Peremptory order scheme in the Arbitration Act 1996 can operate despite questions over a tribunal’s jurisdiction

Introduction

This appeal arose out of an arbitration that related to a licence agreement for the development of a video game. The sole issue considered was whether the court could order enforcement of a tribunal’s peremptory order under s.42 of the AA 1996 in circumstances where the tribunal’s jurisdiction was contested. 

Ultimately, the judgment was not necessary as, shortly after the appeal, the parties settled their dispute. However, the Court of Appeal gave judgment in any event as it said that the appeal raised a point of general interest.

Peremptory order scheme under s.42 of the AA 1996

Parties to arbitral proceedings have a duty to comply with the orders and directions of the tribunal (s.40(2)(a) of the AA 1996). In the event that a party fails to comply with an order or direction of a tribunal without showing cause, s.41(5) of the AA 1996 empowers the tribunal to make a “peremptory order” prescribing a time for compliance.

The failure by a party to comply with a peremptory order may lead the tribunal to take such other action as is described in ss.41(6) and (7) of the AA 1996 (such as to dismiss the claim or draw an adverse inference). Alternatively, the tribunal (or a party, with the tribunal’s permission) can seek the assistance of the court. 

S.42(1) of the AA 1996 permits the court to order a recalcitrant “party” to comply with a peremptory order made by a “tribunal”, “unless otherwise agreed by the parties”. Such an order is of value because the court has sanctions that an arbitrator does not have (such as committal to prison for contempt of court).

In the underlying arbitration in this case, the arbitrator issued a peremptory order that one of the parties, S3D, should provide security for a future award by 27 July 2022. The arbitrator stated that S3D’s financial situation was not a reason for it to fail to comply. When S3D failed to comply with the order, the other party (Oovee) obtained the tribunal’s permission to make an application to the court under s.42(2)(b) of the AA 1996. An application to the court followed, which was accepted at first instance. 

Court could make an order under s.42(1) even though the tribunal’s jurisdiction was contested

On appeal, the Court of Appeal indicated that but for the settlement, it would have dismissed S3D’s appeal to the order in support of the tribunal’s peremptory order. This was for four reasons.

First, s.42 must be read with the other sections in which the court is empowered to make orders to support the arbitral process. If the court were required to first satisfy itself of the jurisdiction of the tribunal on a s.42 application, this would cut across the careful structure of the circumstances under the AA 1996 in which the court may determine the tribunal’s jurisdiction.

Second, the terms “party to the arbitral proceedings” and “tribunal” in s.42 simply mean what they say: a tribunal and a party to arbitral proceedings. This is the case irrespective of whether there is an issue of jurisdiction. These words must be read consistently with their use in other parts of the AA 1996.

Third, S3D relied on the language in s.42 of “unless otherwise agreed” to suggest that where the tribunal lacks jurisdiction, the parties have “otherwise agreed”. This argument was rejected as this phrase was held to refer to a specific agreement between parties to oust the jurisdiction of the court to make an order under s.42.  It was not a reference to a tribunal lacking jurisdiction. 

Fourth, the alternative position would mean that the court would need to decide issues of jurisdiction when faced with a s.42 application, which is contrary to the principle of minimum intervention. It would also mean that a party could hinder a s.42 application by raising a jurisdictional challenge that is unsuitable for summary determination (thus allowing a recalcitrant party to prevent the court from assisting the arbitration).

Thus, it was determined that a court could make a s.42 order requiring a party to comply with a peremptory order made by a tribunal notwithstanding that the tribunal’s jurisdiction is contested.

Commentary

As orders under s.42 are rare, this case provides an example of the peremptory order scheme in action. The case demonstrates the English court’s desire to support the arbitral process, even amidst jurisdictional uncertainty, as well as the court’s preference to exercise minimum intervention in doing so.

Judgment: S3D Interactive, Inc v Oovee [2022] EWCA Civ 1665.