Parties will often include within an arbitration clause a requirement that they will try and resolve any dispute prior to making a formal referral to arbitration. If you think a party has referred matters to arbitration prematurely, then you can raise this before the arbitral tribunal. However, what can you do if the tribunal decides that it will nonetheless hear the case? Can you challenge the tribunal's decision before a court?
The answer to that question will depend on whether the issue goes to a tribunal's jurisdiction or is simply a matter of the admissibility of the claim. The question was recently examined by the High Court in the case of Republic of Sierra Leone v SL Mining Limited [2021] EWHC 286 (Comm) (15 February 2021).
Background
Section 67 of the Arbitration Act 1996 (the 1996 Act) allows a party to apply to the High Court to challenge an arbitral award on the grounds that the tribunal lacked substantive jurisdiction.
In the SL Mining case, the relevant contract provided that parties should, in good faith, endeavour to reach an amicable settlement of all differences of opinion or disputes which might arise between them. However, in the event that parties were unable to reach an amicable settlement within 3 months of notification of the dispute, the contract allowed either party to "submit the matter to the exclusive jurisdiction of a Board of 3 Arbitrators who shall be appointed to carry out their mission in accordance with the International Rules of Conciliation and Arbitration of the… ICC."
The relevant notice of dispute was served on 14 July 2019, followed by the Request for Arbitration (RFA) on 30 August 2019. The claimant argued that under the contract no arbitration proceedings could be commenced before 14 October 2019 and therefore the arbitral tribunal lacked jurisdiction in respect of the dispute.
Jurisdiction or Admissibility
The parties agreed that:
- the key distinction is between a challenge to the admissibility of a claim before arbitrators and a challenge that the arbitrators had no jurisdiction to hear a claim, and
- only a jurisdiction challenge, and not a challenge to admissibility, could be made under section 67 of the 1996 Act.
The arbitrators had concluded that the issue before them was one of admissibility and, with reference to the wording of the particular clause, found that the claim was admissible. The claimant disagreed and applied to the Court under section 67 of the 1996 Act on the grounds that the tribunal lacked substantive jurisdiction.
Section 67 of the 1996 Act permits a party to challenge any award as to its "substantive jurisdiction". Section 30 of the 1996 Act provides that the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to (a) whether there is a valid arbitration agreement, (b) whether the tribunal is properly constituted, and (c) what matters have been submitted to arbitration in accordance with the arbitration agreement.
The claimant needed to persuade the court that the tribunal's decision related to one of those three areas and so argued that by submitting the RFA prior to 14 October 2019, no matters had been "submitted to arbitration in accordance with the arbitration agreement".
However, Sir Michael Burton, GBE sitting as a judge of the High Court was quite clear that the question of prematurity did not fall within the definition of substantive jurisdiction in the Arbitration Act 1996. Referring to previous case law and a number of leading academic texts, he found that jurisdiction refers to the power of the tribunal to hear a case at all, whereas admissibility refers to whether it was appropriate for the tribunal to hear a case. The issue in SL Mining was not whether the claim was arbitrable at all but whether it had been presented too early. That was a question of whether it was appropriate for the tribunal to hear the case and the arbitrators were in the best position to decide that question.
While sufficient to deal with the application, the judge also went on to consider whether the clause in the contract did indeed bar the issue of the RFA prior to 14 October. Having looked at the relevant clause, he concluded that it was not an absolute bar to bringing proceedings for three months, but rather it gave a window during which the parties could explore settlement, always subject to earlier proceedings if the objective of amicable settlement could not be achieved.
Conclusion
When considering whether to challenge a possibly premature reference to arbitration, it will be necessary to carefully consider the terms of your arbitration clause. What might appear at first sight to be a mandatory requirement i.e. you must wait 3 months, may not be an absolute bar to instigating arbitral proceedings, particularly if the clause combines the time period with a best endeavours obligation on parties to seek an amicable settlement in good faith, and it can be shown that that process has run its course without reaching a resolution of the dispute.
Secondly, whether a party has properly complied with a precondition prior to making a referral to arbitration will likely be treated as a matter of admissibility rather than jurisdiction, and as such is a matter to be submitted to and resolved by the arbitral tribunal and not subject to a subsequent challenge before the High Court under section 67 of the 1996 Act.
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