LG Caltex Gas Company Ltd and another v China National Petroleum Corporation and another
| Jurisdiction | England & Wales |
| Judge | LORD PHILLIPS,LORD JUSTICE PILL,LORD JUSTICE KEENE |
| Judgment Date | 15 May 2001 |
| Neutral Citation | [2001] EWCA Civ 788 |
| Docket Number | A3/01/0351 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 May 2001 |
[2001] EWCA Civ 788
The Master of the Rolls
(Lord Phillips)
Lord Justice Pill
Lord Justice Keene
A3/01/0351
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(MR JUSTICE AIKENS)
Royal Courts of Justice
Strand
London WC2
MR ANGUS GLENNIE QC with MR LAWRENCE AKKA and MR TOBY LANDAU (Instructed by Messrs Holman Fenwick & Willan, London, EC3N 3A2) appeared on behalf of the Appellant
MR COLLINS QC (Instructed by Messrs Zaiwalla & Co, London, WC2 12Z) appeared on behalf of the Respondent
LORD PHILLIPS, MR: This is an appeal by L G Caltex Gas Company ("L G Caltex") and Contigroup Companies Inc ("Conti"), from a judgment of Aikens J, dated 19 January 2001, in favour of the respondents, China National Petroleum Company ("CNPC") and China Petroleum Technology & Development Corporation ("CPTDC"). Permission to appeal was granted by Aikens J because this case raises new and important points in relation to section 67 and 73 of the Arbitration Act 1996 ("the 1996 Act").
The appeal relates to two sets of arbitration proceedings, which have been heard together and which raise identical issues. The sole arbitrator involved is Mr Bruce Harris, a commercial arbitrator of great experience. Each set of proceedings involves a claim by one of the appellants against both respondents for damages of breach of a contract containing an arbitration clause. In each case the respondents deny being party to the contract in question.
The issue of whether the respondents were parties to the contracts is the principal bone of contention between them and the appellant. That issue bears simultaneously on two questions, the first procedural and the second substantive:
(1) Are the respondents party to arbitration agreements which give Mr Harris jurisdiction to determine the substance of the disputes?
(2) Are the respondents liable in damages for breach of contract?
After a lengthy hearing Mr Harris has made two final awards dated 24 May 1999 in which he has held that the respondents are not party to the contracts in question.
The appellants contend that these awards are, in substance, rulings by Mr Harris that he has no jurisdiction and that these rulings are susceptible to challenge in the court by virtue of the provisions of the 1996 Act. The respondents contend that the awards determine the substantive issues of whether they are liable under the contracts. They further contend that Mr Harris had jurisdiction to make a final determination of these issues, not by reason of the arbitration clauses in the contracts, but because in the course of the arbitration proceedings they reached agreement with the appellants that Mr Harris should determine these central issues. These alleged agreements have been referred to as "ad hoc" agreements, although, as I shall explain in due course, that expression can have more than one meaning.
Aikens J has ruled that the respondents are correct and that it is not open to the appellants to challenge Mr Harris' findings that the respondents were not party to the contracts on which the appellants' claims are founded. The challenges to Mr Harris' awards came before Aikens J in the form of applications under section 67 of the 1996 Act to have the awards set aside. Aikens J skilfully case managed the applications by identifying four preliminary issues and directing argument upon them. This appeal requires a review of the analysis made by the judge of these issues.
At the heart of the dispute is the question of the impact of the 1996 Act on English procedure where the jurisdiction of an arbitrator is in issue. I propose to consider the position before 1996 before turning to the relevant provisions of the 1996 Act.
The position before 1996.
Nearly 50 years ago Devlin J, with characteristic clarity, described the position of arbitrators facing challenge to their jurisdiction in Christopher Brown Ltd v Genossenschaft Osterreichischer [1954] QB 8 at p 12–13:
"It is clear that at the beginning of any arbitration one side or the other may challenge the jurisdiction of the arbitrator. It is not the law that arbitrators, if their jurisdiction is challenged or questioned, are bound immediately to refuse to act until their jurisdiction has been determined by some court which has power to determine it finally. Nor is it the law that they are bound to go on without investigating the merits of the challenge and to determine the matter in dispute, leaving the question of their jurisdiction to be held over until it is determined by some court which had power to determine it. They might then be merely wasting their time and everybody else's. They are not obliged to take either of those courses. They are entitled to inquire into the merits of the issue whether they have jurisdiction or not, not for the purpose of reaching any conclusion which will be binding upon the parties because that they cannot do but for the purpose of satisfying themselves as a preliminary matter whether they ought to go on with the arbitration or not. If it became abundantly clear to them, on looking into the matter, that they obviously had no jurisdiction as, for example, it would be if the submission which was produced was not signed, or not properly executed, or something of that sort, then they might well take the view that they were not going to go on with the hearing at all. They are entitled, in short, to make their own enquiries in order to determine their own course of action, and the result of that inquiry has no effect whatsoever upon the rights of the parties. That is plain, I think, from the burden that is put upon a plaintiff who is suing upon an award. He is obliged to prove not only the making of the award, but also that the arbitrators had jurisdiction to make the award. The principle omnia praesumuntur rite esse acta does not apply to proceedings of arbitration tribunals or, indeed, to the proceedings of inferior tribunals of any sort. There is no presumption that merely because an award has been made it is a valid award. It has to be proved by the party who sues upon it that it was made by the arbitrators within the terms of their authority, that is, with jurisdiction. Jurisdiction has to be proved affirmatively.
If the plaintiff takes upon himself the burden of proving the award, and fails to prove that the arbitrators had jurisdiction, his action fails, and it is irrelevant whether the arbitrators thought or did not think that they had jurisdiction. Their finding is of no value to him. But if he proves that the arbitrators did have jurisdiction then he succeeds, and his success is not destroyed because the arbitrators themselves went into the matter and came to the same conclusion which, ex hypothesi, was the right one. In short, any view which is expressed by the arbitrators expressly or impliedly in the award, any finding which can be called a finding that they had jurisdiction does not make the award any better, and likewise does not make it any worse."
An arbitration agreement is often contained in the contract that sets out the substantive rights and obligations of the parties. Where a respondent denies that he is party to such a contract, that challenge raises simultaneously (1) the procedural issue of whether the arbitrator has jurisdiction; and (2) the substantive issue of whether the respondent is liable for breach of contract.
Before 1996 if the arbitrator in an award in favour of a claimant held that the disputed contract bound the respondent, the respondent could challenge that finding in court, although it purported to resolve both the issue of jurisdiction and the issue of liability. Equally, if the arbitrator held that he had no jurisdiction because the respondent was not party to the contract, the claimant could challenge that finding in court. The editors of the second edition of Mustill & Boyd on The Law and Practice of Commercial Arbitration in England explained the position at page 108:
".it has in the past always been accepted in England that an arbitrator cannot make a binding award as to the initial existenceof the contract, and that he cannot foreclose the question by making an award which takes it for granted. For if in truth no contract was ever made, then the arbitration provisions of the supposed contract never bound the parties; and an arbitrator appointed under those provisions could have no authority to act. So, although an arbitrator, faced with a dispute about whether a contract ever came into existence or if it did, whether a party to the arbitration was a party to the agreement, can and often should consider and rule upon it, his ruling does not bind the parties, and may always be reopened by the Court."
Heyman v Darwins Ltd [1942] AC 356 is the principal authority which supports that text.
There was no need for the respondent to await the issue of the award before challenging the jurisdiction of the arbitrator. It was common practice for a respondent to apply to the commercial court for a declaration that he was not bound by the alleged arbitration agreement, which usually produced the result that the arbitration was stayed pending a decision of the court on the jurisdictional issue. The desirability of avoiding the delay caused to the arbitral process in such circumstances was one of the primary reasons for the changes made by the 1996 Act.
It was always possible for the parties to agree that...
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