THE AUTHOR:
Derek Yixin, Associate at White & Case
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 “Arbitration Act”). 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.
Statutory Framework
The Arbitration Act provides for three primary grounds of challenge for a party seeking to appeal an arbitral award:
- lack of substantive jurisdiction (Section 67);
- serious irregularity which has caused or will cause substantial injustice (Section 68); and
- an error in law (Section 69).
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.
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.
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.
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 ‘supplementary’ provisions when the first instance court had not granted such permission.
National Iranian Oil Company v Crescent Petroleum Company International Limited [2023] EWCA Civ 826
In National Iranian Oil Company v Crescent Petroleum Company International Limited, the dispute concerned a gas supply contract between the National Iranian Oil Company (“NIOC”) and two associated companies of Crescent Petroleum (“Crescent”). Crescent commenced arbitral proceedings against NIOC for various alleged breaches of contract, and an award was rendered in Crescent’s favor in 2014.
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.
Butcher J rejected Crescent’s 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’s Section 67 challenge on its merits. NIOC applied for and was granted permission to appeal the decision, while Crescent cross-appealed the Court’s decision on its Section 73 application (without obtaining permission to appeal).
The question before the Court of Appeal for the purposes of Crescent’s 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.
The Court of Appeal began by reviewing the existing authorities which provided general support for three broad points:
- The policy underlying the Arbitration Act supports the objective of avoiding unnecessary delay and expense and encourages a policy of non-intervention by the courts in relation to the arbitral process.
- There are authorities that suggest a decision that is “part of the process” of reaching a final decision or “within the compass” of Sections 67 or 68 qualifies as a decision that will fall under the scope of the restrictions to appeals contained in these sections.
- There is no support for the view, argued by counsel for Crescent, that only a decision which conclusively resolves a challenge can be considered a “decision” under Sections 67 or 68.
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 ‘sole gatekeeper’ to determine whether an appeal should be permitted.
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 “within the compass” of those sections and caught by the restrictions contained therein.
Counsel for Crescent argued in its submissions that a distinction should be drawn between a ‘recalcitrant party’ 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 ‘decision’ under Sections 67 or 68. This was, in counsel’s 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 “decision”.
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.
Czech Republic v (1) Diag Human SE and (2) Josef Stava [2023] EWCA Civ 1518
In Czech Republic v Diag Human SE and others, the dispute concerned an arbitral award rendered in favor of Diag Human SE and Mr. Josef Stava, against the Czech Republic (“Czechia”), following an arbitration under a bilateral investment treaty. 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’s costs of the proceedings in the amount of the award.
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.
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, 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’s 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.
Comment
The Court of Appeal’s decisions in NIOC v Crescent and Czech Republic v Diag Human SE and others 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 ‘supplemental’ 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.
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 ‘supplementary’ or ‘ancillary’ to Sections 67, 68 or 69 such that it is “part of the process” of reaching a decision under those Sections.
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.
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.
ABOUT THE AUTHOR:
Derek Yixin is an Associate in the International Arbitration and Construction & Engineering Groups of White & Case LLP (London). He has advised on a range of complex international disputes, including those arising out of the energy, oil & gas and infrastructure industries.
Any views expressed in this publication are strictly those of the authors and should not be attributed in any way to White & Case LLP.
