"Dow hoped to use the K-Dow proceeds towards this acquisition but had arranged fully committed funding from leading investment banks to finance the entire amount in the event that the K-Dow proceeds were not available. This committed funding proved insufficient and Dow was forced to refinance the entire transaction in short order in an attempt simultaneously to complete the Rohm & Haas Transaction and maintain its previously safe investment grade credit rating."
They say that PIC argued before the Tribunal that, not least because of assurances given to them by Dow before the JVFA was concluded about the funding available to them and their financial position, "Dow’s exceptional losses were not within the reasonable contemplation of the parties and that irrespective of what the parties knew about the risk of such losses, PIC could not fairly be said to have assumed responsibility for them given Dow’s assurances. In short, Dow could not claim damages for the extraordinary consequences of refinancing the Rohm & Haas transaction when it had told PIC that it was fully funded and was not desperate for the K-Dow proceeds".
"The correct approach to remoteness therefore requires the following questions to be answered:
a. At the time of making the contract, would a reasonable person in the position of the contract-breaker have considered the type of loss that has occurred to be not unlikely:
1) in the ordinary course of things, or
2) as a result of special circumstances communicated to him?
b. If the answer to question a. is "yes", should liability nevertheless be excluded because it could not fairly be said that the contract-breaker had assumed liability for the type of loss?
c. If the answer to question a. is "no", should liability nevertheless be included because the contract-breaker assumed responsibility for the type of loss?"
On this application PIC contend that, having answered question a "yes", the Tribunal failed to deal with question b.
"Even if it could be said that the incremental costs of the but-for and incremental funding were not unlikely to occur in the event of the JVFA not Closing, it could not fairly be said that PIC assumed responsibility for such kinds of loss having regard to: the purpose of PIC's obligation; the pre-existing nature of Dow's ROH commitment; the manner in which the special circumstances alleged to render the loss foreseeable were communicated to PIC; the lack of control by PIC in respect of such losses; and the detailed terms of the JVFA."
(I explain the term "incremental" at paragraph 9 below. In argument, Mr Smouha emphasised that paragraph 533 is in a part of the memorial directed to one part of the contentious claim for consequential damages, the "funding costs", but, as I read it, this point is effectively incorporated in passages dealing with the two other parts of the contentious claim, those concerning "incremental expenses" and "general business losses", and so directly or indirectly is applied to all the damages with which I am concerned.) The consideration that Lord Grabiner particularly emphasised before me was "the manner in which the special circumstances alleged to render the loss foreseeable were communicated to PIC", and PIC's case about this was expanded at paragraph 536 of the memorial:
"Beyond the timing of the ROH commitment, the circumstances in which ROH was mentioned by Dow to PIC negated any assumption of responsibility by PIC. This point has been addressed above already... in considering limb (2) of the foreseeability test but is of equal relevance here. Put shortly having indicated that the funding of ROH was not dependent on the PIC proceeds, Dow cannot now assert that PIC assumed responsibility for any of the claimed losses relating to ROH (and that would be so even if such losses were in fact foreseeable by PIC)."
i) "there was nothing to worry about because the two deals [the joint venture and the R&H acquisition] were distinct";
ii) The R&H acquisition "was already fully funded by leading investment banks";
iii) "Dow was not desperate for the money";
iv) "Dow would be happy to hold on to the [K-Dow assets] regardless of whether [the R&H acquisition] went ahead"; and
v) "Dow was a good company with a strong financial outlook and that it was not reliant on the K-Dow proceeds".
"According to PIC, losses such as these were unlikely to arise in the ordinary course of events and therefore do not fall within the First Limb of the remoteness rule. Moreover, PIC says that they do not meet the Second Limb rule either, because Dow must show that it communicated the relevant special circumstances to PIC in such a way as to show that Dow thought it important that PIC should know what matters depended on PIC's fulfilment of the contract. For its part, Dow maintains that its consequential losses are recoverable either as First Limb or as Second Limb losses. As for the First Limb, Dow says that its intention to use K-Dow proceeds to fund acquisition of Rohm & Hass was known by the market in general, which is enough to meet First Limb foreseeability requirement. Even if applying a Second Limb standard, Dow argues that PIC's knowledge of the "special circumstances" is sufficient to satisfy this limb, regardless of whether or not the knowledge was communicated to PIC by Dow itself, directly."
The references to the "First Limb of the remoteness rule" and the "Second Limb rule" are, of course, references to Alderson B's judgment in Hadley v Baxendale,  EWHC Exch J70. The award then turns to "the standard to apply", and states that in particular this is to be determined "with respect to the question whether, in order to meet the Second Limb standard, Dow need show only that PIC knew of its intentions for the proceeds, or whether Dow need show that it itself communicated those intentions directly to PIC". The Tribunal decided that a claimant need not himself have communicated "special circumstances" or that at least it is "a case-specific inquiry" whether he needed to do so, referring to the House of Lords authorities of The "Achilleas" (cit sup) and C Czarnikow Ltd v Koufos (The "Heron If’),  1 AC 350, 385 and to Chitty on Contracts, (30th Ed, 2008) paragraph 26-063. They go on to cite from the judgment of Robert Goff J in Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SA (The "Pegase"),  1 Lloyd's Rep 175, 183 his observation that "[i]n some cases, the Courts appear to be prepared to take into account knowledge of special circumstances (i.e., circumstances outside the ordinary course of things) although such knowledge was not communicated by the plaintiff to the defendant - such as knowledge of the nature of the plaintiff's business..;... [i]n other cases, however, the Courts appear to have considered that the special circumstances should have been specifically drawn to the attention of the defendant by the plaintiff...."; and his conclusion that:
"[T]he test appears to be: have the facts in question come to the defendant's knowledge in such circumstances that a reasonable person in the shoes of the defendant would, if he had considered the matter at the time of making the contract, have contemplated that, in the event of a breach by him, such facts were to be taken into account when considering his responsibility for loss suffered by the plaintiff as a result of such breach. The answer to that question may vary from case to case, taking into consideration such matters as, for example, the nature of the facts in question and how far they are unusual, and the extent to which such facts are likely to make fulfilment of the contract by the due date more critical, or to render the plaintiff's loss heavier in the event of nonfulfilment."
"145. On the facts before us, there seems to be no reason to place a burden on Dow to show that it or its agents directly communicated to PIC the would-be "special circumstances" of this case (i.e., that Dow was counting on applying the US$7.5 billion it was to receive from PIC toward its purchase of Rohm & Haas) in order to satisfy the Second Limb. To the contrary, it seems to us, this was a sophisticated transaction involving sophisticated parties who were all well aware of the commercial circumstances surrounding the transaction, including Dow's intention to apply the funds to be received from PIC at closing to the Rohm & Haas deal.
146. Accordingly, PIC reasonably should have expected to be held liable for costs associated with its failure to close, thus forcing Dow to secure elsewhere substitute funding for the purchase of Rohm & Haas. PIC's knowledge was not gained, as Chitty warns, in a "purely casual way," but rather through hired professionals, its financial advisers JP Morgan, through whom PIC was made well aware that Dow would be put in a distressed position without the K-Dow proceeds. PIC acquired this information through serious study, had access to reliable and compelling information, and was no doubt relying on this information when entering into the Contract, and negotiating a more than US$1 billion reduction in the price it would pay. It was in early November 2008 that PIC and JP Morgan drafted a presentation to SPC in which they explained that "Dow needs cash" for the Rohm & Haas acquisition and that PIC "desire[d] to take advantage of the current situation to achieve a price reduction"; and indeed, it was in this same month that PIC pushed for and received the more than US$1 billion price reduction. This is precisely the kind of situation in which a breaching party may be held liable for the consequential damages of its breach. In any event, there is evidence that Dow did communicate to PIC and its agents the link between the K-Dow transaction and the Rohm & Haas acquisition, such that PIC was aware of it, without Dow's presenting it in a way that would threaten the negotiations. Either way, it appears to us that Dow satisfies the Second Limb."
i) That there was a serious irregularity by way of a failure by the Tribunal to deal with all the issues that were put to it (section 68(2)(d) of the 1996 Act), and this has caused (or will cause) PIC substantial injustice.
ii) That there was a serious irregularity by way of a failure by the Tribunal to comply with its general duty under section 33 of the 1996 Act (section 68(2)(a)), which has caused (or will cause) PIC substantial injustice.
For completeness, I set out the relevant parts of section 68 (the relevant parts of section 33 being at paragraph 34 below):
"(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.
(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant -
(a) Failure by the tribunal to comply with section 33 (general duty of tribunal);....
(d) Failure by the tribunal to deal with all the issues that were put to it;...
(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may -
(a) remit the award to the tribunal, in whole or in part, for reconsideration,
(b) set the award aside in whole or in part, or
(c) declare the award to be of no effect, in whole or in part.
The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration."
i) Whether the assumption of responsibility question was an "issue" within the meaning of the sub-section.
ii) If so, whether it was "put to" the Tribunal.
iii) Whether the Tribunal failed to "deal with" it.
If the answer to all these specific issues is "yes", a further issue arises: whether the failure has caused or will cause PIC substantial injustice. If it did, I should, in accordance with PIC's application, remit the award for reconsideration under sub-section 68(3)(a): Dow did not argue that I should exercise any residual discretion that I might have under the sub-section to refuse such relief. I deferred argument about the precise terms of any order, and in particular whether, if I acceded to the application in principle, the award should by remitted in whole or in part, and if in part, in what part.
"In its Second Memorial Dow does not address the fact that Dow disclaimed the dependence of the ROH transaction on the PIC proceeds. This disclaimer is fatal to any assumption of responsibility. Even if, which is denied, PIC appreciated that the kinds of loss suffered by Dow in relation to ROH could result if PIC chose not to Close, Dow's repeated assurance that it was able to close the ROH transaction without PIC's proceeds would lead a reasonable person in PIC's position to conclude that it was not assuming responsibility for such losses".
This passage is in a section of the Second Memorial about "Consequential Losses". That section first deals with the submission "Dow's consequential losses are too remote", and after an Introduction (to which I refer at paragraph 30 below) has separate sub-headings about (i) "Dow's consequential losses are not recoverable under the First Limb"; (ii) "Dow's consequential losses are not recoverable under the Second Limb"; (iii) "PIC did not assume responsibility for Dow's losses"; and (iv) "Dow's losses cannot be characterised as a single type of loss". Paragraph 396 of the memorial, that I have set out, is under the third sub-heading.
i) On the second day of the hearing, before evidence was called, Lord Grabiner referred to the evidence that was to be adduced about conversations between Dow and PIC and said "So in my submission, when you have seen the relevant bits of evidence, there is going to be no scope for the proposition that this was ever something we undertook". To Lord Hoffmann's question, "Under the second rule [in Hadley v Baxendale]", Lord Grabiner replied, "Yes".
ii) In closing oral submissions Lord Grabiner in his reply said, "Assumption of responsibility is built into the second limb of Hadley v Baxendale on reasonable foreseeability. That is where the debate is to be had." (As it seems from the transcript, Lord Grabiner had only three minutes to shoot off succinct points of reply. I am wary about pouring over what was said in such circumstances.)
"It is not sufficient for an arbitral tribunal to deal with crucial issues in pectore, such that the parties are left to guess at whether a crucial issue has been dealt with or has been overlooked: the legislative purpose of section [68(2)(d)] is to ensure that all those issues the determination of which are crucial to the tribunal’s decision are dealt with and, in my judgment, this can only be achieved in practice if it is made apparent to the parties (normally, as I say, from the Award or Reasons) that those crucial issues have indeed been determined."
i) A tribunal does not fail to deal with issues if it does not answer every question that qualifies as an "issue". It can deal with an issue by making clear that it does not arise in view of its decisions on the facts or their legal conclusions.
ii) By way of amplification of this point, a tribunal may deal with an issue by so deciding a logically anterior point that the issue does not arise. For example, a tribunal that rejects a claim on the basis that the respondent has no liability is not guilty of a serious irregularity if it does come to a conclusion on each issue (or any issue) about quantum: by their decision on liability, the tribunal disposes of (or "deals with") the quantum issues.
iii) A tribunal is not required to deal with each issue seriatim: it can sometimes deal with a number of issues in a composite disposal of them.
iv) In considering an award to decide whether a tribunal has dealt with an issue, the approach of the court (on this as on other questions) is to read it in a "reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault that can be found with it": Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd,  2 EGLR 14 at p. 14F per Bingham J.
v) This approach may involve taking account of the parties' submissions when deciding whether, properly understood, an award deals with an issue. Although submissions do not dictate how a tribunal is to structure the disposal of a dispute referred to it, often awards (like judgments) do respond to the parties' submissions and they are not to be interpreted in a vacuum.
"It is not always necessary to make this distinction expressly and the test can be stated by a single principle, namely whether the types of loss were within the reasonable contemplation of the parties as not unlikely to occur, given all that they reasonably knew and all that they actually knew (provided that any actual knowledge was acquired in such circumstances as to lead a reasonable person in the position of the defendant to conclude that he was assuming responsibility for such losses), see The Pegase...".
"The court should not make its own guess at the rental figure and make a comparison with the amount awarded. Rather the court should try to assess how the tenant would have conducted his case but for the procedural irregularity. It is the denial of the fair hearing, to summarise procedural irregularity, which must be shown to have caused a substantial injustice. A technical irregularity may not. The failure to deal with a substantial issue probably will. I am not sure I would have found that if any of the irregularities were proved in this case the tenant would have been put at such a disadvantage that a substantial injustice had been caused. Once the arbitrator had accepted [the approach of the landlord's expert], as broadly he did, then the die was cast."
"(1) The tribunal shall -
(a) act fairly and impartially as between the parties giving each party a reasonable opportunity of putting his case and dealing with that if his opponent, and
(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.
(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it."
"The assertion that the arbitrator failed to take any or proper consider (sic) of the evidence could in an exceptional case, give rise to a challenge under section 68, based on the general duty of an arbitrator under section 33 if, for example, an arbitrator genuinely overlooked evidence that really mattered, or got the wrong end of the stick in misunderstanding it. But there is all the difference in the world between such cases and an arbitrator evaluating evidence but reaching factual conclusions on it (as will happen in most arbitrations) which one party does not like. That cannot be the basis of a complaint under section 68."
In view of these precedents, at first instance I should adopt the same approach.
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