Derek Yixin<\/strong>, Associate at White & Case<\/a><\/strong><\/p>\n\n\n\n
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In two recent decisions, the Court of Appeal has clarified the circumstances under which it will have jurisdiction to hear appeals concerning challenges to arbitral awards under the Arbitration Act 1996 (the \u201cArbitration<\/strong> Act<\/strong>\u201d). The decisions provide welcome clarity on a novel issue and demonstrate the careful regard the English courts will have for the underlying purpose of the Arbitration Act when resolving ambiguities within the statute.\u00a0<\/p>\n\n\n\n The Arbitration Act provides for three primary grounds of challenge for a party seeking to appeal an arbitral award: <\/p>\n\n\n\n Each of these sections requires that a party obtain permission from the court before it is permitted to appeal any decisions made thereunder (Sections 67(4), 68(4), 69(8)). Crucially, such permission can only be granted by the first instance court and not the Court of Appeal. <\/p>\n\n\n\n Apart from Sections 67, 68 and 69, the Arbitration Act also contains various related applications which a party can pursue, usually in conjunction with its main grounds of challenge. For example, under Section 73, a party may apply for a ruling that a party who has failed to previously raise an objection during arbitral proceedings has lost its right to challenge the award on the basis of excess jurisdiction or serious irregularity. Alternatively, under Section 70(7), a party can request that security be provided for outstanding sums payable under an award by the debtor party, failing which, any challenge to the award will be dismissed. <\/p>\n\n\n\n Importantly, these additional applications under the Arbitration Act do not contain the express requirement to obtain permission to appeal, unlike in Sections 67, 68 and 69. <\/p>\n\n\n\n The Court of Appeal was asked in two recent cases to consider whether it had the power to grant permission to appeal in respect of decisions made under these \u2018supplementary\u2019 provisions when the first instance court had not granted such permission.\u00a0\u00a0<\/p>\n\n\n\n In National Iranian Oil Company v Crescent Petroleum Company International Limited<\/em><\/a>, the dispute concerned a gas supply contract between the National Iranian Oil Company<\/a> (\u201cNIOC<\/strong>\u201d) and two associated companies of Crescent Petroleum (\u201cCrescent<\/strong>\u201d). Crescent commenced arbitral proceedings against NIOC for various alleged breaches of contract, and an award was rendered in Crescent\u2019s favor in 2014. <\/p>\n\n\n\n NIOC sought to challenge the award in the High Court on the basis of Section 67 arguing that the Tribunal lacked substantive jurisdiction. As a preliminary issue, Crescent made an application under Section 73 arguing that NIOC had lost its rights to challenge the award on the grounds that NIOC had failed to raise these objections during the arbitral proceedings. <\/p>\n\n\n\n Butcher J rejected Crescent\u2019s submissions that NIOC had lost its rights to pursue a challenge to the award by virtue of Section 73. Notwithstanding, Butcher J then went on to reject NIOC\u2019s Section 67 challenge on its merits. NIOC applied for and was granted permission to appeal the decision, while Crescent cross-appealed the Court\u2019s decision on its Section 73 application (without obtaining permission to appeal). <\/p>\n\n\n\n The question before the Court of Appeal for the purposes of Crescent\u2019s cross-appeal was whether it had jurisdiction to grant permission to appeal so as to review a decision made under Section 73, where the High Court had not granted permission to appeal. <\/p>\n\n\n\n The Court of Appeal began by reviewing the existing authorities which provided general support for three broad points: <\/p>\n\n\n\n The Court held that whether a decision under Section 73, determining that a party had not lost its rights to challenge an award, falls within the ambit of the restrictions contained in Section 67(4) is ultimately a question of statutory interpretation. In its examination, the Court considered that the policy of restricting appeals in the Arbitration Act was deliberate and sought to reflect the underlying principle of avoiding unnecessary delay and expense. This objective is achieved by making the first instance court the \u2018sole gatekeeper\u2019 to determine whether an appeal should be permitted. <\/p>\n\n\n\n It was held that Section 73 is entirely ancillary to Sections 67 and 68 as it would essentially determine whether a challenge under those sections would be dismissed if a party had lost its right to appeal. Accordingly, such a decision would undoubtedly be \u201cwithin the compass\u201d of those sections and caught by the restrictions contained therein. <\/p>\n\n\n\n Counsel for Crescent argued in its submissions that a distinction should be drawn between a \u2018recalcitrant party\u2019 who is seeking to avoid honouring the award and an innocent award creditor, such that only a decision finally disposing of a challenge would constitute a \u2018decision\u2019 under Sections 67 or 68. This was, in counsel\u2019s view, also consistent with the overarching purpose of the Arbitration Act. The Court rejected this argument and held that there was no basis for such a distinction to be drawn to limit the natural language of Section 67(4). A decision going either way under Section 73 would fall within the meaning of \u201cdecision\u201d. <\/p>\n\n\n\n The Court also appeared to suggest that case-management decisions relating to challenges under Sections 67 or 68 would also potentially be treated in the same way, meaning that only the court at first instance could grant permission to appeal in such cases.\u00a0<\/p>\n\n\n\n In Czech Republic v Diag Human SE and others<\/em><\/a>, the dispute concerned an arbitral award rendered in favor of Diag Human SE and Mr. Josef Stava, against the Czech Republic<\/a> (\u201cCzechia<\/strong>\u201d), following an arbitration under a bilateral investment treaty<\/a>. The applicants applied to the High Court for an order under Section 70(7) of the Arbitration Act requiring Czechia to provide security for the applicant\u2019s costs of the proceedings in the amount of the award. <\/p>\n\n\n\n In the High Court, Bright J dismissed the Section 70 application, holding that there was no real evidence that Czechia was likely to dissipate its assets, and denied permission to appeal. <\/p>\n\n\n\n The Court of Appeal was asked to consider whether it had jurisdiction to grant permission to appeal under Section 70, where the first instance court had declined to grant such permission. The Court applied and followed the reasoning of NIOC v Crescent<\/em><\/a>, holding that it did not have such jurisdiction. Section 70 was supplementary to Sections 67, 68 and 69 of the Arbitration Act as it had no application independent of those sections. The consequence of a party\u2019s failure to provide security is the dismissal of the relevant challenge, making it a decision that constitutes a step in the process of adjudicating the challenge under Sections 67, 68, or 69.\u00a0<\/p>\n\n\n\n The Court of Appeal\u2019s decisions in NIOC v Crescent<\/em><\/a> <\/em>and Czech Republic v Diag Human SE and others<\/em><\/a> appear, at least for now, to have settled the issue of whether the Court of Appeal has jurisdiction to grant permission to appeal decisions which are made under sections that are \u2018supplemental\u2019 to Sections 67, 68 and 69. Despite the careful drafting of the Arbitration Act, it is clear that there remain ambiguities in the interplay between its provisions. <\/p>\n\n\n\n The touchstone of the test for when the Court of Appeal will have jurisdiction to grant permission to appeal appears to revolve around whether the relevant decision is truly \u2018supplementary\u2019 or \u2018ancillary\u2019 to Sections 67, 68 or 69 such that it is \u201cpart of the process\u201d of reaching a decision under those Sections. <\/p>\n\n\n\n The decisions also demonstrate how the courts will carefully consider any interpretation of the Arbitration Act to ensure it aligns with the overarching objective of avoiding unnecessary expense and delay. The courts recognized that even the act of seeking permission to appeal could lead to additional expenses and delays. It is worth noting that the Law Commission in its recent review of the Arbitration Act has also considered whether there should be reforms on this issue but did not consider any amendments necessary. <\/p>\n\n\n\n These decisions continue to reinforce the general attitude of English courts towards preserving the finality of any arbitral award issued. For commercial parties, it will be imperative that any challenges to arbitral awards or related applications be pursued carefully, as they may very well be their first and only shot. <\/p>\n\n\n\nStatutory Framework\u00a0<\/strong><\/strong><\/h2>\n\n\n\n
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National Iranian Oil Company v Crescent Petroleum Company International Limited<\/em> [2023] EWCA Civ 826\u00a0<\/strong>\u00a0<\/h2>\n\n\n\n
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Czech Republic v (1) Diag Human SE and (2) Josef Stava<\/em> [2023] EWCA Civ 1518\u00a0<\/strong>\u00a0<\/strong><\/h2>\n\n\n\n
Comment<\/strong> <\/h2>\n\n\n\n
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