Court considers whether a partial award can give rise to an issue estoppel and the requirement to conduct friendly discussions to resolve a dispute

Clyde & Co (Irvine Marr, Patrick Murphy and Nicholas Braganza) for claimant

The contract between the parties required them to seek to resolve a dispute by "friendly discussion" prior to going to arbitration. When the case went to an ICC arbitration, the claimant challenged the arbitrators' jurisdiction (on the basis that the defendant had failed to comply with the friendly discussion" requirement). The arbitrators issued a partial award upholding their jurisdiction (which was not challenged at the time). A final award was handed down 3 years later. The claimant then sought to challenge the final award under sections 67 and 68 of the Arbitration Act 1996 ("the Act"), on the ground that the arbitrators did not have jurisdiction. The defendant argued that the issue of jurisdiction had been decided by the arbitrators and that, since no challenge to that award had been brought in time under the Act, an issue estoppel had been created between the parties.

Popplewell J held that a "partial award" (which he said is better termed an "interim final award") is final as to what it decides (although the tribunal remains seised of matters within the reference which have not yet been determined). As a result, in the absence of contrary agreement between the parties, a challenge must be brought under sections 67-69 of the Act and if it is made out of time, or is rejected, the finality of the award creates an issue estoppel. Once the award has become binding then, subject to certain limited exceptions, the tribunal no longer has power to review the subject matter of the award.

The judge rejected an argument raised by the claimant that the Supreme Court decision of Dallah Real Estate v Pakistan (see Weekly Update 41/10) established the principle that a decision of a tribunal as to its own jurisdiction could never give rise to an issue estoppel. It was held that such a principle would be contrary to the whole scheme of speedy finality provided for in the Act in cases where the parties have invited the tribunal to determine jurisdiction. Nor did it matter that the composition of the tribunal had changed between the partial and the final award. An arbitral tribunal is distinct from the individual arbitrators themselves.

Accordingly, the challenge to the award failed.

Although not required to do so, the judge went on to consider the contractual requirement to resolve disputes by "friendly discussion". The judge refused to express a view as to whether the requirement was enforceable or a condition precedent to the jurisdiction of the arbitrators (although Teare J in the recent case of Emirates Trading v Prime Minerals (see Weekly Update 25/14) had held that a time limited obligation to resolve a dispute by friendly discussion was not too uncertain to be enforceable). Furthermore, it was common ground between the parties that the discussions which had taken place between the parties here had been "friendly". Popplewell J held that the discussions had "involved sufficient effort and frequency" on the part of the defendant that they could not possibly be characterised as involving a lack of good faith.

One argument which the judge did consider, though, was whether the requirement had been met where the discussions had not referred to the legal rights and obligations of the parties under the contract in question. The judge held that the requirement had been met and that to hold otherwise "would require commercial parties to behave like lawyers when the very purpose of the provision is to encourage a businesslike resolution of differences with a view to avoiding the time and expense of a legal process".

He also approved Teare J's comments (based on Australian caselaw) that the parties are permitted to have regard to wider commercial interests and do not have to confine their discussions simply to the terms of their contractual bargain: "Indeed I see no reason why the parties should be bound to have regard to the terms of their bargain at all should they not wish to: good faith discussions might properly proceed from the premise that both parties' interests would be served by a compromise which involved future business dealings in the light of the changed commercial environment irrespective of the parties' existing legal rights".