September 2007

Arbitration and the Right to a Fair Trial

The raising of issues under the European Convention of Human Rights (ECHR) is becoming a regular feature of challenges to arbitral awards. We have reported on this in previous e-alerts (June 2007) and the issue was before the courts again in Kazakhstan v Istil Group Inc [2007] EWCA Civ 471.

Section 67 of the Arbitration Act 1996 (1996 Act) allows a party to challenge an arbitral award by contesting the arbitral tribunal's jurisdiction to determine the matter. Any such a challenge must be made as soon as reasonably possible and in any event within four weeks of the award (Section 73 1996 Act).

As a matter of course, every arbitral tribunal should automatically consider the validity and extent of its jurisdiction to determine the dispute before it. If a party thinks that the tribunal has got this wrong and has no jurisdiction then the first step in challenging it is often an application to the tribunal requesting that it review its position. However, if the tribunal decides that it does have jurisdiction or a party does not want to apply to the tribunal because of fears of an adverse finding if unsuccessful, then an application can be made to the High Court. A party can only appeal against a High Court Judge's decision as to the tribunal's jurisdiction if the Judge who heard the application grants permission to do so. Whether that complied with Article 6 ECHR and the right to a fair trial came before the Court of Appeal in the following case.

Kazakhstan v Istil Group Inc [2007] EWCA Civ 471

In the course of an arbitration the tribunal determined that it had jurisdiction to hear the dispute and issued an award in Istil's favour. Kazakhstan successfully applied to the High Court to have the final award set aside under section 67 on the ground that the award was outside the Tribunal's jurisdiction as Kazakhstan was not a party to the contract nor the arbitration agreement. Istil sought permission to appeal from the High Court Judge, which the Judge refused.

Istil then applied to the Court of Appeal again for permission to appeal. As part of Istil's application it claimed that as section 67 of the 1996 Act only provided for the Judge who had heard the application to grant leave to appeal that it was incompatible with the right to a fair trial under Article 6 ECHR.

The Court of Appeal upheld the High Court Judge's decision and the appeal by Istil was not permitted. As issues of jurisdiction will frequently have been considered at least twice by the Tribunal prior to the High Court being involved, the Court of Appeal found that there was adequate opportunity for the issues to be fully explored commensurate with the right to a fair trial. Consequently, the requirement in the 1996 Act that permission to appeal had to be obtained from the Judge who had heard the jurisdiction point was compliant with Article 6 and the Court of Appeal did not have jurisdiction to grant leave to appeal.

The Court of Appeal emphasised that it was too easy for the parties to claim that the Judge had not considered their arguments or that the hearing for leave to appeal was unfair.

In this case the Court of Appeal made it quite clear that it had limited powers to intervene and would not readily exercise those powers. Again, the Courts have upheld the principle of party autonomy - if parties choose arbitration to resolve their disputes, the courts will follow the provisions of the 1996 Act and will only sparingly exercise their powers to intervene.

Anti-Arbitration/Anti-Suit Injunctions – business as usual?

The issue of anti-arbitration and anti-suit injunctions was back before the Court again recently in 2 cases, the decisions in which seem at odds with the findings in the recent cases of C v D [2007] EWHC 1541 and West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA & Ors [2007]UKHL.

The first case involved an anti-arbitration injunction:

1 Albon (t/a NA Carriage Co) v Naza Motor Trading SDN BHD and Another (No 4) [2007] EWHC 1879 (Ch)

A dispute between the parties arose as to the nature of the contractual relationship. Albon claimed there was an oral contract made in England and subject to English law whereas Naza claimed Albon had signed a joint venture (JV) agreement which was governed by Malaysian law and which provided for arbitration in Malaysia. Albon did not accept this and claimed that the signature on the Malaysian agreement was a forgery.

Albon commenced High Court proceedings in England. Naza unsuccessfully applied for a stay of the court proceedings to allow for arbitration in Malaysia to take place. The High Court decided that it and not the arbitrators should determine the validity of the JV agreement including the issue of whether there was a binding arbitration agreement. We reported this decision in our May e-alert. Given that decision, Albon then applied for an injunction preventing Naza pursuing the arbitration in Malaysia.

The High Court held it had jurisdiction to grant the injunction as the need for the injunction arose in connection with a contract governed by English law. However, even if this was incorrect the court still had jurisdiction as Naza had applied to the English Court for a stay of the proceedings and that application required the Court to determine the validity of the JV agreement in any event.

The Court was of the view that allowing the Malaysian arbitration proceedings to go ahead would result in the arbitrators duplicating the determination of issues that were to be heard before the English court regarding the validity of the JV agreement and that the costs and related issues of such duplication meant that such duplication was oppressive and unconscionable and should be restrained.

Forum shopping will remain a concern for parties to arbitration agreements in the light of this decision. The case is also interesting as it does not follow a number of recent decisions which provide that anti-arbitration injunctions restraining the jurisdiction of an arbitral tribunal abroad will only be granted in exceptional circumstances.

The second case involved an anti-suit injunction and the consideration of the High Court's general power to grant injunctions:

2 (1) Starlight Shipping Co (2) Overseas Marine Enterprises Inc v Tai Ping Assurance Co Ltd, Hubei Branch and Another [2007] EWHC 1893

All the parties to the dispute except Overseas were parties to a contract which incorporated an English law and arbitration clause. There was a dispute between the parties and Tai Ping commenced proceedings before the Chinese courts against both Starlight and Overseas, who challenged the jurisdiction of the Chinese courts. Tai Ping also commenced an arbitration against Starlight and Overseas.

Starlight sought an anti-suit injunction to restrain Tai Ping from taking any further steps in the Chinese Court on the grounds that the Chinese proceedings had been issued in breach of the arbitration agreement. Starlight claimed that the High Court need not rely on the narrow powers under section 44 of the 1996 Act and that it did not need to meet the tests set out in that section. Instead the court could grant an anti-suit injunction under its wider powers in section 37 of the Supreme Court Act "in all cases in which it appears to the Court just and convenient to do so".

Tai Ping claimed that (1) as a matter of Chinese law the arbitration agreement was ineffective; (2) the Chinese court would not acknowledge any order of the English courts or arbitrators and would determine its own jurisdiction.

As Overseas was not a party to the contract and arbitration clause, the High Court could not grant an anti-suit injunction in its favour. However, the High Court did grant such an injunction in Starlight's favour. It was held that the issue of whether the dispute should have been referred to arbitration was for the English Courts to decide as the contract was governed by English law.

In exercising its power under section 37 of the Supreme Court Act to grant an injunction the court said that it would have regard to the provisions of section 44 of the 1996 Act. Under section 44 the court could grant an interim injunction if there was an urgent need to preserve assets, including a right to have a dispute determined by arbitration. The requirement of urgency was made out in the present case as the Chinese court would rule on the jurisdictional challenge before it before the arbitrators could make a final award to restrain the Chinese proceedings.

The decision, again, can be seen as judicial support for Arbitration. The Judge emphasised that the granting of the injunction was not to intervene in the arbitration proceedings but to lend support to them, the arbitrators having no powers to grant the injunction themselves.