ENGLISH HIGH COURT CONSIDERS RARE APPLICATION UNDER S32 ARBITRATION ACT 1996 TO DETERMINE PRELIMINARY POINT OF JURISDICTION

In the recent decision in Armada Ship Management (S) Pte Ltd v Schiste Oil and Gas Nigeria Ltd [2021] EWHC 1094 (Comm) the English High Court (the "Court") considered a rare application under s32 Arbitration Act 1996 (the "Act") to determine a preliminary point of jurisdiction in circumstances where the arbitration clause was unclear on how the sole arbitrator was to be appointed. Although the Court rejected the application, the decision provides a rare glimpse of judicial treatment of applications under s32, including the circumstances where an application would be likely to succeed.

S32 of the Act provides:

"(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).

(2) An application under this section shall not be considered unless—

            (a) 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) that the determination of the question is likely to produce substantial savings in costs,

(ii) that the application was made without delay, and

(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 […]"

In short, the primary purpose of s32 is to permit the parties to put a question of arbitral jurisdiction before the supervisory court for a binding ruling. This may be useful in circumstances where the arbitration agreement is ambiguous, or apparently contradictory. In practice, such jurisdictional points will often be resolved by other routes, whether before the court or in the arbitration itself, and s32 applications are accordingly rare.

Background

In August 2016 Armada Ship Management (S) Pte Ltd ("Armada") time chartered a vessel to Schiste Oil and Gas Nigeria Ltd ("SOGN") on the BIMCO Supplytime 2005 form (the "Charterparty"). The vessel was initially chartered for a period of two months and the charterparty ultimately came to an end in September 2017, following a number of agreed extensions. A dispute arose between Armada and SOGN regarding allegedly unpaid invoices issued under the Charterparty in 2016 and 2017.

The Charterparty provided for disputes to be resolved by way of ad hoc arbitration. Clause 34 of the Charterparty (the "Arbitration Clause") elaborated on this, with bespoke amendments made to the standard form terms. While the parties' changes to the Arbitration Clause made it clear that a sole arbitrator was to determine disputes, rather than three arbitrators, the clause was unclear on how the arbitrator was to be appointed. The parties had also added reference to the "UNICTRAL [sic] Terms" alongside the existing reference in the standard form to the LMAA Terms, without making it clear how Article 8 of the UNCITRAL Arbitration Rules was to interact with the different appointment mechanism in the LMAA Terms.

In its Reference to Arbitration (the "RtA") issued to SOGN, Armada proposed Mr Neville Phillips as the sole arbitrator (the "Proposed Arbitrator") and requested that SOGN indicated its agreement to the appointment. Five days later, SOGN's Managing Director responded to the RtA, expressing that he "noted" the RtA, but did not engage with its substance. On 20 May 2020, having unsuccessfully attempted to engage SOGN again in April and May 2020, Armada's lawyers sought and received confirmation from the Proposed Arbitrator of his ability to accept the appointment.

Armada proceeded to apply to the President of the LMAA (the "LMAA President") on 25 August 2020 for the appointment of a sole arbitrator. The LMAA President appointed Mr Jonathan Lux (the "Sole Arbitrator") two days later, expressly considering the potential conflict between the appointment mechanism in the LMAA Terms and the UNCITRAL Rules. The LMAA President took the view that: "if the UNCITRAL Rules are of relevance here it is not appropriate to employ the Article 8 list approach, and on that basis whether the LMAA Terms or the Rules prevail, or if they can be read together, [The LMAA President] has the power to appoint a sole arbitrator and has therefore done so".

Armada filed its Claim Submissions on 24 September 2020, but SOGN failed to file a defence or counterclaim. Armada wrote again to SOGN about its continued non-participation and to query whether SOGN took issue with the Sole Arbitrator's Appointment. Receiving no response, Armada sought the Sole Arbitrator's permission to make an application under s32 of the 1996 Act. The Sole Arbitrator granted permission should SOGN fail to clarify its position by close of business on 19 November 2020.

On 27 November 2020, Armada gave SOGN a final opportunity to make its position clear. Following a lack of response, on 18 December 2020 Armada made its application under s32 of the Act, seeking an order declaring that: (i) the Sole Arbitrator had jurisdiction to hear and determine disputes under the Charterparty; (ii) the appointment of the Sole Arbitrator by the LMAA President was valid and effective; and (iii) the Arbitration Clause meant that the power to appoint the sole arbitrator in the absence of agreement between the parties rested with the LMAA President (the "S32 Application"). Permission to serve out of jurisdiction and by alternate means was granted by the Court, and on 30 December Armada effected service. SOGN failed to file an acknowledgement of service within the required 22 days.

Decision

The Court refused the s32 Application, finding that reliance on s32 was "unlikely to be appropriate where section 72 [of the Act] is engaged … where one alleged party is not participating in proceedings".

The Court considered that the "right conveyed by this section [s72] is a very important one", holding that a party benefiting from s72 may lose the right to object to jurisdiction by taking part in the determination under s32, and if they did not take part they could be bound by the s32 decision without being heard. In the eyes of the Court, this would put a non-participating party (here SOGN) in an "unacceptable position in light of section 72". The Court further observed that there was not "any clear signal in the drafting of the Act that section 32 sits outside the arbitral process".

Non-binding indication if s72 did not apply

Despite rejecting the application, the Court gave a "non-binding indication" if s72 did not apply.

Here the Court considered that, but for s72, it would have granted the s32 Application. The Court considered that a two-step process normally applies to determining such applications: "First, the Court has to be satisfied that the section 32 conditions are met. Second, the Court has to be satisfied that the declarations sought concern questions of “substantive jurisdiction” and that the position in that respect is as the Claimant contends it to be."

In regards to the first question, the Court considered that the points made by Armada were "persuasive" and the conditions would therefore be met, this being a "case where determining the question of jurisdiction is likely to produce substantial savings in costs". The Court further found that there was a "serious question concerning the correct interpretation of [the Arbitration Clause]". Turning to the issue of any possible delay in bringing the s32 application, the Court considered that the period between late August and 12 November was not "lengthy enough to justify dismissing the s32 application". The Court took the view that the question of jurisdiction was also one to be decided by a court, as jurisdiction was "plainly a concern which a determination of the court would allay", noting that both the Proposed Arbitrator and Sole Arbitrator had expressed their concern as to the correct construction of the Arbitration Clause.

In regards to the second question, the Court took the view that the declarations sought in the s32 Application concerned "substantive jurisdiction" for the purposes of s32.

Construction of the appointment mechanism

The Court considered that while it was "clear… that the parties intend to amend [the Arbitration Clause] so that disputes would be determined by a single arbitrator", it was "far less clear how the single arbitrator [was] to be appointed".

The Court noted that one sentence of the Arbitration Clause required "A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its own arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its own arbitrator" and found this to be "unworkable" in the context of the sole arbitrator tribunal. The Court construed the Arbitration Clause as providing that in the absence of agreement to a proposed candidate as the sole arbitrator, "or any responsive suggestion", then in order to progress the appointment the parties were "driven back on the earlier part of Clause 34" – which stated that the arbitration was to be conducted in accordance with the LMAA Terms and UNCITRAL Rules. Proceeding "on the basis that the parties should be taken to have intended to produce a coherent agreement", the Court interpreted the inclusion of both the LMAA Terms and UNCITRAL Rules as "meaning that the parties agreed that the president of the LMAA would be the appointing authority for the purposes of Article 8 of the UNCITRAL Rules". In the eyes of the Court, the approach adopted by the LMAA President "smoothed out the difference between" the LMAA Terms and UNCITRAL Rules.

Comment

Despite rejecting Armada's application, the "non-binding indication" given by the Court in this case usefully demonstrates the types of circumstances in which s32 applications will be likely to succeed. In accordance with the expectations of the drafting committee (as expressed in the DAC Report), applications to the Court under s32 are rare. According to the DAC Report, s32 is intended to be for "exceptional cases only" and is "not intended to detract" from the competence of the tribunal to rule on its own jurisdiction (as expressed in s30). Parties considering making an application under s32 are likely to be best served by obtaining the agreement of the other parties to the arbitration, and by making the application without any delay.

For more information, please contact Craig Tevendale, Partner, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

The authors would like to thank Luke Hard for his assistance in preparing this blog post.