Itochu Corporation v Johann M.K. Blumenthal GMBH & Company KG and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE GROSS,LORD JUSTICE STANLEY BURNTON,LORD JUSTICE MAURICE KAY |
| Judgment Date | 24 July 2012 |
| Neutral Citation | [2012] EWCA Civ 996 |
| Docket Number | Case No: A3/2012/0455 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 July 2012 |
[2012] EWCA Civ 996
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
Mr Justice Andrew Smith
2012/1220
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Maurice Kay
Lord Justice Stanley Burnton
and
Lord Justice Gross
Case No: A3/2012/0455
Mr Adam Johnson (instructed by Herbert Smith LLP) for the Appellant
Mr Luke Parsons QC and Mr Stewart Buckingham (instructed by White & Case LLP) for the Respondents
Hearing dates: 21 st June 2012
INTRODUCTION
By order of Tomlinson LJ the application of the intended Appellant ("Itochu") for permission to appeal from the order of Andrew Smith J dated 2 nd March, 2012 ("the order") was adjourned to an inter partes hearing of the full Court, with the appeal to follow if permission is granted.
The order provided for the appointment of Mr. Stephen Hofmeyr QC as sole arbitrator in the arbitration between the intended Respondents ("the Respondents") and Itochu under a Letter of Guarantee dated 19 th October 2007 ("the Letter of Guarantee").
At the conclusion of the hearing we indicated that permission to appeal was refused for reasons to be given later. These are my reasons for refusing permission to appeal.
The underlying dispute merits no more than the briefest mention. In consideration of the Respondents (it is unnecessary for present purposes to distinguish between them) entering into a ship sale agreement ("the MOA"), Itochu agreed, as "primary obligor", to guarantee the obligations of the seller ("Falcon"), a nominee company it controlled. In the event, a dispute arose under the MOA, leading to the Respondents alleging that Falcon was in breach of its obligations thereunder and making a claim against Itochu under the Letter of Guarantee.
The Letter of Guarantee contained an arbitration clause in the following terms:
"Any dispute arising out of this LETTER OF GUARANTEE shall be submitted to arbitration held in London in accordance with English law, and the award given by the arbitrators shall be final and binding on both parties. "
A further dispute then arose between the Respondents and Itochu, going to the appointment of an arbitrator or arbitrators, under the arbitration clause. In essence, the Respondents contended that the clause provided for a sole arbitrator; for its part, Itochu argued that the clause provided for more than one arbitrator so that the tribunal should consist of three arbitrators. The Respondents applied to the Commercial Court for an order under s.18(3)(d) of the Arbitration Act 1996 ("the Act"), that Mr. Hofmeyr QC be appointed as sole arbitrator. Itochu resisted the application, submitting that the Court should instead give directions under s.18(3)(a) of the Act for the appointment of a tribunal of three arbitrators.
This dispute was dealt with, on paper, by Andrew Smith J in his ruling dated 3 rd February, 2012 ("the ruling") with, if I may say so, commendable economy. Before turning to the ruling, it is convenient to set out the terms of ss.15 and 18 of the Act.
S.15 deals with the arbitral tribunal and provides as follows:
" (1) The parties are free to agree on the number of arbitrators to form the tribunal and whether there is to be a chairman or umpire.
(2) Unless otherwise agreed by the parties, an agreement that the number of arbitrators shall be two or any other even number shall be understood as requiring the appointment of an additional arbitrator as chairman of the tribunal.
(3) If there is no agreement as to the number of arbitrators, the tribunal shall consist of a sole arbitrator. "
S.18 deals with the failure of the appointment procedure and is in the following terms:
"(1) The parties are free to agree what is to happen in the event of a failure of the procedure for the appointment of the arbitral tribunal…..
(2) If or the extent that there is no such agreement any party to the arbitration agreement may (upon notice to the other parties) apply to the court to exercise its powers under this section.
(3) Those powers are—
(a) to give directions as to the making of any necessary appointments;
……
(d) to make any necessary appointments itself.
(4) An appointment made by the court under this section has effect as if made with the agreement of the parties.
(5) The leave of the court is required for any appeal from a decision of the court under this section."
Returning to the ruling, Andrew Smith J observed that the application gave rise to a "short question under section 15" of the Act as to whether s.15(3) applied despite the fact that the parties contemplated a tribunal of more than one arbitrator. The Judge answered that question as follows:
"To my mind it does. I acknowledge that this represents an apparent departure from the principle of parties' autonomy generally adopted by the…Act, but I think that section 15 is designed to ensure an efficient regime for difficulties in appointing a Tribunal. In any case, the wording of the Act is not materially ambiguous. Indeed, it precisely fits the circumstances of this case, where an agreement (or possibly merely an indication of an agreement) about arbitrators did not specify the number….. "
By his further ruling of 18 th February, 2012, Andrew Smith J refused Itochu's application for leave to appeal to this Court.
Before this Court, Mr. Johnson for Itochu contended that Andrew Smith J erred in concluding that s.15(3) of the Act applied. The parties intended a tribunal comprised of more than one arbitrator; effect ought to have been given to that intention. Mr. Johnson submitted that on its true construction the arbitration clause in the Letter of Guarantee envisaged a tribunal of three arbitrators; alternatively, if it contemplated a tribunal of two arbitrators, then s.15(2) of the Act was applicable, so adding a third arbitrator as chairman.
For the Respondents, Mr. Parsons QC, in his skeleton argument, submitted that, by virtue of Andrew Smith J refusing leave to appeal and s.18(5) of the Act, this Court did not have jurisdiction to entertain the intended appeal. If wrong as to that, Andrew Smith J was plainly right in his conclusion that s.15(3) applied and a sole arbitrator (in the event Mr. Hofmeyr) was to be appointed.
As to jurisdiction, Mr. Johnson argued that s.18(5) did not exclude the jurisdiction of this Court in this case. Form should not be elevated over substance; whatever the form of the application and order, in substance, the appeal related to the Judge's conclusion that there was no agreement as to the number of arbitrators. The intended appeal therefore raised a jurisdictional or threshold question under s.15 of the Act, circumscribing the operation of s.18.
Despite Mr. Johnson's attractive presentation of his submissions, we did not need to call upon Mr. Parsons orally and came to the conclusion already indicated.
JURISDICTION
Logically, the first issue to be considered was whether this Court had jurisdiction to entertain the intended appeal.
It is common ground that where s.18(5) of the Act applies, the reference to "the court" means the court at first instance, so that if leave is refused by the Judge, the Court of Appeal cannot itself grant leave to appeal: Henry Boot Ltd v Malmaison Hotel Ltd [2001] QB 388. The policy of thus restricting appeals, found in s.18 and a variety of other sections in the Act, is deliberate. It reflects the underlying general principles, as to party autonomy and protection of the parties from unnecessary delay and expense, enshrined in s.1(a) and s.1(b) of the Act as follows:
" 1. General principles
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 and expense;
(b) the parties should be free to agree how their disputes are revolved, subject only to such safeguards as are necessary in the public interest; "
To these ends, Court intervention in the arbitral process is broadly restricted to that which is necessary either to support the arbitral process or in the public interest (for example, a challenge to an award on the ground of serious irregularity under s.68 of the Act). Curtailing appeals to the Court of Appeal serves to avoid the delay and expense to which such appeals can give rise: see, Sumukan Ltd v Commonwealth Secretariat [2007] EWCA Civ 243; [2007] Bus LR 1075, at [15].
Accordingly, the question for us was whether s.18(5) applied, a question which in turn hinged on whether the decision of Andrew Smith J was a "decision….under this section" (i.e., s.18).
At first blush, it plainly was. As already recorded, the Respondents' application was for an order under s.18(3)(d); for its part, Itochu sought directions under s.18(3)(a). In the event, the order was made, in terms, under s.18(3)(d). If this first impression is well-founded, then it inevitably follows that we have no jurisdiction to entertain the appeal.
As has been seen, Mr. Johnson sought to escape from this conclusion by submitting that the intended appeal raised a jurisdictional or threshold question under s.15 of the Act and was thus not caught by s.18(5). Mr. Parsons submitted that, on a true analysis, there was no such escape route, having regard to the nature of the issue and the decision in the present case. Both Mr. Johnson and Mr. Parsons referred to a number of authorities. In my judgment, these authorities reinforce the provisional conclusion...
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