Successful challenge of an arbitral award under section 67 Arbitration Act 1996

The Commercial Court allowed an application under s.67 of the Arbitration Act 1996 challenging an arbitral award on the basis that the arbitrator lacked substantive jurisdiction.

The underlying arbitration was an action for damages arising from the alleged repudiation of a charterparty agreement between the owners of a vessel called the “Newcastle Express” and the charterer.

In making the challenge, the charterer argued that a binding charterparty agreement was never concluded between the parties because the agreement was on “subjects” or “subs” which were never “lifted” (terminology frequently used in the charterparty context to mean that the agreement was subject to conditions which remained outstanding). The charterer argued that the charterparty never reached the stage of a finally binding agreement and, as a result, there was no binding arbitration agreement meaning that the arbitrator had no jurisdiction to make his award against the charterer.

In the alternative, the charterer argued that if the arbitrator did have jurisdiction, then he made an error of law in finding that there was a concluded charterparty (because the agreement was on “subs”) and that the award should be set aside under s.69 of the Arbitration Act 1996.

Mr Justice Jacobs followed the reasoning of Foxton J in The “Leonidas” [2020] EWHC 1986 (Comm) as to the meaning of “subjects” in this context and held that unless and until the pre-condition was satisfied, there was no contract. He also followed Eder J’s decision in The “Pacific Champ” [2013] EWHC 470 (Comm) in holding that a “subject” of this type also created a pre-condition to the conclusion of a binding arbitration agreement.

Importantly, he also considered the application of the separability doctrine set out in s.7 of the Arbitration Act 1996 to determine whether the arbitration agreement ought to be regarded as a mini-agreement which is in some way divorced from the “main” agreement which the parties were negotiating such that the arbitration agreement remained valid even if challenge to the “main” agreement succeeded. He distinguished the situation where the separability doctrine governs the position (i.e. where there is a dispute as to the validity of the main agreement, with no challenge being made to the validity of the arbitration clause) with the current situation (where the parties dispute the existence of the arbitration clause itself) and held that the arbitration agreement and proposed charterparty stood or fell together. The judge held that the arbitration agreement was part of the bundle of rights and obligations under negotiation, and all of those rights and obligations were subject to the “subject” clause.

Mr Justice Jacobs therefore upheld the charterer’s case on the s. 67 application and would also have upheld the s.69 application if he had concluded that the arbitrator did have jurisdiction.

Conclusion

While the judgment of Mr Justice Jacobs seems to fly in the face of the “pro-arbitration” stance generally adopted by the English Court, it contains a helpful analysis of the limits of the doctrine of separability, as most recently addressed by the Supreme Court in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 and why, on these facts, it did not assist the owners.

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