Whether arbitral appeal process had been “exhausted” prior to a challenge under section 67 or 68 of the Arbitration Act 1996

http://www.bailii.org/ew/cases/EWHC/Comm/2014/1870.html

Section 70(2) of the Arbitration Act 1996 provides that no application or appeal under sections 67-69 of the Act can be brought unless the applicant/appellant has first “exhausted” any available arbitral process of appeal or review, or any available recourse under section 57 (correction of award). In this case, the claimant had contested the jurisdiction of the arbitral tribunal (having denied it had entered into the relevant arbitration agreement) but had taken some part in the arbitral proceedings. Smith J held that “section 70 governs all challenges under section 67” (i.e. challenges on the basis that the tribunal lacked jurisdiction): “when a party takes part in arbitral proceedings while challenging the jurisdiction … he thereby vests powers in the arbitral or other institution or person who would have had powers in relation to the matter if he had entered into an applicable arbitration agreement”.

The issue was then whether the claimant here had “exhausted” the process that was available (this was a two-tier arbitration case, whereby the chosen institution allowed a right of appeal to an appeal committee). The claimant had sent a notice of appeal but had thereafter failed to pay the application fee and the institution dismissed the appeal and subsequently refused the claimant’s application to extend time to pay.

It was accepted by the parties that a party cannot “exhaust” an appeal process if no appeal is brought at all (and the judge said the situation would be the same if an appeal is brought by a party who is merely going through the motions and has no true intention of having the merits of his case considered). The judge added that “what matters is that the process is fully spent, not how it became spent”.

On the facts of the case, the claimant had not exhausted the appeal process simply by giving notice of appeal and nor was the process necessarily exhausted  when the appeal was dismissed because of its failure to pay on time. The judge held that “It might  well have been [exhausted] if  it was simply impossible for them to provide the required deposit at  any time, and there was no point in them seeking an extension. But here there was point in them  applying for an extension, and in my judgment the process was exhausted only when the application  was refused. This illustrates that the test whether an arbitral process is exhausted is flexible”.

COMMENT: This appears to be the first case to consider the definition of “exhausted” in section  70(2) of the Act. Although Professor Merkin in the textbook Arbitration Act, 1996 has observed that  an arbitral process of appeal or review “is only likely to be relevant to commodities  arbitrations”, this case will have a wider impact because almost all arbitrations (including those  conducted under the auspices of eg UNCITRAL, the LCIA and the ICC) allow for the correction of clerical or similar errors.