Arbitral tribunal's refusal to strike out a claim could not be challenged under s68 or s69 of the Arbitration Act 1996

In a recent decision, the Mercantile Court dismissed two appeals under s68 (procedural irregularity) and s69 (error of law) of the Arbitration Act 1996 (the "Act") which sought to challenge an arbitral tribunal's refusal to strike out a claim. The appeals were dismissed on the basis that the tribunal's orders did not constitute "awards" for the purposes of the Act.  The fact that the parties had consented to the s69 appeals did not remove the need to establish that the court had jurisdiction under s69 of the Act: Enterprise Insurance Co Plc v (1) U-Drive Solutions (Gibraltar) Ltd (2) James Drake QC [2016] EWHC 1301 (QB). 

Background

U-Drive Solutions (Gibraltar Ltd) ("U-Drive") commenced arbitration against Enterprise Insurance Co Plc ("Enterprise") for breach of a strategic distributor agreement.  Enterprise contended that the agreement did not exist and therefore made an application to the High Court challenging the tribunal's jurisdiction.  That application was dismissed, and the tribunal refused Enterprise's subsequent application to deal with its jurisdiction objections in a preliminary hearing.

Pursuant to a procedural order ("PO-10") the tribunal ordered U-Drive to provide security for costs, which it failed to do.  Further peremptory orders were issued regarding the date for payment, which U-Drive also failed to comply with.  On 16 December 2015, the tribunal stated that it would give U-Drive "one last chance" and directed that security for costs be provided within two weeks, failing which the tribunal would "dismiss the claim".  On 31 December 2015 U-Drive's solicitors gave an undertaking to make payment and the security for costs was provided in the first week of January 2016.  Enterprise applied to the tribunal for an order dismissing the claim and, in effect, "striking out" of the proceedings.   The tribunal refused to dismiss the claim, issuing a further procedural order ("PO-14") to that effect.  

Enterprise issued two challenges pursuant to s68 and s69 of the Act.  Enterprise's primary challenge was against PO-14.  It argued that there had been a "persistent, flagrant and systematic failure" by U-Drive to comply with the tribunal's orders and that an order striking out the proceedings had been made on 16 December 2015.  Enterprise also challenged PO-10 on the basis that the tribunal erred in law in its approach to security for costs and failed to exercise its discretion by relevance to the relevant factors.  Unusually, U-Drive consented to Enterprise's s69 applications pursuant to s69(2) of the Act.

Decision

The court dismissed both appeals.   As a preliminary point, the judge did not accept that the parties' consent to the s69 appeals being brought obviated the need for the court to establish that it had jurisdiction.  The judge considered it doubtful that parties could confer jurisdiction where none would otherwise exist, for example allowing appeals on questions of fact rather than of law.

As to whether either PO-14 or P0-10 constituted "awards" for the purposes of s68 and s69 of the Act, the judge applied the approach taken in Brake v Patley Wood Farm LLP [2014] EWHC 4192 (Ch): "In principle, an award is a final determination of a particular issue or claim in the arbitration.  It may be contrasted with orders and directions which address the procedural mechanisms to be adopted in the reference."

It was common ground that PO-14 would have been an "award" had it struck out the claim for failure to comply with the peremptory orders.  The judge held that PO-14 was not an "award" on the basis that it was not finally determinative of a claim or part of a claim; the claim continued, as did U-Drive's obligation to provide security for costs.  Enterprise did not have a right to have the claim dismissed under the Act on the basis of U-Drive's failure to provide security by a given date.  Rather U-Drive's failure to comply only triggered the possibility of the exercise of a discretion by the arbitrator under s41(6) of the Act.  The fact that PO-14 was in the form of a reasoned award could not be determinative of the question whether it was an "award".  

Adopting the same approach, the judge held that PO-10 – an order for security for costs – was not an "award".  It was not finally determinative of a claim, but rather a procedural or discretionary decision with which the courts should not interfere.

Despite concluding that the court had no jurisdiction to hear the appeals, the judge went on to hold that there was, in any event, no error of law (s69) or serious procedural irregularity (s68).  With respect to PO-14, the judge considered that the tribunal had not misconstrued its earlier orders. The direction on 16 December 2015 did not provide for the claim to be automatically struck out in the event of failure to provide security for costs.  Nor was it 'obviously wrong' as a matter of law for the tribunal to treat a solicitor's undertaking as compliance with a peremptory order.  Similarly, the failure to dismiss the claim could not amount to serious procedural irregularity. U-Drive's failure to comply with the earlier orders resulted in a discretion on the part of the tribunal; there was no failure to follow procedure. 

As for PO-10, the judge noted that the Act provides no positive guidance as to how the tribunal's discretion in relation to an order for security for costs should be exercised.  In reaching its decision, the tribunal had regard to the manner in which the English court exercises jurisdiction to order security for costs under CPR 25.  The amount of security ordered was a matter of discretion and there was no error of law which was 'obviously wrong' so as to bring it within s69 of the Act.  Similarly, there was no serious procedural irregularity: the tribunal had a broad discretion and balanced the competing considerations and arguments.

Comment

The decision highlights the court's reluctance to intervene in arbitral proceedings other than as provided by the Act.  It also confirms that whilst parties can agree to exclude the right to appeal under s69 of the Act, they cannot agree to confer jurisdiction on the court where none would otherwise exist; the court must still be satisfied that it has jurisdiction to hear the appeal under the Act.  

The decision that the arbitral tribunal's refusal to strike out the claim was not an "award" for the purposes of s68 and s69 of the Act also demonstrates that a distinction is drawn between the final determination of substantive issues and orders dealing with the procedural mechanisms to be adopted in the reference.  As with nearly all jurisdictions around the world, the Act uses the term "Award" throughout, but does not define the term.  By agreeing with earlier case law on the issue, this decision is helpful in re-asserting the English law requirements and confirming that the form of the order (in this case a signed and reasoned procedural order) is not determinative.  

For further information, please contact Chris Parker, Partner, James Allsop, Senior Associate, or your usual Herbert Smith Freehills contact.