International Quarterly — Issue 30

English High Court rules that preconditions to arbitration are matters of admissibility, not jurisdiction

By Olivia Liang, Fenwick Elliott

In the recent case of Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm), the English High Court dismissed a challenge to an arbitral tribunal’s jurisdiction under section 67 of the English Arbitration Act 1996 (the “Act”). 

The Court declined to set aside a partial award handed down by the tribunal, despite the defendant’s alleged failure to comply with certain preconditions to arbitration in a multi-tier dispute resolution clause. In doing so, the Court found that the defendant’s alleged non-compliance was a question of admissibility for the tribunal to determine, rather than a question of jurisdiction for the Court under section 67. 

The decision is the first time the distinction between jurisdiction and admissibility has received detailed consideration in a challenge under section 67 of the Act. 

Background

The underlying arbitration related to a dispute over the Republic of Sierra Leone’s (“Sierra Leone”) decision to suspend and subsequently cancel a large-scale mining licence (“MLA”) granted to SL Mining Ltd (“SL Mining”). 

The MLA contained a multi-tier dispute resolution provision which required the parties “in good faith endeavour to reach an amicable settlement” prior to referring any dispute or difference to arbitration. Specifically, the MLA provided that: 

“[i]n the event that the parties shall be unable to reach an amicable settlement within a period of 3 (three) months from a written notice by one party to the other specifying the nature of the dispute and seeking an amicable settlement, either party may submit the matter to the exclusive jurisdiction of a Board of 3 (three) Arbitrators” [in accordance with the ICC Rules]. (Emphasis added)

After Sierra Leone purported to cancel the MLA, SL Mining issued a formal notice of dispute on 14 July 2019. Around halfway into the 3-month negotiation period, SL Mining commenced an Emergency Arbitration and obtained emergency relief. SL Mining then proceeded to serve its Request for Arbitration on 30 August 2019, approximately 6 weeks before the 3-month negotiation period would have expired.  

The arbitral tribunal concluded, by way of a partial final award on jurisdiction, that it had jurisdiction in respect of SL Mining’s claims. 

Sierra Leone applied to set aside the award under section 67 of the Act, which provides that an application can be made to challenge an award on the grounds that the tribunal lacked “substantive jurisdiction”. 

Substantive jurisdiction is defined in sections 82(1) and 30(1) of the Act as “(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”.  

Sierra Leone relied on section 30(1)(c) of the Act, arguing that the dispute had not been submitted to arbitration in accordance with the parties’ arbitration agreement because SL Mining had commenced arbitration proceedings prematurely – that is to say, before the 3-month window for negotiations contained in the multi-tier dispute resolution clause had expired.

The Court was asked to determine whether Sierra Leone’s challenge to alleged prematurity of the arbitration proceedings was a challenge to the substantive jurisdiction of the tribunal (and therefore whether the challenge could properly be brought under section 67 of the Act). 

Decision on admissibility versus jurisdiction 

The Court found that the question of whether SL Mining’s claim was premature was one of admissibility, rather than jurisdiction. 

It was common ground between the parties that there was a distinction “between a challenge that a claim was not admissible before Arbitrators (admissibility) and a challenge that the Arbitrators had no jurisdiction to hear a claim (jurisdiction)”. Only jurisdictional challenges can be brought under section 67 of the Act. 

The Court found that the views of leading academic writers are all “one way”. Among other commentary, the Court cited Gary Born’s view in International Commercial Arbitration (3rd edn, 2021) that, absent contrary evidence, it should be assumed that pre-arbitration procedural requirements are not “jurisdictional”, and that:

“As a consequence, in most legal systems, these requirements would presumptively be both capable of resolution by the arbitrators and required to be submitted to the arbitrators (as opposed to a national court) for their initial decision.”

The Court also referenced decisions by national courts in other major international arbitration venues. In particular, the Court referred to the US Supreme Court’s finding in BG Group v Republic of Argentina 134 S.Ct.1198 that disputes about procedural condition precedents to arbitration should be resolved by arbitral tribunals, and the Singapore Court of Appeal’s conclusions in BBA v BAZ [2020] 2 SLR 453 and BTN v BTP [2020] SGCA 10 that objections regarding preconditions to arbitration are matters of admissibility, not jurisdiction.  

 

The Court held that, as a matter of English law, the key question is whether the alleged prematurity of SL Mining’s claim goes to the substantive jurisdiction of the arbitral tribunal per section 30(1)(c) of the Act. The Court rejected Sierra Leone’s suggestion that this would depend on the precise wording of the multi-tier dispute resolution clause. There was no difference between a clause which provided that “No arbitration shall be brought unless X” and a clause which provided that “In the event of X the parties may arbitrate”; in both instances, the question of prematurity would still go to admissibility rather than jurisdiction. 

The Court concluded that:

“if the issue relates to whether a claim could not be brought to arbitration, the issue is ordinarily one of jurisdiction and subject to further recourse under s 67 of the 1996 Act, whereas if it relates to whether a claim should not be heard by the arbitrators at all, or at least not yet, the issue is ordinarily one of admissibility, the tribunal decision is final and s 30 (1) (c) does not apply.” 

In the course of reaching this conclusion, the Court distinguished its previous decision in Emirates Trading Agency LLC v Prime Mineral Exports Private Limited [2014] EWHC 2104 (Comm) (“Emirates Trading”), where it was assumed that a failure to comply with the timing requirements in a multi-tier dispute resolution clause would be open to challenge under section 67 of the Act. The Court noted that the distinction between jurisdiction and admissibility was not specifically considered in Emirates Trading, and it was simply assumed that the matter went to jurisdiction. On that basis, the Court concluded that Emirates Trading was not binding. 

Decision on whether non-compliance with preconditions was an absolute bar to commencing arbitration proceedings 

The Court concluded that Sierra Leone’s section 67 challenge would, in any event, have been dismissed for two other reasons. 

The first reason was that Sierra Leone had in fact consented to (or waived its right to object to) the filing of the Request for Arbitration, by insisting that SL Mining file within 10 days of commencing the Emergency Arbitrator procedure (as required by the ICC Rules). 

The second reason was that, on the wording of the multi-tier dispute resolution clause, the negotiation period was not an “absolute bar” to commencing arbitration before the expiry of 3 months. Rather, the negotiation period (although mandatory) provided a window during which the parties could explore settlement but always subject to “earlier proceedings if the objective of amicable settlement could not be achieved”. In this regard, the Court noted that it was significant that the 3-month period (set out in sub-clause (c) of the dispute resolution clause) was “subsidiary” to, and followed after, the obligation to attempt an amicable settlement (which was set out in sub-clause (b)).

As to whether the parties could have settled the dispute amicably within the 3-month negotiation period, the Court stated that this was best decided by the arbitral tribunal. The Court did, however, note that based on the evidence “there was not a cat’s chance in hell of an amicable settlement” by the expiry of the 3-month negotiation period. 

Comment 

The decision helpfully clarifies that compliance with a multi-tier dispute resolution clause is not an issue of substantive jurisdiction that can be challenged under section 67 of the Act. It is, rather, a question of admissibility which will be left for arbitral tribunals to determine. 

The Court’s conclusion on this issue provides welcome assurance to arbitration users that any disputes regarding compliance with a multi-tier dispute resolution clause will be resolved in a single forum – that is to say, by an arbitral tribunal, without intervention by English courts. In this regard, the decision brings England in line with other major venues for international arbitration (being the US and Singapore). 

The decision also endorses a commercial approach to the construction of multi-tier dispute resolution clauses. In this instance, the Court’s finding that the 3-month negotiation window was not an absolute time bar to commencing arbitration was based on the wording of the clause. It is, however, consistent with commercial common sense – parties are unlikely to have intended a negotiation period to act as a complete bar to arbitration in circumstances where there is no realistic prospect of reaching an amicable settlement. 

That said, parties to disputes should not regard the decision as providing permission to ignore escalation requirements in multi-tier dispute resolution clauses. The Court did not suggest that these requirements will never be an absolute bar in all situations where settlement appears to be a remote prospect. Indeed, obligations to negotiate in dispute resolution clauses will usually be enforceable under English law, provided they are sufficiently certain. 

The consequences of any failure to comply with multi-tier dispute resolution clauses could be costly, in terms of both time and money. An arbitral tribunal could stay proceedings for the duration of the negotiation window and/or impose cost sanctions. In addition, if it concludes that a mandated negotiation period is an absolute bar to proceedings, the tribunal could determine that a premature claim is not admissible. The parties might then be required to appoint a new tribunal after properly complying with the escalation requirements in the dispute resolution clause. 

In light of the decision, parties who have signed up to multi-tier dispute resolution clauses should: 

  1. seek to comply with any escalation requirements; 
  2. carefully evaluate whether any negotiation or cooling-off periods would act as an absolute bar to proceedings; and
  3. in the context of any potential challenge under section 67 of the Act, consider whether the question is one of admissibility or jurisdiction.

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