Commercial Court: Compliance With Arbitral Preconditions a Question of Admissibility

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Latham & Watkins LLPThe decision clarifies the circumstances under which an arbitral award might be challenged.

A recent decision by the English Commercial Court indicates that failure to comply with a precondition to arbitration (such as an obligation to negotiate) calls into question the admissibility of a claim, rather than calling into question the jurisdiction of the arbitrators to hear such a claim. As parties to arbitration can only challenge an award through the English courts under s. 67 of the Arbitration Act 1996 (the Act) for lack of jurisdiction, and not in relation to the admissibility of a claim, the decision suggests that s. 67 may not be available to bring challenges concerned with a failure to comply with such preconditions to arbitration.

In Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm), the court dismissed the Republic of Sierra Leone’s challenge made under s. 67 of the Act, finding that the challenge related to questions of admissibility to be determined by the arbitrators, rather than relating to a question of jurisdiction falling under s. 67 of the Act.

Factual Background

The underlying arbitral proceedings arose out of Sierra Leone’s suspension and termination of a 25-year mining licence and licence agreement (MLA), granted to SL Mining Ltd in 2017. Clause 6.9(c) of the MLA provided that should the parties be unable to reach an amicable settlement “within a period of 3 (three) months from a written notice by one party to the other specifying the nature of the dispute and seeking an amicable settlement”, then either party was entitled to submit to the matter “to the exclusive jurisdiction” of three arbitrators under the ICC Rules.

SL Mining served a Notice of Dispute on Sierra Leone on 14 July 2019, and the Request for Arbitration on 30 August 2019, before the expiry of three months from the Notice of Dispute.

Sierra Leone challenged the Tribunal’s jurisdiction to hear the claim, arguing that clause 6.9(c) of the MLA meant that no arbitral proceedings could be commenced before 14 October 2019 (three months after the date of the Notice of Dispute), but the Tribunal rejected this argument in a Partial Final Award. The Tribunal concluded that Sierra Leone’s challenge was a matter of admissibility rather than jurisdiction, and that SL Mining’s claim was indeed admissible. Sierra Leone then challenged the Partial Award under s. 67 of the Act, and this was heard by Sir Michael Burton GBE in the Commercial Court.

Jurisdiction vs. Admissibility

Under s. 67 of the Act a party to arbitral proceedings is permitted to apply to court to challenge an arbitral award “as to its substantive jurisdiction[1], but cannot use s. 67 to challenge a tribunal’s decision on a question of admissibility.

Substantive jurisdiction is defined in s. 82(1) of the Act by reference to s. 30(1), which provides that “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]

Sir Michael Burton referred to recent authorities to explain the distinction between jurisdiction and admissibility.[3] For example, he referred to Butcher J’s formulation in PAO Tatneft v Ukraine [2018] 1 WLR 5947: challenges to jurisdiction “go to the existence or otherwise of a tribunal’s power to judge the merits of a dispute”, whereas “issues of admissibility go to whether the tribunal will exercise that power in relation to the claims submitted to it”.[4] However, Sir Michael noted that none of those judgments applied to a case such as this, in which the challenger alleged that the claim was premature.[5]

The court also considered two judgments in which challenges made by reference to a time condition precedent were accepted as appropriate under s. 67 of the Act, namely Emirates Trading Agency LLC v Prime Mineral Exports Pte Ltd [2015] 1 WLR 1145 and Tang v Grant Thornton International Limited [2013] 1 AER (Comm) 1226). However, Sir Michael determined that, in both those cases, the applicability of s. 67 had been assumed, and he noted that there had been academic criticism of the Emirates decision.[6]

Ultimately, Sir Michael agreed with the assessment of Jan Paulsson, as approved by the Singapore Court of Appeal in BBA v BAZ [2020] 2 SLR 453, that if a challenge relates to whether “the claim could not be brought to the particular forum seized”, the issue is ordinarily one of jurisdiction and further recourse is available under s. 67 of the Act. However, if the challenge relates to whether “the claim should not be heard [by the arbitrators] at all (or at least not yet)”, the issue is ordinarily one of admissibility.[7]

On this basis, Sir Michael agreed with the position of the arbitrators in their Partial Award, determining that the reference in clause 6.9(c) to a settlement period of three months related to the admissibility of the claim, rather than the jurisdiction of the arbitrators.[8] He said “[t]he issue here is not whether the claim is arbitrable, or whether there is another forum rather than arbitration in which it should be decided, but whether it has been presented too early. That is best decided by the Arbitrators”.[9]

Conclusion

Although the distinction between jurisdiction and admissibility is often discussed in the context of investment arbitrations and (as Sir Michael noted in his judgment) has made for “a considerable topic of academic discussion”,[10] the issue has rarely been addressed before the English courts in relation to a time challenge in a commercial arbitration. However, Sir Michael noted that his decision aligns with the Guidance of the Chartered Institute of Arbitrators in its International Arbitration Practice Guideline: Jurisdictional Challenges, which notes that a challenge alleging a claim is time-barred or prohibited until the fulfilment of a precondition “is a challenge to the admissibility of that claim at that time, i.e. whether the arbitrators can hear the claim because it may be defective and/or procedurally inadmissible”,[11] rather than a challenge to the jurisdiction of the arbitrators to hear the claim itself. Given this decision, the courts will likely often consider non-compliance with pre-arbitral dispute resolution procedures as a procedural issue relating to the admissibility of the claim, rather than an issue which deprives the tribunal of jurisdiction.

This post was prepared with the assistance of Emilie Cornelis in the London office of Latham & Watkins.

Endnotes

[1] Arbitration Act 1996, s. 67(1)(a).

[2] Arbitration Act 1996, s. 30(1).

[3] Obrascon Huarte Lain S.A. v Qatar Foundation for Education [2020] EWHC 1643 (Comm), PAO Tatneft v Ukraine [2018] 1 WLR 5947, and Republic of Korea v Dayanni [2020] 2 AER (Comm) 672.

[4] PAO Tatneft v Ukraine [2018] 1 WLR 5947 [97], Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm) [11].

[5] Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm) [11].

[6] Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm) [13], referring to Louis Flannery and Robert Merkin, ‘Emirates Trading, good faith, and pre-arbitral ADR clauses: a jurisdictional precondition?’, in William W. Park (ed), Arbitration International (© The Author(s); Oxford University Press 2015, Volume 31 Issue 1) pp. 63 – 106.

[7] Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm) [18].

[8] Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm) [21].

[9] Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm) [18].

[10] Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm) [18].

[11] Chartered Institute of Arbitrators, “International Arbitration Practice Guideline: Jurisdictional Challenges”, p. 3; Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm) [19].

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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