NWA and Anor v NVF & Ors
DMC/Arbn/22/01
England
NWA & Anor v NVF & Ors [2021] EWHC 2666 (Comm)
Between (1) NWA (2) FSY and (1) NVF (2) RWX (3) KLB
English High Court (Commercial Court): Calver J.: 8 October 2021
Alexander Goold (Direct Access Counsel) for the First Claimant, NWA
Lara Kuehl (Direct Access Counsel) for the Second Claimant, FSY
Jonathan D.C. Turner (Direct Access Counsel) for the Defendants
CONTRACTUAL TERM: DISPUTE RESOLUTION CLAUSE: ARBITRATION CLAUSE REQUIRING MEDIATION BEFORE ARBITRATION: MEDIATION NEVER TOOK PLACE: REQUEST FOR ARBITRATION: AWARD ISSUED CONFIRMING TRIBUNAL’S JURISDICTION: CHALLENGE TO AWARD UNDER SECTION 67(1)(a) ARBITRATION ACT 1996: WHETHER NON-COMPLIANCE WITH MEDIATION PROVISION VITIATED SUBSTANTIVE JURISDICTION OF THE TRIBUNAL: WHETHER THAT NON-COMPLIANCE ONLY AFFECTED ADMISSIBILITY OF THE CLAIM
Case note contributed by Sri Azali (BB in Human Resources Management and Business Law, Paralegal, Penningtons Manches Cooper LLP)
Summary
In this case, an application under section 67(1)(a) of the Arbitration Act 1996 to set aside an award on the basis of non-compliance with a requirement in the arbitration agreement - to attempt to resolve the dispute via mediation before proceeding to arbitration - was dismissed. It was held that the failure of a party to comply with a contractual term requiring mediation before a dispute was referred to arbitration only challenged the admissibility of the claim and did not affect the jurisdiction of the Tribunal. Hence, the decision of the Tribunal was final and did not fall within the scope of section 67 of the Act.
The “admissibility” of a claim means whether it is able to be considered in a court of law or by an arbitration tribunal.
Background
The parties had entered into a commercial written agreement dated 25 June 2007 (“the Agreement”) containing a dispute resolution clause providing for mediation in accordance with the LCIA Mediation Procedure. Pursuant to the terms of the Agreement, the parties to it were to reorganise their existing business dealings concerning patents and pending applications for patents of intellectual property developed, principally, by the first claimant, but also the second defendant and others, for the display of life size, high resolution, 3D video holograms. The applications for such products are various, ranging from entertainment to commercial product launches to politics.
The relevant clause in question was Clause 10.2 of the Agreement (“the Dispute resolution clause”), which provided as follows:
“10.2 Disputes
(a) In the event of a dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity, termination, interpretation or effect, the relevant parties to the dispute shall first seek settlement of that dispute by mediation in accordance with the London Court of International Arbitration (“LCIA”) Mediation Procedure, which Procedure is deemed to be incorporated by reference into this clause insofar as they do not conflict with its express provisions. Any mediation shall take place in London.
(b) If the dispute is not settled by mediation within 30 days of the commencement of the mediation or such further period as the relevant parties to the dispute shall agree in writing, the dispute shall be referred to and finally resolved by arbitration under the LCIA Rules from time to time in force (“the Rules”), which Rules are deemed to be incorporated by reference into this Agreement insofar as they do not conflict with its express provisions.…”
On 18 April 2019, the defendants sent a Request for Arbitration (“RFA”) to the LCIA asking that Arbitration be commenced as a matter of urgency and that once commenced, be immediately stayed prior to the constitution of the tribunal – to allow the parties to seek settlement of this dispute via mediation in accordance with the arbitration agreement, namely Clause 10.2(a). The LCIA had invited the claimants’ comments on that proposal; however, it did not receive any response and ultimately appointed a sole arbitrator. The defendants made further attempts to refer the dispute to mediation during the arbitration, but the claimants refused to engage in any way with the proposal to mediate the dispute. Hence, no mediation took place 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 Application to the High Court
The claimants issued an application to the Commercial Court, challenging the award under section 67(1)(a) of the Arbitration Act – see footnote 1 - on the basis that the arbitrator did not have substantive jurisdiction to hear the dispute as no mediation had taken place.
Issues of Law
The central issue in the case was whether the non-compliance with the requirement for the LCIA mediation prior to the arbitration was a matter of admissibility of the claim or whether it affected the substantive jurisdiction of the arbitral tribunal to determine the claim at all.
Decision of the High Court
In interpreting the Agreement including Clause 10.2, the court held that ordinary principles of contractual interpretation applied and it was important to look at contract as a whole and with business common sense, as summarized in Lukoil Asia Pacific Pte Limited v Ocean Tankers (Pte) Ltd [2018] EWHC 163 Comm. Additionally, when interpreting an arbitration clause, particularly in the context of international arbitration, the principles set out in Premium Nafta Products Limited & others v Fili Shipping Company Limited [2007] UKHL 40(“The Fiona Trust”), should be kept firmly in mind – that arbitration is consensual and depends upon the intention of the parties as expressed in their agreement.
A proper approach to construction required the court to give effect to the commercial purpose of the arbitration clause. In the case of the Agreement, the wording of Clause 10.2(b) which stated, “the dispute shall be referred to and finally resolved by arbitration” made clear that what the parties as rational businessman consensually agreed and intended was that any dispute arising out of or in connection with their agreement should be referred to arbitration. They also intended that their disputes should be resolved swiftly by arbitration and hence, clause 10.2 provided for only a short, 30-day window for mediation before arbitration, and Clause 10.2(e) and (f) – that the arbitral proceedings should be concluded within three months of the LCIA's receipt of the written request for arbitration, with an award made within 30 days thereafter.
The court then questioned what the consequences might be of the failure to utilise the mediation procedure before referring the dispute to arbitration. The claimants maintained that this failure affected the tribunal's substantive jurisdiction in the sense described in sections 30(1)(a) and (c) of the Act - – see footnote 2. However, the court highlighted that the consequence of this submission was, in a case where one party simply refused to mediate, that the tribunal would never gain jurisdiction over the dispute, despite the parties clearly having agreed to arbitrate their disputes. This was clearly expressed in clause 10.2 – where it provided that the contractual obligation to first seek settlement by mediation in accordance with the LCIA Mediation Procedure was imposed upon all relevant parties to the dispute.
In light of the above, the Judge found that mediation is a consensual process. If one party refuses to mediate, it is not possible for the terms of clause 10.2(a) to be satisfied – which in turn leads to the first part of clause 10.2(b) not being triggered because no mediation has ever commenced. In these circumstances, to say that the tribunal does not have jurisdiction to resolve a dispute which arises out of or in connection with the Agreement, would be absurd. Furthermore, it would not give the clause business common sense; nor would it give it a construction that rational businessmen would have intended.
The court considered whether the dispute resolution clause, namely clause 10.2, had amounted to a condition precedent and whether it had been breached. The Court applied the reasoning of Sir Michael Burton in the recent case of Sierra Leone v SL Mining Limited [2021] EWHC 286 (Comm) – where the distinction between jurisdiction and admissibility was outlined for the first time by an English Court in a commercial arbitration context. In Sierra Leone v SL Mining, the Court concluded that the issue of whether an arbitration had been brought before the expiry of a contractual time period for good faith attempts to settle, was only a procedural matter relevant to the admissibility of a claim and did not affect jurisdiction. The clause under consideration by the Court in Sierra Leone was not, on its true construction, a condition precedent to arbitration. Even if it had been a condition precedent, compliance or otherwise with the clause would still have been a matter for the arbitrator.
Additionally, the court found that section 67(1)(a) of the Arbitration Act was not engaged because the failure to mediate did not mean that the arbitration clause was invalid nor was it inoperative. It was 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. The court dismissed the Claimants’ application to set aside the award.
Comment
The decision in NWA v NWF confirms that contractual alternative dispute resolution “ADR” conditions precedent to arbitration, however clear and enforceable they might be as a matter of general English contract law, are unlikely to affect the jurisdiction of an arbitral tribunal – they are only relevant to the admissibility of the claim itself. Furthermore, when the issue of law is the question of admissibility versus jurisdiction, the decision in this case shows that the courts’ approach to the question 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.
Footnote 1.
Arbitration Act 1996:
S.67 Challenging the award: substantive jurisdiction.
(1)A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court—
(a)challenging any award of the arbitral tribunal as to its substantive jurisdiction; or…
Footnote 2.
Arbitration Act 1996:
S.30 Competence of tribunal to rule on its own jurisdiction.
(1)Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to—
(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.
