Central Trading & Exports Ltd v Fioralba Shipping Company; The Kalisti

Hearing date: 11 th July 2014

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Introduction

On a challenge to an arbitration award under section 67 of the Arbitration Act 1996, in what circumstances can the court prevent a party from relying on evidence which is relevant and admissible, but was not adduced before the arbitrators? Does it matter that the party who now seeks to rely on new evidence to challenge the award failed to comply with orders made by the arbitrators that such material should be produced? On this application the claimant, who seeks to challenge an award made by experienced maritime arbitrators Colin Sheppard and David Farrington dismissing its cargo claim on the ground that it did not have title to sue, submits that the court's power to prevent new evidence being adduced is very limited and that its failure to comply with the arbitrator's order is irrelevant.

The claimant's claim is for loss and damage to a cargo of bagged rice carried from Thailand to Nigeria pursuant to five bills of lading on board the defendant's vessel "KALISTI." The voyage was completed, and discharge was commenced, as long ago as 17 September 2009. The bills were subject to English law and each contained a London arbitration clause. The claimant claims that it became the holder of the bills and that rights of suit were transferred to it pursuant to the provisions of the Carriage of Goods by Sea Act 1992. It accepts that it became the holder at a time when the bills were spent, discharge having taken place without production of the bills pursuant to letters of indemnity, but contends that it did so "by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such a right to possession ceased to attach to production of the bill." If that is so, it has title to sue in accordance with the Act. The defendant challenges this contention, pointing to evidence which suggests that any such arrangements may only have been put in place at a later stage. The substantive issue for determination at a hearing now fixed for 13/14 October 2014 is whether the claimant became the holder of the bills pursuant to such prior arrangements.

Section 67

There is no doubt that the defendant is a party to contracts of carriage containing valid arbitration clauses. Equally, there is no doubt that, if the claimant has any rights at all, those rights are subject to an arbitration clause and it is obliged to arbitrate its claim. However, if the claimant cannot bring itself within the scope of the 1992 Act, the consequence is that its claim not only fails on the merits for lack of title to sue, but there is no contract between the parties and therefore no arbitration clause which binds the defendant to submit to arbitration by this particular claimant. In such circumstances, what are the parties to do?

One obvious solution in such circumstances would be for the parties to agree to submit the issue of the claimant's title to sue to binding arbitration. There could be no serious objection to that course. The claimant wants to arbitrate its claim and the defendant (which has stipulated for arbitration in the bills of lading which it has issued) obviously has no objection to arbitration as a process to resolve precisely this kind of dispute. If that course is taken, the arbitrators will produce an award which, subject only to the possibility of a section 69 appeal on a question of law, will be final and binding. That ought to satisfy both parties.

Another possibility would be to agree not to arbitrate the title to sue issue, but to go straight to decision by the court. If either party wants to reserve the possibility of a section 67 jurisdictional challenge to an unfavourable decision by the arbitrators, for which permission is not required, that course would save time and costs. If the court holds that the claimant has title to sue, the arbitrators could then determine any remaining issues about responsibility for any loss and damage to the cargo. If not, the claim will be at an end. However, that course would require the parties' agreement or the permission of the tribunal under section 32 of the 1996 Act.

What does not appear to be sensible is what the parties actually did in this case, which was to have full argument on the merits of the title to sue issue before the arbitrators with extensive written submissions, all under cover of a reservation by the defendant as to the arbitrators' jurisdiction – with the consequence that, if the defendant lost, its right to challenge the award under section 67 was preserved. Ironically, it was the claimant who lost, so that it is the claimant (who contends that the arbitrators had jurisdiction and ought to have held that it had title to sue) who now challenges the award and the defendant (who contended that the arbitrators had no jurisdiction) who now seeks to uphold the award.

In fact, although this is formally a section 67 challenge on jurisdictional grounds, the award itself says nothing about jurisdiction. It is described as an award on a preliminary issue, and simply determines the substantive issue of title to sue, concluding that the claimant did not become holder of the bills and that its damages claim for US $1,705,966.66 must therefore be dismissed.

However, it is common ground in these circumstances that the claimant is entitled to bring a challenge to the award under section 67.

A series of first instance cases has made clear that a section 67 challenge involves a rehearing (and not merely a review) of the issue of jurisdiction, so that the court must decide that issue for itself. It is not confined to a review of the arbitrators' reasoning, but effectively starts again. That approach has been confirmed by the Supreme Court in Dallah Real Estate & Tourism Holding Company v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46, [2011] 1 AC 763, which also makes clear that the decision and reasoning of the arbitrators is not entitled to any particular status or weight, although (depending on its cogency) that reasoning will inform and be of interest to the court.

Lord Mance put the matter in this way at [26]:

"An arbitral tribunal's decision as to the existence of its own jurisdiction cannot therefore bind a party who has not submitted the question of arbitrability to the tribunal. This leaves for consideration the nature of the exercise which a court should undertake where there has been no such submission and the court is asked to enforce an award. Domestically, there is no doubt that, whether or not a party's challenge to the jurisdiction has been raised, argued and decided before the arbitrator, a party who has not submitted to the arbitrator's jurisdiction is entitled to a full judicial determination on evidence of an issue of jurisdiction before the English court, on an application made in time for that purpose under section 67 of the Arbitration Act 1996, just as he would be entitled under section 72 if he had taken no part before the arbitrator: see e.g. Azov Shipping Co v Baltic Shipping Co [1999] 1 Lloyd's Rep 68."

Lord Collins said this at [96]:

"The consistent practice of the courts in England has been that they will examine or re-examine for themselves the jurisdiction of arbitrators. This can arise in a variety of contexts, including a challenge to the tribunal's jurisdiction under section 67 of the 1996 Act, or in an application to stay judicial proceedings on the ground that the parties have agreed to arbitrate. Thus in Azov Shipping Co v Baltic Shipping Co [1999] 1 Lloyd's Rep 68 Rix J decided that where there was a substantial issue of fact as to whether a party had entered into an arbitration agreement, then even if there had already been a full hearing before the arbitrator the court, on a challenge under section 67, should not be in a worse position than the arbitrator for the purpose of determining the challenge. This decision has been consistently applied at first instance (see, e g. Peterson Farms Inc v C & M Farming Ltd [2004] 1 Lloyd's Rep 603) and is plainly right."

I draw attention to Lord Mance's reference to "a full judicial determination on evidence" and to the approval of the Azov Shipping case.

The authorities on evidence in section 67 cases

The question then arises whether the claimant is limited to the evidence which was before the arbitrators, or whether it is entitled (and if so, subject to what constraints) to adduce further evidence on this section 67 challenge.

Often, at any rate where both parties have taken a full part in the arbitration (albeit subject to an objection as to jurisdiction), the evidence to be placed before the court will be the same as that which was before the arbitrators. In such a case no difficulties about evidence will arise. But that is not necessarily so. Obviously a party who has taken no part in the arbitration proceedings, whose right to invoke section 67 is expressly set out in section 72, will be entitled to adduce evidence, so that the evidence before the court will inevitably be different from the evidence before the arbitrators. Even where there has...