Preliminary Issue on A Question of Construction- What Happens Next?

Daewoo Shipbuilding & Marine Engineering v Songa Offshore Equinox Ltd [2020] EWHC 2353 (TCC)

A claimant seeks a preliminary issue on a question of construction. It states that it accepts that if the point is decided against it, then that will be the end of all claims by it in respect of the project in question. The other party on this basis agrees and the tribunal makes a consent order. The claimant loses the preliminary issue and leaves it too late for a s.69 appeal. Can it then amend to run a different legal case on more or less exactly the same facts complained of, which it could have run in the alternative to its primary case, if wrong on its primary case on construction?

Can it resist reliance on res judicata on the basis that that principle cannot apply to amendments in the same set of proceedings as those in which the preliminary issue decision was made?

Or can the other party preclude the claimant from re-opening any claim on those matters, and, in addition, to defending its counterclaim by seeking to rely on the matters as defences?

Indeed can the other party contend that a binding agreement came into effect concerning the preliminary issue which meant that the claimant had contracted out of its rights (if any) to make any other claims if it lost on the issue? These stark facts arose in Daewoo Shipbuilding & Marine Engineering (DSME) v Songa Offshore Equinox Ltd [2020] EWHC 2353 (TCC). The Court (Jefford J.), dismissing DSME’s double-barrelled s.69 and s.68 Arbitration Act 1996 applications, held that DSME was estopped per rem judicatam from trying to relitigate matters which it could and should have raised before, that it made no difference that this all took place in the same set of proceedings rather than in two separate sets of proceedings and that this preclusion extended to relying on the same matters not only as claims in their own right but also as defences to the respondent Songa’s counterclaims.

The judgment contains a detailed and valuable analysis of the circumstances in which it will be an abuse of process to seek to raise new arguments in the same proceedings.

The competing arguments

Songa’s case was that the situation fell exactly into the situation described in Henderson v Henderson (1843) 3 Hare 100: “the court requires the parties to that litigation to bring forward their whole case … and will not permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward”. The result was that the determination of the preliminary issue and of DSME’s responsibility for design (FEED) in respect of the project and delays and costs relating to issues with that design meant that the award decided against DSME all issues of liability arising out of the design and as to which party bore the delay and costs associated with design problems. DSME had put its case on one ground only, had sought a preliminary issue on the basis that if it lost that was the end of the case and could not now re-open the question under a different legal guise. If it had run the case which it now wished to run, there could and would have no possibility of a preliminary issue. It sought such an issue representing that there were no other issues which could make a preliminary issue inappropriate.

Songa submitted that for DSME to try to re-introduce the new alternative factual case was an example of abuse of process res judicata estoppel, analysed by the House of Lords in Johnson v Gore Wood [2002] 2 AC 1. Given the very wide restatement of Henderson v Henderson by the House of Lords (as Lord Bingham put it “one cannot comprehensively list

all possible forms of abuse, so one cannot formulate any hard or fast rule to determine whether, on given facts, abuse is to be found or not”: 31E), Songa submitted that it made no difference that the estoppel was invoked in one set of proceedings to stop an amendment in those proceedings rather than to stop a later separate claim in separate proceedings. The critical question was simply: “Whether in all the circumstances, a party is misusing or abusing the process of the court [or the arbitral tribunal] by seeking to raise before it the issue which could have been raised before”.

DSME advanced various arguments before the Tribunal (Stewart Boyd QC, Sir David Steel, John Marrin QC). But its principal case was that Henderson v Henderson abuse of process estoppel had no place and could not apply to amendments in the same set of proceedings. That was dealt with on ordinary amendment principles which looked at costs and prejudice.

Subject to such matters, it was always open to a party to amend, paying costs. In the present case given that this was an early preliminary issue, amending to run a new alternative case based on the legal findings in the preliminary issue award could hardly be said to be late, or to occasion prejudice.

The battle of the authorities

DSME relied on the decision of Jackson J. in Ruttle Plant Hire Ltd v Secretary of State for the Environment [2007] EWHC 1733 (TCC). He had stated “the rule in Henderson v Henderson cannot be invoked in order to prevent a party from pleading at a later stage in the litigation issues which might have been pleaded earlier” (at [36]). But no reasoning and analysis was given for that view.

In particular the Court in Ruttle did not appear to have been referred to an earlier decision of the Court of Appeal in Tannu v Moosajee [2003] EWCA Civ 815 in which the Court of Appeal had said “Whilst it might be unusual to apply the principle in Henderson v Henderson in relation to separate stages of the same litigation, it is not conceptually impossible” (perArden LJ at [40]). Tannu was relied upon and followed in refusing amendments relating to liability after a “liability hearing” in Seele Austria GmbH v Tokio Marine Europe Insurance [2009] EWHC 255 (TCC)

Other cases, post Ruttle, all at first instance had shown the clear application of Henderson v Henderson in the same litigation: BT Pension Scheme Trustees v BT plc [2011] EWHC 2071 (Ch), a case involving preliminary issues; Gruber v AIG Management France SA [2019] EWHC 1676 (Comm), in which Andrew Baker J. had made clear that it was a “strong

thing” to shut someone out from running a point which had not actually been determined and “even stronger in relation to different stages of a single action” but that determinations within the action, e.g. by way of preliminary issues or a summary judgment on a particular claim could have just such an effect. See also Kensell v Khoury [2020] EWHC 567 (Ch).

The Judgment

Jefford J. concluded that there was no principled basis for the contention that Henderson v Henderson estoppel could not apply within the same proceedings or to different stages and determinations within a single set of proceedings [128]. Accordingly, the Tribunal was right to embark upon a “broad, merits based judgment” of the situation (in Lord Bingham’s words in Johnson v Gore Wood) and there was no error of law.

Interestingly, by a majority, the Tribunal had also held that DSME’s conduct in representing repeatedly that the claim was over if it lost on the preliminary issue which it proposed, in order to induce Songa to agree to it amounted to a contractually binding arrangement under which DSME had given up any other claims, while recognising that a binding

contract springing from a consent order was “less usual but not unknown”. An attempt to argue that the majority had erred in law also failed [95].

Lessons for the future?

When proposing a preliminary issue, parties should have in mind that if it is portrayed as determinative if decided in one way, then that is likely to set the foundation for an argument that later attempts to amend to run a new case amounts to a Henderson v Henderson abuse, and that the party should have brought forward all of its arguments.

When on the receiving end of an application for a liability only hearing or the determination of preliminary issues, a party should consider carefully defining what the result of that will be for the claims and the proceedings generally and tying the applicant down to the dismissal of the claim etc in the event of a particular determination.

COVID-19: When is a pandemic force majeure? And what should new force majeure provisions address?

Simon Rainey QC and Andrew Leung

The COVID-19 outbreak was declared a pandemic by the World Health Organisation on 11 March 2020. Some six weeks before this, on 23 January 2020, China implemented a regime of lockdown measures in Wuhan and other cities in Hubei in an attempt to quarantine the foci of the outbreak. China is edging back to normalcy, while bracing for a second surge of cases. Elsewhere, the clampdown on global economic activity by national governments is widening and intensifying with the spread of the pathogen.

Inevitably, many parties are finding it increasingly difficult if not impossible to perform contracts pre-dating these extraordinary and turbulent times. A question increasingly being asked is whether the outbreak or its consequences amount to a force majeure event. Naturally, there is no one-size-fits-all analysis. All will turn on the specific terms of the force majeure clause, the effects of the relevant event on contractual performance, and whether there are alternative means of performance. In this article Simon Rainey QC and Andrew Leung highlight some of the relevant themes as declarations of force majeure due to COVID-19 proliferate. 

Once again, China seems to be ahead of the curve: LNG importer CNOOC has declared force majeure on LNG contracts (see The impact of Covid-19 on the energy & natural resources sector – Chris Smith QC), and the China Council for the Promotion of International Trade has started to issue force majeure certificates. The legal or evidential weight such certificates might bear under English law is a moot question. Certainly, they will not simply supplant the multi-stage enquiry undertaken by English Courts as to force majeure, though whether they might inhibit enforcement in China is another matter.  

Force majeure clauses: the basics

A force majeure clause is a contractual term which regulates the consequences of supervening events beyond the parties’ control on the obligations of one or both of the parties to the contract. Such clauses typically require a causal link between such events and performance, and provide for the consequences of the event on the parties’ obligations. The event may result in the cancellation of the contract, excuse non-performance (whether in whole or in part), or entitle a party to an extension of time and/or to suspend performance. 

In addition to fulfilling any procedural requirements such as the giving of notice, it is for the party relying upon a force majeure clause to prove the facts bringing it within the clause. The party must prove the following, and this checklist must be applied to any COVID-19 force majeure argument:

  1. The occurrence of an event identified in the clause;
  2. It has been prevented or hindered (as the case may be) from performing the contract by reason of that event;
  3. Its non-performance was due to circumstances beyond its control; and
  4. There were no reasonable steps that could have been taken to mitigate the event or its consequences.

We consider particular problem areas in the light of recent cases and the special challenges which the worldwide sweep of COVID-19 poses. Where does this leave parties entering into new contracts in drafting force majeure provisions?

(1) What is the relevant force majeure event?

“Force majeure” is not a term of art. Whether the viral outbreak falls within a force majeure clause will turn on the proper construction of the wording of the clause.

Contractual provisions commonly enumerate force majeure events, which may include a “pandemic” or “epidemic”, potentially by reference to WHO classification or, more generically, “disease”. It is unlikely that the pandemic in and of itself will have had immediate ramifications on contractual performance. It is the knock-on effects which will be in issue, which gives rise to questions of causation (discussed further below). It is therefore the ripple effect of the disruption caused by the virus which will in almost all cases provide the relevant putative ‘event’. For example, the virus decimates the population of a port and the port is closed by government order, preventing delivery of the contract goods: the ‘event’ is in reality the port closure or government lockdown. Or where the government makes no closure order but recommends port users are to be confined to essential imports only. There is no ban or embargo, just a voluntary self-policing scheme: what is the ‘event’? Is there one at all?

Many force majeure clauses do not expressly include a “pandemic” or similar in the list of named events. They may instead refer to an “Act of God” – a term that has been subject to surprisingly scant attention in the force majeure context – or, more concretely, “quarantine”, “embargo” or “government action”.  With daily changes in the legal and regulatory landscape as governments enact outbreak management measures, events of this nature will be invoked under force majeure clauses with increasing frequency.

(2) “Beyond a party’s reasonable control”

Most force majeure clauses contain sweep up language such as “any other cause beyond [the party’s] reasonable control”. The COVID-19 outbreak itself is clearly capable of constituting such a cause. But again, is the secondary or tertiary effect produced by it such a cause, and which is the actual trigger for inability to perform?

In Aviation Holdings Ltd v Aero Toy Store LLC [2010] 2 Lloyd’s Rep 668, which concerned a contract for the sale of a Bombardier executive jet aircraft, Hamblen J stated that a seller unable to deliver the aircraft on time due to a pandemic causing a dearth of delivery pilots would be able to bring itself within the wording of a force majeure clause which provided “any other cause beyond the seller’s reasonable control”.

This type of wording applies to causes beyond the reasonable control of the party or, where relevant, any other party to whom contractual performance of that party’s obligation has been delegated: The Crudesky [2014] 1 Lloyd’s Rep 1 (in which the first-named author appeared). That case involved a string of contracts for the sale and purchase of Nigerian oil, ending with the charterers of the MV “CRUDESKY”. The parties in the string who had delegated their obligation to load the vessel to Total, the terminal operator, were unable to rely on force majeure to avoid liability for a six week delay caused when the vessel was detained due to Total’s failure to obtain official loading clearance. Total was their delegate for the purposes of loading. Its decision not to use official channels to obtain loading clearance was within its reasonable control and, by extension, that of its principals.

It will be relevant to ask in transactions with supply chains interrupted by the pandemic whether the cause of non-performance was beyond the reasonable control of any party to whom performance was delegated. For instance, it may be doubtful whether a factory closure by a vendor acting voluntarily and independently of government diktat would qualify as a force majeure event vis-à-vis a seller who arranged to source goods from that vendor.

(3) Causation: the effect on performance

Once a party has established the occurrence of a force majeure event, the next criterion is establishing that the event had and/or is having the contractually stipulated effect on performance.

Where the clause states that a party is relieved from performance or liability if it is “prevented” from performing its obligations or is “unable” to do so, it is necessary to show physical or legal impossibility, and not merely that performance has become more difficult or unprofitable: Tandrin Aviation Holdings Ltd v Aero Toy Store LLC (supra.). The economic toll of the pandemic will therefore not suffice. Nor will a delay of several months due to a pause in production in the context of a multiple year contract. However, as Tandrin Aviation suggests, a lack of personnel without whom contractual performance cannot occur, e.g. crew to operate an oil rig under a hire contract for an oil rig, could qualify.

Further, a seller will not be entitled to rely on a “prevent” clause where alternative sources of supply remain available. In PJ van der Zijden Wildhandel NV v Tucker & Cross Ltd [1975] 2 Lloyd’s Rep 240, the sellers of frozen Chinese rabbits were not entitled to cancel the contract which provided “should the sellers fail to deliver…or effect shipment in time by reason of war, floor, fire or storm…or any other causes beyond their control”. They had been let down by their Chinese suppliers, but this did not prevent them from performing by other means. By contrast, if it is not possible to perform by any alternative means after the original or intended means for performance becomes impossible, that is a classic force majeure case.

A distinction can be drawn with the less stringent requirement that the force majeure event should “hinder” or “delay” performance. In Tennants (Lancashire) Ltd v CS Wilson & Co Ltd [1917] A.C. 495, a clause in a contract for the sale of magnesium chloride gave the sellers the right to suspend performance due to contingencies beyond their control “preventing or hindering the manufacture or delivery of the article”. The sellers’ principal source of supply in Germany was cut off on the outbreak of the First World War. Though an English source remained available, the sellers were entitled to rely on the clause. A multi-national export prohibition due to the pandemic therefore need not eliminate all possible sources to potentially hinder the performance of a contract for the sale of goods.

(4) But for causation?

A further question which may arise is: what if, though the pandemic indisputably prevents performance, the party claiming the benefit of the clause would not have performed even absent the pandemic? Take an example of a counterparty already in deep financial difficulty who, before Corona, was suspected of being unable to perform the long-term contract or the next obligation when it fell due. Corona intervenes and prevents any performance of the contract, relieving the pressure on the counterparty, who then declares force majeure.

This was the position in Classic Maritime v Limbungan Makmur Sdn Bhd [2019] EWCA Civ 1102 (in which both authors appeared) (see “But you weren’t going to perform anyway!”: A new hurdle when invoking Force Majeure – Classic Maritime Inc v Limbungan Makmur SDN BHD – Simon Rainey QC and Andrew Leung). The contract was a long term contract of affreightment (“COA”) for the carriage of Brazilian iron ore. The relevant contractual force majeure clause excluded liability for loss or damage “resulting from” a series of specified events, including one applicable on the facts, which “directly affect the performance of either party”. The Samarco tailings dam-burst destroyed all means of the party sourcing Brazilian iron ore and prevented any possible performance of the COA. The non-performing party was in financial difficulties and had missed several shipments just before the dam-burst event as a result. It was held to be unable to rely on this clause despite performance having been rendered wholly impossible because, but for the dam burst, on the facts it would not have performed anyway.

This contrasts with the clause considered in Bremer Handelgesellschaft v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep 109, which, once triggered, cancelled the affected portion of the contract. Being a “contractual frustration clause”, the House of Lords held that there was no such requirement of “but for” causation as it automatically brought the contract to an end forthwith.

The antithesis between these cases suggests the nature of the remedy conferred by the force majeure clause (i.e. suspension or cancellation) may influence whether or not it is necessary to prove ‘but for’ causation.

(5) Avoidance / mitigation: working round the problem

The existence of reasonable steps the non-performing party could have taken to avoid or mitigate the effects of a force majeure event will preclude reliance on the clause. To take the example given above of the port closed as a result of COVID-19 affecting the population which prevents the normal route of delivering goods to the buyer. If it were possible to deliver at a neighbouring country whose ports were still open, and then carry the goods by rail or road to the delivery place, then reliance on force majeure would not be possible.

The burden on the party claiming force majeure is in this respect a heavy one. For example, in Classic v Limbungan it was held that the non-performing party had no means of avoiding or mitigating the dam-burst and its effect on supplies of Brazilian iron ore, but only after an exhaustive analysis (at summary judgment: [2017] EWHC 867 (QB)) of all possible sources of supply, including going into the market, buying afloat and shipping back to the Brazilian ports to reship and thereby perform the COA by this alternative route and, subsequently, a full debate in expert evidence (at trial) as to market quantities available: see e.g. [2018] EWHC 3489 (Comm). Faced with COVID-19 problems preventing the immediately obvious means or manner of performance, a party may be faced with a much more expensive and inconvenient means of performing. If that is open to it, then it may later be unable to justify its invocation of force majeure. In practical terms, it makes sense to explore and document how there were no other alternative routes. In Classic, the non-performing party had in part laid a proper paper-trail by seeking alternative supplies from the other supplier (Vale) once the supplier it was using (Samarco) closed its operations after the dam-burst and was able to show that Vale refused to make supplies available, preferring to service the needs of its established customers in time of dearth of supply.

Some contracts go further, such as that in Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018] 2 Lloyd’s Rep. 628 which contained an unusual express term requiring both parties to “use their reasonable endeavours to mitigate, avoid, circumvent, or overcome the circumstances of force majeure”.

In the present COVID-19 context, the unprecedented nature of the measures being introduced by governments internationally is likely to narrow the scope for avoidance or mitigation. But it will not foreclose it altogether and expense and inconvenience are not enough, hence the importance of the focus on the precise wording: ‘prevent’ or ‘hinder’ etc.

(6) Looking ahead… future-proofing new contracts

Even in these troubled times, trade and commerce continue. New contracts face particular challenges in that they are concluded against the backdrop of the pressing current problems but also forecasts of continuing or extended lockdowns into the future and with the spectre of secondary outbreaks and recurrence of the virus next winter.

This calls for a careful review of the force majeure provisions contemplated for the new contract. Simple reliance on the last pre-Corona contract ‘with logical amendments’ or standard terms and boilerplate is unlikely to be sufficient or wise, unless the clause in question is a sophisticated one which covers some or all of the points raised above.

Plainly clauses which refer to “unforeseeable events” will be of scant assistance. To take the example of the NNPC Terms considered in The Crudesky, these provided general wording which qualified the various listed events: “Neither the Seller nor the Buyer shall be held liable for failure or delay in the performance of its obligations under this Contract, if such performance is delayed or hindered by the occurrence of an unforeseeable act or event which is beyond the reasonable control of either party (“Force Majeure”) which shall include, but not [be] limited to…” (emphasis added). COVID-19, its recurrence, and its mutations are now all unfortunately very foreseeable. Similarly clauses which are modelled on the civil law definition of force majeure (imprévisible, irrésistible et extérieur: unforeseeable, unpreventable and external) will leave the parties fully exposed. Thus the ICC Force Majeure Clause 2003, together with the requirements of causation of prevention of performance, the results of which could not reasonably be avoided or mitigated, requires the party invoking force majeure to establish also “that it could not reasonably have been expected to have taken the occurrence of the impediment into account at the time of the conclusion of the contract”.

Obvious points to consider will include:

  1. Moving away from prevention to hindrance or lesser thresholds for interruption or impedance of contractual performance;
  2. Specific sub-clauses dealing with epidemic and the results of epidemic;
  3. Addressing the threshold for “beyond reasonable control” in the light of the Court of Appeal’s judgment in The Crudesky;
  4. Building on, in addition to the traditional force majeure regime, more sophisticated provisions which can address the economic effect and increased costs of performance and alternative means of performance, such as “material adverse change” (MAC) or “material adverse effect” (MAE) clauses which allow termination of the contract, or suspension or adjustment of contract obligations, where external events impact upon the value of performance (although even these commonly do not extend to pure market or price movements).

Arbitration Hearings… and the Corona ‘New Normal’ Ten Golden Rules: or the easy path to your Virtual Hearing

Simon Rainey QC and Gaurav Sharma

The Covid-19 pandemic places enormous challenges on every aspect of life. Arbitration hearings, almost always with a mixture of parties, representatives, witnesses and tribunal members attending from far and wide and with complex dovetailed ‘availability’ issues, face particular challenges, both from national lockdowns and the disappearance of international (and much domestic) travel.

The initial and immediate reaction, from personal experience and much anecdotal evidence, has been for many parties and tribunals simply to adjourn hearings fixed in the likely affected period. While perhaps understandable as the crisis suddenly changed its perceived severity and impact within hours, we are now in for the long haul, and arbitration hearings (unlike sporting events, music festivals, walking with friends or going to the pub) are in fact very well placed to adapt and ‘carry on’.

Simon Rainey QC and Gaurav Sharma of Quadrant Chambers propose ten easy rules for keeping the current international arbitration diary on the road as much as possible.

Here they are, to cut and paste to your Desktop. For more detail, read on below.

  1. Adjournment should now be the last resort.
  2. Arbitration embraces tools and technology: let’s build on what we already do well.
  3. More realism, please, about ‘seeing the witness’ (etc.)
  4. Using the existing wide procedural powers firmly and creatively
  5. Remember: many useful ‘video-protocols’ are already out there.
  6. Embrace technology as your friend (a.k.a. ‘Use Zoom’)
  7. Electronic hearing bundles really do work.
  8. A new Tribunal Secretary: the Technical Assistant?
  9. Flexibility, flexibility, and more flexibility, in timetabling and everything else…
  10. … including how we handle new disputes in our brave new world.

In more detail, here are our key points to try to make your path to your Virtual Hearing, whether as counsel, in-house adviser or arbitrator an easier one.

  1. Adjournment should be the last resort.

Adjournment simply pushes off the problem. With different jurisdictions on different epidemiological timetables and with second outbreaks wholly unpredictable, let alone ‘resumption of normal services’, never has the term sine die (without a new date being fixed) had such appalling resonance! The norm can and should be, save in the most exceptional cases, to hold the hearing date and to avoid the waste of costs and time which adjournment entails (and the difficulties in rescheduling ‘after Corona’ … whenever that will be). As banking, insurance, legal services and other sectors move over to remote and home-working, it requires a very good explanation why an arbitration hearing cannot take place virtually. If international governmental meetings can do it this way, so can we. The 27th Vis Moot, with 248 teams, is taking place ‘as normal’, online and on Vienna time and in the usual Vienna timeslots (  The London Business and Property Court has set the lead of ‘business as usual’ wherever possible and by and by whatever virtual means available (see : ). For a recent example, see Teare J’s robust case management of a two-week trial: . So, Golden Rule No. 1? Adjournment should now be the absolute exception, not a default option.

  1. Arbitration embraces tools and technology: let’s build on what we already do well.

Is the challenge, while hugely different in scale and complexity, really so different from the day-to-day practical challenges of international arbitration and what we, as counsel and arbitrators, do now, and do well to address those challenges? Arbitration already makes routine and highly effective use of (at least) two virtual tools to cope with dispersed participants and the logistical impossibility of live attendance: (1) the telephone (or video-link) procedural hearing and (2) the taking of witness evidence by video-link. If the hearing is mostly legal argument or part of it is to be taken up with oral addresses or submissions (with or without an accompanying PowerPoint), then why is not (1) just as effective as it is for a hard-fought and important procedural or disclosure battle? And if the hearing is a heavy evidential one, why is (2) not a perfectly acceptable option? If an arbitration may already turn on the evidence by video-link of a key witness, why is it really so different to run the whole hearing in this way?

  1. More realism, please, about ‘seeing the witness’ (etc.)

This is not the time or place to debate the Anglo-Saxon predilection for ‘seeing the witness’ and belief in assessing his or her veracity and credibility based on the tribunal’s acute psychological insight and unerring ability to read every gesture and passage of emotion across a witness’ face. But if the option is to hold off the hearing until better times (when?) and when the matter can be refixed (think of the rescheduling logjam), we need to assess critically whether the importance of this ‘advantage of seeing the witness’ is not very much overstated, when balanced against postponing a hearing indefinitely. Where a good or even passable video-link takes place, the discomfiture or arrogance of a witness (or whatever it is that we as counsel or tribunal members are supposed to be looking for) is almost always readily apparent. Take the example of a politician in a television interview. Other concerns about who is in the room with the witness etc (if he or she is not self-isolating!) can be dealt with either by the nature of the camera used, or just (as in a recent case) asking the witness to rotate his laptop to show the whole of the room in which he is sitting.

  1. Use the wide existing procedural powers firmly and creatively

As with any potentially disruptive event, Covid-19 may regrettably be fastened onto by the party who wants to derail the procedural timetable, put off the hearing timetable and ‘game’ the practical difficulties for perceived tactical advantage. “Seeing the witness in a serious case of this nature is vital”, “the importance of live interaction between counsel and the tribunal and between tribunal members themselves cannot be overstated” are already submissions which are being made. Under all of the main institutional rules (e.g. ICC 2017 Rules, Article 22(2); LCIA 2014 Rules, Article 14.4(ii) etc) and under the general statutory powers in most seats (e.g. sections 33 and 34 of the Arbitration Act 1996) the tribunal will have effective carte blanche to make the hearing happen and counsel and parties must be expected to cooperate (or be made to do so). Cf. the recent approach of the London Commercial Court (cited above): “The court has to be optimistic rather than hesitant. It is a duty of all the parties to seek to cooperate, to ensure that a remote hearing is possible. […] The default position now in all jurisdictions is that hearings must be conducted with one, more than one, or all parties attending remotely.”  A watch-word for all of us engaged in arbitration.

  1. Remember: many useful ‘video-protocols’ are already out there.

Building on the video-conferencing of witnesses, there exists an impressive and very useful (but in our experience rather underused) body of protocols and guides to best practice, all recent and topical. These have already grappled with almost all of the practical problems inherent in taking evidence by video-link (including dealing with documentary evidence) and provide excellent templates on which to build in drawing up the procedural format for a virtual hearing with multiple participants. First is the ICC’s Commission Report on Information Technology in International Arbitration of October 2017. Then the ever comprehensive CIArb series of guidelines was joined in April 2019 by the CIArb Guidelines for Witness Conferencing in International Arbitration, with many useful insights. But the Hague Conference Draft Guide to Good Practice on the Use of Video-Links Under the Evidence Convention (March 2019) is outstanding in its foresight and coverage and cannot be too highly recommended. These and other resources (e.g. the Seoul Protocol on Video Conferencing in International Arbitration) all make the tasks of counsel and arbitrators in formulating a virtual hearing protocol for a particular case so much easier. The wheel has already been invented and it is just a case of fitting it to size (and adding one or two more if need be). Here are some of the relevant links:





  1. Embrace technology as your friend (a.k.a. ‘Use Zoom’)

A virtual hearing is only ever going to be as good as the platform which is used to host it. Cometh the hour, cometh the platform! The new home-working environment has been the proving-ground of Zoom ( Its selling-point, apart from being fantastically easy to use and adaptable (see Golden Rule 7) is that it will “Bring HD video and audio to your meetings with support for up to 1000 video participants and 49 videos on screen”. And what it says, it delivers (see Golden Rule 10). It looks set to be the mainstay of arbitration life, just as it is fast becoming the go-to solution for any virtual meeting, congregation, class or any other ‘socially distanced’ interaction. It can be used really effectively for all procedural steps in arbitration, including witness interviews, drafting sessions, work with experts, preparation for hearing, as well as all aspects of the hearing itself. Coupled with setting up parallel “chat” groups for the various counsel and tribunal teams and their internal communication, a virtual hearing in real time is readily achievable, with appropriate flexibility (see Golden Rule 9), including for example frequent planned breaks. Many other options are available. Skype for Business we have of course grown up with and it is working well so far in the Business and Property Court. The Vis Moot will be run on the virtual mediation / dispute resolution platform Immediation ( But the popularity of Zoom may see it becoming an everyday arbitration tool. See for example:

  1. Electronic hearing bundles really do work.

For most of us as counsel (or arbitrator), the electronic bundle is, with apologies to Trollope, “The way we live now”. Epiq and Opus2 have revolutionised document heavy hearings in court and arbitration, in venues around the world. The key (as cross-examiners know) is the Olympian operator who seems, even as one is uttering the runic incantation “[B2/16/ page 345]”or some such, to be already bringing it up telepathically on the multiple screens. Normally present in the room, the main providers have already developed the use of remote operators, themselves using the live video-link and managing the electronic hearing bundle: further developments are under way:; and Opus2 has already created new offsite case and technical managers: But there are simpler options for less document heavy cases or where there is only a shared electronic bundle and no Epiq or Opus2 document management in place. Zoom (yes again) allows one to exhibit documents on the shared screen by clicking on a document open on your second screen. And there are other portals and providers, all gearing up for the challenge presented by the disruption to the ‘normal way of doing things’.

  1. A new Tribunal Secretary: the Technical Assistant?

In these times, it may well be necessary to add a new face to the arbitral personnel. The arbitral secretary and his or her role is a familiar one (and continues to give rise to optimistic challenges: as in the recent Yukos case before the Hague Court of Appeal. But understandably the challenges to putting in place and then conducting an effective virtual hearing will in reality be technological and logistical (as much as, for some, an inbuilt adherence to traditional ways of doing things or to a preference for the comfort blanket of the cut-and-paste ten or more page procedural order detailing the minutiae of, and preparatory, for the oral hearing: cf. Golden Rule 9). The leading document management platforms will have this ‘built in’ (as with Opus2’s Virtual Hearing Manager, Case Manager and the somewhat forbidding-sounding “EPE [electronic presentation of evidence] Officer”). But while that may be available and appropriate for larger cases, engaging technical advice and a technical advisor should be a priority in every case in order to avoid the tribunal and/or counsel having to grapple with what will be the inevitable breakdowns, non-compatibilities, sound without vision and vice versa etc. And, pragmatically, why should parties not agree (or be directed to agree) on the use of the IT expertise of one or other firm of lawyers, billed at cost as a cost of the arbitration?  In very many cases, any incremental cost will be a very small fraction of the value in dispute. And if that may raise hackles, why not pool or combine the law firms’ IT expertise, or rotate it?

  1. Flexibility, flexibility, and more flexibility in timetabling and everything else…

The demands will initially seem great and, perhaps to some, too difficult. But the alternative of postponing the proceedings indefinitely in the pursuit of some unquantifiable conception of perfection does not serve the interests of the parties who have entrusted the timely and effective resolution of their dispute to the counsel teams they have chosen and the tribunal they have empanelled. The traditional features of a hearing (such as hearing length; the hearing day: its length; its timetabling, order of submissions and witnesses etc) are already handled flexibly by most tribunals with the active support of most arbitration practitioners. The ‘New Normal’ is going to call for even more flexibility and a pragmatic realisation that things will not be the same for an undefined future time. So: hearings and hearing days may have to be shorter; with witness evidence pruned and focused on the things that really matter to make it more manageable to assimilate and test virtually; with greater use of pre-reading in relation to witness evidence with, possibly, counsel showing their hand so that the tribunal can see in advance what the main challenges to a witness’ evidence are, before the live ‘show’ of cross-examination when the documents are put to the witness with a flourish; with the use of telephone only hearings for parts of the arbitration main hearing as appropriate; and timetabling hearings in portions and at mutually uncomfortable times to spread the pain of linking up widely distant participants. If arbitration is anything, it is inherently flexible from a procedural perspective, so as to achieve effective and efficient resolution of the parties’ dispute.

  1. … including how we handle new disputes in our brave new world.

Arbitration serves business needs, not the other way around. As businesses find ways of adjusting their practices to suit the new environment and operate without disruption or interruption, they need to know that their business partners who handle the resolution of their commercial disputes are equally adaptable and ready, and are learning from the challenges we’re all facing together. That includes changing the way in which we handle new disputes arising now, in real time. Counsel should assume that their disputes will be born and live their lives in a world where expensive and diary challenging in-person hearings are neither the norm nor necessarily desirable as a default. We should think carefully about the way in which we draft pleadings, focusing on the issues that really matter, rather than assuming for example that there will be time, utility and patience for the examination of peripheral witnesses on largely immaterial issues. The same goes for an appropriate and judicious evaluation of the evidence – for example, the number and nature of witnesses and experts to be presented or called; the documentary burden to be placed on the tribunal; or the scope and focus of document requests, knowing that any interlocutory applications may not be heard by the tribunal in person. Procedural timetables might similarly assume that hearings and meetings will be conducted by video-conference, and accordingly provide the logistical and technical details in advance. Indeed, all of these things could and should result in shorter overall timetables and lead to quicker awards. If handled responsibly, then who knows: when happier times return we may emerge having all learnt to do things better, more efficiently and more cost-effectively, with long-term advantages for the streamlining and simplification of arbitration hearings.

Virtual hearings will at first undoubtedly have more than their fair share of frustrations and mishaps. But with us all pooling our experiences and knowledge and building on the lead already taken by the major arbitral institutions and venues (and with more from them to come), international arbitration will strengthen and improve its position, where other dispute resolution options may not be able to match its flexibility. 

Chipping away at the ‘narrow approach’ to the Court’s powers in aid of arbitration?

A and B v C, D and E [2020] EWCA Civ 409

Simon Rainey QC looks at the Court of Appeal’s decision:

The long-standing controversy as to whether orders made by the Court “for the purposes of and in relation to arbitral proceedings” under s. 44 of the Arbitration Act 1996 can be made against non-parties to the arbitration received at least a partial resolution on Thursday 19th March 2020, when the Court of Appeal handed down its judgment in A and B v C, D and E [2020] EWCA Civ 409. 

The case concerned a New York arbitration in relation to a dispute over net balances due under settlement agreements. One issue which arose was whether certain payments to a central Asian government were properly deducted as ‘signature bonuses’ (as the Respondents contended) or were bribes and therefore to be left out of account (as the Appellants submitted). The persons said to be involved in the negotiations for the making of the payments included one E, an English resident. He refused to go to New York to give evidence. With the permission of the Tribunal, the Appellants sought to compel his testimony and applied to the English Court under s. 44(2)(a) for an order under CPR34.8 for the taking of E’s evidence by deposition. 

Accordingly, the application centred on the Court’s power as to “the taking of the evidence of witnesses”.

Foxton J. refused the application (with some reluctance) on the basis of accrued first instance Commercial Court authority, making it clear that his view would have been, absent authority, that the particular order sought was one the Court had jurisdiction to make under section 44: see [2020] EWHC 258 (Comm) at [18]. Recognising the controversy over the issue, he granted permission to appeal, notwithstanding the settled first instance view, a course of action which the Court of Appeal considered “obviously sensible”: [55].

On an expedited appeal, the Court of Appeal (Flaux, Newey and Males L.JJ  held), with little hesitation, that s.44(2)(a) did give the Court power to make an order for the taking of evidence by way of deposition from a non-party witness in aid of a foreign or domestic arbitration. But the Court declined to go any further than that or to express any concluded view on the position in relation to other s.44(2) powers. 

It follows that the controversy remains a very live one, pending review by the Supreme Court or the next piecemeal pronouncement by the Court of Appeal in another s.44(2) case involving a different sub-section (2) power.

The s.44 controversy and the previous Commercial Court decisions 

On one view, the controversy might be said to be an arid one. S. 44(1) applies to all English seated arbitrations, unless contracted out of. It provides that, absent such contrary agreement, “the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purposes of and in relation to legal proceedings”. A straightforward approach might be to conclude that the Court has the same power to make orders against non-parties to an arbitration as it would have in legal proceedings to make orders against non-parties to the litigation because that is what s.44(1) says (see [7] and Foxton J. at [18]). If the parties do not like it, they can opt of the section, in whole or in part.

That approach runs up against the concern that the powers in s.44(2) are solely in aid of a consensual process of arbitration which binds only those who are party to the relevant arbitration agreement. It is argued that it would be odd if the Court were placed in a stronger position than the underlying tribunal itself and were able to exercise jurisdiction and powers over third parties, in support of an arbitration, where the arbitrators themselves would have no such jurisdiction or power. This concern has proved to be the dominant theme in the Commercial Court decisions prior to A&B.

The leading analysis remains that of Males J. (as he then was) in Cruz City 1 Mauritius Holdings v Unitech Ltd [2014] EWHC 3704 (Comm).

That case concerned the Court’s jurisdiction under s.44(2)(e) as to “the granting of an interim injunction or the appointment of a receiver”. The case turned on the application of CPR 62.5(1)(c). However, after a careful examination of the textual indications in other parts of s.44. Males J. concluded obiter at [47] that “the better view is that section 44 does not include any power to grant an injunction against a non-party” to the arbitration. While limited to the grant of an injunction under section 44(2)(e), the Judge’s reasoning was generally expressed (as he acknowledged in A&B: [52]) and was equally applicable to all the different paragraphs of section 44(2), without distinguishing between them. The thrust of his reasoning was that the wording of e.g. ss.44(4) and 44(5) made it unlikely that Parliament had intended to give the English court jurisdiction to make orders against non-parties in support of arbitrations happening anywhere in the world and that “the section is simply not concerned with applications against non-parties” [48(e)].

In the subsequent decision of DTEK Trading SA v Morisov [2017] EWHC 1704 (Comm), the Court had to consider whether it had jurisdiction under section 44(2)(b) to make an order for the preservation and inspection of a document in the possession of a third party in Ukraine. Sara Cockerill QC (as she then was) rejected various commentators’ criticisms of Males J’s approach (i.e. Merkin & Flannery, Arbitration Act 1996, 5th Edn; see now 6th Edn at 44.7.5) and reached the same analysis as Males LJ, taking a general approach (note that the application was unopposed). Thereafter later decisions applied the position as if settled at first instance (see e.g. Foxton J. and before him, Trans-Oil International v Savoy Trading [2020] EWHC 57 (Comm), Moulder J.).

The “wide” and the “narrow” questions in play on the appeal

So lay the land on the appeal. 

The Appellant’s primary case was that the appeal had to be determined first and foremost on the “narrow question” of whether the particular s.44(2) power was one which was exercisable against third parties. 

This was accepted by the Court, basing itself on the wide words of s.44(2)(a) with its reference to “witnesses”, not to “parties”, in circumstances where given the wide range of potential witnesses who would not be expected to be only “party” witnesses, “there is no justification in the wording of the statute for limiting “witnesses” to those who are in the control of one or other of the parties. If Parliament had intended that limitation, it would have said so” (Flaux LJ at [37]; see also Males LJ at [59]). Further, the nature of the “legal proceedings” referred to in s.44(1), being High Court and County Court proceedings, connoted the power which those Courts had to take evidence on deposition wherever necessary and just to do so: (; [38]; [61]).

The Appellant nevertheless also mounted an attack on the wider front that the s.44 controversy was not to be resolved by looking at the consensual nature of arbitration and that the starting point for section 44 is not the consensual nature of the arbitration agreement but what powers the Court is to have in a defined situation. 

The Court of Appeal avoided getting into the debate as to whether Cruz City and DTEK were correctly decided. Given that the position was clear for s.44(2)(a), it was not considered necessary to go any further on different s.44 powers.

The end of the wide Cruz City view?

While the Court of Appeal refrained from tackling the correctness of the Cruz City wide approach, it is difficult to see how that approach can survive its decision. Either s.44 as a section is dealing with powers against parties only (as Males LJ opined in Cruz City) or it is not. 

If it is not (as has now been held), then there are only two possible positions: either (a) the wide view that all of the s.44(2) powers are exercisable generally against non-parties is correct or (b) each separate power will turn on its own terms, so that different results may apply; indeed, it may be that only the s.44(2)(a) ‘evidence / witness’ power is a non-party power, while the remainder of s. 44(2) are powers are exercisable against arbitral parties only.

In so far as it is possible to identify the Court of Appeal’s view, this was in favour of the latter, ‘power by power’, approach.

Flaux LJ recognised that the effect of the decision and of the Court’s “narrow approach” was to posit that s.44 (2)(a) applies to non-parties, whereas the other heads of the subsection may not do so, based on the previous decisions. He left the position open by stating that “Any apparent inconsistency between the various heads of subsection (2) may be explained by the different language of those heads.” [44].

Males LJ, who had adopted obiter the wider view in his decision in Cruz City was careful to confine Cruz City to the particular power then before him. Like Flaux LJ he contemplated the possibility that different powers in s.44(2) might lead to different results. In particular, he made it clear that he saw “no reason to doubt” what he carefully referred to as “the actual decisions in in Cruz City and DTEK”(emphasis added)  and only went on (at [56]) to “reserve my opinion whether their reasoning on this point is correct as regards the other paragraphs of section 44(2). […] it may be that the position varies as between the various paragraphs of subsection (2).” He however recognised that there were “strong arguments” either way.

So where are we now?

While the Court’s decision on s.44(2(a) make the position clear for that s.44 power, the s.44(2)(b) and (e) powers remain for the present governed by the Cruz City / DTEK decisions, although arguably open to fresh challenge on the basis that the Court of Appeal chose not to endorse the decisions as such. The position for other s.44(2) powers, not yet dealt with by any current Commercial Court or other decision is fully up for grabs. It is perhaps regrettable that the opportunity for at least a much clearer obiter ‘steer’ was not grasped by the Court of Appeal, although if the Court favoured a ‘power by power’ approach (as it appears implicitly to have done) then as it heard no argument on each power, this may not be surprising. No permission to appeal was sought to take the matter further to the Supreme Court, so the s.44 controversy is unfortunately set to rumble on for a little longer yet.

“But you weren’t going to perform anyway!”: A new hurdle when invoking Force Majeure

Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102

Simon Rainey QC and Andrew Leung

Is it necessary when a party seeks to rely on a force majeure or exceptions clause to show that it would have performed “but for” the force majeure or excepted event? And if the party is liable for failing to perform, but performance would have been impossible in any event, is the innocent party entitled to damages?

These important questions were considered by the Court of Appeal in Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102. The judgment, which is the sequel to the first instance decision discussed here, clarifies that:

  1. Contrary to what textbooks such as Chitty and Treitel on Frustration and Force Majeure suggest, there is no general principle that it is not necessary to show “but for” causation in order to invoke a force majeure or exceptions clause.
  • The innocent party is entitled to substantial damages even if it would never have received performance in any event.

The dam burst and the COA

The litigation was fuelled by the Samarco dam burst on 5 November 2015. The charterer under a COA, Limbungan, claimed it was prevented from supplying cargoes for shipment as a result and was excused from having to perform under Clause 32 of the COA, which provided in material part:

“Neither the Vessel, her Master or Owners, nor the Charterers, Shippers or Receivers shall be responsible for…failure to supply, load…cargo resulting from: Act of God…floods…landslips…accidents at mine or production facility…or any other causes beyond the Owners’, Charterers’, Shippers’ or Receivers’ control; always provided that such events directly affect the performance of either party under this Charter Party.”

The first instance decision

At first instance, Teare J held that though the dam burst had rendered performance impossible, Limbungan could not rely on Clause 32 as it required the charterer to prove that it would have performed but for the collapse of the dam, and Limbungan would have defaulted anyway. However, the owner, Classic, was only entitled to nominal damages. Even if Limbungan had been able and willing to perform, the dam burst would inevitably have prevented performance. The compensatory principle would be breached if Classic was awarded substantial damages when it would never have received freight in any event.

The Court of Appeal’s decision

The Court of Appeal upheld Teare J’s decision that Clause 32 required Limbungan to prove but for causation and reversed his decision in relation to damages.

Limbungan had submitted that the House of Lords decision in Bremer Handelgesellschaft v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep 109 laid down the general principle that a party relying on force majeure need not show it would have performed but for the force majeure event.

However, the Court of Appeal, like Teare J, treated Bremer v Vanden as a case concerning a “contractual frustration” clause (Clause 21 of the GAFTA 100 form), i.e. a clause which automatically discharged the parties from an obligation to perform in the future, much like the common law doctrine of frustration. The automatic cancellation effected by Clause 21 meant it was not necessary to meet the test of but for causation.

Starting from first principles, it was open to the parties to agree a clause which only excused non-performance if that test was met. The Court of Appeal considered that Clause 32 was just such a clause. Unlike the “contractual frustration” clause in Bremer v Vanden, it was an exemption clause which relieved a party of liability for a past breach. It was hard to see why the dam burst should make any difference to Limbungan’s liability when it was never going to perform anyway.

On the issue of damages, what Teare J thought was an orthodox application of the compensatory principle the Court of Appeal viewed as a “sleight of hand”. When assessing Classic’s loss, the Judge should have compared the freights Classic would have earned with the actual position it was in due to Limbungan’s breach. Teare J had instead drawn a comparison between Classic’s actual position and its position if Limbungan had been ready and willing to perform.

The Court of Appeal distinguished the present case from two cases in which events occurring after a breach of contract were taken into account:

  1. In The Golden Victory [2007] 2 A.C. 353, the House of Lords held that the owners could not recover hire for the full-term of a charterparty prematurely cancelled by the charterers. The charterparty would not have run its full course anyway as the charterers would have lawfully cancelled due to the Second Gulf War.
  • In Bunge v Nidera [2015] 3 All E.R. 1082, the Supreme Court held that a buyer had suffered no loss despite the repudiation of a sale contract by the seller. A subsequent embargo would however have prevented the sale from taking place in any event.

Both cases were however concerned with assessing damages for an anticipatory breach. Contrastingly, the present case was concerned with an actual breach. Since Clause 32 gave Limbungan no defence to liability, Limbungan had to pay damages for failing to perform.


The Court of Appeal has underlined the fact that, whatever the current understanding of Bremer v Vanden in the textbooks,there is no default position whereby it is unnecessary to prove but for causation in order to rely on a force majeure or exceptions clause. The specific Force Majeure remedy afforded by Clause 21 of GAFTA 100 was held to be the reason that clause did not import a requirement of but for causation. Why this remedy should determine the test for causation is not entirely clear, when the effect of contractual cancellation and an exemption from liability is for practical purposes the same: the non-performing party cannot be successfully sued.

In other respects, this case presents a number of novelties:

  1. The Court of Appeal held that Clause 32 was not even a force majeure clause, but an exemption clause. It was not previously clear that these categories were mutually exclusive (see e.g. Lewison, Interpretation of Contracts, 13.02).
  • Both Treitel and Lewison suggest in the light of the authorities that a clause which makes provision for the consequences of supervening events which occur without the fault of either party and are beyond their control (i.e. Clause 32) defines the parties’ obligations rather than operating as an exemption clause. This now needs to be reconsidered.
  • The Court of Appeal’s take on The Golden Victory and Bunge v Nidera is that subsequent events and their potential effect on the parties’ rights and obligations are only relevant when assessing damages caused by an anticipatory breach accepted as terminating the contract. They are not relevant in the case of an actual breach. This is arguably a new development and suggests there is not one compensatory principle, but two.

Permission to appeal was refused by the Court of Appeal but an application for permission to appeal is being made to the Supreme Court. The authors are Counsel for Limbungan and appeared below and in the Court of Appeal.

Force Majeure, Alternative Modes of Performance and “Eggs in one Basket” – Simon Rainey QC and Andrew Leung

Classic Maritime v Limbungan Makmur SDN BHD [2018] EWHC 2389 (Comm)


A contract contains two modes of performance, A or B. Historically, the obligor has used mode A which becomes unavailable due to a natural disaster. If the obligor can show that it is also impossible to use mode B for reasons beyond its control, can it rely on a force majeure provision to excuse non-performance? Does it need to show it would have performed using mode A but for the mode A-disabling event? Classic Maritime v Limbungan Makmur SDN BHD [2018] EWHC 2389 (Comm) addresses these questions and others in an area of law that is perhaps not as well-settled in all respects as some might think.

Simon Rainey QC, leading Andrew Leung, represented the successful Defendants, instructed by Julian Clark, Winnie Mah and Trudie Protopapas at Hill Dickinson LLP. 

The dam burst and the COA

At 3.45pm on 5 November 2015, the worst environmental disaster in Brazilian history unfolded. A tailings dam operated by Brazilian mining company Samarco Mineracao SA (“Samarco”) collapsed. A tidal wave of 32 to 40 million cubic metres of mining waste swept across green valleys, villages and farmland.

Iron ore production at Samarco’s mine was brought to an abrupt halt. Shipments of Samarco’s iron ore pellets, hitherto shipped through Ponta Ubu in Brazil, were suspended.

Ponta Ubu was one of two ports from which the charterers, Limbungan Makmur SDN BHD (“Limbungan”), had the option to load iron ore pellets on the vessels of Classic Maritime Inc., under a COA for 59 shipments of iron ore pellets from Brazil to Malaysia between 2009 and 2017. The other load port was Tubarao, from which another Brazilian mining company, Vale SA (“Vale”), shipped iron ore pellets.

The parties’ rival positions

In the Samarco aftershock, it was Limbungan’s case that Vale experienced a surge in demand, earmarked its supply to existing customers, and left newcomers such as itself wanting. Limbungan was therefore prevented from shipping from Ponta Ubu and Tubarao due to circumstances beyond its control. This excused its failure to perform post-5 November 2015 under Clause 32 of the COA, a fairly typical force majeure or exceptions clause, which stated inter alia:

“Neither the Vessel, her Master or Owners, nor the Charterers, Shippers or Receivers shall be responsible for…failure to supply, load…cargo resulting from: Act of God…floods…landslips…accidents at mine or production facility…or any other causes beyond the Owners’, Charterers’, Shippers’ or Receivers’ control; always provided that such events directly affect the performance of either party under this Charter Party.”

Classic countered that Limbungan had an absolute and non-delegable obligation to provide cargo and had no arrangements to do so. Instead, it hoped to perform with the gratuitous support of two companies within the same broad corporate family, Lion DRI or Antara. Those companies had asked Limbungan to ship their iron ore pellets to their steel-making plants in Malaysia from Ponta Ubu since 2011, but without any contractual nexus existing between them. The bursting of the dam was thus of no legal relevance. The problem was that the now sole supplier, Vale, would not supply Limbungan or its affiliates, although matters would have been different if Limbungan had made proper efforts and pushed for a long-term supply contract.

What is more, Classic argued that Limbungan would not have performed anyway. It had failed to perform two pre-dam burst shipments as Lion DRI and Antara had not required Limbungan to carry iron ore pellets in a weak market, a state of affairs which would have continued irrespective of the dam burst. The dam burst was not a force majeure event and Classic was entitled to US$20.5 million in damages to compensate it for lost freight.

Against this, Limbungan argued that it had put its eggs in the Samarco/Ponta Ubu basket as it had exclusively shipped Samarco pellets since August 2011. Whether it had enforceable agreements with Samarco, Lion DRI or Antara was not determinative; its settled practice was clear. The obligation after the dam burst was to make new arrangements ex Tubarao, provided it was possible to do so. Clause 32 applied because it was not possible. This was an alternative modes of performance case per Warinco v Mauthner [1978] 2 Lloyd’s Rep 151, 154 in that Limbungan had opted for one mode of performance which had become unavailable. As it could not avail itself of the one remaining mode, it was excused.

Further, it was sufficient that Limbungan was prevented from performing by the dam burst. It was contrary to authority to insist that Limbungan had to show it would have performed had the dam not burst and contrary to the compensatory principle to award damages to Classic in respect of shipments which would never have occurred given the dam burst.

The judgment of Teare J.

The Court rejected Classic’s claim, and in the process made findings of wider legal significance.

  1. First, Classic’s reliance on the principle that a charterer who has been let down by a particular supplier cannot plead force majeure per The Mary Nour [2008] 2 Lloyd’s Rep and The Kriti Rex [1996] Lloyd’s Rep 171 was not on point. Those cases were not concerned with alternative modes of performance, where the required performance was from Port A or Port B, but with performance from a single port (albeit one possibly served by many suppliers).
  2. Second, for the alternative modes of performance principle to apply, it was not necessary for Limbungan to show it had legally binding arrangements to perform from Pontu Ubu rather than Tubarao when the dam burst. What the Court had to assess were Limbungan’s “intentions or arrangements” per Moccatta J in European Grain & Shipping v J.H. Rayner [1970] 2 Lloyd’s Rep. 239, which did not need to display the element of fixity posited by Classic.   
  3. Third, Limbungan had to show that it would have performed but for the dam burst. The House of Lords decision in Bremer Handelgesellschaft v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep 109 and a string of other cases, which Limbungan said supported the general proposition that a party relying on force majeure need not show it would have performed but for the force majeure event were, in Teare J’s judgment, cases about contractual frustration provisions, which are intended to mimic the effect of common law frustration. They had no bearing on Clause 32.
  4. Fourth, the Court concluded that neither Limbungan nor its affiliates could have sourced cargoes from Vale ex Tubarao – a topic on which the parties’ market experts spilt much ink. That said, Limbungan could not show it would have performed but for the dam burst: Lion DRI’s steel-making business had effectively been mothballed due to weak demand, Antara had a cheaper COA of its own, and the arrangement whereby Antara had used the more expensive COA and been compensated for the freight differential by Lion DRI was moribund. 
  5. Fifth, though Limbungan could not rely on Clause 32 and was therefore liable under Clause 32, Classic was not entitled to recover damages. This was because even if Limbungan had been able and willing to perform, the dam burst would have supervened and prevented performance, and Limbungan would have been excused by Clause 32. It would violate the compensatory principle, to award substantial damages to Classic when it would never have received performance in any event.
  6. Sixth, the Court rejected Classic’s case to the effect that if the dam burst was due to faulty construction or maintenance by Samarco, it was an event within the “Shipper’s [i.e. Samarco’s] control”, and thus not within Clause 32. No part of the charterers’ obligation to supply and load cargo extended to responsibility for the dam, making it unlikely the parties intended  poor dam construction or maintenance (if proved) to debar Limbungan from relying on Clause 32. This is an important decision on the typical ‘beyond the control of’ provision, analysed in the sometimes misunderstood decision in The Crude Sky [2013] EWCA Civ 905.


The case is believed to be the first authority since the Bremer line of authorities from the 1970s and early 1980s to consider whether the party relying on a force majeure or exceptions clause has also to show it would have performed but for the event relied upon to be excused from non-performance. The answer given in those cases was “no”. For the time being, the textbooks may need to be rewritten to reflect the affirmative answer to this question given by Teare J.

This gives pause for thought. Had Ponta Ubu and Tubarao both been wiped out by a meteor, so that any performance was unquestionably prevented, on one view, asking whether Limbungan could or wanted to perform would be academic. It might be said the parties intended Clause 32 to excuse Limbungan from liability in precisely such a case, particularly since Clause 32 is intended to deal with frustrating and force majeure events, and in the context of frustration, but for causation has always been irrelevant. Not only that: asking whether Limbungan would have performed but for the dam burst is conducive to a doubtful and speculative examination of what Limbungan’s intentions and arrangements would have been in a counter-factual setting, which Megaw LJ Bremer Handelgesellschaft v Vanden Avenne-Izegem PVBA [1977] 2 Lloyd’s Rep 329 cautioned against.

This also appears to be the first case where the argument has been made (by Classic) – and rejected – that the arrangements necessary to activate the alternative modes of performance principle need to be legally binding. They do not: the arrangements can have a looser, more informal character.

Finally, this case exemplifies the compensatory principle at work: if Limbungan had performed instead of breaching the COA, it would have performed with Samarco out of Ponta Ubu. The problem from Classic’s perspective is that with the intervention of the dam burst, Limbungan would have been able to claim force majeure under Clause 32 (as on this hypothesis it would have performed but for the dam burst). The outcome in both the breach and non-breach positions is therefore that Classic would not have enjoyed the benefit of contractual performance. Classic cannot be put in a better position than if the breach had not occurred.

Teare J refused permission to appeal on the ground that Classic’s proposed appeal on the application of the compensatory principle (or perhaps more accurately Classic’s case that the principle allowed it to recover substantial damages to represent loss of charter freights which in fact it could never have earned assuming Limbungan performed rather than breached the COA) had no realistic prospect of success.

A copy of the Judgment, can be found here

Clarifying / Correcting an Award …. and the Effect on the 28 days for Challenge: Clarity at last

Daewoo Shipbuilding & Marine Engineering Company Ltd v Songa Offshore Endurance Ltd [2018] EWHC 538 (Comm)


Where a party seeks correction or clarification of an arbitral award as a precursor to challenging the award either under s.67 or 68 or 69 of the Arbitration Act 1996, when does the Act’s 28 day time period for the challenge start? From the date of the award? Or of the correction or clarification? And does that apply to any correction or clarification or only to certain types? If the latter, what types and why? And what happens if the tribunal declines to correct?

The decision of Bryan J. (handed down on 16th March 2018) in Daewoo Shipbuilding & Marine Engineering Company Ltd v Songa Offshore Endurance Ltd [2018] EWHC 538 (Comm) brings welcome and definitive clarity to the position. It sets out what should now be regarded as the settled practice of the Court to these problems and to the correct construction of the 28 day time limit provisions in s.70(3). It resolves an apparent conflict in other first instance decisions once and for all.

In summary, after a thorough analysis of the authorities, the Court held:

  • The arbitral process of correction and clarification of an award by the tribunal under s.57 of the Act is not “any arbitral process of appeal or review” under s.70(3) for the purposes of the running of the 28 days.
  • Accordingly, simply applying for a correction will not, of itself, push back the start date for the running of time: the decision in Surefire Systems Ltd v Guardian ECL Ltd [2005] EWHC 1860 (TCC) to the contrary effect was wrong.
  • But where a correction or clarification must necessarily be sought in order to be able to bring the challenge to the award itself (pursuant to section 70(2)), then time runs from the date of that type of correction or clarification being made (a ‘material’ correction).
  • To give effect to that, the “date of the award” in section 70(3) is to be read as “the date of the award as corrected” by a correction of this kind, but this kind only.
  • The submission that the decision in K v S [2015] EWHC 1945 (Comm) was wrong would be rejected.

Leave to appeal was refused.

Simon Rainey QC, leading Tom Bird, represented the successful applicant.

The Background

DSME contracted with Songa to build a series of drilling rigs. The hull design (including the front-end engineering design (“FEED”) documentation) was to be provided by a third party design consultancy. Construction proved to be very protracted and DSME claimed in respect of delays and cost over-runs, alleging that the cause was defects in the FEED. It alleged that under the contracts, responsibility for design, including the FEED, was with Songa not DSME and DSME was entitled to recover all costs and expenses and was not responsible for delay. This was contested by Songa.

The question of design responsibility under the contracts was determined as a preliminary issue in two arbitrations. The Tribunal (Sir David Steel, John Marrin QC and Stewart Boyd QC) held that Songa was correct and that DSME bore full responsibility for the design, including for the FEED.

The Awards were published on 18th July 2017.

Under section 70(3) of the Arbitration Act, DSME had 28 days in which to apply for permission to appeal, expiring on 15th August. Section 70(3) provides:

“Any application or appeal must be brought within 28 days of the date of the award or, if there has been any arbitral process of appeal or review, of the date when the applicant or appellant was notified of the result of that process.”

On 4th August, DSME applied to the Tribunal for the correction of what it itself described as four “clerical errors in the Awards arising from accidental slips” such as transposing Songa for DSME, etc. The corrections were unopposed.

The Tribunal issued a Memorandum of Corrections on 14th August (27 days after the Awards).

On 8th September, 24 days late, DSME issued an Arbitration Claim Form seeking permission to appeal the Awards under section 69, on the basis that the Tribunal’s construction of the contract as to design responsibility was obviously wrong in law.

Songa applied to strike the application out as being out of time.

DSME responded that the 28 days ran from the date of the Memorandum of Corrections and so was brought in time; alternatively it sought an extension of time under s. 80(5) because its management structure and intervening holidays meant that a decision to appeal could not reasonably have been taken any sooner. (Given the 24 day delay and this ‘justification’, unsurprisingly this application was dismissed on ordinary principles.)

The Issues Raised by Songa’s Application

Section 70(3) contains only two express start dates for the running of the 28 days for any challenge to the award: (a) “the date of the award” and (b) the date when the parties are notified of the outcome of “any arbitral process of appeal or review”.

How does this work in the context of a request for the correction or clarification of an award? Section 70(3) is silent on the topic and there is prima facie a lacuna in the drafting of the Act.

A connected issue is the so-called ‘Catch 22’ inherent in section 70(2) which requires a party to exhaust all available arbitral routes of recourse (including under s.57) before being entitled to challenge the award. In relation to corrections, if these are ones which have to be sought before a challenge can be made, then how can time run from the date of the original, uncorrected, award if this date is what has to be taken for s.70(3) purposes?

Question (1): Can the correction / clarification process under s.57 be regarded as an “available process of appeal or review” under section 70(3)?

DSME’s primary argument was that the term “any available process of appeal or review” covered a correction or clarification process carried out by a tribunal itself. It argued that the process of correction involved, in one sense, a process of ‘reviewing’ the award and accordingly this was enough. It also relied upon the definition of a different term (“available arbitral process”) in s. 82(1) as one which “includes any process of appeal or review by an arbitral or other institution or person” as showing that “appeal or review” did not just mean appeal or review by some other arbitral body (such as common forms of ‘two-tier’ arbitral procedures in commodity arbitration under GAFTA or FOSFA Rules) but must be wider and therefore had to cover an ‘internal’ corrective review.

DSME relied heavily on an unreported decision of Jackson J. in Surefire Systems Ltd v Guardian ECL Ltd [2005] EWHC 1860 (TCC), noted in the textbooks. In that case, Jackson J. baldly stated; “In my view, the arbitrator’s clarification issued on 2nd May 2005 constitutes “an arbitral process of … review” for the purposes of section 70(3) of the Act”.

Bryan J rejected DSME’s argument for three reasons.

(1) First, on the plain meaning of the statutory language.

The construction was contrary to the plain and ordinary meaning of the term “appeal or review” as used in section 70(3) which had to be viewed in the light of s.70(2). Section 70(2) requires an applicant seeking to challenge any award to have first exhausted, as a pre-requisite to the right of challenge, all routes of recourse to the arbitral process. It distinguishes in this context between “any available arbitral process of appeal or review” (s.70(2)(a)) and “any available recourse under section 57” (s.70(2)(b)). The Judge held that this was “a clear, and indisputable, distinction” [52]. He considered that the “ordinary and natural meaning” of the reference to “appeal or review”, in the context of a statutory provision that draws a delineation between an appeal or review and a correction, “is that it is a reference to a process by which an award is subject to an appeal or review by another arbitral body”.

(2) Secondly, on the better view of previous decisions

The Judge regarded this as being as the settled approach which had been taken in the previous cases (Price v Carter[2010] EWHC 1451 (TCC); K v S [2015] EWHC 1945 (Comm) and Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm) as well as the commentaries. He regarded the view of Jackson J. in Surefire as wrong. [53]

(3) Thirdly, as contrary to the founding principles of the 1996 Act.

The Judge held the questions of construction of the Act before him had to be approached in the light of the guiding principles in s.1(1)(a) of the Arbitration Act. One of these is that “the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense”.

“The principles of speed and finality of arbitration are of great importance. These would be undermined if the effect of making any application for a correction is that time for appealing runs from the date the appellant is notified of the outcome of that request. This is not simply a “concern” (nor is it one that has been over-stated as alleged by DSME) rather it is contrary to the whole ethos of the Act. It would be open to parties who have freely agreed to arbitrate their disputes to frustrate and delay that agreed mechanism of dispute resolution by relying upon completely irrelevant minor clerical errors. This cannot have been the intention of Parliament …” [55].

Question (2): Is the term “the date of the award” in section 70(3) to be read as meaning the date of the award as and when corrected, irrespective of the nature of the correction?

DSME argued next that an award could not be regarded as final for the purposes of time running until and unless any process of correction started in respect of the award had been fully completed; that applied as much to a material correction impinging upon a potential ground of challenge as to an immaterial textual or other clerical correction. The date when the process was completed was the “date of the award” for s.70(3) purposes.

DSME contended that there was no warrant for treating “the date of the award” as running from a corrected award where the correction was ‘material’ (whatever that meant) but not where it was a purely typographical correction. The date was either affected by corrections for all purposes or none. The Court having previously held that it was affected for material ones, then this applied equally to all other corrections.

Songa argued that the key to the resolution of the lacuna was to recognise the inter-relationship between section 70(3) and section 70(2). Under the latter, a party had to seek a correction or clarification of the award where this affected the challenge which it intended to make against the award as a pre-condition to challenging the award. This need to exhaust arbitral recourse to the tribunal under section 57 identified a class of corrections and clarifications which were indeed ‘material’, because if they were not sought, then the challenge would be barred. It was in relation to these and these only that the lacuna arose. Therefore the distinction between ‘material’ and non-material corrections was inherent in the Act itself and the term “date of the award” would be construed accordingly.

The Judge accepted that argument. He stated at [63] (original emphasis):

“The purpose is to ensure that before there is any challenge, any arbitral procedure that is relevant to that challenge has first been exhausted. Thus if there is a material ambiguity that is relevant to the application or appeal you have first to go back to the arbitrators, however if what you are doing is seeking correction to typos then that is not a bar to you pursuing your application. Materiality is inherent within section 70(2). It is only where a matter is material that you first have to exhaust the available remedies specified in section 70(2), so that it is only in those circumstances that it is necessary for time only to run after those available remedies have been exhausted. There is no reason or necessity for time not to run, or be extended, in the context of immaterial corrections – these are not matters that have to be corrected before an appeal can be brought. This illustrates that the test of materiality is inherent in the structure of section 70(2) and 70(3).”

Again deploying the ethos of the Act and section 1(1(a), he held that it was contrary to any sensible construction of “the date of the award” to treat it as accommodating trivial or irrelevant corrections [56]. As the Judge held (and as DSME accepted) “these are classic clerical and typographical errors. They are not connected in any way, shape or form with DSME’s subsequent appeal.” [10]

Conclusions: “Materiality” and Unanswered Questions?

The decision is to be welcomed as laying to rest the ‘Surefire argument’ once and for all.

The Court, in refusing permission to appeal, considered the point to have no realistic prospect of success on appeal and stated in terms that it was “high time to draw a line under the debate” given the “consistent and continuing practice of this Court which has particular expertise in the construction of the act, and its application.”

Materiality? The Judge saw no difficulty with a ‘materiality’ test which is “clear and easy to apply” [65]. With the section 70(2) concept in mind, it is submitted that the Judge is plainly right: a party can usually easily tell the difference between points which it has to investigate under s.57 before it can make a challenge under s. 67, 68 or 69 at all and all other corrections or clarifications.

If in doubt however, as the Judge said “[one] could always issue an application for an extension of time before the 28 day time period expired, and indeed seek permission to appeal to the extent that it was able to do so at that time. No doubt in many cases (based on the content of the application for a correction showing materiality) such an application for an extension of time would not even be opposed, or if opposed, would be resolved in the applicant’s favour should any point be taken.” [65]

Refusal to correct? An unanswered question (which the Judge did not have to address) is as to the position if a material correction is sought under s.57 but the tribunal refuses to make any correction. How is the “date of award as corrected” test then to be applied? In Maclean, the Judge thought it would be the date of the notification of the refusal to correct [19]. The same view was implicitly suggested in K v S where Teare J referred to the grounds of challenge being “dependent on the outcome of the application for clarification” [24]. Given Bryan J’s general endorsement of the reasoning in these cases, the same approach to this question must follow.

This seems right. If a material correction is (and has to be) sought in the exercise by an applicant of all available recourse to satisfy the s.70(2) requirement, then the applicant’s fate cannot sensibly be dependent on the whim of the tribunal and whether it is an expansive one, happy to explain better what it has done or, as is not infrequently the case, one which is resentful of the temerity of a suggestion of the need for clarification and whose approach is the ‘nil return’.

A copy of the judgment can be found here

Commencing LCIA Arbitration: The Perils of Non-Observance of the LCIA Rules

A v B [2017] EWHC 3417 (Comm)

The Requirements for (a) Valid and Effective Commencement of LCIA Arbitration and (b) When a Challenge to Jurisdiction Must be Made under the LCIA Rules

Summary: The LCIA Arbitration Rules (currently the 2014 revision) provide for a simple and well drafted procedure for the commencement of arbitration.

The recent decision of A v B [2017] EWHC 3417 (Comm), handed down on 21st December 2017 (and therefore perhaps escaping attention in the immediate Christmas rush), illustrates that failure to follow this simple procedure will result in a purported commencement of arbitration being wholly ineffective. This may have potentially highly significant consequences where the soi-disant “commencement” takes place hard up against the date of the expiry of a limitation period, statutory or contractual.  The decision demonstrates that appeals to the ‘flexibility’, which may have a place in the very different context of arbitration where there are no rules or requirements as to how the arbitration is to be commenced (as in Easybiz Investments v Sinograin (The Biz)[2011] 1 Lloyd’s Rep. 688), have no traction where the manner of commencement is defined by institutional arbitration rules, which have either been complied with or not.

The decision also sheds valuable light on when (i.e. how early) a challenge to jurisdiction must be made under the LCIA Rules and the correct construction of Article 23.2 of the LCIA Rules.

Simon Rainey QC is counsel in the separate contested LCIA sub-arbitration by A against C, referred to in the judgment, and in applications currently before the Commercial Court related to that purported arbitration.

How the Issues in A v B Arose

B was party as seller to two separate contracts, one concluded in September 2015 and the second in October 2015, for the sale of parcels of crude oil on FOB terms. Each separate contract was subject to an LCIA arbitration clause. A, as buyer, on-sold the parcels by two separate sub-contracts on substantially identical terms save as to price. A failed to pay the price and B sought to commence arbitration to recover the price.

Article 1 of the LCIA Rules provides that “Any party wishing to commence arbitration under the LCIA Rules … shall deliver to the Registrar of the LCIA Court … a written request for arbitration (the “Request”) containing or accompanied by” and then setting out the basic core details relied upon as giving rise to the claim or dispute and as supporting the submission of that claim or dispute to LCIA arbitration.

Inexplicably B filed a single Request on 23rd September 2016 against A under Article 1 by which B purported to commence a single arbitration for the amounts claimed under the two separate contracts as if under a single contract and, in particular, as if under arbitration agreement. A single arbitration registration fee was paid under Article 1.1(vi) of the LCIA Rules.

A in its turn commenced a separate LCIA arbitration against C) on 31st October 2016), adopting an equally single form Request on the same ‘single claim and arbitration agreement’ basis. C challenged the jurisdiction of the Tribunal in the A vs C reference on the basis that A’s purported Request for Arbitration was invalid and ineffective to commence arbitration.

A sought to adopt the same argument against B. However, by this stage, A had already served its Response under Article 2 of the LCIA Rules (on 31st October 2016). That contained a generic reservation of rights (summarised by the Judge as “(i) stating that the Response should not be construed as submission to any arbitral tribunal’s jurisdiction to hear the claim as currently formulated; and (ii) reserving A’s rights to challenge the jurisdiction of the LCIA and any arbitral tribunal appointed” [6]). But no specific challenge to the Tribunal’s jurisdiction on the basis that B’s Request was invalid and ineffective to commence arbitration was made by A in the Response. That specific challenge, passing on the point taken by C against A, was not made by A vis-à-vis B until shortly before A was due to serve its Statement of Defence and therefore well after the Response.

B argued that under Article 23.3 of the LCIA Rules A’s challenge to jurisdiction on the grounds of an ineffective Request for Arbitration came too late.

The LCIA Tribunal (Ian Glick QC; David Mildon QC and William Rowley QC) agreed, holding that A should have raised its challenge in its Response, at the latest, and that it was too late to raise that challenge in its Statement of Defence.

A applied under section 67 of the Arbitration Act 1996 on the basis that the B’s Request was ineffective; that the Tribunal had no jurisdiction and that its determination was invalid.

Issue 1: Was B’s Request for Arbitration Effective to Commence Arbitration?

This, the threshold question as to whether the Tribunal enjoyed jurisdiction over A at all, turned on Article 1.1 of the LCIA Rules. Given the parties’ arbitration agreement was on the basis of arbitration under the LCIA Rules, the Rules governed the manner in which arbitration was to be commenced.

Article 1 provides that a party wishing to commence arbitration is to file a Request for Arbitration which is to be accompanied by (a) “the full terms of the Arbitration Agreement (excepting the LCIA Rules) invoked by the Claimant to support its claim, together with a copy of any contractual or other documentation in which those terms are contained and to which the Claimant’s claim relates” (Article 1.1(ii)) and (b) “a statement briefly summarising the nature and circumstances of the dispute, its estimated monetary amount or value, the transaction(s) at issue and the claim advanced by the Claimant” (Article 1.1(iii)). In addition under Article 1.1(vi) “the registration fee prescribed in the Schedule of Costs” is to be paid the LCIA with the submission of the Request.

B accepted (inevitably) that an arbitration can only encompass a dispute arising under a single arbitration agreement (recorded at [16]).

As there were two separate contracts and two separate arbitration agreements forming part of each contract, albeit in identical form, two separate Requests were therefore necessary, one under each contract and arbitration agreement.

Phillips J. had little difficulty in dismissing B’s case that its single Request was to be read as a Request validly commencing two separate arbitrations, one under the September and the other under the October contract; in other words that while the Request was expressed in the singular, it could be and should be read as a double Request.

The problem for B was that its Request was, as the Judge summarised at [22], specifically drafted on the basis of a single Request referring a single dispute under a single contractual regime and, critically, under single arbitration agreement, to a single arbitration, with B as claimant thereby being entitled to pay a single arbitration fee. 

The Judge summed up the ordinary objective interpretation of the Request and its language (drafted, as he pointed out, by lawyers) in these terms: “In my judgment, and given the analysis of the LCIA Rules and their effect above, a reasonable person in the position of the recipient would have understood the Request as starting one single arbitration. The Request makes no reference to the commencement of more than one arbitration, but refers throughout to “the Arbitration Agreement”. The Request also claims one single amount of damages, refers to “the seat of the arbitration”, “the language of the proceedings”, “the governing law of the arbitration agreement” and payment of “the fee prescribed by the Schedule of Cost”, being a reference to the fee for a single arbitration. It is entirely clear that the intention was to commence a single arbitration and no reasonable reader would conclude otherwise. Indeed, the LCIA itself regarded it as commencing just one arbitration.”

B’s ambitious argument that a Request for Arbitration under Article 1.1 of the LCIA Rules was nevertheless to be read in the light of section 61(c) of the Law of Property Act 1925 which provides that “in all deeds, contracts, wills, and other instruments […] the singular includes the plural and vice versa” was rejected by Phillips J. as having “no merit whatsoever” [19]. 

As the Judge pointed out, this would mean that multiple different arbitrations could be commenced under one registration and one registration fee. Further, the language of Article 1.1 made it clear that a Request was singular and that the arbitration commenced by it was equally singular, not multiple or permitting the commencement in the Claimant’s sole option of as many concurrent or consolidated arbitrations in one Request as it wished.

In seeking to remedy deficiencies in the commencement of arbitration, resort was made by B to the decision of Hamblen J. in The Biz [2011] 1 Lloyd’s Rep. 688.

This was a very different case in which claims under 10 different contracts (10 separate bills of lading), each with its own identical arbitration agreement, were the subject of one notice of appointment of an arbitrator under each agreement in respect of each claim. There were no rules or requirements as to how arbitration was to be commenced and, accordingly, the default regime in section 14 of the Arbitration Act 1996 governed the position. Hamblen J held that the requirements of section 14 had to be construed broadly and flexibly concentrating on the substance and not the form of the notice.

Phillips J. held at [22] that, while that approach was unimpeachable per se, it could not assist B in the different context where detailed arbitration rules defining the way in which arbitration had to be commenced were in place and governed now a claim was to be referred to arbitration.

Issue 2: How Quickly Must a Party Challenge Jurisdiction under the LCIA Rules?

Even if B’s Request was ineffective such that the Tribunal could have no jurisdiction, B contended in any event that A had lost its right to challenge jurisdiction.

Its case rested upon Article 23.2 of the LCIA Rules which provide in so far as material that: “An objection by a respondent that the Arbitral Tribunal does not have jurisdiction shall be raised as soon as possible but not later than the time for its Statement of Defence […].” [Emphasis added.]

B relied on the Tribunal’s view that this required an “as soon as possible” response in all cases, such that if a party receiving a Request for Arbitration considered it to be misconceived in jurisdictional terms, then it had to raise that objection “immediately”. This would require a challenge to jurisdiction to be made under the LCIA Rules potentially earlier even than the filing under Article 2 of the Response to the Request for Arbitration but in any event certainly no later than taking the challenge in and as part of the Response, such that a Respondent could not leave the taking of a challenge to the Tribunal’s jurisdiction to its Statement of Defence.

Even leaving to one side the relevant statutory background, the Court found this to be a difficult argument simply on the wording of Article 23.3 itself which refers expressly to the Statement of Defence in terms as being the final cut-off point.

As the Judge stated at [40]: “the better construction of Article 23.3 is that it excludes “untimely objections”, that phrase relating back to the requirement that an objection shall be not later than the time for its Statement of Defence. Whilst the Article stipulates that objections shall be raised as soon as possible, it does not state a sanction for non- compliance, the sanction for untimely objections being provided by or implicit in the words “not later than” which apply to the time for the Statement of Defence. Had the intention, in 2014, been to introduce a new and much stricter requirement, complete with heavy sanction, it would surely have been done with far clearer words”.

The Judge supported that construction by the approach taken to a similar type of clause (: “as soon as reasonably practicable and in any event within 30 days”) in AIG Europe (Ireland) Ltd v Faraday Capital Ltd [2006] 2 CLC 770.

The Court’s view was further supported by the statutory context in which Article 23.3 was to be construed.

The Court recorded the fact that the Tribunal had cross-checked its construction of Article 23.3 against section 73(1) of the Arbitration Act 1996 which provides that where a party takes part in the arbitral proceedings “without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part” any objection to jurisdiction, the right to object is lost. The Tribunal viewed the requirement of “as soon as possible” as meaning just that with this being consistent with the “forthwith” element in section 73. It was therefore not open to a party to reserve jurisdiction at the response stage and then take it at the defence stage: it had to take it immediately but at the latest in and by the Response.

Phillips J. noted that the Tribunal had however not considered section 31(1) of the 1996 Act which specifically addresses when an objection to jurisdiction must be taken as the default position and which is referred to in section 73(1) (:“without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part”, emphasis added). Section 31(1) provides that an objection to jurisdiction “must be raised … not later than the time he takes the final step in the proceedings to contest the merits of any matter in relation to which he challenges the tribunal’s jurisdiction.” This follows Article 16(2) of the UNCITRAL Model Law save that the reference to it being not later than the statement of defence in the Model Law was replaced by a reference to the final contesting of the merits. As the Departmental Advisory Report on the Arbitration Bill records, the only reason for this change was the avoidance of the impression “that every arbitration requires some form of formal pleading or the like”.

The Judge held that, reading Article 23.3 of the LCIA Rules in its proper context, it was highly unlikely (indeed the Judge put it thus: “it is inconceivable”) that the LCIA had intended some new and stricter regime departing dramatically from section 31 and requiring a challenge even before Response or appointment of an arbitrator, even though both of those steps could not by themselves amount to a waiver of the right to challenge jurisdiction and even though the LCIA Rules provide that the omission to serve any Response does not affect the respondent’s position as to the denial of any claim (Article 2.4).


Permission to appeal was refused by the Judge and so the decision is effectively final on the points it determines.

The Judge’s decision on both issues should therefore be carefully noted.

First, it makes it clear that commencement of arbitration under the LCIA Rules is a straightforward process as defined in Article 1.1 where a claim or set of claims under one contract governed by an LCIA arbitration agreement is referred to arbitration by a Request and that if there are separate contracts and separate arbitration agreements, separate arbitrations must be commenced. Subsequent consolidation of the separate arbitrations is a different matter, with the necessary consents: the LCIA Rules provide for this in terms in Article 22.1(ix).

Secondly, it now clarifies the correct construction of Article 23.3 of the LCIA Rules (newly amended in the 2014 revision). While jurisdictional challenges must be made at an early stage in arbitral proceedings, the long-stop approach of requiring them to be made no later than the contesting of the merits and the time for the Statement of Defence which amounts to a step in the proceedings is consistent with the provisions of the Arbitration Act 1996 and similarly worded provisions.

Time to stop trying? Attempting to sidestep the ‘rehearing’ nature of a s.67 jurisdiction challenge

GPF GP S.à.r.l. v Republic of Poland [2018] EWHC 409 (Comm)


The recent decision of the Commercial Court in GPF GP S.à.r.l. v Republic of Poland [2018] EWHC 409 (Comm) reinforces what should, by now, be well-known to be the unassailable position that a challenge to jurisdiction under section 67 of the Arbitration Act 1996 takes place as a full rehearing of that challenge and not as a review of the arbitral tribunal’s prior decision on the same issue of jurisdiction.

The patent unpopularity of that position in many quarters of the arbitral community is illustrated by the most recent hard-fought attempt in this case to argue that this approach is not justified and should be restricted wherever possible. The decision demonstrates however that attempts to pick away at the position, post the Supreme Court in Dallah Real Estate v Pakistan [2010] UKSC 46, or to seek by other routes to sidestep the effect of a rehearing will be unavailing.

The decision of Bryan J unsurprisingly but usefully confirms that:

(a) that there is no difference between a question of jurisdiction ratione personae or ratione materiae: both are subject to a rehearing;

(b) that the position is no different where a party fails to raise issues in the arbitration and seeks to raise wholly new points on the s.67 challenge, irrespective of the nature of the jurisdictional aspect in play; and

(c) that resort by a party to ‘waiver’ to preclude the other party from raising such new points on the rehearing

The decision also contains a useful analysis of the concept, in the context of a BIT, of creeping expropriation qualifying as an expropriation in aggregate effect and the application of a BIT arbitration clause in that context (not addressed in this case note).

The Background

In a dispute between GPF (Griffin) and Poland under a BIT between Belgium, Luxembourg and Poland, Griffin claimed that a Polish court judgment constituted an expropriation measure. Griffin financed a property group seeking to invest in the redevelopment of ex-State properties for commercial and residential use. It claimed for violation of the fair and equitable treatment standard in the BIT and for indirect or creeping expropriation, similarly in breach of the BIT, relying on a series of acts or course of conduct by authorities and the court, attributable to Poland. A distinguished tribunal (Prof. Gabrielle Kaufmann-Kohler, Prof. David Williams QC, Prof. Philippe Sands QC) held that aspects of Griffin’s claim fell outside the arbitration clause in the BIT and could not be pursued, effectively tying Griffin to reliance solely on the court judgment and not the “prior measures” on which it also relied in support of its FET / expropriation claims.

Griffin challenged the Award under section 67 and, in so doing, supplemented in material aspects its case with new evidence as to the drafting history of the BIT and the “prior measures” and developed additional and different arguments. Poland contended that this was not permissible.

Poland’s Two Points and Bryan J’s Decision

Poland took two points, against the background of the general undesirability of the rehearing rule as eroding the efficacy of international arbitration, buttressed with reference to what the Judge referred to as “the spirited attack on the re-hearing approach undertaken by the editors of Arbitration Law 5th edn” (Robert Merkin and Louis Flannery QC).

(1) A difference between identity of party and scope of dispute jurisdictional issues?

First, Poland argued that the rehearing approach, enshrined in Dallah, was on analysis only applicable in a case which involved a question of jurisdiction ratione personae, i.e., a fundamental issue concerning a claimant who claimed not to be party to the arbitration agreement, and not where the issue arising is one of jurisdiction ratione materiae, or the scope of disputes referred to arbitration.

It argued that the seminal decision of Rix J. in Azov Shipping Co. v Baltic Shipping Co. [1999] 1 Lloyd’s Rep 68, on which Lord Mance’s speech in Dallah was said to hinge, concerned only a substantial issue of fact as to whether a party had entered into an arbitration agreement, not a scope of disputes issue. Reference was also made to a s.67 decision of Toulson J in Ranko Group v Antarctic Maritime SA [1998] ADRLN 35 (post Azov) in which, he held that it would be wrong for the courts to rely on new evidence which “could perfectly well have been put before the arbitrator, but was not placed before him, and with no adequate explanation why it was not”. Toulson J based his decision, in part, on the reduced role of the courts under the Arbitration Act 1996. With that in mind, Poland argued that the Court should not seek to extend the rehearing principle any further than was strictly justified, i.e. to ratione personae issues only.

Bryan J’s decision was an emphatic rejection of any distinction either in the cases or in principle and a vigorous endorsement of the validity of the Dallah principle [70]:”In each case, where it is said the tribunal has no jurisdiction, it is on the basis that either there is no arbitration agreement between the particular parties, or that there is no arbitration agreement that confers jurisdiction in respect of the claim made. In each case if the submission is proved, the Tribunal has no jurisdiction as no jurisdiction has been conferred upon it by the parties in an arbitration agreement. In such circumstances it is for the Court under section 67 to consider whether jurisdiction does or does not exist, unfettered by the reasoning of the arbitrators or indeed the precise manner in which arguments were advanced before the arbitrators.”

(2) Waiver by Griffin of its Right to Raise New Points / New Evidence

Secondly, Poland argued that the doctrine of waiver applied, because Griffin could have advanced the new materials and arguments before the arbitrators but failed or chose not to do so and should therefore be taken to have waived them or to be precluded from running them, even at a rehearing. The argument is, unfortunately, only shortly summarised in the judgment.

The difficulty with this argument, as explained by the Judge, is that once it is recognised that a rehearing is an entirely de novo determination, it is difficult to see how and where waiver will arise.

He put it this way [72]: “it is difficult to see how a waiver could arise in circumstances where it is well established that there can be a re-hearing under section 67, a fact parties are taken to know), and in the context of no restriction being set out in section 67 itself restricting what arguments may be re-run, no question of any loss of a right to advance particular arguments on a re-hearing under section 67 can arise”.

However, while conceivably some form of formal abandonment of a point in the arbitral jurisdiction hearing on which the other relied to its prejudice and detriment and which could not be redressed at the rehearing might amount to a waiver, in the present case (as in most if not all) Poland dealt with the ‘new’ points in detail and could not point to any prejudice.


While the logical underpinning, the justifications and the demerits of a Dallah approach will doubtless and understandably continue to be discussed in the arbitral community (as illustrated by an entertaining debate between Sir David Steel and Louis Flannery QC at the recent Quadrant Chambers International Arbitration Seminar), in practical ‘practitioner’ terms it has been a wholly sterile one since 2010, and perhaps it is time to recognise that fact.

Arguing ‘retroactive deprivation’ of arbitral jurisdiction …and how not to make your s67 challenge


Close upon the heels of the decision in A v B [2017] EWHC 3417 (Comm) (see Commencing LCIA Arbitration: The Perils of Non-Observance of the LCIA Rules) which considered when a challenge to arbitral jurisdiction must be made in an arbitration under the rules of the LCIA and considered the impact of section 73 of the Arbitration Act 1996 upon the interpretation of the relevant LCIA provision, the recent Commercial Court decision in Exportadora de Sal SA de CV v Corretje Maritimo Sud-American Inc [2018] EWHC 224 (Comm) emphasises the need to act swiftly in raising an objection to substantive jurisdiction under section 67.

The context was a highly unusual one: namely, where arbitral jurisdiction existed when the arbitration was commenced under an admitted contract and arbitration agreement but where it was argued that it had been removed subsequently by a supervening governmental act which declared the contract (and arbitration agreement) null and void ab initio.

Does that argument give rise to a section 67 challenge to jurisdiction at all? If so, how do sections 31 and 73 apply to it?

The decision gives stringent guidance on the test under section 73(1) of the Arbitration Act 1996 which is to be applied where a party  contends that it “did not know and could not with reasonable diligence have discovered the grounds for the objection” to jurisdiction.

Further, the Court’s decision is important in emphasising that on any section 67 (or indeed section 68) challenge, the purpose of the witness statement is to set out evidence and not argument. The habit, into which most practitioners have fallen, of setting out one’s case in full in the witness statement was disapproved by the Court. This reflects the Commercial Court’s increasing insistence upon the proper (and therefore much more limited) deployment of factual witness statements.

The Factual Background to the Section 67 Challenge

Exportadora de Sal is a Mexican salt mining company owned 51% by the Mexican Government and 49% by Mitsubishi Corporation. By reason of the majority state ownership, it was viewed in Mexican law as a state entity and was therefore subject to Mexican administrative law governing the tender and contracting procedures contained in a local Mexican law (the Law of Procurement, Leasing and Public Sector Charges).

Exportadora contracted as buyer with a shipbuilder, Corretje Maritimo, for the construction and sale of a specialist salt barge on 3rd July 2014. The shipbuilding contract and arbitration agreement were governed by English law.

The builder (as the arbitrator held) lawfully terminated the contract on 27th May 2015 leaving a substantial instalment owing from Exportadora. The builder commenced arbitration against the buyer in August 2015.

Initially the buyer took no part in the arbitration. However, a hearing date having been fixed by the arbitrator for September 2016, in July 2016 and shortly before the hearing the buyer appointed solicitors who came on the record stating that they would “contest both liability and quantum (and possibly jurisdiction)”. Jurisdiction as a separate issue was not then pursued but other defences (including one of illegality) were raised. The hearing of liability and quantum was adjourned to 5th December 2016.

Separately, Exportadora’s Órgano Interno de Control (OIC) carried out an audit on 10th August 2016 to ascertain whether Exportadora had complied with the requirements of the Mexican law in question. The OIC audit led to various interventions by the OIC, culminating in a decree by the OIC on 16th November 2016 that the tender process had been irregular and that the award of the contract to the builder was and had been a nullity. Exportadora issued an ‘early termination declaration’ in respect of the contract, as directed by the OIC.

Surprisingly, Exportadora than participated fully in the December 2016 hearing on the merits. Its counsel, taxed by the tribunal with the need to explain matters if it was being alleged that the arbitral process was irregular in some way by reason of the OIC ruling, confirmed that this was “a separate matter” and recognised the validity of the arbitral process.

Shortly after the hearing, on 22nd December, Exportadora then raised the issue and made a jurisdictional challenge. The arbitrator allowed further submissions and then rejected the challenge as raised too late.

Exportadora lost the arbitration.

It then commenced a section 67 challenge, contending that the effect of the OIC decree under Mexican law was to deprive the tender of validity, with the result that it did not have power or capacity to enter into the contract and that as from 16th November 2016 the contract was null and void.

The three points dealt with by the Court

(1) ‘Retroactive deprivation’: a matter going to substantive jurisdiction at all?

While there was contested evidence of Mexican law as to the effect of the OIC decree, the highest that Exportadora could put its case was that, while the arbitrator had not lacked substantive jurisdiction at the outset of the proceedings, “this became so after the OIC Resolution” and that from that time on the arbitrator did not have substantive jurisdiction to decide any of the matters in the arbitration.

Andrew Baker J. held that the section 67 claim failed at the first hurdle, because the effect of Exportadora’s Mexican law argument as to ‘invalidity’, even if correct, was a matter going to the subsequent discharge of an existing contract and not a matter of initial and original capacity to contract and therefore arbitral jurisdiction.

As he put it at [39]: “A doctrine that accepts and acknowledges that a valid and binding contract was concluded, including a valid and binding arbitration agreement, but requires by reason of the act of an administrative body over two years later that it thereafter be treated as if it had never been validly concluded is, by nature, not a doctrine concerning capacity to contract.” Accordingly a ‘retroactive deprivation’ of authority to contract could not impugn the arbitrator’s substantive jurisdiction to make the award.

(2) How does Section 31 apply to a ‘retroactive deprivation’ case?

Section 31 deals with objections to the substantive jurisdiction of the arbitral tribunal at two stages: (a) under section 31(1), lack of jurisdiction “at the outset of the [arbitral] proceedings” and (b) under section 31(2), “during the course of those proceedings” where the tribunal “is exceeding its substantive jurisdiction”.

Objectively, Exportadora was to be taken to know that it was contracting with the builder in contravention of Mexican law and (if true) in an unauthorised manner. Accordingly, any objection on that ground, even if it went to jurisdiction, was one which had to have been raised by Exportadora before taking any step in the arbitration. Under section 31(1) of the 1996 Act “must be raised by a party not later than the time he takes the first step in the proceedings to contest the merits”. The time for raising that jurisdictional issue was long past.

For this reason, Exportadora had to put its case as one founded on the OIC decree and on the contention that that decree, as from 16th November 2016, deprived the arbitrator of substantive jurisdiction. In other words, it was a matter which arose “during the course of the arbitral proceedings”. In these circumstances, Exportadora sought to put itself within the “as soon as possible” requirement under section 31(2) (: “Any objection … must be made as soon as possible after the matter alleged to be beyond its jurisdiction is raised”), arguing that its raising of the point on 22nd December shortly after the hearing and before the award met this requirement.

The builder argued that section 31(2) was inapplicable and that only section 73(1) applied, which thereby imposed a more exacting timescale for raising an objection as to jurisdiction than simply “as soon as possible”, namely “forthwith”. It was argued that continuing to act as arbitrator where the arbitrator had jurisdiction initially but then has lost it was not a case of “exceeding” jurisdiction as such, and that section 31(2) deals only with going beyond a jurisdiction which the tribunal has, not a case of subsequent loss of all jurisdiction.

It might be said that this was a hair-splitting argument in that it sought to distinguish “forthwith” from “as soon as possible”. However, the language of section 31(2) does not sit very happily with a “retroactive deprivation of all jurisdiction” argument. This is not surprising since the framers of the Model Law and then the 1996 Act were unlikely to have such a possibility in mind as a bar to arbitral jurisdiction.

The Judge approached the matter on the robust basis that section 31 should be read so as to avoid any gap in coverage, stating at [45]: “That may make the case unusual. But if it were nonetheless viable, I find it entirely natural to describe an arbitrator who continues to act after his temporally limited jurisdiction has expired as exceeding his jurisdiction. This reading of section 31(2) avoids a lacuna in section 31 that seems to me unlikely to have been intended.”

(3) Section 73(1) and the exception for late challenges to jurisdiction

Section 73(1) bars a late objection “unless [the party] shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection”.

The obvious problem for Exportadora was that it had known about the matters on which it relied since, at the latest, 16th November 2016 when the OIC made its decree of nullity or, at the earliest, August 2016 when the OIC carried out its audit and instituted its ‘intervention’ for breaches of the Mexican law in respect of tender procedures. It then took part in the December hearing.

In those circumstances, there was little doubt as to the outcome.

But the Court usefully stressed that given the importance of jurisdiction, a party had to act very quickly indeed, and within a timescale of days not weeks, treating the investigation of any potential jurisdictional argument as one of “the highest priority”. The Judge explained the rational for this as follows at [48]: “The general context in which that question of reasonable diligence falls to be assessed is that when faced with a legal claim asserted through arbitration, logically and practically the first question any respondent can fairly be expected to consider and keep under review throughout is whether it accepts the validity of the process.”

The Court held that Exportadora should have taken “urgent advice” as soon as it learnt of the OIC decree and “treated with appropriate priority” should have objected within one week. The Court would have gone further if necessary and said that with the background since August, it should have objected “within a working day or two” of receiving the decree.

Witness Statements in section 67 (and section 68) challenges: the Correct Approach?

The general guidance to witness statements in the Commercial Court Guide (at Part H1.1(a) of the 10th Edition) is that “the function of a witness statement is to set out in writing the evidence in chief of the witness”. The Court is increasingly hard on statements that argue the case or recite documentation with strict page limits.

No specific guidance on witness statements is given in Part O, dealing with Arbitration Claims, (beyond in relation to section 68 challenges, that these “must be supported by evidence of the circumstances on which the claimant relies as giving rise to the irregularity complained of and the nature of the injustice which has been or will be caused to the claimant”: O8.4). Generally the place to argue the case is in the Claim Form which “must contain, among other things, a concise statement of the remedy claimed and, if an award is challenged, the grounds for that challenge”: O3.1.

However, as the Judge noted in this case, on section 67 (and 68) applications, a practice has grown up of serving a very full witness statement with the Arbitration Claim Form. He saw as this as having arisen because of “the perceived convenience in a section 67 claim of setting out the claimant’s detailed case as to the material facts, with explanatory comment or an outline of the proposed argument, in a single, main supporting witness statement from the claimant’s solicitor.” [25].

Andrew Baker J. in the course of his judgment disapproved of this practice.

He laid down some ‘reminders’ which practitioners will do well to bear in mind for the future: see at [25] to [27].

  • “Where the material facts will be proved by contemporaneous documents, whether generated by the original transaction or by the arbitral proceedings, the proper function of a witness statement may well be only to serve as the means by which those documents can be got into evidence by being exhibited.”
  • “The claimant’s case as to what those documents prove, and as to the conclusions to be drawn, can and should be set out in the Arbitration Claim Form as part of the statement of the “Remedy claimed and grounds on which claim is made“, a statement often produced in the form of a statement of case attached to the Claim Form.”
  • “The content of any witness statement, beyond a bare identification of exhibited documents, can and should be limited to matters of fact intended to be proved, if disputed, by calling the maker of the statement as a factual witness at the final hearing of the claim.”

Where (as is likely) this approach has not been taken or ‘old-style’ statements are being considered, then a further requirement was stressed:

  • “If a witness statement served with the Arbitration Claim Form has not been properly limited in that way, … it is essential, if the maker of the statement is to be called as a witness at the final hearing of the claim, that proper thought is given to which parts of the statement it is necessary or appropriate to take as their factual evidence in chief. That should preferably be done well ahead of the hearing. Any dispute over what should be allowed as evidence in chief can then be identified and resolved, by the court if necessary; the parties can then prepare cross-examination limited accordingly; and the hearing can then be listed upon the basis of a time estimate that is better informed.”

In cases where the underlying facts are not in reality contentious but how they are to be argued is, this restatement of approach is likely to see the disappearance of any proper need for a full witness statement. The case can be summarised in pleading form in the Claim Form (and argued at fuller length in the skeleton, which witness statements often seek to foreshadow) and the accompanying statement limited to a vehicle for appending the relevant underlying documentation.