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Court finds connection with England and Wales for purposes of section 2(4) Arbitration Act 1996
Practical Law UK Legal Update Case Report 7-502-9698 (Approx. 5 pages)
Court finds connection with England and Wales for purposes of section 2(4) Arbitration Act 1996
by PLC Arbitration
| Law stated as at 04 Aug 2010 • England, Wales |
An update on Chalbury McCouat International Ltd v PG Foils Ltd [2010] EWHC 2050 (TCC), in which the court considered under section 2(4) of the Arbitration Act 1996 whether, by reason of a connection with England and Wales, it was appropriate to exercise its powers under section 18 of the Arbitration Act 1996.
Speedread
In Chalbury McCouat International Ltd v PG Foils Ltd [2010] EWHC 2050 (TCC), the claimant applied to the English court to exercise its powers under section 18 of the Arbitration Act 1996 (AA 1996) in circumstances where there had been a failure of the procedure for the appointment of the arbitral tribunal. Although there was an arbitration clause in the contract between the parties, there was no designated seat of arbitration. The court, therefore, had to consider whether, under section 2(4) of the AA 1996, by reason of a connection with England and Wales, it was appropriate for the court to exercise its powers under section 18 of the AA 1996.
Ramsey J held that the provisions of section 2(4) of the AA 1996 were satisfied. The proper law of the dispute was likely to be English law and because the arbitration clause referred to arbitration "per prevailing laws of European Union in the Europe", the seat of arbitration was likely to be in Europe, and possibly in England. Accordingly, because of the connection with England, it was appropriate for the court to exercise its powers to support the arbitral process. Therefore, the court should use its powers to have an arbitral tribunal appointed and enable the dispute to be referred to arbitration, as intended by the parties.
The decision provides guidance on the approach the court will take when deciding whether there is a connection with the jurisdiction, sufficient to justify the court exercising its powers under Part I of the AA 1996.
Background
Under section 18 of the Arbitration Act 1996 (AA 1996), where there has been a failure of the procedure for appointing an arbitral tribunal, a party to an arbitration agreement may, unless otherwise agreed, apply to the English court (on notice to the other party) to exercise its powers, among other things, to give directions as to the making of any necessary appointments and to direct that the tribunal shall be constituted by such appointments as have been made. (For further information, see Practice note, Constituting a tribunal: Court powers in relation to appointments.)
Part I of the AA 1996 (which includes section 18) applies where the seat of arbitration is England, Wales or Northern Ireland (section 2(1), AA 1996). However, the court may exercise the powers conferred by any provision of Part I for the purpose of supporting the arbitral process where the following conditions are satisfied:
- There is no designated seat of arbitration.
- By reason of a connection with England and Wales or Northern Ireland, the court is satisfied that it is appropriate to do so.
Facts
The claimant, an English company with its principal place of business in England, entered into a contract dated 8 February 2008 with the defendant, an Indian company operating in India, to dismantle a manufacturing plant in the Netherlands, which the defendant was purchasing. The contract contained an arbitration clause referring disputes to arbitration "as per prevailing laws of European Union in the Europe".
A dispute arose in relation to payment under the contract. The claimant gave notice to the defendant that it was invoking the arbitration clause and sought the defendant's consent to the appointment of an arbitral tribunal. The defendant indicated that it had a counterclaim and declined to consent to the claimant's proposal regarding the appointment of the tribunal. Instead, it indicated that it would be referring the dispute to "the arbitral tribunal in India" and would apply for the appointment of an arbitrator under the Indian Arbitration and Conciliation Act 1996. It argued that the performance of the contract was to be performed in India.
The claimant issued an arbitration claim form and applied for and obtained permission to serve the claim form outside the jurisdiction under CPR 62.5(1)(c). The substantive remedy sought was the appointment of a tribunal under section 18 of the AA 1996. The question for the court was whether the seat of the arbitration was or would be within the jurisdiction, or whether the conditions in section 2(4) of the AA 1996 were satisfied.
Decision
Ramsey J held that because of the connection with England, it was appropriate for the court to exercise its powers under section 18 of the AA 1996 to support the arbitral process.
Section 2(4) of the Arbitration Act 1996
It was clear from the arbitration clause that the parties intended that if disputes under the contract could not be resolved by discussion, they should be referred to arbitration. The court should strive to give effect to that intention and seek to support the arbitral process. The arbitration clause was silent as to the seat of the arbitration and therefore, under section 2(4) of the AA 1996, the court could only exercise the power to appoint an arbitrator under section 18, for the purpose of supporting the arbitral process, if there was a connection with England and Wales.
There is no statutory guidance as to the degree or type of connection required under section 2(4). However, the judge referred to paragraphs 16,17 and 18 of the supplementary Departmental Advisory Committee on Arbitration Law (DAC) Report of January 1997, which indicated that the English courts could exercise their powers in support of the arbitral process as long as there was no seat of arbitration elsewhere (and, therefore, no clash with a foreign jurisdiction). Further, the DAC's reference to the Court of Appeal's decision in International Tank & Pipe SAK v Kuwait Aviation Fuelling Co KSC [1975] QB 224 (CA) indicated that there would be a sufficient connection if the proper law of the contract was English law.
There was no express choice of the law applicable to the substance of the dispute in this case. The accepted view was that the applicable law fell to be determined under the laws of the forum. In this case, the arbitration clause itself strongly indicated that the parties had chosen the laws of the EU to apply to the law of the arbitration, that is, the lex fori. European law on the law applicable to the substance of disputes is contained in the Rome Convention, which was enacted in English law by the Contracts (Applicable Law) Act 1990.
Applying Article 4(2) of the Rome Convention, the characteristic performance of the contract was the dismantling of the manufacturing plant. The party which was to carry out that performance was an English company, whose principal place of business was England. Therefore, the contract was most closely connected with England and the arbitral tribunal was likely to find that the proper law was English law.
The reference in the arbitration clause to the EU meant that the seat of arbitration was likely to be in Europe, possibly in England, but was unlikely to be in India. Therefore, there was no clash of jurisdictions which would make it inappropriate for the English court to exercise its powers in support of the arbitral process. A further connection with England was that payment under the contract was to made in England. On this basis, Ramsey J concluded that because of the connection with England, it was appropriate for the court to exercise its powers to support the arbitral process in this case.
Section 18 of the Arbitration Act 1996
There had been a failure of the procedure for appointing a tribunal, as the parties had failed to agree on a tribunal. In the absence of any agreement as to the number of arbitrators, the default position was that there should be a sole arbitrator. As this case had an international element, the claimant's proposal that the President of the Law Society of England and Wales should nominate an arbitrator was not appropriate. Instead, the judge considered that the President, or in his absence, the Vice-President of the LCIA should appoint an arbitrator and that the tribunal should be constituted by that appointment.
Comment
This decision demonstrates the English courts' willingness to support the arbitral process. It provides useful guidance on the approach the courts will take to the question whether there is a connection with the jurisdiction for the purposes of enabling the court to exercise its powers in support of arbitration.