Mr Justice Colman :
Introduction
- There are three primary applications before the court. They arise in circumstances which are frequently encountered in international arbitrations and which raise important issues as to the appropriate policy of this court in relation to the operation of the Arbitration Act 1996 where foreign parties are involved.
- The three applications are made in relation to a "Ruling on Substantive Jurisdiction", dated 24 November 2000 by a sole arbitrator, Mr Andrew Berkeley.
- By application notice dated 12 March 2001 the Applicants ("Kalmneft") apply to have the Ruling set aside under section 67 of the 1996 Act on the ground that the arbitrator had no jurisdiction. In substance it is submitted that there is evidence to suggest that there was no binding agreement to arbitrate as between the Respondent ("Glencore") and Kalmneft.
- By application notice dated 27 March 2001 Kalmneft apply to remove the arbitrator under section 24(1)(d) on the ground that he failed properly to conduct the proceedings.
- By application notice dated 4 April 2001 Kalmneft apply under Section 68 of the 1996 Act to set aside the Ruling on the grounds of serious irregularity affecting the proceedings and the Ruling which has caused substantial injustice to Kalmneft. In substance, it is said that there was a failure to comply with Section 33(1)(a) (general duty of the tribunal) in as much as the arbitrator failed to act fairly and impartially as between the parties because he did not give Kalmneft a reasonable opportunity of putting its case or dealing with that of its opponent.
- There are also secondary applications for extensions of the time limit set out in section 70(3) for the bringing of the section 67 and section 68 applications, in each case 28 days from the date of the award.
- The relevant statutory provisions are as follows:
Section 24
"(1) A Party to arbitral proceedings may (upon notice to the other parties, to the arbitrator concerned and to any other arbitration) apply to the court to remove an arbitrator on any of the following grounds:-
(d) that he has refused or failed -
(i) properly to conduct the proceedings, or
(ii) to use all reasonable despatch in conducting the proceedings or making an award,
and that substantial injustice has been or will be caused to the applicant.
Section 30
(1) Unless otherwise agreed by the parties, 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.
(2) Any such ruling may be challenged by an available arbitral process of appeal or review or in accordance with the provisions of this Part.
Section 31
(4) Where an objection is duly taken to the tribunal's substantive jurisdiction and the tribunal has power to rule on its own jurisdiction, it may-
(a) rule on the matter in an award as to jurisdiction, or
(b) deal with the objection in its award on the merits.
Section 67
(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court:-
(a) challenging any award of the arbitral tribunal as to its substantive jurisdiction; or
(b) for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction.
A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).
(2) The arbitral tribunal may continue the arbitral proceedings and make a further award while an application to the court under this section is pending in relation to an award as to jurisdiction.
(3) On an application under this section challenging an award of the arbitral tribunal as to its substantive jurisdiction, the court may by order:-
(a) confirm the award,
(b) vary the award, or
(c) set aside the award in whole or in part.
Section 68
(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.
A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).
(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant:-
(a) failure by the tribunal to comply with section 33 (general duty of tribunal).
Section 33
(1) The tribunal shall:-
(a) Act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and
(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.
(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it.
Section 70
(1) The following provisions apply to an application or appeal under section 67, 68 or 69.
(3) Any application or appeal must be brought within 28 days of the date of the award or, if there has been any arbitral process of appeal or review, of the date when the applicant or appellant was notified of the result of that process.
Section 73
(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection:-
(a) that the tribunal lacks substantive jurisdiction,
(b) that the proceedings have been improperly conducted,
(c) that there has been a failure to comply with the arbitration agreement or with any provision of this Part, or
(d) that there has been any other irregularity affecting the tribunal or the proceedings,
he may not raise that objection later, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection.
(2) Where the arbitral tribunal rules that it has substantive jurisdiction and a party to arbitral proceedings who could have questioned that ruling:-
(a) by any available arbitral process of appeal or review, or
(b) by challenging the award.
does not do so, or does not do so within the time allowed by the arbitration agreement or any provision of this Part, he may not object later to the tribunal's substantive jurisdiction on any ground which was the subject of that ruling"
The Underlying Dispute
- Kalmneft is an oil production company carrying on business in the Republic of Kalmykia, an autonomous republic of the Russian Federation located in the Caucasus. Glencore is an oil trading company based in Switzerland.
- The claim in the arbitration is brought by Glencore for monies due under a Prepayment Agreement dated 19th March 1998 entered into between Glencore and Kalmneft and a company incorporated in the Republic of Ireland called Briarwise International Ltd ("Briarwise"). In substance, Kalmneft was to supply a substantial amount of crude oil to Briarwise under a separate supply contract dated 10 March 1998. Under an agreement dated 19 March Glencore agreed to purchase certain quantities of crude oil from Briarwise at specified delivery dates.
- Under the Prepayment Agreement Glencore was to pay by way of advance to Kalmneft and Briarwise US$10 million. That was to be a pre-payment in respect of the price of the oil to be delivered to Glencore under the supply contract of 19 March. By clause 1.2 of the Prepayment Agreement it was provided that the pre-payment would be made in two amounts. Up to $7 million was to be made in cash into Briarwise's bank account and the balance of $3 million was to be made available by way of the supply of equipment by or procured by Glencore. Interest was to be payable to Glencore until delivery of the oil to it.
- Pursuant to an equipment supply agreement of 3 April 1998 Glencore's subsidiary, Glencore Oil Products AG, supplied equipment to and carried out work for Kalmneft and Briarwise relating to Kalmneft's Kurganoy field. It was agreed that the invoice value of such equipment and works should be treated as a prepayment by Glencore under the Prepayment Agreement.
- Glencore claims that it made prepayments totalling US$8,506,329.79 including $7 million in cash.
- By clause 3 of the Prepayment Agreement it was provided that oil to the value of at least US$420,000 per month would be delivered to Glencore during the period from January 1999 to December 2000. Clause 3.3 provided that Kalmneft and Briarwise unconditionally undertook that the oil cargoes would be delivered in full according to the Briarwise/Glencore contract by 31 December 2000. If any prepayment and/or interest was still outstanding on that date, that is to say sufficient oil had not been delivered to off-set the prepayment and interest, Kalmneft and Briarwise were to pay the balance in cash to Glencore. Clause 4 provided that the prepayment would become immediately repayable in full together with accrued interest and all other monies payable if at any time either Kalmneft or Briarwise were to be in breach of the Prepayment Agreement or of any other agreement with Glencore.
- It is alleged that no oil was delivered to Glencore in January or February 1999. Notice of default was given by Glencore to Kalmneft by letter dated 10 March 1999 and to both Kalmneft and Briarwise by letters dated 19 November 1999. By 30 September 2000 interest had accrued to the extent of US$3,702,728.29, increasing at the rate of US$6,100.05 per day. No deliveries of oil were made during 1999 or subsequently.
- The Prepayment Agreement provided by clause 5.3:
"This Agreement shall be governed by the laws of England and any dispute or matter arising directly or indirectly under or relating to this Agreement shall be submitted to arbitration in London under the Arbitration Acts."
- The Prepayment Agreement was signed over the official corporate stamp of Kalmneft by the then First Deputy General Director of Kalmneft, Mr Daginov. He held a power of attorney signed by the General Director of Kalmneft, one Kourneyev. This empowered Daginov to enter into and sign contracts on behalf of Kalmneft.
- Kalmneft asserts that it has been the victim of a fraud perpetrated by Daginov. It claims to have known about the contract to supply oil to Briarwise and to have known that the oil was being ultimately supplied to Glencore but not to have known that Daginov had entered into the Prepayment Agreement, purportedly on behalf of Kalmneft. It is said that Kalmneft believed that Briarwise was Glencore's associated company. It is therefore contended that Kalmneft never became a party to the Prepayment Agreement and is accordingly not bound by the arbitration clause. Not only is it not liable for amounts due under that agreement, but it is not obliged to take part in the arbitration.
The Arbitration Proceedings
- On 13 January 2000 Glencore sent letters to Kalmneft and Briarwise alleging the breaches of the Prepayment Agreement which I have described. They called on those parties to join with them in appointing an arbitrator within 28 days failing which they would apply to the High Court in London under section 16 of the Arbitration Act for such appointment to be made. At the same time they proposed that Mr Berkeley be jointly appointed as sole arbitrator. This letter was ignored.
- Glencore then applied to the court. The proceedings were served on Kalmneft but by their letter of 24 April 2000 Kalmneft stated that the Arbitration Court of Kalmykia had already held that the agreement was invalid on the ground that the arbitration agreement contained "numerous flaws", that Briarwise had ceased to be registered in Ireland, that criminal proceedings had been commenced against Daginov by the Ministry of Internal Affairs of Kalmykia and that the arbitration proceedings in London should be terminated because the Kalmykia State Court had already ruled on the validity of the agreement and no award of a foreign tribunal would be recognised or enforced.
- By order of Longmore J. on 9 June 2000 Mr Berkeley was appointed sole arbitrator.
- On 25 August 2000 Mr Berkeley gave the following directions as to the progress of the arbitration.
- Glencore was to serve its statement of case and supporting documents on the Respondents with a copy to the Arbitrator not later than 25 September 2000. Upon such service on the Respondents they were to have 30 days from the date of service to serve Defences and supporting documents with copies to the Arbitrator. Glencore was then to have 30 days either to serve its Reply and supporting documents or to notify the Respondents and Arbitrator that it did not wish to do so. Disclosure of documents beyond those disclosed with the pleadings was to be dispensed with. Paragraph 5 provided:
"The Arbitrator shall hold an oral hearing if so requested by any of the parties. Such request must be made within 15 days of the service of the Reply or of the Claimant's notice that no Reply will be served. Any such hearing shall be held as soon as convenient, in London. If no such request is made, then the Arbitrator shall make an award based on the Pleadings and the documents provided therewith as soon as possible."
- The order further stated that the directions were to be varied and/or amplified at the discretion of the Arbitrator.
- Kalmneft responded immediately to this order. By letter sent on 1 September 2000 it referred to various proceedings before the Arbitration Court of Kalmykia by which it had been concluded that the Prepayment Agreement was invalid and then to an appeal before the Arbitration Court of the Russian Federation and asserted in substance that Kalmneft had not received the prepayment and that Briarwise had failed to deliver any oil and that it was for Briarwise and not Kalmneft to repay the money to Glencore. The letter went on to assert that the English "court" had no jurisdiction because the events took place in Russia. In any event, if the respondents did not participate in the arbitration, the award would not be "in accordance with international requirements". There is then an opaque reference to execution of the court only in Russia.
- On 25 September 2000 the arbitrator sent a letter to all parties. He made it clear that there would be no question of his receiving communications from one side which were not communicated to the other parties and stated that all communications to him must be simultaneously copied to the other parties. Glencore was given until 9 October to comment on Kalmneft's 1 September letter. The letter continued:
"It is clear that Kalmneft is submitting that I have no jurisdiction in this matter. I have power to rule on the question of my jurisdiction under section 30 of the Arbitration Act 1996. In the event that I should decide that it would be desirable to make such a ruling, I would remind Kalmneft of its right to take legal advice and, in addition to considering any submissions which it may make directly to me. I would therefore be happy to consider submissions by its legal advisers. Kalmneft, or its lawyer, may make further written submissions relating to my jurisdiction not later than 9 October 2000."
- On 30 September 2000 Baker & McKenzie ("B&M") submitted Glencore's Statement of Case as to its substantive claim. Whereas it referred to the arbitration agreement in clause 5.3 of the Prepayment Agreement, it did not direct itself specifically to the points raised by Kalmneft in its 1 September letter. However, by their letter of 9 October B&M submitted a paragraph by paragraph response to Kalmneft's points. They explained that although the Arbitration Court of Kalmykia had found that the Prepayment Agreement was invalid and that this decision had been upheld on appeal, it was arrived at without reference to any evidence or the relevant procedural laws. Glencore's legal representative had appeared solely to protest the jurisdiction. Glencore's further appeal to the Federal Arbitration Court, North Caucasus District was allowed but Kalmneft was understood to have appealed yet again to the Supreme Arbitration Court in Moscow. B&M made the point that any challenge to the jurisdiction of the arbitrator could only be determined by the arbitrator under section 30 of the 1996 Act or by the English court under section 32. They further maintained that Kalmneft's argument against the jurisdiction of any English court was without foundation.
- On 11 October 2000 the arbitrator wrote to the parties stating that, although Kalmneft had said that it had evidence and explanations as to its case on jurisdiction, it had so far produced neither documents nor evidence nor had it produced any coherent legal argument as to want of jurisdiction. He had concluded that it was his duty under the 1996 Act to give Kalmneft an opportunity to make its case on jurisdiction and for him to rule on jurisdiction in exercise of his powers under sections 30 and 31(4) of that Act. He thereupon made the following orders:
"(1) Kalmneft shall, not later than Friday 27 October 2000, submit to me and to the other parties in writing its arguments concerning my jurisdiction in this arbitration and it shall annexe true notarially certified copies of all documents upon which it relies. The claimant shall have until Friday 10 November 2000 to reply in writing to such arguments, annexing notarially certified copies of any documents on which it relies.
(2) In addition to the submission of written evidence and argument, either party may request a hearing limited to the question of jurisdiction. Oral testimony may be given at such hearing. If the Arbitrator shall grant such request, he may do so upon such conditions, including time limits within which hearings may be held and venue, as he thinks just and convenient.
(3) Pending the Award of the arbitrator on his jurisdiction, proceedings on the merits of the case shall be suspended.
(4) If Kalmneft does not present written argument and evidence as required by paragraph 1 above within the time limit therein laid down, the Arbitrator shall nevertheless proceed forthwith to issue an Award on Jurisdiction under his powers in Section 41(4) of the Arbitration Act 1996."
- By a letter dated 28 October 2000 Kalmneft made the following main points.
(i) The Arbitration Court of Kalmykia had already decided that Briarwise should pay US$7,189,504 to Kalmneft and that the Kalmneft/Briarwise Contract should be cancelled.
(ii) Given that Briarwise had ceased to exist, there was no ground for London jurisdiction.
(iii) Daginov's conduct in signing the Prepayment Agreement without submitting it for the approval of the Board of Directors of Kalmneft bore the marks of criminality and criminal proceedings had been started against him and against Mr Pyataev, the former Director General of Kalmneft, who had already been imprisoned pending investigation into the theft of $100,000 from that company.
(iv) The Prepayment Agreement did not contain an arbitration clause requiring all disputes to be resolved on an ad hoc basis.
(v) Russian law governed the question whether a Russian company was bound by a contract not submitted for the approval of the Board of Directors, irrespective of the fact that an arbitration clause was included. Accordingly, the Prepayment Agreement was invalid under Kalmneft's statutes and the Federal Joint Stock Companies Act.
- The latter concluded by stating that Kalmneft placed its trust in the impartiality and expertise that the arbitrator would bring to bear in reaching a final decision. It contained no request for an oral hearing and was accompanied by neither evidence nor documents.
- It is to be observed that Kalmneft's challenge to the arbitrator's jurisdiction was at least in part based on the assertion that the Prepayment Agreement and therefore the agreement to arbitrate in clause 5.3, was not binding on Kalmneft. This is an increasingly prevalent situation in jurisdictional challenges to arbitration encountered in this court. On the preliminary issue of jurisdiction the arbitrator or the court, as the case may be, is called upon to decide whether any contract exists between the parties and, if there is found to be no such contract, the claim may necessarily fail. In such cases the whole issue of liability may therefore be decided by the determination of the issue on jurisdiction.
- On 20 November 2000 B&M sent Glencore's submissions in reply on the jurisdiction issue to the arbitrator and to Kalmneft. In summary, their submissions in so far as material were that:
(i) in as much as clause 5.3 of the Prepayment Agreement contained an express choice of law provision, the agreement to arbitrate was governed by English law;
(ii) the validity of that agreement to arbitrate was by English conflicts rules governed by the law by which such agreement would have been governed if it were binding;
(iii) therefore its validity in this case was to be governed by English law;
(iv) the receipt or otherwise of the prepayment by Kalmneft was irrelevant to the jurisdiction issue;
(v) section 36 of the Companies Act 1985 as modified by the Foreign Companies (Execution of Documents) Regulations 1994 provided that a company incorporated outside Great Britain could have a contract made on its behalf by any person who, in accordance with the laws of that entry of incorporation was acting under the authority express or implied of that company;
(vi) Daginov had express or implied authority to enter into the Prepayment Agreement by reason of the company's power of attorney, Kalmneft's articles of association and certain provisions of the Russian Civil Code, in particular Article 182(1) governing the effect of powers of attorney;
(vii) alternatively Daginov had ostensible authority to bind Kalmneft by reason of his position as a director of Kalmneft and of the power of attorney;
(viii) alternatively Kalmneft ratified his authority by part performance in as much as they went ahead and accepted equipment and services which were supplied by or on behalf of Glencore as the non-cash element of the prepayment.
- That letter contained no request for an oral hearing.
- The arbitrator then proceeded directly to his ruling on jurisdiction which he issued on 24 November 2000. In an impressive and carefully reasoned analysis be concluded that he had jurisdiction because Daginov did have authority to enter into the arbitration agreement and that agreement was therefore valid and binding on Kalmneft. At the same time the arbitrator issued directions for service of a defence in the substantive dispute by 15 December 2000.
- By a letter dated 13 December 2000 Kalmneft rejected the arbitrator's ruling and repeated that any award he might make in the absence of Kalmneft and Briarwise could not be enforceable in Russia. The letter did not state that Kalmneft had expected to be permitted to make reply submissions or adduce more written evidence or to attend an oral hearing on the jurisdiction issue.
- On 18 December 2000 the arbitrator issued a peremptory order under section 41 of the 1996 Act that Kalmneft and Briarwise must serve a defence within 14 days of service on them of an affidavit to be produced by Glencore verifying the matters relied on its statement of case. If a defence were not served the arbitrator would proceed to his award under his powers under section 41(4) of the Act.
- On 12 January 2001 Glencore served its affidavit on Kalmneft.
- On 17 January 2001 the arbitrator, in response to Kalmneft's request, ordered that a "meeting" of the parties with him should take place on 19 and 20 February 2001. He suspended the operation of his peremptory order until after 2 March 2001. This had the effect of extending Kalmneft's time for service of a defence.
- At this point, for the first time since the dispute began, Kalmneft on 5 February 2001 appointed English solicitors, over 10 weeks after the arbitrator had issued his ruling on jurisdiction. The meeting was postponed until 20 March 2001. Messrs Peter Levine of Leeds then made contact with the arbitrator. They asked whether, in view of his ruling on jurisdiction it was still open to Kalmneft to contend that it was not bound by the Prepayment Agreement. They further stated that Kalmneft would be asking for an order for disclosure of Glencore's documents before defence. The letter contained no objection to the jurisdiction of the arbitrator.
- On 12 March 2001 Kalmneft's solicitors issued its application to have the arbitrator's ruling on jurisdiction set aside under section 67 of the Arbitration Act 1996.
- Following a hearing on 20 March 2001 at which Kalmneft was represented by leading counsel the arbitrator issued further directions for the service of a defence by 30 April, disclosure of documents and exchange of witness statements.
- Meanwhile, on 27 March 2001 Kalmneft issued its application to remove the arbitrator for having failed properly to conduct the proceedings and on 4 April it issued its application to set aside the Ruling on the grounds of serious irregularity.
- Finally, on 11 May 2001, Kalmneft served its defence on the merits of the underlying claim, but in which it expressly declined to accept that the arbitrator had jurisdiction.
Extensions of Time under the Arbitration Act 1996
- Each of the applications under section 67 and 68 of the 1996 Act was brought long out of time. Section 70(3) imposes a time limit of 28 days from the date of the award. Therefore, the applications should have been issued by 22 December 2001. The section 67 application was issued over 11 weeks beyond the time limit and the section 68 application was issued over 14 weeks out of time.
- The relevant provision in the 1996 Act with regard to extensions of time in respect of the 28 day limit is section 80(5). This provides:
"(5) Where any provision of this Part requires an application or appeal to be made to the court within a specified time, the rules of court relating to the reckoning of periods, the extending or abridging of periods, and the consequences of not taking a step within the period prescribed by the rules, apply in relation to that requirement."
- Mr Steven Berry has submitted on behalf of Glencore that it is only under section 79 of the Act that Kalmneft can obtain an extension of time for compliance with the 28 days time limit. Section 79 provides:
"(1) Unless the parties otherwise agree, the court may by order extend any time limit agreed by them in relation to any matter relating to the arbitral proceedings or specified in any provision of this Part having effect in default of such agreement.
This section does not apply to a time limit to which section 12 applies (power or court to extend time for beginning arbitral proceedings, &c)
(2) An application for an order may be made-
(a) by any party to the arbitral proceedings (upon notice to the other parties and to the tribunal), or
(3) The court shall not exercise its power to extend a time limit unless it is satisfied-
(a) that any available recourse to the tribunal, or to any arbitral or other institution or person vested by the parties with power in that regard, has first been exhausted, and
(b) that a substantial injustice would otherwise be done."
- The 28 day time limit under section 70(3) is not a time limit specified by a provision of Part I of the Act in default of a time limit agreed by the parties: it is simply a provision of Part I requiring an application or appeal to be made to the court within a specified time. In the course of argument Mr Simon Crookenden QC, on behalf of Kalmneft, did not challenge Mr Berry's reliance on section 79. Indeed, he positively submitted that, if time were not extended, his clients would suffer a substantial injustice for the purposes of section 79(3)(b). However, section 79 does not apply to the extension of time unless, as, for example, under section 16, the Act lays down time limits in default of agreement.
- Both counsel appear to have overlooked section 80(5). This provision incorporates into the Act the rules of court relating to extending periods of time under the rules and makes them applicable to the statutory time limits. At the time when the Act became law, the relevant rule was RSC Order 3, rule 5. Now, under the new regime, it is CPR 3.1.2 which provides:
"Except where these Rules provide otherwise, the court may-
(a) extend or shorten the time for compliance with any rule, practice direction or court order even if an application for extension is made after the time for compliance has expired."
- The effect of section 80(5) is to introduce the broad discretionary approach under this rule into applications for the extension of the 28 days time limit under sections 67,68 and 69 of the 1996 Act.
- It is therefore necessary to identify the criteria applicable to such applications under the Arbitration Act, for they may differ from those applicable under the CPR.
- In determining the relative weight that should be attached to discretionary criteria the starting point must be to take into account the fact that the 1996 Act is founded on a philosophy which differs in important respects from that of the CPR.
- Thus, the twin principles of party autonomy and finality of awards which pervade the Act tend to restrict the supervisory role of the court and to minimise the occasion for the court's intervention in the conduct of arbitrations. Nowhere is this more clearly demonstrated than in section 68 itself where there was superimposed upon the availability of a remedy for what used to be called "misconduct" by the arbitrator and was re-defined as "serious irregularity" a requirement that it had caused or would cause substantial injustice to the applicant. No longer was it enough to demonstrate failure by the arbitrator scrupulously to adhere to the audi alterem partem rule.
- Section 12 also reflects this general approach by redefining the circumstances in which the court will extend the time for the commencement of arbitration fixed by the arbitration agreement: as explained in Harbour & General Works Ltd v. Environment Agency [1999] CLC 786 at page 793. Further, the relatively short period of time for making an application for relief under sections 67, 68 and 69 also reflects the principle of finality. Once an award has been made the parties have to live with it unless they move with great expedition. Were it otherwise, the old mischief of over long unenforceability of awards due to the pendency of supervisory proceedings would be encouraged.
- At this point it is necessary to have in mind the general principles set out in section 1 of the 1996 Act:
"(1) The provisions of this Part are founded on the following principles, and shall be construed accordingly-
(a) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;
(b) the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest;
(c) in matters governed by this Part the court should not intervene except as provided by this Part."
- The reference to unnecessary delay is pertinent to identifying the relevant discretionary criteria.
- The need for expedition in proceedings before the court is reflected in paragraphs 9 and 12 of Appendix 19 of the Commercial Court Guide. This states under the heading Arbitration Matters: Related Practice:
"Progress-
(9) In arbitration matters it is the particular duty of the Court to see that court proceedings are not a cause of delay.
(10) A hearing date must (where applicable) be applied for promptly after the issue of the required practice form (whether serving as an arbitration claim form or an application notice) or after obtaining permission to appeal under the Arbitration Acts 1979 and 1996.
(12) A failure to act with all deliberate speed founds the Court's discretion to strike out. When it comes to the attention of the Court that delay is occurring, the Court may itself direct that the matter be listed for hearing."
- It is however also to be remembered that the threshold requirement set out in section 79(3)(b) for extension of time limits to which section 79 relates - "that a substantial injustice would otherwise be done" is not expressed to be applicable to extensions of time under section 80(5). In that respect, therefore, a lower unfairness threshold must be presumed to have been intended.
- In approaching the identification of the applicable criteria it is also important to take into account the fact that, at least in international arbitrations, English arbitration is probably the most widely chosen jurisdiction of all. It is chosen because of the ready availability of highly skilled and experienced arbitrators operating under a well-defined regime of legal and procedural principles in what is often a neutral forum. Supervisory intervention by the courts is minimal and well-defined and the opportunities for a respondent with a weak case to delay the making of an award or to interfere with its status of finality are very restricted. Accordingly, much weight has to be attached to the avoidance of delay at all stages of an arbitration, both before and after an interim or final award. If the English courts were seen by foreign commercial institutions to be over-indulgent in the face of unjustifiable non-compliance with time limits, those institutions might well be deterred from using references to English arbitration in their contracts. This is a distinct public policy factor which has to be given due weight in the discretionary balance.
- On the other hand it has to be recognised that because of the extremely wide international nature of the market for English arbitration many of the parties may be located in remote jurisdictions and may have little or no previous experience of international or English arbitration. When these relatively unsophisticated parties find themselves involved in such an arbitration, it is only to be expected that they move somewhat more tentatively than would an international trading house well experienced in this field. It would therefore be wrong to fail to make at least some allowance for this factor in evaluating the element of fault in failing to comply with time limits.
- Accordingly, although each case terms on its own facts, the following considerations are, in my judgment, likely to be material:
(i) the length of the delay;
(ii) whether, in permitting the time limit to expire and the subsequent delay to occur, the party was acting reasonably in all the circumstances;
(iii) whether the respondent to the application or the arbitrator caused or contributed to the delay;
(iv) whether the respondent to the application would by reason of the delay suffer irremediable prejudice in addition to the mere loss of time if the application were permitted to proceed;
(v) whether the arbitration has continued during the period of delay and, if so, what impact on the progress of the arbitration or the costs incurred in respect of the determination of the application by the court might now have.
(vi) the strength of the application;
(vii) whether in the broadest sense it would be unfair to the applicant for him to be denied the opportunity of having the application determined.
- The relative weight to be given to these considerations in the discretionary balance in any given case is likely to be influenced by the general considerations relating to international arbitration to which I have already referred.
Application of the relevant Principles on Extension of Time
- The delay has to be counted from the date of the award. In the case of the section 67 application this was over 11 weeks after the 28 days, nearly three times longer than the permitted period. In the case of the section 68 application it was 14 weeks after the 28 days.
- It is to be said at the outset that these are very considerable periods of delay. It is therefore necessary to investigate whether the applicant has put forward any reasonable excuse for such a substantial departure from the requirements of the Act.
- There can be no doubt that one of the main reasons for Kalmneft's failure to act within the time limits was its failure to take advice on English arbitration law. It did not consult solicitors until 5 February 2001. As early as 24 May 2000 B&M had advised Kalmneft to instruct English solicitors to advise them. That was at the stage of Glencore's application to this court for the appointment of a sole arbitrator. Yet that suggestion was ignored for a period of over seven months. The arbitrator gave similar advice in his letter of 25 September 2000. No satisfactory explanation has been provided by Kalmneft for ignoring that advice. It seems to have been assumed that it would be better to present its own case on the issue as to jurisdiction, starting from the basis that there was no jurisdiction because the Prepayment Agreement had been entered into by Daginov without authority and that the Russian courts had or would ultimately reach this conclusion and that any award from England would be unenforceable in Kalmykia.
- It is of course always open to a foreign corporation to ignore an English arbitration if it takes the position that the arbitrator has no jurisdiction, leaving it to the other party to proceed unilaterally to an award and then to attempt to enforce it in the foreign jurisdiction. In the enforcement proceedings it would normally be open to a party who had taken no part in the arbitration amounting to submission to the arbitrators to assert that it was not bound by the award. However, if a foreign respondent is to take advantage of English procedural facilities for testing the arbitrators' jurisdiction, it is incumbent upon it to comply to the best of its ability with the requirements of that procedure. It is not permitted to adopt an exploratory foray into those procedural facilities in the course of which it ignores the procedural requirements.
- Kalmneft has, in my judgment, failed to show any reasonable excuse for its non-compliance with the statutory time limit. Had it instructed solicitors at the outset it would not have been ignorant of the time limits. Its omission to take professional advice on English law from the outset (June 1999) or, failing that, from the time of the arbitrator's letter of 25 September or from when the arbitrator made his directions as to the jurisdiction issue (October 2000) or, even at the last minute, on receiving the ruling on jurisdiction (November 2000) was not merely an understandable consequence of inexperience in international arbitration: it was totally unreasonable. However inexperienced a foreign corporation was as to how to conduct an arbitration, it should have been quite obvious to it on reading Glencore's submission on jurisdiction that it urgently needed advice on English law.
- Solicitors first having been instructed on 5 February 2001, they had to obtain instructions from relatively inaccessible clients and had to familiarise themselves with the facts and issues giving rise to the arbitration. As soon as they had been informed that Kalmneft challenged jurisdiction in the face of the arbitrator's ruling, they should have appreciated that there was a time limit relevant to any further challenge and should have moved with maximum urgency. As it is, it was over a month before they contacted the arbitrator to enquire about the implications of his ruling on the arbitration as to the merits. Only after receiving his reply (9 March 2001) did they issue their application under section 67. In the circumstances I find their approach somewhat leisurely in spite of the points relied on in paragraph 6 of Mr Levine's second witness statement and in the other witness statements.
- It is at this point that it is necessary to examine the section 67 application. The witness statement of Peter Levine set out the main events in the arbitration, stating (paragraph 10) that the arbitrator had not given Kalmneft on opportunity to reply to B&M's submissions before making his ruling. It summarised the ruling, quoting what it described as the correct statement of the doctrine of severability and stating that by his finding that Daginov had authority to enter into the arbitration agreement he had made findings that went both to the validity of the arbitration agreement and to that of the Prepayment Agreement itself. The statement then went on as follows:
"Kalmneft seek no declaration at this stage as to the validity or otherwise of the arbitration agreement. This issue is inextricably mixed up with the basic issues in the dispute as to the validity of the Prepayment Agreement itself. Kalmneft simply seek the setting aside of the Ruling on Jurisdiction insofar as it concerns the validity of the arbitration agreement so that this issue can be dealt with by the Arbitrator at the same time as his award on the merits of the claim.
Kalmneft have arguable defences to Glencore's claim though they are not yet in a position to plead those defences in full. The position is set out in the letter dated 9 March 2001 from my firm to the Arbitrator. It is Kalmneft's case that there is ample evidence to show that Kalmneft have been the victim of an actual or at least attempted fraud. It is also Kalmneft's case that there is evidence at least sufficient to justify further investigation as to whether there was any involvement of Glencore in the fraud. Justice requires that Kalmneft be given a proper opportunity to make their investigations and to plead such defences as may be available to them both as regards the merits of the dispute and as to the Arbitrator's jurisdiction.
Even if the evidence eventually obtained would not justify a plea of fraud against Glencore, Kalmneft would still have arguable defences based on the authority of Mr Daginov to enter into the Prepayment Agreement on behalf of Kalmneft. Such defences would go both to the validity of the Prepayment Agreement itself and also to the validity of the arbitration agreement contained within it."
- In opening this application Mr Crookenden QC explained that he was inviting the court to set aside the ruling on jurisdiction so that the arbitrator could at one and the same hearing determine the closely related issues of whether Kalmneft was bound by the Prepayment Agreement and whether it was bound by the arbitration agreement. Alternatively, if the court could not take that course, it should adjourn the section 67 application but giving directions as to the exchange of further evidence prior to a later hearing by the court. He submitted that there was on the evidence so far adduced at least an arguable case that Kalmneft was not bound by the arbitration agreement due to the fraud of Daginov. Kalmneft was prepared to give up the proceedings in Russia - leaving the issue of jurisdiction to be determined in accordance with the Arbitration Act.
- The course taken by the applicants is, in my judgment, a misuse of the section 67 jurisdiction.
- Firstly, Kalmneft is attempting to use that jurisdiction to challenge, not the arbitrator's conclusion on jurisdiction, but his underlying decision to rule on his own jurisdiction under section 30(1)(a) and by way of a preliminary award. It was open to the arbitrator under section 31(4) either to rule on the matter in an award on jurisdiction or to postpone a decision until his award on the merits. He chose the former course, no doubt because he considered that it would be a more cost-efficient and speedier way of resolving the dispute. This was not a surprising course. At the time when, on 11 October 2000, he decided to deal with jurisdiction as a preliminary issue it was open to him sensibly to take the view that in spite of the overlapping issues of fact and law relating to Daginov's authority to enter into the agreement to arbitrate and the Prepayment Agreement it would be of advantage to the parties to know where they stood on jurisdiction as early as possible.
- The function of section 67 is not to challenge a decision as to what course to take under section 31(4) but to challenge the arbitrator's ruling as to his jurisdiction or to challenge his award on the merits on the ground that he did not have jurisdiction. Once an arbitrator has decided under his powers under section 31(4) to rule on his own jurisdiction, the only function of section 67 is to challenge the arbitrator's conclusion either that he had jurisdiction or that he did not. Above all the court has no power to set aside a ruling that the arbitrator has jurisdiction on the grounds that it would be better if he reconsidered the matter in the light of more evidence that might be available at a hearing on the merits.
- It is to be observed that the evidence filed in support of the section 67 application at no point suggests that the court should forthwith set aside the arbitrator's ruling because it was wrong. Nor does it suggest that the court should first give directions relating to the evidence to be adduced at a subsequent hearing by the court of a challenge to jurisdiction. Indeed, paragraph 13 of Mr Levine's affidavit is wholly inconsistent with that intention.
- For these reasons, the application issued on 12 March 2001 was bound to fail on the evidence on which it was based. Had it been brought within time it would have been open to the court to strike it out.
- Accordingly, it is unnecessary to investigate any other considerations relevant to the exercise of the court's discretion to extend time. On the grounds already considered, namely the extent and the absence of a reasonable excuse for the delay and the intrinsic weakness of the application, the application for extension of time must be refused, for these grounds necessarily outweigh or dispose of all other criteria.
- I turn now to the application to extend time for the section 68 application. This was issued 3 weeks later than the section 67 application. In paragraph (iv) of the grounds of application set out in the arbitration application there is set out the following explanation not for the whole delay since 22 December but for the failure to make the application under section 68 at the same time as that under section 67. That explanation is as follows:
"(iv) This application was not made at the same time as the application under s.67 of the Arbitration Act since, there being no requirement for leave under s.67, it was not thought necessary to apply also under s.68. On consideration it was thought appropriate to apply also under s.68 since the evidence to support such an application is already before the court and it is appropriate for the court to have available to it all relevant powers under the Arbitration Act."
- I regret to say that I have found this explanation incomprehensible. It goes nowhere to explaining why a further period of delay after 12 March 2000 was allowed to elapse. There is therefore no more to explain the delay than there is in relation to the section 67 application in Mr Levine's first and second witness statements and the other witness statements. In particular the meeting with the arbitrator which he convened on 20 March had no bearing whatever on the substance of the application. The only relevant serious irregularity could be that which had occurred in relation to the arbitrator's ruling on jurisdiction 4 months earlier.
- I therefore conclude that Kalmneft had not acted reasonably in allowing the 28 days time period to elapse or the subsequent delay of 14 weeks to occur.
- The grounds of relief relied upon in the arbitration application are that:
"(i) In breach of s.33 of the Arbitration Act 1996 the arbitrator failed to give the applicant any or any adequate opportunity to lead evidence in support of their challenge to the arbitrator's jurisdiction.
(ii) In further breach of s.33 of the Arbitration Act 1996 the arbitrator failed to give the applicant any opportunity to reply to the submissions made on behalf of the Respondent in a letter from Baker & McKenzie dated 20 November 2000."
- The evidence relied upon is said to be that contained in the witness statements deployed for the section 67 application and the witness statement of Peter Levine deployed in support of the application of 27 March to remove the arbitrator under section 24 of the Act.
- Essentially, two main points are relied on as amounting to a serious irregularity:
(i) the arbitrator's decision to determine his own jurisdiction as a preliminary point notwithstanding that it involved deciding whether Kalmneft gave express or implied or ostensible authority to Daginov to bind it to the agreement to arbitrate, an issue extremely closely related to the issue whether Daginov was authorised to bind it to the Prepayment Agreement;
(ii) proceeding to his ruling without giving Kalmneft a reasonable opportunity to put forward submissions or adduce evidence in response to B&M's submissions on behalf of Glencore in their letter of 20 November 2000, having previously failed to make it clear that Kalmneft's response to his letter of 10 October 2000 was to be its only opportunity to put forward its case on jurisdiction.
- As to (i),it is submitted that the arbitrator should have taken one of three courses:
"(i) Left over any issues that related both to his jurisdiction and to the merits for decision in an award on the merits; or
(ii) Identified those issues that related both to his jurisdiction and to the merits and determined those issues as preliminary issues having given both parties a full and proper opportunity to lead evidence and make submissions on those issues; or
(iii) Suggest that the issue of Jurisdiction be submitted to the Court under s.32 of the Arbitration Act 1996."
- It is said that his failure to do so amounted to a serious irregularity in as much as it was contrary to the arbitrator's duty under section 33(1)(b), namely to adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined. It is said that this decision has caused substantial injustice to Kalmneft by forcing it to pursue as a preliminary point its whole case that Daginov acted without its authority.
- As indicated earlier in this judgment, it is commonplace in international arbitration for jurisdiction and liability both to be disputed on the ground that there was no binding contract or agreement to arbitrate between the parties. When an arbitrator is confronted by this situation, his duty is to consider how his duty under section 33(1)(b) should be complied with. That decision must necessarily take into account not only all the factual circumstances, such as the nature of the evidence likely to be relevant and what procedure would be best suited to it in the interests of both parties, but also the availability of recourse to the court by the party against whom he decided the jurisdiction issue by reason of the right to challenge either a preliminary ruling on jurisdiction or a final award on the merits which involved the assumption of jurisdiction where it was said that none existed. In deciding what procedure is suitable so as to provide for a fair resolution of the dispute to he must have regard to cost efficiency and the need to avoid unnecessary delay. In this connection two observations are relevant:
(i) there is nothing in the Arbitration Act to suggest that a preliminary ruling on jurisdiction should involve a less comprehensive investigation of evidence than determination of the merits by a final award;
(ii) the very availability of the section 67(1)(a) jurisdiction which necessarily involves the arbitrator already having decided to determine jurisdiction as a preliminary issue necessarily recognises that a decision to take that course may, in some cases be consistent with his duty under section 33(1)(b). In other words, at least the mere fact that the arbitrator adopts a course which may involve the issue of his jurisdiction being first determined by him and then all over again by the court cannot without more be used as a basis for an allegation of breach of his duty under section 33(1)(b).
- It is thus perfectly clear that an arbitrator may be entitled to take the view that it would be more efficient in time and cost to rule on his own jurisdiction at the outset, even if that involves deciding whether there was a binding contract to arbitrate and even if his decision on that matter gives rise to a conclusion in respect of a major issue on the merits of the underlying claim in the arbitration. The suggestion that in all those cases where those issues are or nearly are co-extensive the arbitrator should be shut out from determining his own jurisdiction is, in my judgment, quite unsustainable. Provided that he has satisfied himself that such a course is time efficient and cost efficient and fair to all parties, the arbitrator should not be deterred from taking that course simply because the issues on jurisdiction and liability are co-extensive.
- Further, intervention under section 68 should be invoked only in a clear case of serious irregularity. The court's powers to interfere with an arbitrator's discretionary decision as to how he should exercise his jurisdiction under section 30(1) should not be engaged unless it is clear that in exercising his discretion he has failed to have regard to the relevant facts and to his duty under section 33. Unless he has arrived at a conclusion which no reasonable arbitrator could have arrived at in the case in question having regard to his duties under section 33, it cannot be said that his decision is capable of being characterised as a serious irregularity. This threshold for intervention by the Court has long been recognised in the field of the courts' supervisory jurisdiction as appropriately preserving the finality of awards and party autonomy. Thus in The Nema [1982] AC 724 at pages 742 and 744, Lord Diplock adopted the Edwards v. Bairstow [1956] AC 14 test for the purposes of decisions of the courts as to leave to appeal against an arbitrator's conclusion on whether the facts were such as to frustrate the commercial purpose of the contract. Where the matter in issue is the exercise of an arbitrator's discretion as to how to exercise his jurisdiction under section 30(1) there is obviously an even stronger case for the irrationality test.
- The arbitrator's letter of 11 October 2000 does not explain in terms of cost efficiency or the avoidance of unnecessary delay why he decided to determine jurisdiction as a preliminary issue. However, there were clearly grounds upon which it was open to him to do so. First, there was, at the time when his decision was made much to be said for resolving that issue separately from overall liability. Thus, it might not necessarily follow that under the applicable law, if Daginov had authority to bind Kalmneft to the arbitration agreement, he also had authority to bind it to the substantive terms of the Prepayment Agreement. Secondly, there might be real issues in addition to that of whether the Prepayment Agreement was binding, such as whether the reimbursement provision had been triggered and quantum. If so, there might be much to be said for resolving at the outset whether he had jurisdiction so that costs were not needlessly incurred on issues that might never arise. Further, if he decided at the outset that the arbitration agreement was binding, the parties might be persuaded to negotiate a settlement of the claim in the belief that he would ultimately hold that the Prepayment Agreement was also binding.
- Having regard to these considerations, it is not arguable that no reasonable arbitrator acting with due regard to his duty under section 33 would have arrived at the same decision as Mr Berkeley.
- The second matter said to amount to a serious irregularity relates to the opportunity given by the arbitrator to Kalmneft to present its case on the jurisdiction issue. In particular, it is said that the order of 11 October did not give Kalmneft a reasonable time to put its case and did not make it clear that the arbitrator would proceed to his award immediately after receiving Glencore's submission in reply.
- In response to that order Kalmneft could have asked for more time to assemble its evidence and get documents translated or notarially attested if that time was needed. Further, it could have requested a hearing limited to the question of jurisdiction, as envisaged by paragraph 2 of the order, to enable oral testimony to be given. It is, in my judgment, quite clear that it was open to either party to request an oral hearing when they put in their written submissions and that if neither of them did so, that would be the end of the presentation of their respective cases prior to an award. The argument advanced on behalf of Kalmneft that, following the submission of Glencore's reply submissions, if it had not requested an oral hearing, there would be an open-ended period before the issue of an award during which it was to be open to Kalmneft to request an oral hearing or to reply in writing is, in my judgment, quite unsustainable. The order obviously means that, if a party wants an oral hearing, it has to request it when it sends in its written submissions.
- Accordingly, the argument that the arbitrator was guilty any serious irregularity in the conduct of the proceedings is confronted by what are, in my judgment, insurmountable obstacles.
- There is, however, an even more insurmountable obstacle to success on the section 68 application. The applicant has to show that if there has been serious irregularity it has caused substantial injustice to that party. In order to make good that element of the grounds for relief, it has to be shown that the applicant has been prejudiced by the lack of the just conduct of the arbitration. If he relies on being deprived of the opportunity of making further submissions, he cannot merely complain that the opportunity was not provided; he has to go on to say how he would probably have used it. If he had no further material submissions to make and no further material evidence to present, he will hardly be able to establish substantial injustice. Further, the substantiality of any injustice on that account has to be tested against the availability of the facility for challenging the ruling on jurisdiction under section 67. Even if an arbitrator makes a ruling on the basis of incomplete evidence, it is always open to the losing party to challenge that ruling in court, for which purpose he can adduce additional evidence and arguments: see for example, Azov Shipping Company v. Baltic Shipping Co (No.2) [1999] CLC 1425. Consequently, even if evidence has been shut out before the arbitrator, any prejudice to the losing party is ameliorated by his opportunity to adduce that evidence under section 67 in the course of challenging the arbitrator's ruling. Although there might be cases where serious prejudice was suffered in spite of the opportunities under section 67, where, for example, a key witness had died, these cases are likely to be uncommon.
- In the present case there is no evidence as to whether or how Kalmneft would have availed itself of a further opportunity to put forward further submissions or further evidence or whether it would have requested an oral hearing. Indeed, following its receipt of the arbitrator's ruling, it never complained that it had been deprived of any further opportunity to do so. There is thus simply no case at all on substantial injustice attributable to the lack of opportunity for further evidence or an oral hearing. Nor is there any evidence of substantial injustice due to the alleged failure of the arbitrator to perform his duties under section 33(1)(b).
- I therefore conclude that, even if there were an extension of time in this case, there is no realistic prospect of the section 68 application succeeding. Accordingly, taking into account the extent of the delay, the lack of a satisfactory explanation for it and the intrinsic weakness of the application, time should not be extended in this case. The other criteria are incapable of outweighing these considerations.
The Application to remove the Arbitrator
- This application is based on the submission that the arbitrator has failed to conduct the proceedings properly and that as a result substantial injustice has been or will be caused to Kalmneft. The 1996 Act does not impose a 28 day time limit for such applications and there is therefore no application for an extension of time.
- The Act does not define failure "properly to conduct the proceedings", but the clear intent of the provision must involve at least some form of serious irregularity under section 68. The evidence relied upon in support of the application is the same as that relied upon in support of the section 68 application. As to that I have already concluded that there is no realistic case on serious irregularity in any of the respects complained of.
- Indeed, even if it were established that serious irregularity had been made out on any other grounds relied upon, I should not have ordered the removal of the arbitrator. This is a step which should be taken only if the serious irregularity is such that it may reasonably be concluded that there is a serious risk that the arbitrator's future conduct of the proceedings will not be in accordance with his duties under section 33. That must be the test in cases such as this where there is no reliance on section 24(1)(a) ("that circumstances exist that give rise to justifiable doubts as to his impartiality").
- In the present case the evidence goes nowhere near showing that there would be a serious risk of the arbitrator failing to comply in future with his duties under section 33 or that substantial injustice would thereby be caused to Kalmneft.
- The application under section 24 therefore also fails.
