In its decision in Silver Dry Bulk Company Limited v Homer Hulbert Maritime Company Limited [2017] EWHC 44 (Comm) the English Court has considered and clarified the principles which apply to an application under section 18 of the English Arbitration Act 1996 (the "Act"). Section 18 enables a party to apply to the court to exercise its powers to give directions as to the making of tribunal appointments or make the appointments itself. The decision confirms, amid conflicting case law, that the applying party must establish a "good arguable case" that a tribunal would have jurisdiction to hear the case, and emphasises that any jurisdictional arguments remain matters for the tribunal to decide in accordance with the principle of kompetenz-kompetenz. The case is also a good reminder of the purpose of section 18, which only applies where there has been a complete failure of the appointment procedure agreed between the parties, and cannot be used to declare or confirm the validity of a tribunal's constitution.

BACKGROUND

The case arose out of a Memorandum of Agreement ("MOA") (which included an arbitration agreement) governing the sale of a vessel by Homer Hulbert Maritime Company Limited ("Homer Hulbert"), a special purpose vehicle company incorporated in the Marshall Islands, to Silver Dry Bulk Company Limited ("Silver Dry") in 2010.

Although Homer Hulbert was dissolved soon after the sale of the vessel, section 105 of the Marshall Islands Business Corporations Act (2004) provides that a corporation remains in existence for the purpose of prosecuting and defending suits after dissolution for a period of three years. Silver Dry brought arbitral proceedings three years and eight months after Homer Hulbert's dissolution. Having nominated an arbitrator in its notice of arbitration, Silver Dry received no response from Homer Hulbert and, as a result, its nominee automatically became the sole arbitrator pursuant to the terms of the arbitration clause. The Tribunal held a procedural hearing and the arbitration process continued; however it became clear that no entity was willing and/or able to participate in the proceedings for or on behalf of Homer Hulbert.

Accordingly, the issue in dispute was whether Homer Hulbert was in existence for the purposes of participating in the proceedings. Silver Dry applied to the High Court to exercise its power under section 18(3) "to confirm that the Tribunal…has been validly constituted..." and to "remove any uncertainty arising in this regard", with the aim of encouraging Homer Hulbert's parent company, Sinokor, a Korean ship owner and operator, to participate in the arbitration.

APPLICATION OF SECTION 18

Section 18 is described as a "gateway" provision, providing a way of getting an arbitration started or preventing its abortion in circumstances where there is a failure in the parties' agreed appointment process. It gives the court certain powers, including the power to "direct that the tribunal shall be constituted by such appointments…as have been made". These powers can be exercised by the courts in its discretion, in circumstances where:

  1. there has been a failure of the procedure for the appointment of the arbitral tribunal; and
  2. there is no agreement between the parties as to what should happen in those circumstances.

Valid arbitration agreement – "good arguable case" test confirmed

Section 18 does not require the court to make a final determination on the issues affecting the tribunal's jurisdiction. However there is an initial threshold test that must be met in order for an application under section 18(3) to succeed, namely there must be an arguable case that a tribunal would have jurisdiction to hear the issue.

In this respect, there has been conflicting case law on the standard of proof required to meet this threshold to establish a valid arbitration agreement for the purposes of a section 18 application. In Noble Denton Middle East and another v Noble Denton International Ltd [2010] EWHC 2574 (Comm) and Man Enterprise Sal v Al-Waddan Hotel Ltd [2013] EWHC 2356 (TCC) the test applied was whether the claimant had "a good arguable case" or "an arguable case" that a tribunal would have jurisdiction. However, in Crowther and another v Rayment and another [2015] EWHC 427 (Ch) it was held that a lower threshold would be more in line with the principle of kompetenz-kompetenz, which provides that courts should as far as possible avoid anticipating a decision that the tribunal is empowered to make.

In Silver Dry v Homer Hulbert, the Court preferred the higher threshold test set out in Noble Denton. The Court described the test of a "good arguable case" as one that is "somewhat more than merely arguable but need not be one which appears more likely than not to succeed" (paragraph 27). Based on the evidence, it was determined that there was a good arguable case that proceedings were able to be validly brought against Homer Hulbert.

Failure of the procedure for the appointment of the arbitral tribunal

The Court then went on to consider Silver Dry's application under section 18(3). It found that the application must fail on the basis that there had been no failure of the appointment procedure. The arbitration clause in the MOA had provided that a party's nominee would automatically become the sole arbitrator in the event that the other party failed to appoint one within 14 days, and this had occurred. The Tribunal had already presided over one procedural hearing and, accordingly, the parties did not need assistance from the courts in order to constitute the Tribunal. The Court also noted that even if there had been a failure to appoint, the parties had in any event agreed within the arbitration clause on the procedure to be followed in such circumstances. As a result, it was found that the court did not have the power in this case to make any orders under section 18.

Exercise of discretion

Finally, it was concluded that, even if the court had such powers, these would not have been exercised as a matter of discretion, primarily because:

  1. making an order that the Tribunal had been "validly constituted" in this case would go much further than would be justified from merely concluding that there was a "good arguable case"; and
  2. in any event, the Tribunal was in existence, was already dealing with the matter and was capable of continuing without assistance from the court, even if its status was uncertain at the time.

The Court emphasised that the powers under section 18 were not to be used as a means of seeking an endorsement or declaration from the courts as to the valid constitution of a tribunal.

CONCLUSION

The case provides confirmation of the test to be applied for the purposes of an application under section 18 of the Act and is a useful reminder of the intended purpose of that section. Although this decision has endorsed the higher threshold of there being a "good arguable case" that a tribunal would have jurisdiction to determine the issue, the court's approach remains in favour of not interfering with decisions that fall within the ambit of an arbitral tribunal's jurisdiction, in line with the kompetenz-kompetenz principle.