B e f o r e :
LORD JUSTICE MAURICE KAY
LORD JUSTICE STANLEY BURNTON
LORD JUSTICE GROSS
|| Itochu Corporation
||- and -
||Johann M.K. Blumenthal GMBH & Co
KG & Anr
(Transcript of the Handed Down Judgment of
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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: 21st June 2012
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LORD JUSTICE GROSS:
- By order of Tomlinson LJ the application of the intended Appellant ("Itochu") for permission to appeal from the order of Andrew Smith J dated 2nd 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 19th 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 3rd 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 18th 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.
- 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  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  EWCA Civ 243;  Bus LR 1075, at .
- 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 already suggested. Brief reference to the principal authorities explains why this is so.
- In Virdee v Virdee  EWCA Civ 41, the Judge had made an order appointing arbitrators under s.18 of the Act; he refused permission to appeal. The appellant sought to challenge the appointment, relying on s.19 of the Act, relating to the qualifications of the arbitrators. This Court held that s.18(5) applied and that it had no jurisdiction to entertain the ground of appeal in question. Brooke LJ observed (at ) that the appointment of the new tribunal and the characteristics of those who could serve on it "were fairly and squarely caught" by s.18(5). Buxton LJ put it this way (at ):
" It was to section 18 that the applicant specifically appealed…when he brought his amended application before the court below. That necessarily carried with it the limitation imposed by section 18(5)."
Mr. Johnson sought to distinguish Virdee on the ground that s.19 of the Act specifically cross-referred to s.18 (amongst other sections), whereas s.15 contained no such provision. To my mind that is a distinction without a difference; plainly, albeit depending on the issue in question, when exercising its powers under s.18, the Court must have regard to the provisions of s.15 of the Act and, for that matter, to those of ss.16 and 17. In my view, it follows from Virdee that a decision does not cease to be a decision "under this section" for the purposes of s.18(5) merely because the Judge is required to take into account another section (or other sections) of the Act.
- Cetelem SA v Roust Holdings Ltd  EWCA Civ 618;  1 WLR 3555 was concerned with the power of the Court to grant an injunction under s.44(3) of the Act. S.44(7) of the Act limits appeals to this Court in the same manner as s.18(5). The Judge granted an interim mandatory injunction and continued a freezing order; he refused permission to appeal. One of the questions before this Court, on a renewed application for leave to appeal, was whether it had jurisdiction to entertain the appeal. The Court held (at ) that a decision of the Judge which he had no jurisdiction to make was not a decision "under this section" within the meaning of s.44(7) and therefore it had jurisdiction to consider the appeal - which, in the event, it went on to dismiss. The statement of principle is contained in the judgment of Clarke LJ (as he then was), in the passage which follows:
" 24. ….the purpose of section 44(7) and the many sections like it is to limit the role of the court where the court is exercising its supervisory powers under the 1996 Act. In those circumstances it seems to me to make sense to preclude further recourse to the court by way of appeal. It makes much less sense so to hold where the judge makes an order which he has no jurisdiction to make. I would draw a distinction between orders which are within the court's jurisdiction and those which are not. Thus section 44(7) and its equivalents in other parts of the Act limit appeals on fact or law to cases in which the judge at first instance grants permission to appeal. As I see it, however strong the proposed appellant's argument that the judge was wrong in law or on the facts, this court will have no jurisdiction. It will not be enough to show that the judge was plainly wrong in fact or law or that he made a decision which no reasonable judge could make. Parliament has limited the supervisory jurisdiction of the courts to one tier.
25. So long as the judge could make the order in the sense that it was within the jurisdiction specified in the relevant section, the buck stops with him. The order is made under the section. It is only where the judge makes an order which is outwith his jurisdiction, so that he could not (as opposed to should not) make it, that section 44(7) and other similar provisions do not prevent an appeal to this court. "
Accordingly, Cetelem suggests that the applicability of the provisions of the Act curtailing appeal to this Court turns on whether the Judge had jurisdiction to make the decision in question under the relevant section.
- The underlying dispute in ASM Shipping v TTMI Ltd  EWCA Civ 1341;  1 Lloyd's Rep 136 related to the apparent bias of the umpire. The Judge held that although apparent bias had been made out and would otherwise have entitled the applicant shipowners to relief under s.68 of the Act (as a species of serious irregularity), the complaint had been waived. The Judge refused leave to appeal. S.68(4) of the Act was (mutatis mutandis) in the same terms as s.18(5). Owners' appeal to this Court was dismissed. S.68(4) applied, with the result that the Judge's decision could not be challenged by way of appeal even if it was wrong, or, indeed, obviously wrong. The facts of Cetelem were very different; here there had been no doubt that the Judge had jurisdiction either to accede to the s.68 application or to refuse it – whichever way the decision went, it remained a decision under s.68 and thus caught by s.68(4). That the decision turned on waiver was "nothing to the point" (at ). Moreover and importantly for present purposes, as Longmore LJ observed (at ):
" We add that, although there was some argument before us on the question whether the judge's decision was based on section 73 of the 1996 Act or on waiver at common law, we consider that nothing can turn on that distinction. Permission to appeal without the judge's leave is prohibited in either case. "
Thus the mere fact that the Judge's decision was or might have been based on another section of the Act did not mean that it was not a decision under s.68 of the Act.
- Both parties sought to pray in aid the decision of this Court in Sumukan (supra). The underlying issue there was whether the parties had entered into an exclusion agreement – i.e., excluding the jurisdiction of the Court on appeal from an arbitration award. If they had, then the (High) Court had no jurisdiction to grant leave to appeal against the arbitration award under s.69 of the Act, on the ground of error of law; if they had not, then the Court could entertain the application for leave to appeal. The Judge held (inter alia) that the exclusion agreement had been incorporated into the parties' contract and that he had no jurisdiction to entertain the application for leave to appeal. The Judge also refused leave to appeal. The single Lord Justice granted permission to appeal to this Court. The defendant applied to set aside the grant of permission to appeal, contending that the Judge's refusal to grant leave to appeal excluded any right of appeal to this Court. Though the claimant's appeal ultimately failed (for reasons irrelevant here), the defendant's application was dismissed.
- Giving the judgment of the Court, Waller LJ drew a distinction (at ) between:
" ….those cases where the court is assisting or overseeing the arbitration process and the cases where the question is whether the jurisdiction of the court has been excluded."
Continuing (at ), Waller LJ distinguished between "jurisdiction issues as preliminary decisions as to whether the section is to be applicable at all and other decisions". Accordingly (ibid):
" There is a distinction between a decision as to whether the parties have agreed to exclude the court and (if they have not) the decision as to whether to grant or refuse permission to appeal. Until the court has decided whether there is an exclusion agreement it does not, in fact, engage on the considerations relevant to the question whether permission to appeal should be refused or granted."
Permission to appeal would not be set aside. The Court of Appeal had jurisdiction to decide whether or not there was an exclusion agreement as (at ) "a preliminary question under section 69(1)…".
- As it seems to me, the jurisdictional issue for this Court in Sumukan was akin to that in Cetelem. There could be no question of granting or refusing leave to appeal under s.69 if the parties had entered into an exclusion agreement; the High Court would have been deprived of jurisdiction to do so. The question of whether or not the parties had entered into an exclusion agreement was thus a preliminary question as to whether s.69 was applicable at all.
- Pulling the threads together:
(1) For my part, I see no reason to depart from my initial view. The Judge's decision was, in form and in substance, a decision "under" s.18, caught by the restriction on appeal provided by s.18(5).
(2) No question of principle arose in relation to s.15. The sole question was whether, on its true construction, the arbitration clause came within s.15(3). Whatever view the Judge took on that question, he had thereafter to take a decision under s.18(3). As already underlined, both parties invoked s.18(3).
(3) It is impossible therefore for Itochu to gain support from Cetelem (supra). On any view, the Judge had jurisdiction to make a decision under s.18(3). For essentially the same reasons, Sumukan (supra) likewise does not assist Itochu; all roads led to a decision on the merits under s.18(3). There was here no anterior or preliminary question which might preclude the Court from taking a decision one way or the other under s.18(3). This was instead a decision by the High Court, supportive of the arbitral process and curing a failure of the appointment procedure.
(4) As established by this Court's decision in ASM Shipping (supra), it is neither here nor there that in coming to his decision the Judge based himself upon or had regard to s.15(3). The Judge's decision was made under s.18, even if his reasons (necessarily) encompassed s.15. It is the decision which is the key to the applicability of s.18(5).
(5) Having regard to the policy of the Act (see above), there can be no justification for straining to avoid the operation of the restriction on appeals contained in s.18(5).
- For completeness, I have not overlooked Mr. Johnson's reliance on the decision of Mance J (as he then was) in The "Villa"  1 Lloyd's Rep. 195. In that case, the learned Judge held that although the Court had a discretion whether or not to appoint an arbitrator (or arbitrators) under s.18(3) of the Act, where the default position provided by s.15(3) applied, it had no "jurisdiction" (see at p.198) to appoint a tribunal of two or three arbitrators rather than a sole arbitrator. Various factors had been urged upon the Judge to the effect that a two or three-man tribunal would be appropriate. As to these arguments, Mance J said this (ibid):
" …it seems to me that that these factors are all in fact irrelevant because the Court must, if it appoints at all, appoint a single arbitrator. But if there is any jurisdiction to look at the matter more widely, they fail entirely to satisfy me that the prima facie position, namely that there should be a sole arbitrator, should be ignored and overridden by the Court in favour of some other tribunal. "
I am unable to accept that this decision – with respect, plainly correct as it was - assists Mr. Johnson's argument. In The "Villa", the word "jurisdiction" was used in the sense that the Court, when making a decision under s.18(3), had no power to substitute its view as to the desirable composition of an arbitration tribunal for the default position provided by s.15(3). It does not at all follow that any question arose here as to the jurisdiction of the Judge to make a decision under s.18(3), so as to bring this matter within the proper scope of the Cetelem principle (supra).
- Accordingly, for the reasons given, I was of the view that this Court does not, even arguably, have jurisdiction to entertain Itochu's intended appeal, so that on this ground alone permission to appeal should be refused. Although the merits of the intended appeal are thus academic, I shall, nonetheless, if very briefly express my view on the meaning of the arbitration clause.
THE MEANING OF THE ARBITRATION CLAUSE
- In my judgment, Andrew Smith J was plainly correct in the conclusion to which he came in the ruling. I am content to proceed on the assumption that the parties contemplated more than one arbitrator. Even so, it is impossible to read into the arbitration clause an agreement "as to the number of arbitrators". Absent such an agreement, s.15(3) of the Act provides unambiguously for a default position of a single arbitrator – in this regard deliberately not following the UNCITRAL Model Law on International Commercial Arbitration ("the Model Law"), essentially on grounds of reducing the cost and burden imposed on parties to arbitration: see, the Departmental Advisory Committee on Arbitration Law, Report on the Arbitration Bill, February 1996 ("the DAC Report"), at para. 79. For completeness, where there has been a failure of the appointment procedure, there needs to be some rule, otherwise the arbitration will be stymied. This is an example of Court support for arbitration, not an unwarranted infringement on party autonomy. That the rule in these circumstances provides for a sole arbitrator rather than a tribunal of three arbitrators, is neither here nor there with regard to party autonomy.
- It follows that had this Court jurisdiction to entertain Itochu's intended appeal (contrary to the conclusion expressed above), in my view any such appeal would have been bound to fail on the merits. On this ground as well, I was of the view that permission to appeal should be refused.
LORD JUSTICE STANLEY BURNTON:
- I agreed that the application for permission to appeal should be refused for the reasons given by Gross LJ. However, I should like to summarise my reasons for concluding, despite Mr Johnson's attractive submissions, that this Court had no jurisdiction to entertain the application for permission to appeal. They can be stated in the following propositions:
(1) The order made by Andrew Smith J was an order to appoint an arbitrator. Such orders are made under the power conferred by section 18. Such orders are made under that section.
(2) The provisions of section 15 were among the reasons given by Andrew Smith J for his order.
(3) It is trite law that an appeal to this Court is an appeal against the order made by the Court below, and is not an appeal from the reasons it gave for making its order: see section 16 of the Senior Courts Act 1981 and the White Book at paragraph 52.0.13.
(4) There was therefore no order under any other section than section 18.
LORD JUSTICE MAURICE KAY:
- I agree with both judgments. We give leave for these judgments to be cited, notwithstanding that our order is to refuse permission to appeal.