July 2007

Parallel proceedings: A repudiatory breach of an arbitration agreement?

It is established law that if parties agree to arbitrate, they are barred from litigating the same issue and the courts should decline jurisdiction.   Whilst issuing parallel proceedings will amount to a breach of an arbitration agreement, for there to be a repudiatory breach of the agreement to arbitrate, there must be clear and unequivocal conduct showing that the party no longer intends to be bound by the arbitration agreement.

BEA Hotels NV v Bellway LLC [2007] EWCH 1363 (Comm)

A dispute arose between BEA and Bellway in respect of a joint venture term sheet, which included an arbitration clause.   Pursuant to the arbitration clause, an LCIA appointed arbitrator was instated on 20 March 2006.   However, in April 2006 Bellway commenced proceedings in the Tel Aviv courts against BEA and other companies and individuals associated with BEA.

BEA made an application to the arbitrator challenging his jurisdiction under section 67 of the Arbitration Act 1996.   BEA claimed that Bellway's commencement of the proceedings in the Tel Aviv courts amounted to a repudiation of the arbitration agreement as the proceedings related to the same issues that were the subject of the arbitration, amongst other issues.   BEA claimed that it had accepted Bellway's alleged repudiation of the arbitration agreement and as such the arbitrator did not have jurisdiction.  

The arbitrator decided that by commencing the proceedings in the Tel Aviv courts Bellway had not evinced an intention not to be bound by the agreement and dismissed BEA's application.   BEA then applied under section 67 of the Arbitration Act to the High Court.  

Cooke J agreed with the arbitrator's decision, finding that Bellway had not behaved in a manner that showed a clear and unequivocal intention not to be bound by the arbitration agreement. Crucial to this decision was the fact that in the Tel Aviv proceedings Bellway had stated:

"…legal proceedings are also being conducted between [Bellway] and [BEA] under the aegis of the London Court of International Arbitration.   Accordingly for the sake of caution, the plaintiffs shall expressly state that all the arguments, whether of a general nature or specific nature, addressed by the plaintiffs against the defendants, cannot include the arguments of [Bellway] against [BEA], arguments which are to be investigated under the aegis of the LCIA."

Cooke J held that his statement effectively excluded the determination of the claims in the arbitration from the jurisdiction of the Tel Aviv courts.   As such there was no breach of the arbitration agreement, much less a repudiatory breach.   In the Tel Aviv proceedings Bellway was simply pursuing other defendants besides BEA in respect of the same history of events as in the arbitration.

To avoid allegations of repudiatory breach of an arbitration agreement and challenges to the arbitrator's jurisdiction, any court pleadings which are commenced based on the same facts should include an express statement that claims which are the subject of arbitration proceedings are excluded from the court proceedings and without prejudice to the arbitration agreement.

Which law?

There are potentially four different laws to be considered in an arbitration: (1) the substantive law governing the contract that is the subject of the dispute; (2) the law of the arbitration agreement; (3) the law governing the arbitration proceedings; and (4) the law governing enforcement of the arbitral award.

Determining the applicable law can be tricky in international arbitrations and different countries' laws can produce different results in the same circumstances.

C v D [2007] EWHC 1541 (Comm)

A dispute arose on an insurance policy governed by New York law, which provided for disputes to be resolved by arbitration in London.   The arbitration clause stated:

"Any dispute arising under this Policy shall be finally and fully determined in London, England under the provisions of the English Arbitration Act 1950 as amended…"

C made a claim under the policy, which D rejected.   C referred the dispute to arbitration in London, which concluded in the tribunal issuing an award in C's favour.   D claimed that the tribunal had manifestly disregarded New York law in reaching its award.

After D's application to the tribunal for it to correct its award was declined, D indicated that it would apply to a US court to vacate the award on grounds of the tribunal's alleged manifest disregard for New York law.   C applied to the High Court seeking an anti-suit injunction to prevent D issuing the US proceedings.

The Court granted C's injunction, holding that by agreeing to London as the seat of the arbitration and to the English Arbitration Act applying as the relevant procedural law, the parties had agreed that all mandatory provisions of the Act and all discretionary provisions of the Act (except to the extent that the parties agreed to vary them) should apply to the arbitration.   The fact that the substantive law of the policy was New York law did not in itself vary the discretionary provisions of the Arbitration Act 1996.   The parties’ exclusion of the right to appeal on a point of law under section 69 was therefore valid, as were the provisions of section 58 as to the final and binding effect of the award. The agreement as to the seat of the arbitration was equivalent to an exclusive jurisdiction clause.   This meant that the parties had also effectively agreed that challenges to the award could only be made in the courts of the place designated as the seat of the arbitration.

The court went on to hold that attempting to invoke the jurisdiction of another court to challenge the award breached the agreement to refer the dispute to arbitration, the arbitration agreement, and the agreement as to the law governing the arbitration.   Such a step to undermine the whole arbitral framework was an abuse of process, vexatious, oppressive and unconscionable.

This case emphasises the importance of the parties' decision as to the various laws which are to apply to their substantive agreement, the arbitration agreement, the arbitration itself and enforcement of any award.   The parties will be held to what they agreed. Where the governing law of the arbitration is the English Arbitration Act 1996, the English courts will step in to protect the English arbitral process and prevent a party trying to avoid the award.

Challenging awards

If you are going to challenge an arbitral award do it quickly!

Section 70 of the Arbitration Act 1996 states that an application to court to challenge to an arbitral award under sections 67, 68 and 69 of the Act (jurisdiction, procedural irregularity causing substantial injustice and appeal on a point of law respectively) must be made within 28 days of the date of the award and cannot be brought if all other forms of recourse in arbitration have not already been pursued.

(1) DDT Trucks of North America Ltd (2) Joseph Martin Thoesen (3) Peter John Thoesen v DDT Holdings Ltd [2007] EWHC 1542 (Comm)

DDT Trucks of North America Ltd (" Trucks ") and the Thoesens applied for leave to enforce a costs award granted in their favour against DDT Holdings Ltd ("Holdings").   In response Holdings applied to challenge the award under sections 67, 68 and 69 of the Arbitration Act 1996.   As the application to appeal was made out of time, Holdings also sought an extension of time.

Cooke J referred to the seven criteria relevant to granting an extension of time set out in Kalmneft v Glencore [2002] LLR 128 :

·          The length of the delay;

·          Whether, in permitting the time limit to expire and all subsequent delay to occur, the party was acting reasonably in all the circumstances;

·          Whether the respondent to the application or the arbitrator caused or contributed to the delay;

·          Whether the respondent to the application would by reason of the delay suffer irremediable prejudice in addition to the mere loss of time if the application were permitted to proceed;

·          Whether the arbitration has continued during the period of delay and, if so, what impact on the progress of the arbitration or the costs incurred which the determination of the application by the Court may now have;

·          The strength of the application;

·          Whether in the broadest sense it would be unfair to the applicant for him to be denied the opportunity of having the application determined.

Cooke J also cited his previous judgment in Leibinger v Stryker Trauma GmbH [2006] EWHC 690) in which he held that the Kalmneft criteria are to be applied particularly strictly in the context of jurisdictional challenges.

In this case the delay was in the region of 14 to 15 weeks.   The judge found that this was not acceptable as the delay was occasioned by efforts by Holdings to obtain evidence which could reasonably have been obtained prior to the arbitration hearing.   Particularly noteworthy was the judge's willingness to take into account the fact that Trucks and the Thoesens were strapped for cash and had only been able to proceed with the proceedings on the basis of a conditional fee arrangement.   An extension of time would have caused them significant prejudice, inevitably requiring them to conclude new conditional fee arrangements.  

Appeals on a new point of law

Section 69(3) of the Arbitration Act 1996 sets out narrow criteria that a party must satisfy if it is to be granted leave to appeal on a point of law:

·          Determination of the question will substantially affect the rights of one or more of the parties;

·          On the findings of fact in the award, the tribunal’s determination is obviously wrong or the question is one of general public importance and the tribunal’s decision is open to serious doubt;

·          It is just and proper for the court to determine the question despite the parties’ agreement to arbitrate; and

·          The question is one that the tribunal was asked to determine.

The case below emphasises the need to ensure that all the criteria are met.

STX Pan Ocean Co Ltd (formerly Pan Ocean Shipping Co Ltd) v Ugland Bulk Transport AS sub nom Livitanita [2007] EWHC 1317 (Comm)

STX sought leave to appeal the arbitrator’s award on a point of law.   During the leave hearing, the judge indicated that he thought that STX's arguments may not go to the crucial issue of law and identified a third closely related but separate potential ground to appeal. The judge granted leave to appeal.

STX's appeal was then formulated to cover not just the original arguments it had raised before the arbitrators but also the additional ground identified by the judge who had heard the application for leave to appeal.

In dismissing STX’s appeal Langley J noted that the third ground of appeal was not one which the tribunal had been asked to determine. The judge who had granted leave to appeal had done so on the basis of the grounds advanced before the tribunal only. He had not granted leave on the basis of the third ground, which had not been considered by the tribunal, nor did he have jurisdiction to do so.

The case emphasises the need to argue all relevant issues before the tribunal and identify those issues right from the outset of the arbitral proceedings. The whole basis of an appeal on a point of law is that the tribunal erred on that point of law. If the tribunal is not asked to consider a particular point of law, the tribunal cannot make a mistake as to that point of law and therefore there is no ground for appeal. Appeals on points of law cannot be used by a party to try to correct their own failure to plead an issue.