UK: "Final, Conclusive And Binding" Insufficient To Exclude Appeal Of Arbitral Award

Last Updated: 18 February 2010

Article by Christina Lawrence and Emma Martin

In the recent case of Shell Egypt West Manzala GmbH, Shell Egypt West Qantara GmbH v Dana Gas Egypt Limited (formerly Centurion Petroleum Corporation)1, the Commercial Court considered whether the wording "final, conclusive and binding" in an arbitration clause operated to exclude the right to appeal an arbitral award on a point of law under section 69 of the Arbitration Act 1996.

Summary

A dispute arose between Shell and Centurion in connection with an agreement pursuant to which Shell was to acquire a 50 percent interest in two concessions to explore for crude oil and gas in Egypt. The agreement was governed by English law and contained a mandatory arbitration clause which provided for disputes to be settled by arbitration in London under the UNCITRAL Rules. It provided that the decision of the arbitral tribunal "shall be final, conclusive and binding on the parties".

In 2006, Shell exercised a contractual right to terminate by written notice. Centurion waived the requisite notice period and both parties agreed that the agreement had been terminated. Two years later Shell commenced arbitration proceedings, contending that Centurion had been in repudiatory breach of the agreement prior to its termination. Shell argued that by electing to terminate, it had exercised its right to rescind and was accordingly entitled to compensation.

Although the tribunal found that Centurion had breached certain contractual provisions, it held that Shell had affirmed rather than rescinded the agreement as Shell's letter of termination had been given pursuant to a contractual right to terminate that applied irrespective of a breach of contract. Shell's claims were therefore rejected.

Applications to the Commercial Court

Shell applied to the Commercial Court for permission to appeal the award on a point of law. Centurion cross-applied for an order that the court lacked jurisdiction to hear Shell's application and the appeal because the words "final, conclusive and binding" showed an unequivocal agreement by the parties to exclude the right of appeal.

Section 69(1) of the Arbitration Act 1996 provides that, unless otherwise agreed by the parties, a party to arbitral proceedings may appeal to the court on a question of law arising out of an award made in the proceedings. The key question for the court in this case was therefore whether the wording of the arbitration clause showed that the parties had agreed to exclude the right of appeal under section 69.

Centurion relied in particular on the addition of the word "conclusive" to the words "final and binding" (which are found in the UNCITRAL Rules) and asserted that this addition to the UNCITRAL wording clearly demonstrated that the parties had intended the word to be given meaningful effect and appeals excluded.

Shell submitted that clear words were required to exclude the statutory rights of appeal under section 69 and that the words used merely referred to the fact that an award should be res judicata between the parties. Further, Shell argued that the parties' choice of the UNCITRAL Rules (rather than other procedural rules that explicitly exclude section 69) indicated that there had never been a suggestion that rights of appeal would be excluded.

Judgment

Mrs Justice Gloster held that the phrase "final, conclusive and binding", without the assistance of any other contextual indicators, did not indicate that the parties had agreed to exclude the effect of section 69. She held that, while it was not necessary to refer expressly to section 69, sufficiently clear wording was required. The addition of the word "conclusive" was not a sufficient amendment to the UNCITRAL wording to exclude appeals under section 69. The judge considered that the wording used merely restated a long-standing rule in relation to arbitration that an award is final, conclusive and binding in that it creates a res judicata and issue estoppel, preventing the parties from raising decided issues in later proceedings.

Accordingly, Shell was given permission to appeal the arbitration award.

Comments

Although the interpretation of particular wording will depend on the context in every case, it appears from this decision that the inclusion of the words "final, conclusive and binding" in an arbitration clause will not be sufficient to exclude rights of appeal under section 69.

Parties entering into arbitration agreements should consider carefully whether they wish to exclude the right of appeal to the courts. Excluding the right of appeal provides significant benefits, including finality and the preservation of the confidentiality of the arbitration, however some parties may wish to retain the ability to appeal to the court on a point of law.

The LCIA and ICC Rules contain wording that is expressly intended to exclude rights of appeal as follows:

LCIA Rule 26.9: "The parties also waive irrevocably their right to any form of appeal, review or recourse to any state court or other judicial authority, insofar as such waiver may be validly made."

ICC Rule Article 28.6: "The parties shall be deemed to have waived their right to any form of recourse insofar as such waiver can be validly made."

However, parties should be aware that not all arbitration rules contain wording excluding the right of appeal. In particular, parties who elect to use ad hoc arbitration rules such as the UNCITRAL Rules should note that such rules do not expressly exclude rights of appeal. Parties wanting to exclude rights of appeal may therefore wish to arbitrate under the rules of institutions such as the ICC or LCIA or have regard to the language of such rules when drafting their arbitration agreement, so as to ensure that they incorporate sufficiently clear wording to that effect.

Footnote

1. 2009 EWCH 2097 (Comm)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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