Mr Justice Andrew Smith:
- This case raises a question about the claimants' right to bring proceedings under sections 67 and 68 of the Arbitration Act 1996 (the "1996 Act"). The facts are not in dispute and straightforward. In order to preserve their anonymity, I shall refer to the claimants as "A" and the defendants as "B", and say that they both are overseas trading companies. B claim that A made two contracts to buy cotton from them and have not made payment under them. They contend that the contracts provided for "ICA rules and arbitration" (ICA referring, of course, to the International Cotton Association Limited), and on 8 February 2012 they brought a reference under the Bylaws of the ICA claiming nearly seven and a half million dollars. A deny making the contracts, and so deny having agreed to ICA (or any) arbitration. They participated in the arbitration proceedings and disputed the Tribunal's jurisdiction.
- In an award dated 26 February 2013 (the "Award") the Tribunal concluded that it had jurisdiction to decide the reference and upheld the claim. Under the relevant ICA rules, the 2011 edition, parties have a right to appeal to a so-called Technical Appeal Committee ("TAC"). Bylaw 312(9) provides under the heading "Technical Appeal Committee" as follows:
"An appeal involves a new hearing of the dispute and the appeal committee can allow new evidence to be put forward. It may confirm, vary, amend or set aside the award of the first tribunal and make a new award covering all of the matters in dispute."
Bylaw 311 is headed "Appeals" and provides as follows:
"1. If either party disagrees with the tribunal's Award, it can appeal to us within the period specified in the Award. It must send Notice of Appeal to us.
2. Upon receipt of the Notice of Appeal we may demand that sums of money be deposited with us by the Appellant, by way of deposit against any fees, costs or expenses in connection with or arising out of the Appeal. Failure to pay within the specified period will result in the Appeal being dismissed.
3. The Directors, or appeal committee if appointed, can extend the time limits in Paragraph 2 above, but only if the firm concerned can show that substantial injustice would otherwise be done and the request for an extension is reasonable in all the circumstances. An extension will only be granted if it can be shown that substantial injustice may result of a request for an extension of time is refused …"
The period specified in the Award was stated as follows:
"Notice of appeal against this award must be sent to the Secretary of The International Cotton Association Limited in line with Bylaw 311, to arrive on or before 26 March 2013."
- On 22 March 2013 A sent the ICA a notice of appeal. On 26 March 2013 the ICA required of A payment of fees, a deposit and outstanding costs. Without paying the sums required, on 18 April 2013 A sent the ICA their grounds of appeal. On 22 April 2013 the ICA chased A for payment by (as I infer) 23 April 2013. On 24 April 2013 the ICA sent A notice that their appeal had been dismissed, "as a result of your failure to pay the Application Fee, Deposit and outstanding arbitration costs by the deadline of Tuesday 23 April 2013". On 3 May 2013 A sent the ICA payment of the sums requested, and sought an extension of time for paying, explaining and seeking to excuse late payment on the basis of oversight and local public holidays. The ICA refused the application for an extension, having, apparently, asked B whether they consented to it and after B had declined to do so. As a result no TAC was ever appointed to determine A's appeal.
- On 22 May 2013, A brought these proceedings, for an order that the Award "be set aside and/or declared to be of no effect on the grounds of lack of jurisdiction and/or serious irregularity which has or will cause substantial injustice to" A. The parties sought and the court ordered determination of this preliminary issue:
"Whether the Claimant's challenge to the First Tier Award dated 26 February 2013 pursuant to sections 67 and/or 68 of the Arbitration Act 1996 is precluded by the terms of section 70(2) and/or section 73(2) of the Arbitration Act 1996."
- Section 70(1), (2) and (3) of the Arbitration Act 1996 provide:
"(1) The following provisions apply to an application or appeal under section 67, 68 or 69.
(2) An application or appeal may not be brought if the applicant or appellant has not first exhausted –
(a) any available arbitral process of appeal or review, and
(b) any available recourse under section 57 (correction of award or additional award).
(3) Any application or appeal must be brought within 28 days of the date of the award or, if there has been any arbitral process of appeal or review, of the date when the applicant or appellant was notified of the result of that process."
Section 73(2) provides:
"Where the arbitral tribunal rules that it has substantive jurisdiction and a party to arbitral proceedings who could have questioned that ruling-
(a) by any available arbitral process of appeal or review; or
(b) by challenging the award
does not do so, or does not do so within the time allowed by the arbitration agreement or any provisions of this Part he may not object later to the tribunal's substantive jurisdiction on any ground which was the subject of that ruling."
The expression "available arbitral process" is defined in section 82(1) as follows:
"'available arbitral process', in relation to any matter, includes any process of appeal to or review by an arbitral or other institution or person vested by the parties with powers in relation to that matter; …"
- The 1996 Act does not prevent a party against whom a reference has been brought from challenging the Tribunal's jurisdiction without exhausting the processes specified in section 70(2). He can take no part in the arbitral proceedings and make an application under section 67 or 68, and then section 70(2) does not apply to his case: see section 72. Section 70(2) applies when, as here, a person has taken some part in the arbitral proceedings.
- Two questions arise with regard to whether section 70(2) precludes A's challenge in these proceedings:
i) Was there an "available arbitral process of appeal or review"?
ii) Have A exhausted it?
- There has been some debate about whether, where arbitral rules allow for an appeal to a second-tier tribunal as the ICA rules provide for an appeal to the TAC, this constitutes an "available arbitral process of appeal or review" within the meaning of section 70. In UR Power GmbH v Kuok Oils and Grains Pte Ltd, [2009] EWHC 1940 (Comm) Gross J said at para 60:
"For completeness, I express no concluded view as to the true ambit of the words in section 70(3), '… if there has been any arbitral process of appeal or review …'. I am tentatively attracted to the view that they refer to such arbitration schemes which have some particular internal process for reconsideration of the award or appeal award. However that may be, I do not believe that this wording has any application to FOSFA or, for that matter, GAFTA appeal arbitrations. In such cases, it is the date of the award, or appeal award, as the case may be, which starts time counting."
- On the other hand, in PEC Ltd v Asia Golden Rice Pte Ltd, [2012] EWHC 846 (Comm) Hamblen J said at para 18:
"It is not necessary to decide this issue in the present case. However, I consider that this is very much an open question, notwithstanding the obiter comments made by Gross J. In particular, it is difficult to see how the GAFTA appeal procedure is not an 'arbitral process of appeal' and, moreover, neither party was able to identify any 'arbitral process of appeal' other than those provided under Rules such as those of GAFTA or FOSFA. …"
- In the UR Power case the challenges in relation to which the section 70 arose were under section 68 and section 69. The PEC case concerned a challenge under section 67. For my part, I do not see an argument that, as a matter of ordinary language, the procedure whereby there may be an appeal to the TAC would not be covered by section 70 if there is no argument about whether the parties made an arbitration agreement that covers the dispute, the challenge being only under section 68 or 69 (or both). This is the view of Merkin, Arbitration Act, 1996 5th Ed notes on 70(2) and 73(2), where (at p.362 fn 29) it is observed that section 70(2)(a) "is only likely to be relevant to commodities arbitrations". If I understand paragraph 40 of his judgment in Atkins Ltd v Sec of State for Transport, [2013] EWHC 139 correctly, it is also Akenhead J's interpretation of section 70.
- What if there is a challenge under section 67? Should the court proceed on the basis that (in the language of section 82) a process of appeal or review has been "vested by the parties with powers in relation to [the] matter"? The question whether the parties made an arbitration agreement vesting such powers will often (as here) be the very question at issue on the section 67 challenge. However, the wording of section 70 makes clear that it applies to at least some section 67 applications, and, although a party might challenge the substantive jurisdiction of a tribunal without disputing that he had made an arbitration agreement which vested powers as specified in section 82(1), the more natural implication of the statute is that section 70 governs all challenges under section 67. I reconcile this with the definition in section 82 because, when a party takes part in arbitral proceedings while challenging the jurisdiction (and so cannot proceed to make an application under section 67 unfettered by section 70(2)), he thereby vests powers in the arbitral or other institution or person who would have had powers in relation to the matter if he had entered into an applicable arbitration agreement.
- I therefore conclude that there was an arbitral process of appeal or review available to A even if they are right in their contention that they were not party to any relevant arbitration agreement. Indeed, I did not understand Mr Christopher Harris, who represented A, to dispute this.
- I therefore come to the second question: whether A have "exhausted" the process that was available? Mr Harris did not argue that a party exhausts a process simply by deciding not to exercise a right of appeal so as to allow his right to appeal to lapse (or to cease to be "available"). Certainly Professor Merkin apparently considers that a person cannot exhaust a right of appeal without exercising it (see Arbitration Law paragraph 20.39), and this is consistent with authorities about when a challenge to an award under section 67, 68 or 69 is precluded because an applicant or appellant has not applied under section 57 of the 1996 Act for a correction of an award or an additional award. (This, of course, creates problems about the structure of time limits under the 1996 Act, which Edwards-Stuart J identified in Price v Carter, [2010] EWHC 1451, but those problems, I think, arise however the expression "exhausted" in section 70(2) is interpreted, and so I need not and do not engage with them.) I consider that Mr Harris was therefore right to accept that, if A had not sought to appeal under the ICA's process, they would not have exhausted an available arbitral process of appeal, and so section 70 would debar their challenge under sections 67 and 68.
- What then must an applicant under section 67 or 68 have done in order to have exhausted the process? Ms Philippa Hopkins, who represented B, submitted that the process is exhausted only if it has been concluded by determination on the merits, or alternatively that it is exhausted only if the appeal or review has been concluded by an award. Mr Harris submitted that A exhausted the process because they invoked it and pursued it as far as they were able both before and after the appeal was dismissed; that the question whether an available arbitral process is exhausted depends on the facts of a particular case; and that in this case A exhausted the process available under Bylaw 311.
- Counsel were aware of no judicial decision about when an applicant has exhausted an arbitral process other than a decision on an application for leave to appeal under section 69 made on paper by David Steel J on 11 July 2011, which Ms. Hopkins properly drew to my attention: because of the confidential nature of the procedure, I was not told the names of the parties. The case apparently concerned a FOSFA (Federation of Oils, Seeds and Fats Associations) arbitration, with an appeal process similar to that of the ICA, and, as here, FOSFA had refused to extend time for payment of a deposit that had been required: as David Steel J put it, "The right to a re-hearing was rendered redundant by the failure of the applicants to make timeous payment", and so presumably the appeal to the second tier tribunal was dismissed. David Steel J refused leave to appeal against the first tier award because he did not consider it "just and reasonable in all the circumstances" for leave to be given, and among the reasons that he gave was this:
"… the process of appeal or review was not exhausted save in the sense that the process was not available by reason of the applicant's own conduct."
It is not clear whether he thought that section 70(2) was a bar to the application, or whether he thought it relevant to deciding whether it was just and proper to grant leave that the application was not barred only because the applicant had exhausted the appeal process by failing to provide the deposit. I am inclined to think that the latter is the better view, but I do not place any weight on this authority: it is unrealistic, given the nature of the decision, to think that David Steel J was expressing any concluded view about the interpretation of section 70(2).
- I am concerned with applications made under section 67 and 68 of the 1996 Act. No question arises as to whether it would be "just and proper" to allow them to proceed, and the court has no discretion in deciding whether an application is precluded by section 70(2): either A have exhausted the process that was available or they have not done so. Therefore I am unimpressed by observations about the general "merits" of the parties' conduct that counsel were occasionally tempted to make. In particular, Ms. Hopkins rightly accepted that it would make no difference to what I must decide if A had failed to meet the ICA's demands for funds for a reason entirely beyond their control (such as in an insuperable restriction by way of exchange control). It might be that in those circumstances the ICA would have been more inclined to extend time to deposit funds, but the decision is not subject to the court's control and A would have no redress against an adverse decision. Ms. Hopkins accepted that it would not be an "award" that could be challenged as such under the 1996 Act: see Charles M Willie and Company (Shipping) Ltd v Ocean Laser Shipping Ltd ("The Smaro"), [1999] CLC 301. Her contention was simply that A, like B, had vested powers in the arbitral process, and have to live with the consequences if, because of a decision under Bylaw 311, they have not exhausted and cannot exhaust an arbitral process that had been available to them.
- As I see it, Ms. Hopkins' relatively rigid test of when a process has been exhausted could have curious results. I confine myself to two illustrations:
i) Suppose that the rules of a single tier arbitral body allowed it to require a person challenging its jurisdiction to deposit funds and to dismiss his challenge if he did not do so. A person whose challenge was therefore dismissed could still make an application under section 67. It is difficult to see why a person like A whose challenge is dismissed for similar reasons in the context of an appellate process should be in a different position.
ii) Under Bylaw 311(3) a time limit may be extended only if it can be shown that "substantial injustice may result if a request for an extension of time is refused". An application for extended time would therefore be refused, however compelling the reason for not depositing funds, if the Director of the ICA and the appeal committee wrongly considered hopeless an appeal against a finding that the ICA tribunal had jurisdiction. I cannot accept that an application under section 67 is barred by section 70(2) in these circumstances.
- But there is a more fundamental objection to B's contention that A have not exhausted an arbitral process. The issue about how a process is exhausted is one of statutory interpretation, and the first question is what intention of the legislature is conveyed by the natural meaning in its statutory context by the language of section 70, and in particular by the word "exhausted". It conveys, I think, that the applicant or appellant must have used up any process that was available, so that it is no longer available. He would not have done so if he has not used the process at all (or, as Mr. Harris put it, has not invoked it). It might well be that he would not have done so if he has gone through the motions of invoking it with no true intention of doing more and simply so as to have brought an appeal that was be struck out without its merits being considered. But the important connotation of the verb "exhaust" is that the process must be used up completely. But food supplies can be exhausted whether they are used prudently or frittered away; patience can be exhausted by careful or by discursive argument. What matters is that the process is fully spent, not how it became spent.
- Ms. Hopkins submitted, however, that the policy of the 1996 Act is to enable the arbitral process to correct itself without the court intervening. She cited the observation of Cooke J to this effect in Torch Offshore LLC v Cable Shipping Inc., [2004] EWHC 787 (Comm) at paragraph 46. However, Cooke J was concerned with the policy reflected in section 57 of the 1996 Act, and his language reflects the commentary on that section in the Departmental Advisory Committee report. To some extent, I accept, the same policy might be reflected in the requirement of section 70(2) that an applicant must have invoked an arbitral appeal or review process, but I accept Mr. Harris's submission that section 70(2) is primarily about the order in which a party can turn to an arbitral process and court proceedings. The essential policy is not to exclude the court process altogether, but to deal with the risk of concurrent proceedings in the court and the arbitral process.
- I reach this conclusion without relying on another argument advanced by Mr. Harris. It was based on article 6 of the European Convention on Human Rights and Fundamental Freedoms ("ECHR"), and he submitted that section 70(2) must be given a construction that does not impermissibly exclude the rights of people to redress through the courts. In this context he cited the decision of Miloslavsky v UK (1995) 20 EHRR 442, in which the European Court of Human Rights decided that the applicant's right to a fair hearing was consistent with a requirement that security be lodged before he appealed to the Court of Appeal because it "pursued a legitimate aim and bore a reasonable relationship of proportionality to that aim in the circumstances" (at para 30). Mr. Harris submitted that similarly section 70(2) must be interpreted so as to restrict access to the courts only to the extent that the restriction is required to afford the arbitral process an opportunity to correct errors if and when its machinery can still be used. B, it is said, argued for a restriction that goes further and is not consistent with the ECHR. I am not persuaded by this argument. Section 70(2) bars a person's access to the court only if and to the extent that he has himself limited access by vesting powers in an arbitral process whether by making an arbitration agreement or by participating in an arbitration. I reject B's submission about the proper interpretation on section 70(2) not because I consider it would be inconsistent with the ECHR but because it does not give the section its natural meaning and because of the anomalous consequences of that interpretation.
- I conclude that A had first exhausted the arbitral appeal process before they brought these proceedings. They did not exhaust the process simply by giving notice of appeal to the ICA before the deadline of 26 March 2013: indeed once notice was given there was a pending appeal within the process. Nor on the facts of this case was the process exhausted when their appeal was dismissed on 24 April 2013. It might well have been if it was simply impossible for them to provide the required deposit at any time, and there was no point in them seeking an extension. But here there was point in them applying for an extension, and in my judgment the process was exhausted only when the application was refused. This illustrates that the test whether an arbitral process is exhausted is flexible and so, as Mr Harris submitted, the question whether it has been exhausted in any particular case is fact-specific; and the corollary is, I recognise, that there will sometimes be room for uncertainty about when it is met. But that does not dissuade me from giving the section the interpretation for which Mr Harris contends. Indeed, a party seeking to challenge an award can face a comparable dilemma with regard to section 70(2) when deciding whether he realistically has recourse "available" under section 57.
- What of the argument about section 73? Ms Hopkins did not really advance any separate argument that this section covers A's application. This is understandable: as Professor Merkin observes in Arbitration Act 1996, "It is unclear what section 73(2)(a) adds to the equation, as jurisdictional challenges under section 67 are (by section 67(1)) expressly subject inter alia to section 70(2) …". Further, as Mr Harris said, section 73 is based on (without precisely reproducing) article 4 of the Model Law, and the principle underlying it is waiver. I cannot accept that A have waived their objection to the jurisdiction to the ICA tribunal or their challenge to it; they have never evinced an intention to do so. In the language of section 73, they did question the ruling that the Tribunal had jurisdiction and did so within the time allowed in the Award.
- In my judgment, therefore, the answer to the preliminary issue is that A's challenge to the First Tier Award dated 26 February 2013 pursuant to sections 67 and/or 68 of the 1996 Act is not precluded by the terms of section 70(2) or section 73(2) of the 1996 Act.
