The English Commercial Court’s recent decision in Toyota Tsusho Sugar Trading Ltd v Prolat Srl (3 November 2014) should be welcomed as reinforcing its support for the jurisdiction of specialist trade arbitration bodies. It also serves as a useful illustration of the potential strategic importance of an application made under Section 32 of the Arbitration Act 1996 (the Act).

In July 2013, Toyota and Prolat reached an agreement for the sale and purchase of sugar. Toyota then sent a sale contract to a Mr Dibranco, to be signed and returned by Prolat. As is common practice in sugar trading, the sale contract contained an arbitration clause, specifying that arbitration would be in accordance with the rules of the Refined Sugar Association of London (RSA) and that English law governed the contract.

Disputes arose between the parties, and in January 2014, Prolat issued proceedings in the Italian court in Naples. Toyota, in reliance on the RSA arbitration clause in the sale contract, commenced London arbitration proceedings. Prolat objected to the jurisdiction of the RSA tribunal, claiming that there was no agreement to arbitrate, because Prolat did not sign the sale contract and Mr Dibranco was the appointed broker for Toyota and did not act for Prolat. There was no dispute that a contract for the sale of sugar had been agreed, rather the issue was whether the parties had concluded an agreement to arbitrate.

Toyota made an application to the RSA tribunal, seeking permission to apply to the English Court under Section 32(2) of the Act for a declaration that the tribunal had substantive jurisdiction to determine the dispute.

Under Section 32(2)(b), an application shall not be considered unless:

"(b) it is made with the permission of the tribunal and the court is satisfied

  1. that the determination of the question is likely to produce substantial savings in costs,
  2. that the application was made without delay, and
  3. that there is good reason why the matter should be decided by the court.”

The tribunal granted Toyota permission to make the application. It ruled that there were factual issues which would need to be resolved in determining the jurisdictional dispute and an appeal might well follow a tribunal decision. The determination of the court would therefore produce substantial savings in costs.

The English Court agreed with the tribunal that the requirements of Section 32(2) were met, both as to costs and because the application had been made without delay. The involvement of the court in Naples was a further good reason why the English Court should decide the issues.

The first issue was whether the English Court had jurisdiction to determine matters relating to the arbitration, given that Prolat had commenced proceedings in Italy contending that it was not a party to any arbitration agreement. The English Court decided that it did have jurisdiction and was not being asked to interfere with the functions of the Italian court, as no form of anti-suit injunction was being sought.With regard to the applicable law,the English Court referred to Article 10.1 of Rome I Regulation 583 of 2008, which provides that questions as to the existence and validity of a contract are to be determined by the law that would govern the contract if the contract were valid. On the evidence, the contract could only have been governed by English law. The arbitration clause in the sale contract (and repeated in various addenda) amounted to an express choice of English law.

The English Court then considered the terms agreed between the parties and the effect of the evidence put before it. It found that Mr Dibranco had both ostensible and actual authority to act for Prolat and in any event, Prolat by their own conduct in importing the sugar, had accepted the terms of the sale contract, including the arbitration agreement. Both the claims made by Toyota and the claims made by Prolat fell within the scope of the arbitration clause.

There was an agreement to arbitrate which was evidenced in writing by the sale contract and Toyota were entitled to the declaration sought. If the Italian proceedings were to continue to a judgment, Toyota should be able to rely on the declaration to prevent Prolat enforcing any Italian judgment against them in England.

Applications under Section 32 of the Act are relatively uncommon yet they offer a practical and cost effective solution in circumstances where it is clear that a tribunal’s decision may be subject to appeal on the grounds of lack of jurisdiction. As this decision suggests, the Court will endeavour to uphold the jurisdiction of a tribunal when it accords with the terms agreed between the parties.