Successful Challenge to an Arbitral Award under Section 67 of the Arbitration Act 1996

The Commercial Court granted a claim under section 67 of the Arbitration Act 1996 challenging an arbitral award on the ground that the arbitrator lacked jurisdiction on the merits.

The underlying arbitration was an action for damages arising out of the alleged repudiation of a charter party agreement between the owners of a vessel named ‘Newcastle Express’ and the charterer.

In disputing, the charterer argued that a binding charterparty agreement had never been entered into between the parties because the agreement covered “subjects” or “subjects” that were never ” surveyed” (terminology frequently used in the context of the charter party to mean that the agreement was subject to outstanding conditions). The charterer argued that the charter party never reached the stage of a definitively binding agreement and therefore there was no binding arbitration agreement, meaning that the arbitrator had no jurisdiction to render its decision against the charterer.

Alternatively, the charterer argued that if the arbitrator had jurisdiction, then he erred in law in concluding that there was a charterparty entered into (because the agreement was for “subs” ) and that the award should be set aside under s. .69 of the Arbitration Act 1996.

Judge Jacobs followed the reasoning of Foxton J in The “Leonidas”[2020] EWHC 1986 (Comm) as to the meaning of “subjects” in this context and concluded that until the condition precedent was met, there was no contract. He also followed Eder J’s decision in The “Pacific Champion” [2013] EWHC 470 (Comm) holding that such a “matter” also created a condition precedent to entering into a binding arbitration agreement.

Importantly, he also considered the application of the severability doctrine set out in section 7 of the Arbitration Act 1996 to determine whether the arbitration agreement should be considered a mini- agreement that is somehow separate from the “main” agreement that the parties were negotiating such that the arbitration agreement remains valid even if the challenge to the “main” agreement is successful. He distinguished the situation where the doctrine of severability prevails (i.e. where there is a challenge to the validity of the main agreement, without a challenge to the validity of the arbitration clause) from the current situation ( where the parties dispute the existence of the arbitration clause itself) and concluded that the arbitration agreement and the draft charter-party were solidary or fell together. The judge held that the arbitration agreement was part of the set of rights and obligations being negotiated, and that all of those rights and obligations were subject to the “subject matter” clause.

Jacobs J. therefore upheld the charterer’s position on art. 67 and would also have allowed the application under s. 69 if he had concluded that the arbitrator had jurisdiction.

Conclusion

Although Judge Jacobs’ judgment appears to run counter to the “pro-arbitration” position generally taken by the English Court, it contains a useful analysis of the limits of the doctrine of separability, as recently addressed by the Court supreme. in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UK SC 38 and why, on these facts, he did not help the owners.

The judgment can be viewed here: DHL Project & Chartering Ltd v Gemini Ocean Shipping Co. Ltd [2022] EWHC 181 (Comm).