of appeal consisting of four IOSA members. The board had to have new members – they could not be the arbitrators or umpires, nor could the arbitrators/umpire have any influence over the board’s selection.
The parties entered arbitration, and the umpire held in favour of the sellers. The buyer appealed. Despite the buyer’s protest, the umpire was present for the appeal hearing and remained with the board in the parties’ absence. The board asked him questions without the parties present. This was customary practice at IOSA hearings. The board upheld the umpire’s award. The buyer sought to have the award overturned.
- Did the parties’ contract incorporate the Association’s custom for appeal procedures?
- Was the practice contrary to natural justice?
- Was the practice otherwise contrary to the terms of the contact?
The court upheld the board’s decision.
- The court will normally be slow to imply contract terms which permit arbitrators or appeal boards to hear evidence from a stranger in the parties’ absence. However, in the present case the parties had agreed to a clause requiring all arbitrators, umpires and appeal board members to be Association members. This indicated that the parties had implicitly agreed to accept IOSA’s customary rules so long as they were not unreasonable or in conflict with the contract’s terms.
- IOSA’s custom had worked perfectly well for over 50 years. It was not unreasonable or contrary to natural justice.
- However, the fact that the umpire was not to play any role in selecting the board and could not be part of it implied that he was to be a stranger to its proceedings. It therefore was necessary to imply from the contract’s express terms that the umpire should not exercise any influence on the board or give evidence in the parties’ absence. Therefore, the board’s behaviour was contrary to the implied terms of the parties’ contract.
Accordingly, the court set aside the award.
This Case is Authority For…
A custom or trade practice will not be implied into a contract if it is:
- Contrary to the express or implied terms of the contract;
- Contrary to the rules of natural justice.
The court noted that if the contract expressly permits a breach of natural justice, the courts will not set aside an arbitration award for this reason. The parties are entitled to agree not to apply the rules of natural justice. However, the courts are very unlikely to imply terms which breach the rules of natural justice, since it is unlikely that the parties would intend to include such terms without express language.