Factual issues can be determined under section 66 (High Court)

Practical Law UK Legal Update Case Report 2-506-8550 (Approx. 6 pages)

Factual issues can be determined under section 66 (High Court)

by PLC Arbitration

Background

Arbitration awards may be enforced in England under section 66 of the Arbitration Act 1996, which provides (in material part) as follows:

"(1) An award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect ...

(3) Leave to enforce an award shall not be given where, or to the extent that, the person against whom it is sought to be enforced shows that the tribunal lacked substantive jurisdiction to make the award.

The right to raise such an objection may have been lost (see section 73)".

Section 73 provides:

"(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection

(a) that the tribunal lacks substantive jurisdiction,

...

he may not raise that objection later, before the tribunal or the court ..."

The section 66 procedure developed as a "summary" alternative to the "action on the award" (in which the claimant enforces the contractual obligation to honour the award and must prove the existence of the arbitration agreement and the award at trial).

For further information about enforcement, and the differences between the section 66 procedure and an action on the award, see Practice note, Enforcing arbitration awards in England. For discussion of section 73, see Practice note, Loss of the right to object: section 73 of the English Arbitration Act.

Facts

S alleged that it had agreed a contract with A for the sale of sunflower seeds. The contract was said to be made by telephone and e-mail. A denied that a contract had ever been concluded.

Disputes arose, and in December 2008, S commenced FOSFA arbitration in London under the arbitration clause contained in the contract. Unknown to S, in October 2008 A had already commenced court proceedings in Spain seeking a negative declaration asserting the non-existence of a contract. The Spanish court held that such a remedy was not available in Spanish law, but also dismissed S's application for a stay of the court proceedings in favour of FOSFA arbitration.

A sent a number of messages to FOSFA and the arbitral tribunal, denying the existence of a contract and stating that the issues raised should be determined in the Spanish proceedings and not in the arbitration.

The tribunal issued an award in S's favour, and S applied to the Commercial Court enforce it under section 66 of the Arbitration Act. It was common ground that there were triable issues of fact as to whether or not there was a "real ground for doubting the validity of the award" for the purposes of section 66(3).

A argued that:

Section 66 provided a summary procedure which was unsuitable for the trial of issues of fact. In the circumstances, the application should be dismissed and S should (if so advised) commence fresh proceedings by way of action on the award, so that the factual issues could be determined at trial.
Alternatively, the court should decline jurisdiction or stay its proceedings because:
- the English proceedings would interfere with the jurisdiction of the Spanish courts; and
- the English court was bound by Article 33 of the Brussels Regulation to recognise the Spanish court's judgment dismissing S's application for a stay in favour of arbitration, including its finding that the validity of the contract would be determined in Spain.

S argued that, by participating in correspondence with FOSFA and the tribunal, A had lost its right to raise objections to enforcement by reason of section 73 of the Arbitration Act.

Decision

Hamblen J held that:

A had not lost its right to raise objections under section 73 of the Arbitration Act.
The factual issue of whether or not a contract had been concluded could be determined in the section 66 application.
There were no grounds requiring the English court to decline jurisdiction or stay its jurisdiction.

It would therefore be appropriate to give directions for the trial of the section 66 application, including A's objections to enforcement.

Loss of right to object: section 73

It was common ground that the question of whether A had lost the right to object depended on whether it had taken part in the arbitration proceedings, and that this issue should be determined objectively.

Hamblen J noted that the authorities drew a distinction between protesting that the tribunal has no jurisdiction (and asserting that the issue should be decided by some other court or tribunal) and asking the tribunal to consider the issue of jurisdiction itself. In the latter case, a party is likely to have invoked the jurisdiction of the tribunal and, therefore, to have lost the right to object.

On the facts of this case, A had done no more than make it clear that it was protesting the jurisdiction of the tribunal and asserting that it should decline to exercise any jurisdiction it might have pending determination of the jurisdiction issue by the Spanish court. It had not recognised that the tribunal had jurisdiction; still less had it invited the tribunal to consider or determine the issue of jurisdiction. Therefore the right to object had not been lost under section 73 of the Arbitration Act.

Determination of factual issues: section 66

Hamblen J considered the development of section 66 and its statutory precursors and noted that, although historically the procedure had been treated as a summary one, it had developed over time so as to allow all applications to be addressed, provided they could be dealt with without a trial. The question that arose in the present case was whether this meant that disputed issues of fact could never be dealt with under section 66.

Hamblen J concluded that such issues could be dealt with under section 66. His reasons included the following:

Section 66(3) (which had not appeared in the statutory predecessors to section 66) applies where a person "shows" that the tribunal lacked jurisdiction. This suggested that factual issues relating to jurisdiction could be dealt with in the context of section 66 enforcement.
In an action on the award, the claimant is required to plead and prove the arbitration agreement. By contrast, under section 66 the burden of establishing that no arbitration agreement exists lies on the party resisting enforcement. In effect, section 66 confers on the enforcing party the benefit of a presumption of validity. To deprive the enforcing party of that benefit whenever a factual issue arose would be contrary to the intention of the legislation and inconsistent with the New York Convention.
Where a section 66 application is served (under CPR 62.18), the enforcement proceedings then continue as if they were an ordinary arbitration claim, and are subject to the court's case management powers, including the power to give directions for the determination of issues of fact under CPR 62.7. This indicated that the CPR contemplate the determination of factual issues in this context.
To require S to start again by means of an action on the award would waste costs and time.

Jurisdiction and stay

S argued that:

The Spanish courts had been seised of the issue of whether a contract existed since October 2008 and it was undesirable for the same issue to be raised in the English court.
A judgment from the English court enforcing the award would be enforced in Spain and therefore amounted to an interference in the Spanish proceedings.
The Spanish judgment refusing a stay of proceedings in favour of arbitration (and deciding that the issue of the existence of the contract would be decided in Spain) was binding on the English court.
The proceedings should be stayed on forum non conveniens grounds.

Hamblen J disagreed:

The current position in the Spanish proceedings was that no determination of the validity of the contract was going to be made, because the Spanish court had held that it lacked the procedural power to grant negative declaratory relief. Although that decision was subject to appeal, there was currently no live issue before the Spanish court as to the existence or non-existence of the contract. It was difficult to see why the English court, as the court of the seat, should stay enforcement proceedings on the basis of the possibility of the Spanish decision being successfully appealed.
Applying West Tankers Inc v Allianz SpA [2011] EWHC 829 (Comm) (discussed in Legal update, Declaratory award can be enforced (Commercial Court)), section 66 enforcement proceedings should not be derailed by competing Brussels Regulation proceedings where the award creditor has a real prospect of establishing the primacy of the award through its conversion into an English judgment.
Under the UNCITRAL Model Law and the New York Convention, there is a discretion to refuse enforcement in deference to competing proceedings in the seat of the arbitration. It would be surprising if the English court had a wider discretion in relation to an award where England was the seat than in relation to awards from a foreign seat.
It would not be an interference with the Spanish proceedings for the English court, as the court of the seat, to determine the validity of the arbitration agreement. S could seek to enforce the award where it liked (including Spain) and it was difficult to see how a judgment from the English court would increase any interference in the Spanish proceedings.
The Spanish judgments did not give rise to any estoppel: they had not decided the key issue of whether or not an arbitration agreement had been concluded, and the overall effect of the decisions of the Spanish courts was to decline jurisdiction.
There was no basis for staying the proceedings on forum non conveniens grounds.

In the circumstances there was no basis for the court to decline jurisdiction or to stay its proceedings.

Comment

The judgment confirms, for the first time, that factual issues, including issues relating to the existence or otherwise of the arbitration agreement, can be determined under section 66 of the Arbitration Act 1996. Where an award debtor seeks to raise objections to the tribunal's jurisdiction at the enforcement stage, this can be dealt with as part of the "summary" enforcement procedure and there is no need for the award creditor to proceed by way of action on the award. Were this not the case, the award debtor could deprive the award creditor of the benefit of the "presumption of validity" under section 66 by simply raising a triable factual issue. That is not the intention of the legislation.

Hamblen J's reasoning on the issues relating to the Spanish proceedings appears to have been strongly influenced by the fact that the English court was the court of the seat (and, as such, was the proper court to determine the existence or otherwise of the arbitration agreement). This approach is broadly consistent with the proposal to amend the Brussels Regulation to require courts seised of a dispute to stay proceedings in favour of an arbitral tribunal or the courts of the member state of the seat of the arbitration (for further discussion, see Article, Looking ahead to the second half of 2011: arbitration).

The judge's reasoning was also influenced by the general scheme for enforcement of judgments under the New York Convention, under which:

There is a presumption in favour of the validity of the award, with the burden of proof resting on the party resisting enforcement).
There is a discretion to refuse enforcement in deference to competing proceedings at the seat of the arbitration.

Case

Sovarex SA v Romero Alvarez SA [2011] EWHC 1661 (Comm) (29 June 2011).

Factual issues can be determined under section 66 (High Court) | Practical Law