Kyla Shipping Company Ltd v. Bunge SA [2013] EWCA

Under the Arbitration Act 1996 (“the Act”), there are limited circumstances in which an arbitration award can be appealed to the High Court. If leave to appeal is granted by the High Court, but one of the parties subsequently wishes to appeal from the High Court judgment, it must apply to the High Court Judge who handed down the judgment for permission to appeal to the Court of Appeal. If the Judge refuses leave to appeal, the Court of Appeal does not have the jurisdiction to overrule his decision and grant leave to appeal. That is therefore the end of the line for the unsuccessful party, which must accept the High Court decision unless it can rely on the Court of Appeal’s residual jurisdiction to set aside the High Court Judge’s refusal of permission. The Court of Appeal can, however, only exercise this residual discretion if the High Court Judge’s decision is considered to be so unfair or improper that it cannot be considered a decision at all. The very high threshold for demonstrating such unfairness on the part of the Judge is reflected by the fact that the Court of Appeal has not to date exercised this residual discretion under the Act. In a recent charterparty dispute, it has again refused to entertain an application challenging the Commercial Court Judge’s refusal of permission to appeal.

The background facts

The original dispute (reviewed in detail in our January 2013 Shipping E-Brief) related to whether or not a time charterparty was frustrated. The charterparty incorporated a continuing warranty that the Owners would maintain insurance cover for the vessel at a stipulated level for the duration of the charterparty. The vessel was involved in a collision and the Owners argued that the cost of repairing the vessel was uneconomical and that, as a result, the charterparty was frustrated. In the arbitration proceedings, the arbitrator held that the charterparty was frustrated as the cost of repair exceeded the value of the vessel.

The Charterers sought leave to appeal the award on a point of law under s. 69 of the Act. Mr Justice Hamblen gave permission to appeal, stating that the question of law raised was one of general public importance. The substantive appeal was heard by Mr Justice Flaux, who allowed the appeal and held that the contract had not been frustrated. In particular, he found that the parties had allocated risk in the charterparty such that, where the vessel was damaged and the cost of repair was within the insured value, as it was in this case, the cost of repair was to be borne by the Owners, albeit using the insurance proceeds. The Owners sought leave to appeal to the Court of Appeal, but Mr Justice Flaux refused permission for the following reasons: the case was not one of general importance; he was not convinced that there was be a real prospect of success if permission to appeal was given; the case turned on the correct construction of particular clauses in a particular charterparty (i.e. the case was decided very much on its own facts); and the interests of justice favoured finality.

The Owners sought to challenge Mr Justice Flaux’s refusal of permission to appeal directly to the Court of Appeal. Had their challenge succeeded, the Owners would have been free to re-apply to the Commercial Court for a fresh decision. However, the Owners’ application failed.

The Court of Appeal decision

Lord Justice Longmore gave the leading judgment. In considering the Court of Appeal’s residual jurisdiction to entertain the Owners’ application, he reviewed the relevant case-law and concluded that “a litigant complaining of a refusal of permission under s69 (8) of the Act has an extraordinarily high hurdle to surmount”. It was not enough to demonstrate an error of law; the Owners had to demonstrate such a substantial defect in the fairness of the process as to invalidate Mr Justice Flaux’s decision. The Court of Appeal’s task was not to consider whether the reasons given by the Judge for refusing permission were correct, but rather whether they were adequate. Lord Justice Longmore also dismissed the argument that, once Mr Justice Hamblen had given leave to appeal from the arbitration award on the grounds that the question of law was one of general public importance, Mr Justice Flaux could not subsequently come to the view that it was not. Mr Justice Flaux was not bound by the preliminary decision of Mr Justice Hamblen on the question of general importance, which had been made on the basis of papers only without an oral hearing.

His Lordship concluded that, in this case, the Owners had not come anywhere near justifying the requirement that something had gone fundamentally wrong with the process or that there was such a substantial defect in the fairness of the process as to invalidate the decision.

Comment

The Court of Appeal’s decision confirms the position as it has always been understood by parties who provide for their disputes to be resolved in arbitration under English law, namely that the opportunities for appealing arbitration awards in the English Courts are more limited than in cases where their dispute is dealt with by the English Courts from the outset.