9 February 2023 Marc Lenzo ArbitrationLinks

Jurisdictional challenges need not be resolved before English Courts can order compliance with a peremptory order

In S3D Interactive, Inc v Oovee [2022] EWCA Civ 1665, the English Court of Appeal rejected arguments that, where there is a pending challenge to the tribunal’s jurisdiction, the Court must first determine that point before it can make an order for compliance with a peremptory order under s.42 of the Arbitration Act 1996 (the “Act”).

Background

The respondent (“Oovee”) commenced LCIA arbitration against the appellant (“S3D”) under a licence agreement asserting various claims, including a contractual claim for royalties and claims for infringement of IP rights.

Following an application by Oovee, the tribunal ordered that S3D was to provide security by 8 September 2021. S3D failed to do so and Oovee sought a peremptory order, which the tribunal granted on 16 June 2022. The peremptory order required security to be provided by 27 July 2022.

In summer 2022, S3D contented that Oovee had committed a repudiatory breach of the arbitration agreement by making public disclosures that S3D alleged breached Oovee’s obligations of confidentiality. On 26 July 2022, S3D’s lawyers purported to accept these repudiatory breaches and terminate the arbitration agreement, bringing the arbitration to an end and divesting the tribunal of jurisdiction. On 27 July 2022, S3D failed to provide the required security.

S3D sought the tribunal’s permission to make an application to Court under s.32 of the Act declaring that the tribunal’s jurisdiction had been extinguished. The tribunal refused this on the ground that it would determine its own jurisdiction. At the same time, Oovee sought a Court order to require S3D to comply with the tribunal’s peremptory order, which is possible in an English-seated arbitration subject to the provisions of s.42 of the Act. Accordingly, Oovee asked the tribunal’s permission to make an application to Court under s.42(2)(b) of the Act. This was granted and Oovee made its s.42 application. S3D sought to set aside Oovee’s application on the basis that the Court could not hear it because there was an extant challenge to the tribunal’s jurisdiction. This was rejected at first instance and S3D appealed.

Decision

The parties settled prior to the hearing of S3D’s appeal. However, as the appeal raised a general point of interest, the Court of Appeal issued its judgment explaining how it would have disposed of the appeal.

S3D argued (amongst other things) that:

  • It was a condition of s.42(2)(b) that an application must be made “by a party to arbitral proceedings” and that this condition could not be fulfilled if the tribunal has no jurisdiction; and
  • s.42 only applies “[u]nless otherwise agreed by the parties” and that, where a tribunal lacks jurisdiction, the parties have “otherwise agreed” because the arbitration process is consensual and the parties do not agree to the enforcement of orders made by a tribunal who they have not agreed should have jurisdiction over the disputes.

The Court rejected these arguments, reasoning that:

  • s.42 is one of several sections empowering the Court to make orders to support the arbitral process. These sections should not be interpreted as requiring the Court first to satisfy itself of the tribunal’s jurisdiction as to do so would cut across the careful structure of the limited circumstances in which the Court is entitled to address and determine a challenge to the jurisdiction of the tribunal.
  • There was no support for S3D’s construction of the phrases “party to the arbitral proceedings” and “the tribunal”. These simply mean what they say – a tribunal and a party in arbitral proceedings, irrespective of whether there is an unresolved issue as to the substantive jurisdiction of the tribunal. This is consistent with the use of these words elsewhere in numerous provisions of the Act.
  • The words “unless otherwise agreed” refer to a specific agreement to oust the jurisdiction of the Court to make an order under s.42; they are not engaged by an argument that the tribunal lacks jurisdiction.
  • S3D’s position would also be inconsistent with s.1 of the Act as, if correct, it would require a Court faced with an application under s.42 to either (i) address and determine the issue of jurisdiction (contrary to the principle of minimum intervention in s.1(c)) or (ii) decline to investigate it but then necessarily to refuse the application (contrary to the principle in s.1(a)) to promote the efficiency of the arbitral process).

Comment

This decision is supportive of the principle of Kompetenz-Kompetenz, which is of wide international application and importance. It provides a useful indication of the attitude of the English Courts to jurisdictional challenges in arbitrations, particularly in indicating they do not favour an approach which would allow them, whilst outstanding, to wholly derail the rest of the process.

Click here for the judgment.