INTRODUCTION
One of the foundations of arbitration proceedings is the parties' voluntary willingness to refer their disputes to alternative dispute resolution mechanisms other than domestic courts. The existence and extent of this willingness can be said to be at the heart of many arbitration disputes. The Broda v Toepfer decision [1] by the Court of Appeal demonstrates the effects of a party's actual participation in arbitration proceedings on its ability to later challenge the validity of the arbitration agreement in court. The decision is exemplary as a case in which the limits of remedies to challenge the arbitral tribunal's jurisdiction under Sections 67 and 72 of the English Arbitration Act 1996 were discussed and determined.
SUMMARY OF THE DISPUTE
As a party to the dispute, Broda, the Claimant, entered into a
contractual relationship with the Respondent, Toepfer, for the sale of corn
under GAFTA rules. Toepfer applied for arbitration before GAFTA due to Broda's
failure to deliver the corn, and Broda argued that it had never accepted the
contract in question and therefore there was no valid arbitration agreement
between them. Broda also stated that they are based in Russia, therefore there
is not any binding agreement and that they have started legal proceedings in
their local courts. In the context of this dispute, GAFTA instructed the
parties that it would decide separately on the issue of jurisdiction and that
the parties should submit their submissions accordingly. In their submission to
the arbitral tribunal, Broda stated that they had not responded to Toepfer,
that the Russian courts were the most appropriate place to determine the
jurisdiction of the arbitrators and requested GAFTA not to accept jurisdiction.
Subsequently, GAFTA ruled, under its interim award, that there was a binding
contract between the parties and issued a new order for the parties to submit
their submissions on the merits. Broda submitted their statements in this
regard and reiterated their claims with regards to the absence of a valid
contract. At the end of the proceedings, the arbitral tribunal accepted the
existence of a valid contract, examined the case on the merits and ruled in
favor of Toepfer.
Following the decision, Broda filed an application for annulment in the
English courts under Sections 67 and 72 of the Arbitration Act 1996, arguing
that the arbitral tribunal was not competent and that the award was therefore
invalid.
STATUTORY PROVISIONS
AND LEGAL DEBATE
The Court of Appeal examined the GAFTA arbitral award in detail,
referring to several provisions of the Arbitration Act 1996 in assessing the
award.
The first provision examined in this regard is Section 67 which states
that a party may challenge an arbitration on the grounds that the adjudicators
lack jurisdiction, but that such challenges must be filed within a certain time
limit.
The other provision considered as a basis for the decision is Section 72
of the said Act, which provides that a party who has not participated in the
arbitration proceedings has the right to apply to the court to challenge the
arbitral tribunal's jurisdiction, and that a party who has never participated
in the arbitration proceedings may challenge the jurisdiction of the arbitral
tribunal by applying directly to the court, even if an award has been made by the
said tribunal. In this context, Broda, the Claimant, argued that, based on this
provision, they reserved the right to directly challenge the arbitral
tribunal's jurisdiction.
The Claimant denied that an arbitration agreement had been concluded and
therefore that the tribunal had jurisdiction, as alleged by the Respondent, but
participated in the court proceedings following the interim decision of the
Arbitration Court finding that it had jurisdiction. According to the Claimant's
interpretation of the scope of Section 72, they took the view that the
reference to a party “not taking part in the proceedings” referred to a party
who did not participate in the proceedings in which the tribunal decided
whether it had jurisdiction on the merits. In contrast, the Judge held that the
requirement under Section 72 that a person not take part in the proceedings
applies to proceedings on the merits as well as to proceedings on jurisdiction,
and that Broda, the Claimant, had participated in the arbitration proceedings
by making a statement on the merits, so that the special remedy under said
provision was no longer open to them.
The Claimant argued that Section 72 is about whether the arbitral
tribunal has jurisdiction and not about the exercise of substantive
jurisdiction. In support of their
arguments, the Claimant referred to the doctrine of kompetenz-kompetenz
under English law, which provides that the court has the power to determine its
own jurisdiction, that the expression “person participating in the proceedings”
under Article 72 means participation in the proceedings relating to the
jurisdiction of the arbitral tribunal, and that this interpretation is
supported by the decision in Caparo Group Ltd v Fagor Arrasate Sociedad
Cooperative [2000] ADRJ 254.
As well known, the doctrine of kompetenz-kompetenz referring to a
principle that authorizes adjudicators to make a first-hand determination of
their own competence in a dispute that they determine to be within their
jurisdiction, the arbitral tribunal may therefore assess and determine itself
whether the dispute is arbitrable and whether they are competent to decide on
that dispute.[2] The Claimant acknowledged that the arbitral tribunal has the
authority to determine its own competence, but argued that this determination
does not bind the court. In response to this argument, the Court stated that
the arbitral tribunal was entitled to assess its jurisdiction, but that this
was subject to judicial review. It also considered that the decision in Caparo
Group Ltd v Fagor Arrasate Sociedad Cooperative did not constitute case law in
the sense argued in favor of the Claimant, since there was no participation in
the arbitration process at any stage in Caparo.
DECISION OF THE COURT
In light of all these arguments, the Court of Appeal considered the
scope of non-participation in the proceedings for Section 72 to be invoked and
whether the claimant participated in the proceedings in which the substantive
competence of the arbitral tribunal was discussed.
In this context, the court held that the claimant's argument that
Section 72 was concerned with matters relating to the jurisdiction of the
arbitral tribunal was correct, but that there was no basis for accepting an
implicit restriction that “non-participation in the proceedings” was limited to
proceedings to determine the substantive jurisdiction of the arbitral tribunal.
It stated that the purpose of the provision was to ensure that a party who
believes that it has not entered into an arbitration agreement has the right to
ignore the arbitration process and, having exercised that right, cannot be
restricted in its right to apply to a court for legal protection on the grounds
of non-participation. The Court considered that it would be appropriate, in the
event of participation in the process, to subject it to the time limits
provided for under Section 67.
The Court commented that a provision limiting the rights of a party
involved in the substantive proceedings of arbitration panels would make more
sense than a provision limiting the rights of a party involved only in a
jurisdictional challenge. With this
approach, the Court considered that the party challenging the merits of the
dispute usually challenges the final award because it is dissatisfied with the
arbitral tribunal's decision on the merits.
In considering applications under Sections 72 and 67, the Court of
Appeal states that the court will subject the arbitral tribunal's decisions on
jurisdiction to full review, and that the reason why Section 72 deals only with
jurisdictional issues is that the court has unconditional jurisdiction only in
such matters. The arbitral tribunal's decision on the existence, scope or
procedural arrangements of its jurisdiction is not binding on the court. It is
also recognized that in an application under Section 72 and 67, the court will
decide on the party's objection on the basis of the legal and factual grounds
it has determined, and that the arbitral tribunal's decision on kompetenz-kompetenz
may be reviewed by the court. The court emphasized that jurisdictional issues
should be distinguished from the arbitral tribunal's decision on the merits,
and that, unless there are serious irregularities, the parties are bound by the
factual findings of the arbitral tribunal and may only challenge the court
within the limitations set out in Section 69.
The decision emphasized that the condition of “non-participation in the
arbitration proceedings” under Section 72 covers participation not only in the
jurisdictional phase, but also in the examination of the merits. In this
context, it is made clear that a party who raises a jurisdictional objection
but also defends on the merits loses this special right of recourse. The Court
supported this interpretation with the established opinions in the doctrine and
sources such as Commercial Arbitration (Mustill & Boyd).
The Court emphasized that it should not be assumed that arbitrators will
always conduct separate proceedings and make separate awards on jurisdiction
and merits. It commented that the question may be to determine whether there is
a binding contract between the parties, in which case the question of
jurisdiction and merits may be inseparable. The Court of Appeal emphasized how
artificial a distinction between jurisdictional participation and substantive
participation might be, given the claimant's assertion that the existence of a
binding contract including an arbitration agreement was discussed following the
issuance of the interim award in the arbitration proceedings.
CONCLUSION
Broda seeks to demonstrate that it is not bound by the arbitration
agreement relied upon by Toepher by obtaining a common law judgment from the
court. However, the court dismissed the appeal on the grounds that the
limitations set out in Sections 67 and 72 on challenges to the jurisdiction of
the arbitral tribunal could not be overcome by such an action.
The Court of Appeal held that Broda could not make a direct application
to the court under Section 72 of the Arbitration Act 1996 and dismissed the
annulment claim for failure to make a timely application under Section 67. The
decision clearly establishes that a party who has actually participated in the
arbitration proceedings will lose the possibility to apply to the court by
claiming that the arbitration agreement does not exist.
This decision also shows that jurisdictional challenges to arbitral
proceedings are shaped not only by procedural compliance, but also by the
parties' actions and statements, and that the courts consider the parties'
participation in the process not only procedurally, but also substantively. In
this respect, the decision constitutes important jurisprudence, especially in
international arbitration practice, demonstrating that the conduct of the
parties in the arbitration process may be of
consequential nature.
Att. Gülçin Kırcı
References:
1. Broda Agro Trade [Cyprus] Ltd v Alfred C Toepfer International GmbH
[2010] EWCA Civ 1100 [LexisNexis]
2. Işıl Egemen Demir, “Kompetenz-Kompetenz İlkesi ve Olumsuz Etkisi”
(“Principle of Kompetenz-Kompetenz and Its Negative Effect”), Journal of the
Faculty of Law of Suleyman Demirel
University, Vol: 11, Issue: 1, 2021, Page: 257
