Summary
On 11 October 2010 in Broda Agro Trade (Cyprus) Limited v Alfred C. Toepfer International GmbH the Court of Appeal gave a judgment interpreting section 72 of the Arbitration Act 1996 (the "Act"). When a person considers that he is not bound by an arbitration agreement and as a result refuses to participate in the arbitration proceedings, section 72 offers him the right to seek a declaration from the courts that the arbitrators had no jurisdiction. That right is not subject to the 28-day time limit applicable to normal challenge applications under section 67. In this judgment, the Court made it clear that the scope of section 72 was limited and only available to parties who have not taken any part in the arbitral proceedings, whether by way of a challenge to the arbitrators' jurisdiction or in relation to the merits of the case.
Facts
The Respondents (Toepfer) commenced arbitration proceedings under GAFTA against the Appellants (Broda) for breach of an alleged contract for the supply of milling wheat. Broda denied that the tribunal had jurisdiction on the ground that there was no contract between the parties and did not serve submissions on jurisdiction. Broda then initiated parallel courts proceedings in Russia, where it had its principal place of business, and obtained a Russian judgment that the contract never existed. Nevertheless, the arbitral tribunal issued an interim award by which it considered it had jurisdiction over the dispute. Following this interim award, Broda eventually served submissions regarding the merits of Toepfer's claim. In a final award, the tribunal awarded damages to Toepfer who obtained permission from the High Court to enforce it. Broda consequently made several applications including an application under section 72 of the Act that the tribunal did not have jurisdiction. The Commercial Court (Teare J) rejected this application, but permission to appeal was granted.
Decision
The Court of Appeal upheld Teare J's decision and clarified the scope of the requirement for an application under section 72 that the party has taken no part in the proceedings. It held that section 72, which states that "a person alleged to be a party to proceedings but who does not take part in the proceedings may question whether there is a valid arbitration agreement", only envisages parties who did not take part in any part of the arbitral proceedings. Therefore, Broda's argument that it suffices to have ignored the jurisdiction part of the arbitral proceedings is wrong. The word "proceedings" in section 72 shall be interpreted as including any aspect of the arbitral proceedings not only the jurisdiction part. Since Broda participated in the proceedings on the merits of the dispute, section 72 was not available and only section 67, for which it was time-barred, would have been available.
Commentary
This is the first judicial authority on the meaning of "proceedings" under section 72 of the Act, which has no counterpart in the Model law. Section 72, which only applies to arbitrations seated in England and Wales, or Northern Ireland, is concerned with the protection of a person who alleges that the arbitration has nothing to do with him. It shows that the English courts have unqualified jurisdiction in relation to jurisdictional issues and offers an exceptional relief to parties who did not participate in the arbitration and who want to challenge an arbitration agreement or an award. This relief is particularly exceptional as the 28-day time limit of section 70(3) and the duty to exhaust all arbitral procedures under section 70(2) do not apply in relation to a declaration that the arbitration agreement was not valid under section 72(1). With this decision the Court of Appeal made it clear that section 72 should not be a gateway to parties who wish to challenge an award but who are outside the 28-day period. In order to benefit from the court relief under section 72, parties who consider that they have nothing to do with the arbitration into which they are brought must simply ignore the arbitral process but run the risk of an enforceable award being made against them. Otherwise, a person who has taken part in the arbitral proceedings, albeit that he disputed jurisdiction, can only challenge the award for lack of jurisdiction under section 67.
For a full copy of the High Court judgment, please click here.
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The original publication date for this article was 19/10/2010.