Admissibility versus jurisdiction: pre-conditions in arbitration agreements

England and Wales

In NWA and others v NVF and others [2021] EWHC 2666 (Comm), the Commercial Court dismissed an application under section 67(1)(a) of the Arbitration Act 1996 to set aside an award on the basis that non-compliance with a requirement in the arbitration agreement to mediate before proceeding to arbitration, was a question of admissibility to be determined by the arbitrator, not one of jurisdiction for determination by the court.

The decision demonstrates the courts’ robust approach to the question of admissibility versus jurisdiction and is consistent with the recent decision in Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm) that only a challenge to jurisdiction may be brought under section 67 of the Act.

Background

The parties had entered into a commercial contract containing a dispute resolution clause providing for mediation in accordance with the LCIA Mediation Procedure. The clause continued to provide that, to the extent any dispute was not resolved within a period of 30 days from commencement of the mediation or such further period as the parties may agree, it would be referred to and finally resolved by arbitration under the LCIA Rules.

The defendants issued a Request for Arbitration which included a request for a stay prior to the constitution of the tribunal for the parties to engage in mediation in accordance with the LCIA Mediation Procedure. The LCIA wrote to the claimants seeking their comments on that proposal, but received no response and ultimately appointed a sole arbitrator. The defendants made further attempts to refer the dispute to mediation during the arbitration, but no mediation occurred, and the arbitrator issued a partial award finding that his jurisdiction to deal with the dispute was not affected by the lack of mediation.

The claimants issued an application challenging the award under section 67(1)(a) of the Act on the basis that the obligation to arbitrate had not accrued because no mediation had taken place, and accordingly the arbitrator did not have substantive jurisdiction to decide the dispute.

Principles

Section 67(1)(a) of the Act permits a party to arbitral proceedings to apply to the court to challenge an award of the arbitral tribunal as to its “substantive jurisdiction”. “Substantive jurisdiction” is defined in section 82(1) of the Act by reference to the matters specified in section 30(1) of the Act, namely:

"(a)    whether there is a valid arbitration agreement

(b)      whether the tribunal is properly constituted, and

(c)      what matters have been submitted to arbitration in accordance with the arbitration agreement."

Issue

The court held that the central issue to determine was whether the non-compliance with the requirement for LCIA mediation prior to any arbitration was a matter merely affecting the admissibility of the claim or if it went to the tribunal’s substantive jurisdiction to determine the claim at all. 

Decision

In interpreting the contract, the court held that ordinary principles of contractual interpretation applied and it had to consider the contract as a whole. To the extent there were two possible constructions, the court was entitled to prefer the construction which was consistent with business common sense (Lukoil Asia Pacific Pte Limited v Ocean Tankers (Pte) Ltd [2018] EWHC 163 (Comm)). Further, the court considered that the arbitration clause should be interpreted in line with the principles set out in Premium Nafta Products Ltd and others v Fili Shipping Company Ltd and others [2007] UKHL 40 (“Fiona Trust”). In that case, the House of Lords held that in construing an arbitration clause, it should be presumed that commercial parties are unlikely to have intended to split claims between different fora (for further information on Fiona Trust see our Law Now here: “Arising under” or “arising out of” – it’s all the same in arbitration clauses).

It was clear that the parties, as rational businessmen, agreed and intended that any dispute arising out of or in connection with the agreement should be referred to arbitration. It was not intended that their disputes should be litigated in whole or in part (and in fact elsewhere in the contract the parties had waived “any right of recourse to national courts in order to challenge or appeal against any arbitral award”). The parties intention was to obtain a swift and final resolution of the dispute. In the circumstances, the dispute resolution clause should be construed in light of that intention, and a construction that would allow one or other party to frustrate that intention should be avoided.

Against that background, the court found that section 67(1)(a) of the Act was not engaged because the failure to mediate did not mean that the arbitration clause was invalid or inoperative. The court held that the issue of whether the dispute must first be referred to mediation was a matter of admissibility, not jurisdiction, and a procedural issue for the arbitrator to determine. Non-compliance with the pre-arbitration mediation procedure should not affect whether it is a dispute of the kind which the parties agreed to submit to arbitration. Further, failure to conduct mediation did not result in there not being a “valid” arbitration agreement or that the agreement to arbitrate was inoperative.

Comment

Whilst the outcome of each case will depend on the proper construction of the arbitration agreement, the decision brings further clarity to the interpretation of arbitration agreements and the question of admissibility versus jurisdiction. Whilst parties should take care to comply with any pre-conditions to arbitration, the case establishes that where such pre-conditions have not been met, this will not necessarily prevent the court from upholding the parties’ agreement to arbitrate, and efforts to frustrate that agreement by non-compliance with such pre-condition will not be tolerated.