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In Armada Ship Management (S) Pte Ltd v Schiste Oil and Gas Nigeria Ltd [2021] EWHC 1094 (Comm), the English High Court provided important guidance regarding preliminary applications to it to determine the jurisdiction of an arbitral tribunal under s32 of the Arbitration Act 1996 (the “AA”).
Background and application to the Court
The defendant chartered a ship from the claimant on a standard form. The parties, however, agreed bespoke changes to the London seated arbitration clause in the charterparty [8]. A sole arbitrator was to be appointed but unfortunately there were inconsistencies in the drafting which left the appointment process unclear. For example, a reference to both the UNCITRAL Rules and the London Maritime Arbitrators Association (“LMAA”) rules [9].
The claimant started arbitration proceedings to recover unpaid invoices. It also proposed a sole arbitrator. The defendant only “noted” the claimant’s reference to arbitration and did not engage with its substance, including on the appointment of the claimant’s proposed arbitrator [12]. The arbitrator proposed by the claimant declined to act as the scope of his jurisdiction was unclear, given the inconsistent appointment provisions [14].
Thereafter, on the claimant’s application, the LMAA President appointed a sole arbitrator after considering the potential conflict in the arbitration agreement [16-17]. The defendant, however, continued its non-engagement. Consequently, the arbitrator granted the claimant permission to apply to the High Court to seek its determination on a preliminary point of jurisdiction under s32 AA.
s32 AA and non-participants
An application under s32 may be made, in an English seated arbitration, either by agreement of all parties or with the permission of the tribunal. In the latter instance, the court needs to be satisfied that: (i) the determination will produce a substantial saving of costs; (ii) the application was made without delay; and (iii) there is good reason why the matter should be decided by the court (s32(2)(b) AA).
The relationship between sections 32 and 72 AA
The Court noted that while s32 forms part of the mandatory provisions of the AA, it is considered a “rarely used tool” because “the primary scheme of the [Arbitration] Act is to allow the arbitrators to decide their jurisdiction first ” [31]. Moreover, the Court could determine a s32 application only if it was satisfied that: (i) the conditions in s32 were met; and (ii) the declarations sought concern questions of “substantive jurisdiction” and that the position in that respect is as contended by the claimant. However, in the present case, there was also a threshold question regarding the relationship between sections 32 and 72 AA. Section 72 provides certain rights to a person who has chosen to take no part in arbitration proceedings; in particular the ability to apply to court to challenge the tribunal’s jurisdiction, or to challenge an award made against it.
The policy behind s72 AA
The Court cited earlier authority and the 1996 DAC report (paragraph 295) which emphasised that s72 was a vital provision in preserving the right of a party who disputes the tribunal’s jurisdiction to refuse to engage in the proceedings – rather than be forced to dispute jurisdiction within their framework (including for example time limits under the AA). Therefore, the case raised a fundamental question as to whether a s32 declaration was appropriate if the defendant was a non-participant who could benefit from s72.
The Court’s rationale for not granting a s32 application in the present matter
The Court held that the s32 procedure is unlikely to be appropriate against a non-participant [41] because allowing such a procedure may put the non-participant in an unacceptable position; either to take part, and potentially lose the right to object, or refuse and not be heard in relation to a prima facie binding determination [42] – there being no mechanism for challenging a s32 determination under s72 [48]. Accordingly, in such circumstances proceeding with the former would conflict with s72 and the court declined to act.
Given this conclusion, the court did not have to consider whether the pre-conditions of s32(2)(b) would otherwise have been met but, in an obiter section, the court concluded that they would have been [53]-[62].
Comment
Applications under s32 AA are relatively scarce, so this case is important for a number of reasons. First, it clarifies the relationship between s32 and s72; in particular, it emphasises that – when faced with a non-participant, a party who has commenced arbitration proceedings can’t use the former to override the procedural guarantees provided by the latter (and, as in this case, an unsuccessful claimant may also have to pay costs of that application). And, second, although obiter and dependent on the facts of the case, the court’s consideration of whether the requirements of s32(2)(b) were otherwise met may provide a useful indication of where the court will accept such an application in cases where it is engaged.
Click here for the judgment.
22 June 2021
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