Permission to appeal under the Arbitration Act

Parliament has afforded the parties to an arbitration an opportunity under the Arbitration Act 1996, among other things, to challenge any award of the arbitral tribunal as to its substantive jurisdiction (section 67)*, to challenge an award on the ground of serious irregularity affecting the tribunal (section 68), and to appeal to the court on a question of law arising out of an award made in the proceedings (section 69).

However, by similarly worded provisions in sections 18(5), 44(7), 67(4), 68(4), and 69(8) of the Act, permission to appeal a decision of the court under those sections may only be granted by that court to the Court of Appeal.

This proposition follows from the language of the Act and was confirmed by the Court of Appeal in Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd [2001] QB 388.

Material exceptions

Between 2002 and 2012, the Court of Appeal created seemingly disparate grounds on which it would be permitted to exercise jurisdiction to grant permission to appeal a decision of the court below, notwithstanding the prohibitions imposed by the Act.

In the cases of North Range Shipping Ltd v Seatrans Shipping Corporation [2002] 1 WLR 2397 and CGU International Insurance plc v AstraZeneca Insurance Co Ltd [2007] 1 Lloyd's Rep 142, the Court of Appeal identified one such ground, and held that it was required to give any applicant a right of appeal to enable them to complain that the process by which the judge had reached the decision was unfair and/or contrary to article 6 of the European Convention on Human Rights.

Unfairness should be equated to misconduct by the judge. In these circumstances the court has a residual discretion 'where the judge had in truth never reached "a decision" at all on the grant or refusal of leave to appeal, but had reached his conclusion not by any intellectual process but through bias, chance, whimsy or personal interest' (North Range).

In CGU International, the court clarified with more precision the meaning of residual jurisdiction. What needs to be found is not merely an error of law but such a substantial defect in the fairness of the process as to invalidate the decision. Perversity on its own is not sufficient to be classified as an unfair process, whereas an arbitrary decision could go beyond perversity and amount to unfairness in the process, for example, deciding a matter on the basis of a litigant's skin colour. If the Court of Appeal should so find, then no decision made by the court below would have been made under the relevant section.

This exception is unlikely to arise very often in practice and so I do not intend to elaborate on it any further.

Leading authorities

For the purposes of the identified provisions of the Act, the primary exceptions to the general rule are found in a trinity of leading authorities.

In Johann MK Blumenthal Gmbh & Co v Itochu Corporation [2013] 1 All ER (Comm) 504, the respondents alleged that the seller was in breach of a ship sale agreement and made an arbitral claim against the guarantor of the seller under a letter of guarantee. A further dispute arose as to the number of arbitrators which were to be appointed. The respondents applied to the Commercial Court for an order under section 18 of the Act for a sole arbitrator to be appointed. The appellant requested three arbitrators. The Commercial Court appointed a sole arbitrator under section 15. The judge refused permission to appeal to the Court of Appeal.

The court held that the judge had jurisdiction to make a decision under section 18. Furthermore, the court distinguished between 'an anterior or preliminary question which might preclude the court from taking a decision one way or the other under [the relevant provision]' and 'a decision by the [court] supportive of the arbitral process'.

Sumukan Ltd v Commonwealth Secretariat [2007] 3 All ER 342 concerned a dispute arising out of a contract which contained an arbitration clause. The tribunal made an award in favour of the defendant. The claimant appealed on a point of law under section 69. The judge decided that by reference to the phrase 'otherwise agreed' in section 69 the parties had agreed to exclude the jurisdiction of the court and refused permission to appeal to the Court of Appeal.

The court held:

• There was a distinction between those cases where the court was assisting or overseeing the arbitral process and those cases where the question was whether the jurisdiction of the court had been excluded;

• A distinction should be drawn between jurisdiction issues as preliminary decisions as to whether the section would be applicable at all and other decisions; and

• If parties otherwise agreed under section 69, that would go to a fundamental question of jurisdiction so as to amount to a preliminary point as to whether that section applied at all rather than a decision under the section.

In Cetelem SA v Roust Holdings Ltd [2005] 1 WLR 3555, a written contract provided for the resolution of disputes by arbitration. The claimant applied for, among other things, a freezing order pursuant to section 44 of the Act. The court made an order on a wide basis and refused the defendant's application for permission to appeal to the Court of Appeal.

The court held:

• A decision of the court below made in the absence of jurisdiction could not have been made under the section; and

• Even though the judge below had jurisdiction to deal with the application under section 44 on a narrow basis, the Court of Appeal still had jurisdiction to determine whether the court had jurisdiction to make such an order on a wider basis.

Can the decisions be reconciled?

Of the three cases, the test as formulated in Itochu is best suited for general application.

The decision in Sumukan dealing with the issue of jurisdiction as a preliminary point is more compatible with Itochu than Cetelem. However, in describing the matter to be considered as an issue of jurisdiction, it is closer to Cetelem than Itochu.

In Cetelem a decision referring to the absence of jurisdiction is not a decision under the section whereas a decision to the contrary is.

In my view it is possible both to reconcile the decisions of the trinity of cases and to formulate an overarching clear principle which circumvents the restrictions on appeal and confers jurisdiction on the Court of Appeal.

Cumulative test

The cumulative test should be formulated as follows: there should be a distinction between decisions relating to anterior or preliminary questions which have the effect of precluding the court from taking a decision under the relevant section one way or the other and decisions supportive of the arbitral process. Any decision relating to the anterior or preliminary limb of this formulation shall not be 'a decision under the section' for the purposes of seeking permission to appeal from the Court of Appeal.

I have eliminated from the formulation of this test words such as 'jurisdiction'. While the issue of jurisdiction would usually be dealt with as a preliminary or an anterior question, it is not a necessary condition for the application of the test. The cumulative test is sufficiently flexible to include issues such as whether the relevant section is applicable at all.

The effectiveness of the cumulative formulation may be tested against the following factual scenarios. Take, for example, the facts in Sumukan. There was an issue under section 69(1) as to whether the parties had agreed to exclude the jurisdiction of the court. The determination of such a question is an anterior or preliminary decision in the sense that until the court has made a decision on the preliminary question, it cannot determine any of the substantive issues under the section 69 application. Moreover, if the court should find in favour of the party seeking to uphold such an agreement, that would preclude the court from making any decision, one way or the other, under section 69.

Such a scenario may be contrasted with a decision on, say, 'substantial injustice' under section 68 of the Act. In the context of section 68, 'substantial injustice' is simply an element to be proved in an application under that section. Any decision by the court in relation to that element would not be an anterior or preliminary question and/or preclude the court from making a decision under section 68 one way or the other. In addition, such a decision would not affect the jurisdiction of the court or the applicability of that section.

In the circumstances, it would greatly assist practitioners if, in a suitable case, the Court of Appeal would set down a single test incorporating the decisions of the trinity of cases. SJ

Lawrence Jacobson is an in-house barrister at Zaiwalla & Co Solicitors

 

 

 

 

 

*An earlier version of this article incorrectly stated this as 'section 67', which has now been changed.