Does the Arbitration Act give effect to one of its "founding principles", which is "the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense"? Do the proposed amendments to the Act help to support this?
A recent judgment of the Commercial Court rejecting the challenge to a London-seated arbitration award under both sections 67 and 68 of the Arbitration Act 1996 ("AA 1996"), in which Howard Kennedy acted for the successful respondent, offers a good opportunity to consider whether the proposed reforms in the Amendment Bill to the AA 1996 will achieve their objective in this area.
Background
In May 2017, Bluequest Resources AG ("Bluequest") and Palmat NV ("Palmat") entered into two agreements:
1. An agreement whereby Bluequest was the "Seller" and Palmat the "Buyer" of Liquid Caustic Soda ("LCS") ("the LCS Agreement"); and
2. An agreement whereby Palmat was the "Seller" and Bluequest the "Buyer" of aluminium ("Aluminium") ("the Aluminium Agreement).
The deal was that the LCS would be shipped, and the value of the Aluminium, which was to be shipped by a certain later date, would be credited against the price of the LCS.
The contracts each included detailed appended terms which contained an arbitration agreement, and provisions that the Buyer would provide notice of claims within 30 days.
On 10 July 2017, Bluequest shipped the LCS in accordance with the terms of the LCS Agreement. Palmat failed to ship the Aluminium by the date specified in the Aluminium Agreement.
Bluequest continued to press for delivery of the Aluminium but, on 12 September 2017, Palmat indicated that due to external factors, all shipments of aluminium had been suspended. In response, Bluequest made a demand for payment for the LCS in full. Palmat did not pay and Bluequest brought and succeeded in a claim for payment in arbitration. The Tribunal found that Bluequest was entitled to be paid for the LCS because the Aluminium was never shipped. The Tribunal rejected Palmat's arguments that Bluequest was required to accept Aluminium in lieu of payment for the LCS, and that that the time limit on claims barred Bluequest's claim to the price of the LCS. Bluequest was not the "Buyer" of the LCS.
Challenge to the Award
On 28 October 2022, Palmat brought a claim challenging the award under sections 67 and 68 of the AA 1996. The section 68 challenge failed, on the application of the familiar principles applicable to such challenges, which favour upholding arbitrators' awards unless there has been a clear injustice.
The jurisdiction challenge argued (as Palmat had in the arbitration) that the transaction was a barter or exchange of materials, and not a "sale" of LCS and therefore Bluequest's terms were not incorporated into the contracts. By extension, because the arbitration clause was contained within these terms, Palmat argued that the arbitration agreement was not incorporated.
Palmat also argued that the time bar on notice of claims precluded Bluequest's claim and deprived the tribunal of jurisdiction.
Decision
Both these jurisdiction challenges were rejected by the court applying basic principles of English law in relation to the interpretation of contracts. The terms containing the arbitration clause was incorporated both because the parties to the contract were defined as "Buyer" and "Seller", and so the nature of the agreement made no difference, and because the terms were expressly incorporated into the contracts.
In relation to the second challenge, the court found that the time-limit on claims operated only as against Palmat since it was the "Buyer" of the LCS.
Reforms to the AA 1996
Clause 11 of the Amendment Bill, which is currently before the House of Lords, amends section 67 of the AA 1996 to permit court rules to be made which provide that:
- A ground for an objection to jurisdiction not raised before the Tribunal may only be raised before the court if the applicant "did not know and could not with reasonable diligence have discovered" the ground to deploy it in the arbitration.
- The court should not accept evidence which was not before the Tribunal unless the applicant "could not with reasonable diligence have put the evidence before the tribunal".
- The court should not re-hear evidence which was heard by the Tribunal unless the court is persuaded that it is necessary in the interests of justice.
The proposed reform addresses concern that, under the approach following Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46, the losing party in the arbitration has an opportunity to replead its case on jurisdiction before the court, with the benefit of an arbitration award and to adduce new evidence and insist on a full rehearing, causing significant cost and delay.
In the case of Palmat, Palmat relied upon the same arguments and evidence which it had raised in the arbitration. In such cases, where the evidence put forward in the arbitration is identical to that which is put forward in the courts, courts should be at liberty to review the Tribunal's decision without a full trial. However, even in such cases, the re-hearing and de novo decision on the jurisdiction challenges may require a significant volume of written evidence (so that the court is familiar with the evidence which was before the Tribunal) and a long hearing. Even if oral evidence can usually be avoided, the resolution of a challenge may require many months to reach such a hearing and for the court to give a judgment addressing the issues de novo. In the meantime, the creditor is kept out of their money and cannot proceed with enforcement in England.
One way to address this would have been to change the test on a jurisdiction challenge so that the court could consider whether the Tribunal got the decision wrong, rather than making a de novo decision. However, this proposal (which found considerable support amongst commentators during the Law Commission consultation) seems to have crashed against the immovable principle that arbitrators cannot give themselves jurisdiction where they have it not, and therefore the court's decision must be a fresh, full consideration of jurisdiction issues.
It would therefore appear that, after the reforms, it will remain open to parties to try and obtain a "second opinion" from a Judge on an already decided jurisdiction challenge, and to secure a significant delay whilst that decision is awaited.
It is worth keeping in mind that a respondent to a section 67 challenge can deploy the procedure under the Commercial Court guide to seek an early dismissal on paper. This is often worth a try, even if jurisdiction challenges can be more difficult to have dismissed at that stage than section 68 cases.
This article has been co-written by Duncan Bagshaw, Partner and Sanchita Agrawal, Solicitor.
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