Sovarex v Romero Alvarez

DMC/Arbn/11/11

England

Sovarex S.A. v. Romero Alvarez S.A.

English High Court; Hamblen J; [2011] EWHC 1661 (Comm), 29 June 2011

David Lewis (instructed by Gateley LLP) for the Claimant, Sovarex S.A.

David Semark (instructed by Ashfords LLP) for the Defendant, Romero Alvarez S.A.

INTERNATIONAL ARBITRATION: SUBMISSION TO JURISDICTION: QUESTIONS OF FACT CAN BE DETERMINED IN PROCEEDINGS BROUGHT PURSUANT TO SECTION 66 OF THE ARBITRATION ACT 1996

Summary

Hamblen J refused to stay or dismiss Sovarex S.A’s application to enforce an arbitration award under Section 66 of the Arbitration Act 1996 although Spanish proceedings on the existence of an arbitration agreement (and therefore on the arbitral tribunal’s jurisdiction or lack of it) were pending appeal. As there was a triable issue as to whether a contract (and arbitration agreement) had been concluded and therefore whether the arbitral tribunal had jurisdiction, Hamblen J directed that the factual issue of jurisdiction be determined under the same Section 66 proceedings.

This case note has been contributed by Justin Gan Boon Eng, LLB (Hons) (NUS), an advocate and solicitor of the Singapore Bar

Background

Sovarex S.A. (“Claimant”) alleged that it contracted to sell 5,000 MT of sunflower seeds to Romero Alvarez S.A. (“Defendant”), and that the Defendant wrongly repudiated the contract. The Defendant denied that any contract had been concluded. Pursuant to the arbitration clause in the alleged contract, the Claimant subsequently obtained a FOSFA arbitration award in London. Prior to and during the arbitration, the Defendant wrote to the tribunal multiple times protesting that the tribunal had no jurisdiction, but to no avail.

In the meantime, the Defendant commenced Spanish proceedings for a declaration that no contract had been concluded. The Claimant applied to stay the Spanish proceedings in favour of the FOSFA arbitration, but failed. However, the Spanish courts eventually refused to grant the declaration. The Defendant’s appeal was pending as at time of the present judgment.

Having obtained the FOSFA award, the Claimant applied to enforce it under Section 66 of the Arbitration Act 1996 (“AA 1996”) (see footnote 1). The Defendant sought the dismissal or a stay of the Claimant’s application. It argued that the application should be dismissed because (as both parties accepted) the issue of whether a contract was concluded involved triable issues of fact, which provided “real ground for doubting the validity of the award” and could not be properly decided under the summary procedure of Section 66, AA 1996. Instead, the Claimant should proceed via a common law action on the award. It further argued that the court should decline jurisdiction or stay proceedings because of the Spanish proceedings pending appeal. The Claimant also alleged that by writing to the arbitral tribunal to protest jurisdiction, the Defendant had submitted to the tribunal’s jurisdiction.

Judgment

Hamblen J refused to stay or dismiss the Claimant’s application, and directed that the question of whether the arbitral tribunal had jurisdiction should be determined in the Section 66 proceedings. He also held that the Defendant had not submitted to the tribunal’s jurisdiction.

In so doing, Hamblen J differentiated (i) protesting jurisdiction and maintaining that the dispute should be adjudicated by another court or tribunal, and (ii) arguing that the tribunal should decide the issue of its own jurisdiction and reject jurisdiction. Situation (i) would not constitute submission to the tribunal’s jurisdiction. Setting out in detail the Defendant’s various messages to the tribunal, Hamblen J concluded that the Defendant never submitted to the tribunal’s jurisdiction – it was immaterial that the FOSFA award contained a section on ‘Respondent’s submissions’ and purported to make findings on them.

Hamblen J made it clear that disputed issues of fact could be determined in AA 1996, Section 66 proceedings. He rejected the Defendant’s argument set out above, explaining that:

(i) AA 1996, Section 66(3), requires the party resisting enforcement to prove the tribunal’s lack of jurisdiction, and therefore indicates that the tribunal’s jurisdiction or lack thereof is an issue determinable in Section 66 proceedings;

(ii) In a common law action on an award, the claimant has to prove the tribunal’s jurisdiction, which is the opposite of the intention expressed in AA 1996, Section 66(3);

(iii) Requiring the party resisting enforcement to prove the tribunal’s lack of jurisdiction is in line with the approach underlying the New York Convention (see footnote 2) and the UNCITRAL Model Law on Arbitration;

(iv) The court is empowered by CPR Part 62.7 to give directions for the determination of issues of fact; and

(v) The question of a tribunal’s jurisdiction is often determined in summary proceedings under Section 67 (challenge to jurisdiction) – therefore the court is fully capable of determining the disputed issue in summary proceedings.

For completeness, Hamblen J stated that if issues of fact could not be determined in Section 66 proceedings, he would order that the proceedings continue as though begun by claim form and give the same directions for disposal of the dispute.

Finally, Hamblen J dismissed the Defendant’s subsidiary arguments of issue estoppel, lis pendens (suit pending in another court) and forum non conveniens (see footnote 3) based on the concurrent Spanish proceedings currently pending appeal. He explained that the Spanish courts had not decided the relevant issue, and had in fact refused to grant the declaration sought by the Defendant. He refused to proceed on the hypothetical basis of the Defendant’s Spanish appeal succeeding.

Comment

The decision in Sovarex S.A. v. Romero Alvarez S.A. emphasises once more that a party protesting an arbitrator’s jurisdiction must ensure that its communications to the arbitrator maintain that the dispute should be adjudicated by another court or tribunal, and not imply that the tribunal should simply decide the issue of its own jurisdiction.

It also makes it clear that disputed issues of fact can be resolved in Section 66 proceedings, with the caveat that if the disputed issues are too complex, it would be more appropriate for the proceedings to continue as though it were a common law action.

Finally, the short shrift given to Romero Alvarez S.A’s subsidiary arguments of issue estoppel, lis pendens, and forum non conveniens merely confirms the willingness of English courts to protect and enforce English arbitration clauses and the awards arising from them.

Footnotes:

1. Arbitration Act 1996

s.66 Enforcement of the award.

(1)An award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.

(2)Where leave is so given, judgment may be entered in terms of the award.

(3)Leave to enforce an award shall not be given where, or to the extent that, the person against whom it is sought to be enforced shows that the tribunal lacked substantive jurisdiction to make the award.

The right to raise such an objection may have been lost (see section 73)…..

2.The Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted by the United Nations Conference on International Commercial Arbitration on 10th June 1958.

3. A legal doctrine by which a court declines jurisdiction where it considers that it is not the appropriate court to determine the case.