Another twist in the OWB bunkers saga. Bunker supply contracts are contracts “relating to sale of oil products” under assignment to ING Bank.

 

Cockett Marine Oil v Ing Bank [2019] EWHC 1533 (Comm) involved a a challenge to two arbitration awards pursuant to section 67 of the Arbitration Act 1996 on the grounds that the arbitral tribunal had no jurisdiction. The awards were in respect of bunkers supplied to Cockett Dubai and Cockett Asia in October 2014. ING as OWB’s assignee commenced arbitration in London in respect of the supplies which Cockett challenged on two grounds. First, that their contracts had not been subject to London arbitration so London arbitrators had no jurisdiction. Second, that the assignment by OWB applied only to contracts “relating to the sale of oil products traded by the Group”. As the Supreme Court had held in PST Energy 7 Shipping LLC v OW Bunker Malta [2016] UKSC 23 that OWBG’s supply contracts were not contracts for the sale of goods within the meaning of the Sale of Goods Act, the assignment cannot have been effective.

Teare J found for ING on both grounds.

(1) In 2013 OWBG altered their terms and conditions. Prior to 2011 their terms and conditions provided for Danish law and Danish arbitration. Their 2013 terms and conditions provide for English law and London arbitration. OWBG took steps to inform their customers of the change. In view of the number of customers involved they employed an independent company, Concep, to communicate with their customers, rather than perform the task themselves. There was no evidence from Concep as to the steps they took to inform customers of the change in the terms and conditions. However, OWBG was able to access Concep’s web page and, by use of a password, access information about the “campaign”. That was the method provided by Concep to its customers to enable them to assess the success of the campaign. this contract for the supply of bunkers was on OWBG’s 2013 standard terms and conditions. Both contracts were subject to the 2013 revised OWB terms and therefore the arbitration tribunal had jurisdiction to determine the claim referred to it.

In relation to the second sale it was argued that OWB’s terms provided for variation when the bunkers were physically supplied by a third party who insisted on using its own terms. The bunkers had been supplied by a Greek supplier whose terms provided for Greek law and jurisdiction but the supplier had not insisted that its terms applied and accordingly there had been no variation.

(2) The assignment did cover the supply contracts. The parties to the Omnibus Security Agreement assumed that OWBG’s supply contracts were contracts of sale and intended that the security provisions of the contract applied to them, an assumption reflected in OWBG’s standard terms and conditions. In the Court of Appeal in PST Energy 7 Shipping LLC v OW Bunker Malta [2016] 2 WLR 1072 at paragraphs 44 Longmore LJ had said that there can be agreements which “may ……be described in commercial terms as contracts for the sale of goods but are contracts to which the 1979 Act does not apply.”  The parties to the Omnibus Security Agreement described OWBG’s supply contracts as contracts “relating to the sale of oil products” because in commercial terms they had many of the features or characteristics of a sale, notwithstanding that they were not contracts of sale within the meaning of the Sale of Goods Act because they did not envisage the passing of property before payment was due. As there was a valid assignment in favour of ING Bank the arbitrators had jurisdiction to make an award in its favour.

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)

Overview

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).

Conclusions

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)

Overview

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.

Conclusion

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

Overview

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.

Arbitral Appeals under s.69…No Second Bites? – Simon Rainey QC and Peter Stevenson

Agile Holdings Corporation v Essar Shipping Ltd [2018] EWHC 1055 (Comm)

Overview: second bites at s.69(3)?

The English statutory regime for appeals against arbitration awards on questions of law under s.69 of the Arbitration Act 1996, as is well known, applies a two stage process: (i) the application of permission to appeal and, (ii), if permission is granted the appeal itself.

Section 69(3) sets out the matters on which the Court is required to be satisfied as pre-conditions for granting permission to appeal. Where a party unsuccessfully resists permission on the basis that some or all of the requirements are not met, can it nevertheless reargue the point or points all over again on the appeal proper? 

The position and the few cases in this area were recently considered by the Commercial Court in Agile Holdings Corporation v Essar Shipping Ltd [2018] EWHC 1055 (Comm).

The answer is: “it depends”.

How the issue arose

The claimant sought permission to appeal against an arbitration award on a question of law arising from the Award. The defendant opposed permission on various grounds including a submission that the tribunal had not been asked to decide the relevant question (and therefore that the threshold requirements of s.69(3) of the Arbitration Act were not met). It was contended that the argument now being sought to be run had never been argued in that way before the arbitrators. The claimant disputed that and put in evidence of the written submissions and the transcript of the oral submission. The Judge granted permission, rejected the submission and held that the point had been argued. He refused an application by the defendant for an oral hearing on the point.

On the full appeal, the defendant sought to re-open the issue and re-argue its original submission.

The Commercial Court’s decision

The Judge (HHJ Waksman QC, sitting as a deputy Judge of the High Court) allowed the appeal in full. On the s69(3)(c) point, he held that:

(i) the exercise undertaken by the judge granting leave to appeal involves a detailed consideration of the threshold questions;

(ii) once leave has been granted, there is every reason to move onto the merits of the question without the distraction of re-litigating tangential points which have already been decided;

(iii) a party cannot resist the appeal on the basis that the threshold requirements of s.69(3)(a) and (d) are not met. Those issues arise exclusively at the leave stage and the decision of the judge at that stage is final;

(iv) the position is different in respect of the requirements of s.69(3)(c) because, whether a point was put to the tribunal is tied to the issue of whether there is a question of law arising out of the award at all;

(v) however, while the Court hearing the appeal may not be bound as to whether the question arises from the award, it should give considerable weight to the decision of the judge granting leave.

Simon Rainey QC, leading Peter Stevenson, represented the successful appellant.

The Detailed Reasoning of the Court

The defendant submitted that the Court did not have jurisdiction to entertain an appeal because the threshold requirements of s.69(3) were not met.

In support of that proposition it relied upon two authoritiesMotor Image v SCDA Architects [2011] SGCA 58, a decision of the Court of Appeal of Singapore, and The Ocean Crown [2010] 1 Lloyd’s Rep. 468 a decision of Gross J (as he was).

(1) In Motor Image v SCDA Architects, the Singaporean court considered identical appeal provisions in s.49 of the Singapore Arbitration Act 2002. The judge at first instance (Prakash J., as she was) had granted permission to appeal a question of law under those provisions. When the same judge heard the appeal she decided that the question did not arise on the facts as decided by the tribunal. She took the view that as a result the appeal should be dismissed. The Court of Appeal agreed. It held that this sort of point could be reargued on appeal because it went to the very jurisdiction of the court to hear the appeal in the first place. In other words, the grant of leave was a finding that the court had the relevant jurisdiction. So if on further analysis, one of the threshold conditions was not made out, the court was actually deprived of jurisdiction and could not hear the appeal.

HHJ Waksman QC rejected that analysis. He held that once leave has been granted, the question of whether the Court has jurisdiction to determine the appeal has been determined. Subject to any challenge to that decision, the Court has jurisdiction to determine the appeal. The effect of this finding is that it is not open to a party to meet an appeal under s.69 by re-arguing points which relate exclusively to the threshold requirements for permission. Specifically the Judge held that a party cannot re-argue (i) that the determination of the question will not substantially affect the rights of the parties (s.69(3(a)); or (ii) that it is not just and proper for the court to determine the question (s.69(3)(d)).

(2) The decision The Ocean Crown was of a different nature. In that case there were three separate questions of law for appeal for which permission had been granted. The third question involved the allegation by the appellant that the tribunal had sought to restrict the ambit of a well-known legal principle concerning salvage remuneration and had thereby committed an error of law. The respondent argued that the tribunal had done no such thing but was merely dealing with how that principle was to be applied on the particular facts of the case. On that analysis there was no error of law at all.

Gross J. held that, in determining whether a question of law arises out of the award (a pre-requisite of allowing an appeal) the court is not bound by the decision of the judge granting leave.

As HHJ Waksman QC noted, Gross J’s decision not concerned with the threshold requirements of s.69(3) of the Act. It is concerned with whether s.69 is engaged at all: s.69 only permits appeals on questions of law arising from an award (s.69(1)). The Judge described this as ‘the Law Question’ which he distinguished from the issue of whether the question of law was actually put to the tribunal (which he described as ‘the Determination Question’).

However, although not addressing the point head on, the Judge appears to have accepted that the Determination Question is connected to the Law Question and is therefore not merely a threshold requirement for obtaining leave, but may also be considered as part of the substantive appeal.

Having drawn this distinction the Judge held that he was not prohibited from reconsidering whether the question of law raised in the appeal was one that the tribunal had been asked to determine. But he emphasised that the Court should give ‘considerable weight’ to the decision of the judge granting leave to appeal, particularly if (i) the decision was made after an oral hearing; and/or (ii) the materials before the judge granting permission are the same or substantially the same as those before the appeal court.

Adopting that approach the Judge reviewed the material advanced by the defendant and held that he was in no doubt that the question of law was one that the tribunal had been asked to determine.

Conclusions

The decision of the Judge is helpful in three respects.

First, it clarifies that the decision of the judge granting permission to appeal is final and determinative of that issue. It is not open to a party to meet an appeal by arguing that the threshold requirements for leave to appeal were not met and leave should not have been granted. In that respect it drew a clear distinction between the position under English law and the approach taken by the Singaporean Court of Appeal in Motor Image v SCDA Architects.

Second, it confirms that when determining whether the question of law arises from the award, the Court hearing the appeal is not bound by the decision to grant leave and, as part of that process, can reconsider whether the question was one that the tribunal was asked to determined.

Third, it provides clear guidance as to the weight that should be given to the decision of the judge granting leave to appeal. If the judge granting leave considered the issue and had the same material before him/her, ‘very considerable weight’ should be given to the original decision.

It is to be hoped that this robust approach discourages defendants who are unsuccessful at the permission stage from re-opening such points thereby rendering the s.69 process more time-consuming and more costly.

Carriers and bills of lading: an unexpected duty to arbitrate.

An important point for bill of lading holders arose a couple of days ago in the Commercial Court. Everyone knows that you have to watch your back when becoming the holder of a bill of lading, in case you end up with not only the right to sue the carrier but also the duty to foot the bill for an insolvent shipper’s liabilities.

Traditionally the teaching has been: you are safe unless you take or demand delivery of the goods or make a claim against the carrier. It follows that if you are pretty sure you never did any of those things but nevertheless receive a demand from the carrier, you can smugly respond “Nothing doing. Sue me if you dare.” So far so good. But what if you receive a demand for arbitration pursuant to an arbitration clause contained in the bill? Can you still say “See you in court”, or are you now bound to arbitrate the claim, with the risk of losing by default if you do nothing? This was the point that arose in Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd [2018] EWHC 1902 (Comm), where Popplewell J preferred the latter answer.

A bank financed A, a seller of Argentine extracted toasted soya meal, who voyage-chartered a vessel to deliver it to Moroccan buyers. The transaction was a disaster for A, with the deal and a series of replacements falling through and the vessel sailing round North Africa and the Mediterranean, rather like Captain Hendrick’s Flying Dutchman, in search of someone somewhere to love the cargo. Big demurrage liabilities built up. The bank meanwhile acquiesced in the issue of a switch bill with a LMAA arbitration clause incorporated, naming it as consignee. A being (one assumes) insolvent, the owners claimed against the bank and claimed arbitration, alleging the bank was liable either as an original party to the switch bill, or as a transferee of it.

The arbitrators declined jurisdiction, on the basis that there was no evidence the bank had become liable on the bill under s.3 of COGSA 1992 and thus that the bank was not bound by the arbitration clause. However, on a s.67 application Popplewell J disagreed. The arbitration agreement was, he said, separate from the rights and liabilities under the bill itself: as soon as the bank fell to be treated as a party to the bill under s.2 of the Act, it was bound fully by any arbitration provision in it. It followed that the case had to be remitted to the arbitrators with a direction to continue with their hearing of the claim.

A result which, one suspects, will please neither banks nor traders, since it deprives both of the advantage of inertia: but there you are. At least carriers will be happy.

Arbitration agreement governs claims under divested contract. A new take on s.2(5) of COGSA 1992.

 

An everyday tale of switch bills and financing banks. An fob buyer of goods who had chartered the vessel  lost its on sale during the course of the voyage, and found a new buyer at a different discharge port.  The charterer agreed with the shipowners to issue new bills of lading and the bank who held the original bills as security for the money advanced to its customer for the purchase of the cargo agreed to switch the bills at its counter. The bank brought cargo claims against the owners under the original bills and the owners counterclaimed with a substantial claim for unpaid demurrage against the bank under the second bills.

The tribunal determined that the bank was not a party to the agreement to switch the bills of lading, and rejected the argument that the bank became party to the bill of lading contracts.  It rejected an argument that the bank had made a demand for delivery of the cargo or made a claim against the vessel under the contract of carriage so as to incur liabilities under section 3 of COGSA.  For those reasons, it held that it did not have jurisdiction to determine the owners’ counterclaim for demurrage against the bank. The owners applied under s.67 of the Arbitration Act 1996 to set aside or vary the award.

Popplewell J held that the tribunal did have jurisdiction to determine owner’s counterclaim for demurrage. The bank argued that the effect of section 2 of COGSA was to vest in the holder rights of suit under the contract of carriage, and vested a right to arbitrate (with an attendant obligation to do so if the rights of suit are exercised), but no obligation to do so if it did not exercise the rights of suit vested by section 2. Popplewell J rejected this argument. An arbitration agreement contains obligations by which a party is bound irrespective of the assertion of substantive rights by that party or the commencement by that party of arbitration or other proceedings.   They arise when there is an arbitral dispute, irrespective of which party is the maker or recipient of the claim which is disputed.  Sections 2 and 3 of COGSA did not split the arbitration clause in the bill of lading  such as to confer arbitration rights under section 2 and arbitration obligations under section 3.

The bank also argued that although it had become the lawful holder of the bill of lading it had been divested of its rights thereunder by virtue of s2(5) when it transferred the bill of lading under the letter of credit opened by the new buyer of the goods. The divestment of rights under s.2(5) did not affect the agreement to arbitrate. Under the doctrine of separability an arbitration agreement has a separate and independent existence from that of the matrix contract in which it is found. Therefore once you have become a party to an agreement to arbitrate, the extinguishment of rights under the matrix contract does not affect the arbitration agreement, which remains applicable to disputes falling within its ambit.

Accordingly owners’ s.67 application succeeded on this issue. No finding was made on the other ground of owners’ application, that the bank was an original party to the contract contained in or evidenced by the switch bills. This was a substantive issue for the tribunal to determine.

 

 

Where is a debt?

In a case decided today, Hardy Exploration & Production (India) Inc v Government of India [2018] EWHC 1916 (Comm), IISTL member Peter Macdonald-Eggers QC in his judicial capacity faced a nice problem concerning the situs of a debt (vital for issues of third party debt orders, and also issues such as confiscation). We were always told that this was where the debtor was resident, that is, where the debt was recoverable (most recently in Taurus Petroleum Ltd v State Oil Marketing Co [2017] UKSC 64, noted here in this blog). But this can be ambiguous: what if the debtor resides in Ruritania and yet the debt, for example because of an exclusive jurisdiction clause, is recoverable only in Utopia? In this case the answer now seems to be Utopia.

In the Hardy case a claimant had the benefit of an arbitration award for $70 million or so against the Indian government. The government was for its part owed a tidy sum by an indirectly state-owned corporation incorporated in London and doing business there: but the contract creating the debt had what was effectively an Indian exclusive jurisdiction clause. Could a third party debt order be made against the corporation on the basis that the debt was situated in England? No: the debt fell to be regarded as situated in India and beyond the English court’s reach.

On the basis that this blog is for busy practitioners, we will leave it at that. For those interested, there is a great deal more in the judgment: a lot of scholarship, and also more about the third party debt order jurisdiction generally. Happy reading.

Stuck in the middle with you.  Back to back time bar clauses in chain of charters.

 

 

P v Q, Q v R, R v S [2018] EWHC 1399 (Comm) involved three voyage charters in the middle of a lengthy chain, between P and Q, Q and R, and R and S. Each contained the same time bar clause barring all claims if arbitration was not commenced within thirteen months of final discharge. Final discharge was on 16 October 2015 and  in September 2016 cargo claims were made against the owners and duly passed down the chain. On 16 November 2016 after their office had closed, P received notification of the appointment of an arbitrator by their disponent owner, Sinochart. By the time they became aware of this on 17 November, the thirteen month time limit in their charter with Q had expired.  P notified Q and appointed an arbitrator on 30 November. Q then contacted R and appointed  their arbitrator on 17 November, with R doing likewise to S, appointing their arbitrator on 1 December.

The notices of arbitration down the three charter chain from P to S were all out of time. However, P argued there had to be an implicit limitation on the literal meaning of the arbitration clause C so that the time bar would not apply where it was impossible for a claim to be passed on within the stipulated time because the recipient of a notice of claim was unaware of the claim or receipt of a notice thereof, or where, at the expiration of the time limit, no dispute existed that could be made the subject of a commencement of arbitration.  A similar argument had been raised, and rejected, in  The Himmerland [1965] 2 Lloyd’s Rep 353 and in The Stephanos [1989] 1 Lloyd’s Rep 506  in which it had been held that the three month Centrocon arbitration clause should be given a literal construction, so that claims or disputes that had not even arisen within the stipulated period were nonetheless time-barred. Sir Richard Field, acting as a judge of the High Court, did likewise, noting that the words in the arbitration clauses were clear and ambiguous and should be given the same construction as was given in the Centrocon cases.

Time could be extended under s.12 of the Arbitration Act 1996 if it were just, but the applicant would need to have acted expeditiously and in a commercially appropriate fashion to commence proceedings once it became aware that a claim was being made against the applicant under the charterparty above or below in the chain.  Q had done so by appointing their arbitrator on 17 November, and were granted an  extension but this was not the case with P who had appointed  their arbitrator on 25 November, nor with R who had appointed their arbitrator on 1 December.