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English court rules on Singapore tribunal's jurisdiction

07 July 2013

In Golden Ocean Group Ltd v Humpuss Intermoda Transportasi TBK Ltd & anr [2013] EWHC 1240, the Commercial Court delineated the scope of the principle that a tribunal can rule on its own jurisdiction, know as kompetenz-kompetenz, and affirmed the power of the English court to decide on the jurisdiction of an arbitral tribunal in the first instance.

Popplewell J set out the factors to be considered, where the existence or validity of an arbitration agreement is disputed, in deciding whether or not to respect the kompetenz-kompetenz rule of priority in favour of arbitrators determining their own jurisdiction.

The facts

The dispute concerned a claim by Golden Ocean Group Ltd (Golden Ocean) for repayment of overpaid hire under a charterparty and a counterclaim by Genuine, an insolvent subsidiary of the Humpuss Group, for damages for early redelivery of the vessel. The proceedings before the English court concerned a dispute as to who was the disponent owner (ie a person or company that commercially controls a vessel, but does not own it) of the vessel under the charterparty: Humpuss Intermoda Transportasi TBK Ltd (HIT), the parent company of the Humpuss Group, or Genuine, its former subsidiary, now in liquidation. A corollary issue concerned whether the parties had agreed their disputes to be settled by arbitration in London, under the charterparty, or in Singapore, under an alleged addendum between Golden Ocean and Genuine. Golden Ocean disputed the validity of the addendum claiming that, since the charterparty was between itself and HIT, the addendum was void for mutual mistake.
 
Golden Ocean commenced arbitration in London against HIT who refused to appear; an award upholding the arbitrator’s jurisdiction was made based on the finding that HIT was the disponent owner under the charterparty. Genuine then commenced arbitration proceedings against Golden Ocean in Singapore.
Golden Ocean applied to the English court seeking, inter alia, an interim injunction restraining Genuine from pursuing the Singapore arbitration with a view to a hearing of its application for:

 

  • a declaration that the charterparty is between Golden Ocean and HIT;
  • a declaration that there is no arbitration agreement between Golden Ocean and Genuine; and
  • final injunction restraining Genuine from pursuing the Singapore arbitration.

 

The questions before the English court

Golden Ocean asked the English court to grant the interim injunction on either or both of the grounds that, first, Genuine was bound by the London award as a privy of HIT, and secondly, that the court should itself examine the facts and find the addendum containing the Singapore arbitration clause invalid. Genuine contended that it could not be considered a privy and that the English court should respect the Singapore arbitrator’s power to determine his own jurisdiction.
Popplewell J first found that Genuine was not a privy of HIT because there was no “identity of interest” between Genuine and HIT. On the second ground, Popplewell J stated that the test for whether the English court should respect the principle of kompetenz-kompetenz and allow the Singapore arbitrator to determine, in the first instance, the validity of the arbitration agreement in the addendum, is the same for an application for an anti-arbitration injunction as for an application to stay proceedings under s9. 

Section 9 of the Arbitration Act 1996

Popplewell J examined the two step test under s9(1) and s9(4) of the Arbitration Act 1996:
  1. The party seeking the stay must show that an arbitration agreement has been concluded and that the issues in dispute fall within its scope. If the court cannot be satisfied on the written evidence before it that an agreement was concluded then it cannot grant a stay under s9. It is not sufficient for the applicant to show a good arguable case and the court must direct a trial of the issue before granting the stay if it is not satisfied that s9(1) is met. Alternatively, even if the applicant cannot satisfy s9(1), the court may exercise its inherent power to grant a stay in favour of the arbitrator’s power to examine the issue and determine his own jurisdiction.
  2. If it is shown that an agreement has been concluded, the court must grant a stay unless the party resisting it can satisfy the court that the agreement is null and void, inoperative or incapable of being performed. A stay will not be granted merely because the applicant can show an arguable case for validity. If the court is incapable of deciding on the written evidence before it whether the arbitration agreement is null and void, etc, then it may order a trial of the issue. Alternatively, if there is an arguable case in favour of validity then the court may consider that the respondent has failed to discharge its burden under s9(4) and grant the stay under s9 to let the arbitrator decide the question of validity.
Popplewell J then went on to examine, where the court cannot decide either question on the written evidence before it, the circumstances in which it would be appropriate either to grant a stay under its inherent jurisdiction in favour of the arbitrator’s kompetenz-kompetenz, or instead order a trial on the issue of the conclusion, scope or validity of the arbitration agreement.

 

No presumption in favour of kompetenz-kompetenz

Popplewell J stated that where the court can decide the issues on the written evidence before it then it should do so. However, where it cannot, the court must decide whether or not to defer to the arbitrator by either granting a stay under its inherent jurisdiction or refusing to order a trial of the issue.
Popplewell J noted that traditionally the English courts have only granted a stay under their inherent jurisdiction "very exceptionally" where it is "virtually certain" that the agreement was concluded and is valid, or where the dispute as to the jurisdiction issues is relatively simple and straightforward (Al-Naimi v Islamic Press Agency Inc [2002] 1 Lloyds Rep 522). Popplewell J also emphasised that, unlike an arbitrator ’s findings on the merits of the substantive dispute, an arbitral decision on jurisdiction cannot be considered final for it may be subject to judicial scrutiny at several stages, such as when it is enforced. Moreover, he stated that a party cannot be said to be cutting across the philosophy of arbitration by asking the court to decide that he has not agreed to submit his dispute to arbitration. There is thus no presumption in favour of the kompetenz-kompetenz of a tribunal on which the parties may not have agreed to confer jurisdiction.

Balance of convenience

Popplewell J emphasised the importance of considering the circumstances of the case as comprehensively as possible when deciding whether to defer to the arbitrator or decide the question of jurisdiction. Popplewell J noted the following factors:

 

  • Related proceedings – the court is likely to decide the matter itself if this would avoid the risk of inconsistent judgments, such as in the present case where the parallel arbitrations were both concerned with the same question as to the validity of the addendum.
  • Convenience – if the jurisdiction issue will likely fall to be determined by the court in any event, for example on enforcement, then this strongly militates in favour of the court deciding in the first instance to save costs and time. Similarly, if the matter cannot be decided without a lengthy and costly inquiry then the court may be more likely to defer to the arbitrator. The court is more likely to decide the matter itself where the question of jurisdiction can be confined to a circumscribed area of investigation that does not involve determining any issues in the substantive dispute.
  • Prejudice – if a court decision on jurisdiction will necessarily involve deciding substantive matters then the court may prefer to decline to decide the issue to avoid causing prejudice. The court will balance the prejudice likely to be caused by such a determination against the potential prejudice of subjecting a party to an arbitration it hasn’t agreed to.
  • The appropriate forum – if the arbitration agreement, the conclusion or validity of which is disputed, is governed by English law then, unless there is no real dispute as to legal principles or the foreign tribunal is as well placed as the English court to apply English law, this is a factor in favour of the court deciding in the first instance. The court will also consider the factors laid down by the House of Lords in Spiliada Maritime Corp v Cansulex [1987] AC 460, such as the location of witnesses and evidence, to decide which is the most appropriate forum.
  • The quality of the arbitration – the courts are more likely to defer to the arbitrator if it is satisfied that the party resisting the stay will not suffer prejudice in letting the arbitrator decide on his own jurisdiction. The supervisory jurisdiction of the courts of the seat, and the avenues of recourse they provide, will be an important consideration.
  • Strength of each party’s case – although the court will not conduct a mini-trial on the written evidence, if a brief perusal reveals that one case is far stronger then this will be a factor in the decision whether to stay proceedings or direct a trial on jurisdiction.

Popplewell J decided that the risk of inconsistent awards in the London and Singapore arbitrations, the fact that English law governed the purported arbitration agreements, and that nuanced questions of the English law doctrine of mistake were at issue, made this an appropriate case for the English court to decide the validity of the addendum to the charterparty, notwithstanding that the investigation would be complex and costly. Popplewell J therefore granted the interim anti-arbitration injunction and gave directions for a trial of the issues.

Comment

Popplewell J’s decision is in keeping with the restrictive vision of kompetenz-kompetenz applied by the English courts. Kompetenz-kompetenz is not recognised as a goal in itself and, if a court decides that it may better support the arbitral process by determining a question of jurisdiction in the first instance, it will do so (see, for example, the recent Supreme Court judgment in Ust-Kamenogorsk Hydropower Plant JSC v AES Ust- Kamenogorsk Hydropower Plant LLP [2013] UKSC 35). This approach, in stark contrast to that of the French courts (see American Bureau of Shipping v Copropriété Maritime Jules Verne, Cour de cassation, 26 June 2001), has been criticised for negating the effect of kompetenz-kompetenz and creating uncertainty as to when the English courts will interfere in the arbitral process. Given this uncertainty as to when the English courts will respect an arbitrator’s power to determine the existence or validity of an arbitration agreement in the first instance, this case is a clear and useful restatement of the extent of the investigation that the court will undertake and the factors that it will consider when deciding whether to order a trial of these issues.
Permission to appeal was granted on 12 June 2013.

 

Further information

 

This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution.  For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 20 3088 3710.