Guangzhou Dockyards v ENE Aegiali I

DMC/Arbn/10/4

England

Guangzhou Dockyards Co Ltd v ENE Aegiali I

English Commercial Court: Blair J: [2010] EWHC 2826 (Comm): 5 November 2010

ARBITRATION: TRUE CONSTRUCTION OF ARBITRATION AGREEMENT: WHETHER PARTIES COULD AGREE TO APPEALS TO THE COURT ON QUESTIONS OF FACT: WHETHER PARTIES HAD AGREED TO APPEALS TO THE COURT ON QUESTIONS OF FACT

Available on BAILII @ http://www.bailii.org/ew/cases/EWHC/Comm/2010/2826.html

Robert Bright QC and Charles Holroyd (instructed by Reed Smith) for the Claimant dockyard, Guangzhou

Bernard Eder QC and Sean O'Sullivan (instructed by Ince & Co) for the Defendant owners, ENE

Summary

On the true construction of the arbitration agreement, the terms of the arbitration agreement between the parties did not provide for appeals to be made to the court on questions of fact. Further, the Court thought it very doubtful in any event that it had jurisdiction to hear an appeal from arbitrators on questions of fact though it was not strictly necessary to decide the latter point given the conclusion on the true construction of the arbitration agreement)

By Jim Leighton, BSc (Hons), LLB (Hons), LLM (Maritime Law), Solicitor of England & Wales at Kennedys Singapore LLP and International Contributor to DMC’s CaseNotes

Background

This was an application by the defendant owners to strike out that part of an appeal against an arbitration award by the claimant dockyard which was an appeal on questions of fact.

The parties had agreed a ship conversion contract. The work could not be performed. A dispute arose between the parties and was referred to LMAA arbitration in London. The contract materially provided:

“ARTICLE 22 - APPLICABLE LAW AND ARBITRATION

22.1 The Contract shall be governed by and construed in accordance with English law;

22.2 Any dispute concerning the Vessel’s compliance or non-compliance with the rules, regulations and requirements of Class shall be referred to the head office of Class, the decision of which shall be final and binding upon the Parties hereto.

22.3 All other disputes or differences arising out of or in connection with this Contract or otherwise shall be referred to arbitration in London, England before a tribunal of three (3) arbitrators. One (1) arbitrator shall be appointed by each Party to this Contract and the third by the two (2) so chosen. All arbitrators shall be full members of the London Maritime Arbitrators Association (“LMAA”) and all arbitrations shall be conducted in accordance with the then current Rules of the LMAA and the Arbitration Act 1996. The Parties agree that either Party may appeal to the English High Court on any issue arising out of any award. The Parties agree that any final unappealable judgment of the English High Court (or higher court on appeal therefrom) shall be referred back to the arbitrators and the arbitrators shall issue a final unappealable award in the form of the said judgment.”

The claimant argued that it was open to the parties to an arbitration agreement to agree that questions of fact (as well as questions of law) arising out of an arbitration award could be the subject of an appeal to the English court, and that they had so agreed in this case.

The defendant contended that an appeal to the court on factual matters was misconceived, because the court had no jurisdiction to hear an appeal against factual findings by arbitrators and the parties could not by agreement confer such jurisdiction. Furthermore, the defendant submitted that, on the true construction of the agreement, the parties did not seek to do so in this case.

Judgment

Statutory Jurisdiction

The judge noted, and agreed with, the parties that this was a novel appeal and that an appeal to the court against arbitrators’ findings of fact was unknown in modern times.

The judge stated that “the principle that the arbitrators’ findings of fact are conclusive was set out very plainly in the judgment of Steyn LJ in The Baleares [1993] 1 Lloyd’s Rep. 215.” Therefore, the judge noted that, on the face of it, the decision in The Baleares was fatal to the dockyard’s appeal.

Counsel for the dockyard, however, submitted that the decision in The Baleares was founded on the principle of party autonomy and in that instance the parties had not by their arbitration agreement agreed to appeals on questions of fact to the court. The decision in The Baleares was, therefore, consistent with respecting the parties’ autonomy.

The judge considered that The Baleares judgment had well in mind jurisdictional considerations. The judge was of the view that this raised the issue of the source of the court’s jurisdiction.

Addressing this point, counsel for the dockyard founded his argument that the court had jurisdiction on the terms of s.69 of the Arbitration Act 1996 (“the 1996 Act”), which dealt with appeals and began “Unless otherwise agreed by the parties …”.

The judge, however, favoured the stance taken by counsel for the owners. Section 69 of the 1996 Act (described in the heading as “Appeal on point of law”) was expressly limited to an “appeal to the court on a question of law”. In that respect, it was the same in substance as s.1(2) of the Arbitration Act 1979, which was in force at the time of The Baleares. The explanation for the opening words of the section was that an appeal under s.69 of the 1996 Act was subject to restrictions. By s.69(2)(b) of the 1996 Act, the appeal required the leave of the court. But the parties were entitled by agreement to exclude an appeal altogether: the opening words, “Unless otherwise agreed by the parties …” enable them to do so should they so wish.

The judge held that: “In my view, the opening words of the section (“Unless otherwise agreed by the parties…”) have to do with agreement between the parties in the context of an appeal on a question of law. The words cannot be construed as expanding the jurisdiction of the court to include an appeal to the court on a question of fact on the basis that the parties have agreed to such an appeal …”

Inherent Jurisdiction

Counsel for the dockyard also put forward an alternative jurisdictional argument, based on the structure and terms of Article 22 of the contract. The argument was directed to invoking the court’s original jurisdiction on an inherent basis. It was to the effect that an appeal on the facts was not expressly prohibited by the 1996 Act, was consistent (where the parties had agreed to it) with party autonomy, and fell within the court’s inherent jurisdiction, just like a claim for breach of contract. In other words, the appeal to the court was essentially contractual in nature and therefore part of the arbitration process, rather than an “intervention” (see s.1(c) of the 1996 Act) in the process by the court.

However, the judge was not convinced. The judge held that “… it is clear that under English law (to adopt the phrase used by Mustill J in Finelvet AG v Vinava Shipping Co Ltd - The “Chrysalis” [1984] 1 W.L.R 1469) it is very doubtful that the court has jurisdiction to hear an appeal from arbitrators on questions of fact, even if the parties were to agree to such an appeal. As in The Chrysalis, it is only necessary to go further than that if the parties here did agree to an appeal on the facts.”

The judge, therefore, next addressed the proper construction of Article 22.

Article 22

The judge was of the view that Article 22 did not provide an agreement between the parties for appeals on questions of fact to be submitted to the court.

The judge reasoned that “one of the most basic and longstanding tenets of the arbitral process (both in England and internationally) is that findings of facts are the exclusive province of the arbitrators. The starting point, therefore, is that it would require clear words to achieve this result. It must be assumed that the parties’ intention was to fit within the usual appeal regime found in the 1996 Act, not to create some new and freestanding right of appeal. If the latter were the intention, it might be expected that the parties would also stipulate for the manner in which any such appeal was to approach factual questions. In the present case, no clear words demonstrating such an intention are to be found in Article 22.”

The judge concluded: “Construed in context, and taking account of the reference in the sentence before to arbitrations being conducted in accordance with the Arbitration Act 1996, it is plain in my view that what the parties intended here was to dispense with the need to obtain permission for an appeal on a question of law pursuant to s.69 of that Act. That is an outcome that is commercially unsurprising. There is nothing in the language used which is apt to warrant a wider construction.”

It followed that the dockyard’s appeal on questions of fact was to be struck out.

Comment

At first sight it would appear odd that the court could not hear an appeal on questions of fact if the parties had so agreed by contract as part of the arbitration process. There can be appeals on questions of fact to an arbitral appeal tribunal in a two-tier dispute resolution system where the arbitration rules so provide expressly or by implication: see e.g. Gafta No. 125 Arbitration Rules and Lloyd’s Standard Salvage and Arbitration Clauses.

That said, as a matter of policy, it can be well understood that the court would not wish to rehear questions of fact, because (i) it is desirable that there be finality on facts, in the same way that there is between a first instance court and an appeal court, (ii) the parties have chosen arbitration instead of litigation to resolve their dispute, and (iii) the court has sufficient work without opening further avenues for hearing disputes.

Given that the court has never considered a clause that does, on its true construction, seek to appoint the court to hear appeals on questions of fact, this issue remains open to argument. However, to avoid dispute in the event that parties should desire a right of appeal on questions of fact, it would be advisable to agree contractually a right to appeal to an arbitral appeal tribunal in the arbitration agreement. But the desirability of so doing is open to question, given the legal costs implications.