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Charterers did not participate in the arbitration because the employee who negotiated the purported charter neglected to bring the alleged arbitration proceedings to the attention of Charterers’ management. In the event, Owners obtained an arbitration award in their favour for damages of USD283,416.21.
That award was set aside by the High Court on the basis that no binding contract, neither for the charter – nor the arbitration agreement it contained - , came into effect, with the result that the tribunal lacked substantive jurisdiction to make the award. Owners sought to challenge that decision before the Court of Appeal.
'''Judgment'''
Although Owners did not seriously dispute that the above was the case, they relied on two further points. First, because of the separability principle (see below), the “subject” did not negative contractual intent so far as the arbitration clause in the recap was concerned. Second, the “subject” should be read together with clause 20 of the proforma attached to the recap, so as to provide that approval could not be unreasonably withheld. Males LJ proceeded to consider each point in turn.
On the separability principle, which means an arbitration clause is, or must be treatedas, as a contract separate from the main contract of which it forms part, Males LJ noted its application in English law was confirmed by Harbour v Kansa (fn.2) and given statutory recognition in section 7 of the Arbitration Act 1996 (fn.3). Based on his analysis, Males LJ concluded that the three Court of Appeal opinions and the one High Court judgment given in Harbour v Kansa provided no support for any argument that an arbitrator had jurisdiction to determine an issue of contract formation; the clear tenor was to the opposite effect.
The above position was confirmed by the background report that led to the Arbitration Act 1996, which confirmed section 7 went no further than that which Harbour v Kansa had already decided. The result was, in Males LJ’s view, that section 7 was concerned with issues of contract validity, not contract formation.