UK: Final Or Not Final, That Is The Question?

Last Updated: 27 May 1999

The English High Court has recently considered a question in relation to the somewhat blurred distinction between the twin jurisdictions of an arbitrator and the Court. Under the new Arbitration Act 1996 ("the 1996 Act"), to what extent can the High Court interfere where an arbitrator has determined questions relating to his or her jurisdiction? The Court’s answer to this has opened the door to losing parties having, in theory, a full re-hearing of their case, effectively giving them two bites at the cherry.

The judgment Azov Shipping Co. v Baltic Shipping Co makes it clear that a party is able to seek a full re-hearing before the Court on the issue of the arbitrator’s jurisdiction, complete with oral evidence and cross-examination, even after a full hearing on jurisdiction has already taken place before the arbitrator. In truth, this should not be surprising, but it does seem to create an exception to the general principle that the Court will only interfere with the decisions of arbitrators on narrow grounds.

The decision also helpfully outlines all the options available to a party who wishes to challenge the substantive jurisdiction of an arbitrator under the 1996 Act, a piece of legislation still in its relative infancy. This will be welcomed by those who are unsure how to proceed under the Act, although it might be said that the decision reverses the recent trend of non-interventionist policy on the part of the Court.

Azov Shipping

Briefly, the facts were as follows. An Agreement, apparently made between Azov and Baltic, contained a reference to London arbitration in the event of a dispute arising under that Agreement. A dispute arose, but Azov claimed that it was not a party to the Agreement and that it was, therefore, not bound by its arbitration clause. The parties agreed that, if Azov were found to be a party to the Agreement, and, accordingly, the arbitrator had substantive jurisdiction to decide the dispute, then Mr Donald Davies would be the sole arbitrator. The issue of whether Azov was a party to the Agreement and whether the arbitrator had jurisdiction was itself left to Mr Davies under section 30 of the 1996 Act which endows an arbitral tribunal with the competence to decide on the ambit of its own jurisdiction.

During the course of the hearing on jurisdiction the arbitrator heard factual and expert evidence. Following this hearing, Mr Davies found that Azov was a party to the Agreement and was therefore bound by its arbitration clause. Importantly, however, Mr Davies made it clear that he had experienced "some uncertainty" in reaching his decision, even after hearing the oral evidence and cross-examination of the witnesses. Azov challenged that decision under section 67 of the 1996 Act.

The issue

The issue before the Court which is of general interest and importance was: Where there has been a full hearing before an arbitrator under section 30 in relation to jurisdiction, can there effectively be a full re-hearing of the issue before the Court, including a re-hearing of the oral evidence and cross-examination?

For their part, Baltic argued that to permit a full re-hearing before the Court on the jurisdiction issue would not be "just, expeditious or economical". They argued it would lead to a duplication of costs in most cases and would encourage challenges to be made by every losing party to a hearing under section 30. Rix J was sympathetic to this argument. He conceded that there may be some prejudice to the speedy and economical disposal of an application by permitting a full re-hearing. Nevertheless, on the facts of the case, he concluded that such a re-hearing was permissible and within the ambit of the legislation he allowed it. He found that justice was served by allowing a full re-hearing of the jurisdiction point to include oral evidence and cross-examination.

Implications of the decision

The Azov decision has been greeted by some as a precedent for a wholescale re-hearing of section 30 cases. This is unlikely to be so. It appears that the particular circumstances of the case were influential on the Judge’s conclusions. Rix J made plain the importance of the fact that Azov were not merely questioning the ambit of the arbitration clause (that is, this was not a simple argument about whether the particular dispute came within the arbitration clause), but that there were substantial questions as to whether Azov was a party to the relevant agreement in which the arbitration clause was contained.

It would seem to follow that a challenge to the Court on the mere construction of an arbitration clause would be a relatively quick and simple procedure, with limited possibilities for the re-hearing (or calling) of evidence, be it factual or expert in nature. Only in more complex circumstances, as in the Azov case, are directions likely to be given for oral evidence and cross-examination. That said, it is clearly now open to aggrieved parties to seek a full re-hearing, which will be particularly welcome if they feel the first hearing did not go as well as they hoped. A re-hearing of all oral evidence and cross-examination effectively amounts to a retrial of the issues regarding the arbitrator’s jurisdiction and, moreover, allows the party seeking it a second chance at presenting his or her case in a more favourable light. For example, any advocacy errors, tactical misjudgements in cross-examination, or perhaps oral evidence that a party may not have wanted to be heard, might be avoided next time around. Indeed, the entire presentation of the oral evidence can be rethought, although clearly any attempt to disavow "unhelpful" evidence will not be possible.

The decision throws up another interesting question: to what extent will directions be given which permit a "re-hearing", that will in reality provide for a greater level of evidence than existed at the original arbitration hearing? In other words, if, for example, a party dispensed with oral evidence at the first hearing, will it be allowed in full at the re-hearing? Could a party who did not adduce expert evidence before the arbitrator seek to introduce it before the Judge? Unfortunately this is not clear from the judgment, but it must be at least arguable that a party is entitled to a full re-hearing irrespective of the level of evidence that was given at the original hearing.

1996 Act options

Finally, Rix J sets out in his judgment the options under the 1996 Act for a challenge to the arbitrator’s jurisdiction. There are three courses of action:

  • The parties may ask the arbitrator to decide on his own competence and jurisdiction under section 30. This will always be subject to a reservation of the parties’ rights to challenge the decision reached by the arbitrator on the basis of section 67 of the 1996 Act, as occurred in the Azov case.
  • The dissenting party can immediately refer the issue of jurisdiction to the Court under section 32, provided that the agreement in writing of all the parties to the arbitration is obtained, or where the application is permitted by the arbitration tribunal, and the Court is satisfied that there will be a saving in costs and that the application can be made without delay.
  • A party may effectively ignore the arbitration proceedings and proceed to Court under section 72 of the 1996 Act for a declaration or other appropriate relief.

This third option carries with it a number of risks, namely, that the section 72 procedure will be challenged by the other party (if made without his agreement or the approval of the arbitral tribunal) or, that in that party’s "absence", the arbitral tribunal will proceed to a default award. It is unlikely that an arbitrator will take this course of action if he is made aware that one of the parties has proceeded to Court on an issue of jurisdiction. Those proceeding under section 72 should therefore make it clear to the arbitral tribunal as early as possible that relief is indeed being sought outside the scope of the arbitration proceedings.

This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.

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