1 RT Arbitration
1 RT Arbitration
1 RT Arbitration
jurisdiction
Sections 30, 32 and 72 of the Arbitration Act 1996
Robert Thomas
Introduction
Pre-1996
It is,
8. Although this part of the lecture focuses on sections 30, 32 and 72, it is
important that these provisions are seen in the context of the wider scheme
set out in the Act.
9. The broad structure under the 1996 Act can be summarised as follows:
a. The arbitrators are entitled to proceed to determine their own
substantive jurisdiction by means of an award (section 30).
b. If they choose to rule on their jurisdiction, and they proceed to an
award, whether on jurisdiction alone or on the substance of the
dispute, that award may be challenged under the procedure set out in
section 67.
c. If the arbitrators refuse to determine their jurisdiction, and the seat of
the arbitration is England, the question can be resolved only by means
of an application to the court with the consent of the other parties or
the arbitrators under section 32 of the Act.
d. If one party wishes to contest jurisdiction, he has the right either:
i. to refuse to participate in the arbitration proceedings. In this
regard, section 72 of the Act retains the pre-1996 Act common
law right of an (alleged) party to an arbitration agreement to
refuse to participate and to call on the Court to make a
declaration or grant an injunction (or other appropriate relief).
Under this section, the non-participating party also retains the
right to challenge the award on jurisdictional grounds under
section 67 of the 1996 Act and to contest the enforcement of the
award under section 66 of the Act; or
ii. to bring judicial proceedings to enforce a right which that
party asserts does not for whatever reason fall within the
disputed agreement to arbitrateif there is an application for
a stay of the judicial proceedings by the other party, under s 9
of the 1996 Act, the court will in effect be required to
determine the jurisdictional question by reason of the fact that
a stay of judicial proceedings is to be refused if the court finds
that the arbitration agreement is null and void, inoperative or
incapable of being enforced. The court plainly has power to
Once again,
10. As set out above, the principle of separability is now enshrined in section 7
of the Act in the following terms:
See eg Merkin & Flannery, Arbitration Act 1996, 4th ed, page 77
(1) An objection that the arbitral tribunal lacks substantive jurisdiction at the outset
of the proceedings must be raised by a party not later than the time he takes the first
step in the proceedings to contest the merits of any matter in relation to which he
challenges the tribunals jurisdiction.
A party is not precluded from raising such an objection by the fact that he has
appointed or participated in the appointment of an arbitrator.
(2) Any objection during the course of the arbitral proceedings that the arbitral
tribunal is exceeding its substantive jurisdiction must be made as soon as possible
after the matter alleged to be beyond its jurisdiction is raised.
(3) The arbitral tribunal may admit an objection later than the time specified in
subsection (1) or (2) if it considers the delay justified.
(4)Where an objection is duly taken to the tribunals substantive jurisdiction and the
tribunal has power to rule on its own jurisdiction, it may
(a) rule on the matter in an award as to jurisdiction, or
(b) deal with the objection in its award on the merits.
If the parties agree which of these courses the tribunal should take, the tribunal shall
proceed accordingly.
(5) The tribunal may in any case, and shall if the parties so agree, stay proceedings
whilst an application is made to the court under section 32 (determination of
preliminary point of jurisdiction).
22. Section 73 then provides
Loss of right to object
(1) If a party to arbitral proceedings takes part, or continues to take part, in the
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
(a) that the tribunal lacks substantive jurisdiction,
(b) that the proceedings have been improperly conducted,
(c) that there has been a failure to comply with the arbitration agreement or with any
provision of this Part, or
(d) that there has been any other irregularity affecting the tribunal or the
proceedings,
he may not raise that objection later, before the tribunal or the court, unless he 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.
23. Notwithstanding the apparent clarity of these provisions, issues have arisen.
24. In the recent decision in UR Power v Kuok Oils [2009] 2 Ll Rep 495, an issue
arose in relation to a tiered arbitration and whether the failure to raise the
jurisdictional objection at the first tier meant that the right to appeal was lost.
25. In this case, the applicants did not raise any jurisdictional issues before the
first tier arbitral tribunal but asserted lack of jurisdiction at the second tier
(the FOSFA Board of Appeal) level. The applicants then made a section 67
application to the court and argued that they were not debarred from doing
so because the matter had been raised and dealt with at the second tier level
(they argued in the alternative that the Board had exercised its discretion to
admit a jurisdictional challenge out of time).
26. Whilst not coming to a final decision on the question whether a jurisdictional
issue has to be raised before a first tier tribunal, failing which it cannot be
raised before a second tier tribunal, Gross J favoured the view that the right
time to make a jurisdictional challenge was before the first tier tribunal
merely saying
the prudent course for a party contemplating a jurisdictional challenge in a two
tier arbitration scheme, is to advance such objections before the first tier
arbitrators. If not, it may well be at risk of losing that right.
27. The alternative route (but once again subject to the requirements of section
31) is for the relevant party to apply to the Court under section 32 of the
Arbitration Act.
28. Section 32 provides as follows:
Determination of preliminary point of jurisdiction
(1) The court may, on the application of a party to arbitral proceedings (upon
notice to the other parties), determine any question as to the substantive jurisdiction
of the tribunal.
A party may lose the right to object (see section 73).
Jurisdiction: Challenging the arbitrators assertion or denial of jurisdiction, Robert Thomas
it is made with the agreement in writing of all the other parties to the
proceedings, or
(b)
it is made with the permission of the tribunal and the court is satisfied
(i)
(ii)
(iii)
that there is good reason why the matter should be decided by the
court.
(3) An application under this section, unless made with the agreement of all the other
parties to the proceedings, shall state the grounds on which it is said that the matter
should be decided by the court.
(4) Unless otherwise agreed by the parties, the arbitral tribunal may continue the
arbitral proceedings and make an award while an application to the court under this
section is pending.
(5) Unless the court gives leave, no appeal lies from a decision of the court whether
the conditions specified in subsection (2) are met.
(6) The decision of the court on the question of jurisdiction shall be treated as a
judgment of the court for the purposes of an appeal.
But no appeal lies without the leave of the court which shall not be given unless the
court considers that the question involves a point of law which is one of general
importance or is one which for some other special reason should be considered by the
Court of Appeal.
29. It should be noted that section 32 provides not for an appeal or review of the
Arbitral decision but for an application to be made to the Court before any
such decision or Award.
30. The DAC report expressly states that section 32 is intended to be the
exception rather than the rule (see DAC report paragraphs 141 & 147) and the
Courts are encouraged to use it sparingly. It is for this reason that it is
narrowly drawn.
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31. This has been heeded by the Court (see eg ABB Lummus Global Ltd v Keppel
Fels Ltd [1999] 2 Ll Rep 24 and Vale do Rio Doce Navegacao SA v Shanghai
Bao Steel [2000] 2 Ll Rep 1) and in light of the confirmation in the Fiona Trust
(see below) that the Tribunal ought ordinarily to be the first Tribunal to
consider the issue of jurisdiction, its use is likely to be limited. That said, it is
hard to see that the Court would refuse to exercise its jurisdiction (eg on
grounds of delay) if both the parties were to consent to it doing so.
32. Furthermore, notwithstanding the exhortations of the DAC, the section is not
by any means redundant.
33. In British Telecommunications plc v SAE Group Inc [2009] EWHC 252 (TCC)
the facts were as follows. The parties entered into an agreement on 14 July
2000 under which SAE agreed to provide equipment, software and services to
BT, mainly in respect of BTs outside broadcast operations. BT had the right
to determine the policy on notice, subject to SAE receiving certain payments.
The agreement was said to contain a clause which SAE asserted was an
arbitration clause.
34. BT gave notice of termination on 24 October 2002, and disputes then arose as
to the amount payable to SAE. When notified of the appointment of an
arbitrator, BT responded by asserting that the arbitrator had no jurisdiction in
that the sum in dispute was in respect of additional costs incurred in
performing the contract, whereas the alleged arbitration clause was confined
to disputes arising out of the provision of software source code to an escrow
agent. Some time later, SAE wrote to the arbitrator requesting him to restart
the proceedings.
35. The arbitrator invited the parties to reach an agreement on whether or not he
possessed jurisdiction, but BT maintained its position that the arbitration
clause did not extend to the dispute in question. The arbitrator then suggested
to the parties that the jurisdictional issue could be resolved by means of an
application to the court under section 32 of the Arbitration Act 1996.
36. BT applied to the arbitrator for permission for the making of a section 32
application, and that permission was duly given.
37. BT then applied to the Court, the application being one for declaratory relief,
with three different bases: (a) an application under the general provisions of
Part 8 of the Civil Procedure Rules for a declaration that there was no
arbitration clause and that the 1996 Act did not apply; (b) an application
under section 32 of the 1996 Act for a declaration that there was no arbitration
Jurisdiction: Challenging the arbitrators assertion or denial of jurisdiction, Robert Thomas
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clause; and (c) an application for declaratory relief under section 72 of the Act.
38. In relation to section 32, SAE argued that section 32(2)(b) which prevents the
court exercising its section 32 powers unless the determination of the question
is likely to produce substantial savings in costs, the application is made
without delay and there is good reason why the matter should be decided by
the court was not satisfied.
39. In his Judgment, Ramsey J noted, the competing arguments gave rise to a
legal conundrum. The 1996 Act applied only if there was an arbitration clause,
but where it was asserted by one party that there was no arbitration clause the
very applicability of the Act was in question. Further, section 30 of the Act
assumed that any question of jurisdiction should be in the first instance at
least resolved by the arbitrator himself. In the present case it would have
been possible for SAE to have sought a stay of BTs action for a declaration
under CPR Part 8. Had a stay been sought, the court would have been in the
position of having to decide whether itself to adjudicate on the existence of the
arbitration clause or whether to refer the matter to the arbitrator. Ramsey J
approached the question in the same way as if a stay application had been
made, seeing no reason to distinguish the two situations.
40. Ramsey J held that he was entitled to hear the declaration proceedings under
Part 8, without reference to the 1996 Act. In so deciding he relied upon the
Judgments in The Fiona Trust case and the views of the Court of Appeal
(implicitly approved by the House of Lords) that the arbitrators should
generally be the first tribunal to consider jurisdiction. However, if proceedings
were commenced in breach of an arbitration clause and a stay was sought
under section 9 of the 1996 Act, then section 72 ceased to be relevant, so that
its use was for the most part confined to a case in which the applicant had not
commenced judicial proceedings but had gone straight to the court for
declaratory relief. Instead, the court had to decide whether:
(1) to decide on the evidence that an arbitration agreement existed, in which
case a stay had to be granted under section 9(4) of the Act;
(2) to stay the proceedings by exercising its inherent jurisdiction to stay (the
exercise of discretion could not be statutory until it was ascertained that there
was an agreement and the 1996 Act applied), so that the matter could be
resolved by the arbitrators;
(3) not to decide the issue but to make directions under CPR Part 62.8 for an
issue to be tried as to whether an arbitration agreement did indeed exist; or
(4) to decide that no arbitration agreement existed and to dismiss the stay
application.
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41. Ramsey J, applying this approach, held that the issue before the court was
whether the 1996 Act applied. That would be the case only if there was a valid
arbitration clause. Given the refusal of the Court of Appeal to stay the
proceedings in The Fiona Trust case, where there had been judicial
proceedings followed by an application for their stay, the same principle
should be applied in a case where no stay was sought. Ramsey J thus
proceeded to decide whether there was or was not an arbitration clause, in the
exercise of his powers CPR Part 8, so that either a declaration would be
granted or it would be refused. Either way, that would determine the
jurisdictional issue.
42. Ramsey J held that there was no arbitration agreement covering the dispute,
essentially due to the fact that he considered that the arbitration clause had
not progressed beyond the stage of a draft agreement which BT had not
accepted, was in fact an expert determination provision to an arbitration
clause and did not extend to the dispute in question.
43. The Judge went on to discuss the operation of sections 32 and 72 of the 1996
Act had those provisions been applicable to the case.
44. With regard to section 32, Ramsey J held that its requirements had been
satisfied. An early determination by the court was likely to have produced
substantial savings in costs, in that allowing the arbitrator to determine
jurisdiction would have led to an appeal under section 67.
45. Further, the matter was already before the court. The application had been
made without delay: although it was not made until 20 November 2008, and
the first objection had been taken in July 2006, the intervening period included
an agreed stay of the arbitration proceedings, and they were not revived until
14 October 2008. The intervening period could not be classified as delay, and
the one-month period at the end was perfectly reasonable.
46. Finally, the matter was one that should be determined by the court, given that
the suggestion for a section 32 reference came from the arbitrator himself.
Ramsey J rejected the argument that BT had waived its right to object by
reason of the operation of section 73, in that it did not proceed with an
application for over two years. However, the courts view was that all that
was required was that an objection was made to substantive jurisdiction: once
that objection had been made, there was no obligation on the objecting party
to bring immediate proceedings. Indeed, it was stated in section 31(4) of the
1996 Act that it was for the arbitrators to decide whether to deal with the
objection in its award on the merits
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47. Given that the jurisdictional requirements of the sections were met, the final
question was whether the court should had the question arisen exercise its
discretion to hear the jurisdictional issue. Although the cases suggested
caution in respect of both sections, Ramsey J saw no reason not to go ahead.
Nothing had happened in the arbitration, the very existence of the agreement
was in issue and there were no facts to be determined which would be better
suited to the arbitral process.
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drawn into debating the jurisdictional position in any detail least it be taken
to have taken part in the process of challenging jurisdiction.
61. The Judge also rejected the somewhat optimistic submission that taking part
on the merits did not amount to taking part in the arbitration proceedings for
the purpose of section 72.
62. Similarly, in British Telecommunications plc v SAE Group Inc [2009] EWHC
252 (TCC) (facts set out above) SAE argued that BT could not rely upon
section 72 because BT had taken part in the proceedings; alternatively, BT had
lost its right to challenge jurisdiction under the waiver principle set out in
section 73 of the 1996 Act.
63. Albeit obiter, Ramsey J addressed the position under section 72 and noted that
it had been established by The Fiona Trust that section 72 should be used
sparingly. However, on the facts of the case, he found that its jurisdictional
requirements had been met. He was satisfied that BT had not taken any part
in the arbitration proceedings. It had not agreed to the appointment of an
arbitrator, and it had raised an immediate objection when informed of the
appointment. There was no time limit for an application under section 72 for
judicial relief: the only relevance of delay was that it went to the discretion of
the court, which could refuse relief to a dilatory applicant.
64. The second question arises out of the fact that, contrary to other provisions of
the Act (such as section 31 or 73), section 72 is untrammeled by any preconditions to its application. Does this mean that the party may apply at any
time and without precondition? If not, what are the principles which guide
the Court as to its application?
65. The first thing that is clear is that the section provides the Court with a
discretion to hear such an application and it is clear that delay, for instance,
would be an obvious reason to refuse to hear such an application (see eg BT v
SAE (op cit)).
66. In Zaporozhye Production Aluminium Plan, Open Shareholders Society v
Ashly
Limited
[2002]
EWCH
1410,
Tomlinson
found
(perhaps
16
17
18
79. In the circumstances, since the arbitration agreement itself was not directly
impeached, it was held that section 72 had no application.
80. Thus, if the issue between the parties goes only to the validity of the main
agreement, with no challenge being made to the validity of the arbitration
clause, then the separability principle governs the position and the arbitrators
are free to determine the question of the substantive validity by virtue of
section 7 of the 1996 Act. Any appeal against their decision is on a matter of
law and thus subject to the provisions of section 69.
81. Often, however, the complaint will be that there is neither a substantive
agreement nor an arbitration agreement, and here both sections 7 and 30
come into play: the ruling on the existence of the main agreement is
permitted by separability under section 7 of the 1996 Act (and is subject to an
appeal on a point of law under s 69), whereas the ruling on jurisdiction falls
under section 30 of the 1996 Act and is provisional only pending the
determination of any appeal under section 67 or an application under section
72.
82. This is a matter which continues to cause confusion.
83. In UR Power v Kuok Oils [2009] 2 Ll Rep 495, Gross J had to consider the
situation where it was argued that there was no binding contract in the first
place (ie that negotiations had not yet led to a binding agreement). Whilst
acknowledging both the vast literature on this topic and the difficulty of the
question posed, he went on to express some provisional thoughts on this
matter. In so doing he reviewed both the Judgments in The Fiona Trust and
Colman Js summary of the principle of separability in Vee Networks Ltd v
Econet Wireless International [2005] 1 Ll Rep 192 and expressed the following
views
On the facts of the present case, my provisional inclination is to prefer [the
view that the principle of separability applies]. In summary:
(i) To my mind, the wording of section 7 of the Act makes it plain that even
though the underlying contract never came into existence, the arbitration
agreement may still be binding. In this regard, it is worth underlining the
wording in section 7 "or was intended to form part of" and "or did not come
into existence". It is in any event at least a tenable view that, in this context,
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too much can sometimes be made of the distinction between a contract which is
void and one which never came into existence.
(ii) So far as concerns authority, even if Lord Hoffmanns observations at para
18 of his speech in Fiona Trust (supra) are obiter, they are, with respect, of very
great persuasive force. Moreover, they are very much in point. For my part, I do
not read anything said by Colman J in Vee Networks (supra), as telling against
the provisional conclusion to which I am attracted; the observations of Colman J
at the end of para 19 were directed at a somewhat different situation.
(iii) In principle, therefore, an arbitration agreement may be binding even
though the underlying contract has not come into existence[However,] it does
not follow that in every case where pre-contractual negotiations have not
resulted in a binding (underlying or matrix) contract, an arbitration clause
discussed in the course of those negotiations would be binding. Whether it is or
not will necessarily be a question of fact and degree, depending on the
circumstances of the individual case.
(iv) In the present case, by 25 October and even more so by 27 October 2006,
there was on any view a very considerable measure of agreement between the
parties By 27 October, as set out in para 6.15 of the appeal award, such
agreement extended to: (1) the goods (Nigerian crude palm oil); (2) the quantity
(10,000 mt); (3) the cif nature of the transaction, including a nominated load
and discharge port; (4) the price (US$480 per mt); (5) the incorporation of
FOSFA 80, so including the agreement to arbitrate (clause 30 of FOSFA 80);
and (6) payment by transferable letter of credit to be opened and confirmed after
delivery of the POP certificate, with detailed documentary instructions.
(v) Against this background, it is at least strongly arguable that the outline of
the agreement of which the agreed arbitration clause (clause 30 of FOSFA 80)
was intended to form part, was clear indeed. There was in particular no doubt
and had not been since 18 October that the parties intended their disputes
arising out of their (intended) contract to be referred to arbitration; the
incorporation of FOSFA 80 had been agreed since then. All that remained was
the discrete question of whether Kuoks obligation to open a conforming letter of
credit was or (on one view) remained a contingent condition precedent and so
stood in the way of the parties having entered into a binding contract. There is,
to my mind, at least a powerful argument for concluding that the parties must
be taken to have intended that discrete question to be referred to arbitration in
accordance with FOSFA 80. It is perhaps to be underlined that the question here
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went not to the existence of any consensus ad idem but instead to the nature of
Kuoks obligation.
84. The thrust, therefore, of the Judgment is that the analysis of separation can be
extended to a situation where, notwithstanding the allegation that there was
no underlying agreement, there is sufficient consensus to show that if there
was an agreement any disputes should be referred to arbitration.
85. Whether this analysis (which is currently obiter) will find subsequent support
in judicial authority remains to be seen but it highlights the need for caution
in the negotiation process lest a party be taken to have agreed to arbitration
notwithstanding that no underlying contract has come into existence.
86. Finally, it should be noted that in The Fiona Trust judgments, it was expressly
recognised that, pursuant to the Act, it will, in general, be right for the
arbitrators to be the first tribunal to consider whether they have jurisdiction
over a dispute and that, accordingly, the Court ought to be very cautious
about agreeing that the section 72 process should be utilised (see in particular
Longmore LJ at [2007] 2 Ll Rep 275).
87. Although in the context of the dispute before the Court, this line of reasoning
led to the conclusion that the primary matter for consideration was the
application for a stay of English proceedings brought pursuant to section 9, it
was recognised that where the party denying the existence of an arbitration
agreement did not bring proceedings in England, an application under
section 72 would lie (see again Longmore LJ at [2007] 2 Ll Rep 275). As
outlined above, the limits on the use of section 72 in such circumstances are
still to be worked out.
Robert Thomas
18 May 2010
Quadrant Chambers
10 Fleet Street
London
EC4Y 1AU