England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE BLAIR
2013 Folio 922

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/06/2015

Sir Stanley Burnton:

Introduction

1. The Respondent to this appeal obtained an arbitration award dated 18th March 2013 against the Appellant requiring the Appellant to pay damages for breaches of two contracts in a total sum of £46,601.06 plus interest and the fees and costs of the arbitration. On 10th July 2013 Cooke J gave the Respondent permission to enforce the award as a judgment or order pursuant to section 66 of the Arbitration Act 1996 ("the Act"). The Appellant applied to set aside that order. The application was heard by Blair J, who by order dated 21st February 2014 dismissed it and ordered the Appellant to pay the Respondent's costs.
2. This is the Defendant's appeal against the order of Blair J.

The Facts

(a) The contracts

3. Mr Rowland Bratt, who appeared before us as he did before Blair J, is a farmer. The Appellant is described in the proceedings as a firm, but for present purposes it can be identified with Mr Bratt. The Respondent concluded a contract with the Appellant confirmed by a written purchase contract confirmation numbered P324995 and dated 20th October 2009 by which it agreed to purchase from him, and the Appellant agreed to sell, 670 metric tons of feed wheat, Einstein variety, for delivery between 1st August 2010 and 31st October 2010 at buyer's call, at the price of £101 per metric ton. This contract has been referred to as Contract No. 1, and I shall do the same. The contract confirmation sent by the Respondent to the Appellant incorporated the Respondent's Farm Purchase Terms for Grain, Pulses & Oilseeds 2009/10. Those terms included an arbitration clause:

Arbitration: Any dispute… Arising out of this Contract shall be referred to arbitration as follows:

a. Unless otherwise agreed the dispute shall be referred to arbitration in accordance with the arbitration rules of the Agricultural Industries Confederation Limited (obtainable from the registered office of the Confederation and/or www.agindustries.org.uk), and all parties shall by making this contract be deemed to have knowledge of such rules and to have elected to be bound thereby.

b. [Irrelevant]

4. Rule 2 of the Arbitration Rules of the Agricultural Industries Confederation Limited ("the Rules") was as follows:

Rule 2. Procedure for Claiming Arbitration, and Time Limits

2:1. Parties claiming arbitration shall notify the other party that they are claiming arbitration within the time limits stipulated in the contract, and shall, no later than nine consecutive days from the last day for claiming arbitration, appoint an arbitrator in accordance with Rule 3.

2:2. In the event of non-compliance with any of the time limits in the contract and such non-compliance being raised by the respondents as a defence, claims shall be deemed to be waived and absolutely barred, unless the Tribunal shall in its absolute discretion, otherwise determine. If the Tribunal does not exercise its discretion to admit a claim then the Board of Appeal, on appeal, shall have the power in its absolute discretion to determine otherwise, but the Board of Appeal shall not over-rule or set aside any determination already made by the Tribunal to admit a claim.

2:3. No award by the Tribunal shall be questioned or invalidated on appeal or otherwise on the ground that the claim was not made within the time limits stipulated in this Rule if the respondents to the claim did not raise the matter before the Tribunal so as to enable it to consider whether or not to exercise the discretion vested in it by Rule 2:2.

2:4. Lapse of Claim 
If neither the claimant nor the respondent submits any documentary evidence or submissions to the arbitrator appointed by or for him with a copy to the other party, within the period of one year from the date of the appointment of the first named arbitrator, then the claim to arbitration shall be deemed to have lapsed on the expiry of the period of one year unless before that date the claim is renewed by either party notifying the other during the 30 days prior to the expiry date. The claim may be thus renewed for no more than one period of one year by either party serving on the other notice of renewal of the claim to arbitration, such notice to be served during the 30 days prior to the expiry of the previous notice. If the claim is not so renewed then it shall lapse unless, prior to the expiry of the last notice of renewal, documentary evidence or submissions have been submitted by either the claimant or the respondent.

5. The appointment of arbitrators was the subject of Rule 3. In a case such as the present, Rules 3.3 and 3.4 applied:

3:3. …, a party claiming arbitration shall within the time limits specified in Rule 2 either:

(a) Appoint an arbitrator and give notice to the other party of the name of the arbitrator so appointed, or

(b) Apply to AIC for the appointment of an arbitrator as provided in Rule 3:8.

The other party shall within nine consecutive days of their receipt of such notice of appointment either accept the appointment of that arbitrator as sole arbitrator in the dispute, or appoint a second arbitrator.

3:4. When two arbitrators have been appointed they shall jointly appoint a third arbitrator and report his name to AIC. The third arbitrator shall be chairman of the Tribunal so formed. …

6. Rules 8 to 13 provide for a right of appeal, subject to conditions that are immaterial in the present case, to a Board of Appeal.
7. The Respondent contends that it entered into a second contract with the Appellant ("Contract No. 2"), confirmed by a written purchase contract confirmation numbered P368570 dated 15th July 2010, for the sale by the Appellant to the Respondent of 300 metric tons of Hereward variety feed wheat at the price of £120 per metric ton, for delivery between 1 and 30th November 2010 at buyer's call. The purchase contract confirmation was in the same form as that used for Contract No. 1, and incorporated the same standard terms and by reference the same arbitration agreement.
8. The Appellant denies that he entered into Contract No. 2. The dispute as to the conclusion of that contract is at the centre of the dispute between the parties.
9. The Appellant did not deliver all of the wheat required by Contract No. 1 or that referred to in Contract No. 2.

(b) The arbitration

10. On 10th January 2011 Penny Somervell of the Respondent sent to Mr Bratt an email to which a letter claiming arbitration and a copy of the Rules were attached. The letter referred to both Contract No. 1 and Contract No. 2, and stated that in accordance with Rule 3 of the Rules the Respondent appointed Mr Peter Brown as arbitrator. It continued:

"Within nine consecutive days of this notice being served, you should either concur with the appointment of Mr Peter Brown as sole arbitrator or appoint an arbitrator, otherwise we will apply to AIC to appoint an arbitrator for you."

11. Mr Bratt replied on 19th January 2011:

"In response to your email and attached letter dated 10 January 2011 I can confirm that I accept the appointment of Mr Peter Brown subject to the condition Mr Peter Brown does not have any previous acquaintance with Frontier Agriculture or with any member of staff of Frontier Agriculture if this is the case then I will demand an alternative arbitrator.

As I do not recognise your contract number P368570 I will not accept any arbitration procedure that concerns it."

12. Ms Somervell responded on the same day. The first three paragraphs of her letter concerned the appointment of Mr Brown as arbitrator, stating that he was and would be impartial. Her email continued:

"It is your choice whether you accept Peter Brown as sole arbitrator – the benefit of agreeing a sole arbitrator is that the costs would be considerably lower than those resulting from an arbitration tribunal of three people. We would anticipate that the costs of the arbitration will be awarded against the losing party, along with the fees and damages.

With reference to contract P368570, which you claim does not exist, you will need to provide evidence to the arbitration to support your view, and Frontier Agriculture will provide evidence to support their argument that the contract was agreed. The arbitration panel will then decide as a result of the evidence submitted whether or not he/they consider the contract existed. Whether or not a contract was agreed, has historically been the cause of a number of arbitrations.

You were required to confirm by today whether you accept Peter Brown as sole arbitrator or alternatively to confirm the name of the arbitrator you have appointed (with you having got their prior acceptance set in of your appointment). If you are unsure, you could contact Peter Brown prior to making your decision?

We will wait until close of business tomorrow for your confirmation of your decision, failing such confirmation, we will request AIC to appoint an arbitrator on your behalf to act in these two arbitrations.

Contact details for Peter Brown should you require them are…

13. Ms Somervell emailed again on 25th January 2011:

Dear Mr Bratt

We have not received a reply from you to our email (see below) of 19^th January 17: 59, confirming your acceptance of Peter Brown as sole arbitrator or confirming who you have appointed as arbitrator.

If we have had no reply 17:00 hours today, we will request AIC to appoint an arbitrator on your behalf to act in these two arbitrations, as per clause 3.9 of the AIC Arbitration Rules.

14. Mr Bratt replied before the deadline:

Penny

In principle Mr Peter Brown is acceptable to me.

Rowland

15. Penny Somervell then emailed Mr Brown, with a copy to Mr Bratt:

Dear Peter,

Further to your appointment as arbitrator by Frontier Agriculture Ltd, below please see confirmation from Mr Rowland Bratt that he accepts your appointment to act as sole arbitrator."

16. Mr Bratt played no part in the ensuing arbitration. Mr Brown issued his award on 18th March 2011. It was a single award under both contracts. He held the Appellant to be in breach of Contract No. 1. At paragraph 1.3 he found that this contract had been made between Mr Willis, the Respondent's farm trader, and Mr Bratt, entered into the Respondent's computer system and confirmed in writing to the Appellant. At paragraph 1.9 he found that the Appellant had made a request under that contract for an advance payment by the Respondent, which had been paid. At paragraph 1.13 he referred to the Appellant's request to buy out Contract No. 1. In subsequent paragraphs he made findings as to other communications between the parties which related to Contract No. 1.
17. The findings in the Award as to Contract No. 2 are as follows:

"1.14 On 15 July 2010 Contract number P368570 (Contract 2) was concluded between Buyers and Sellers whereby Sellers agreed to sell and Buyers agreed to buy 300 m.t. of wheat (Hereward variety) for November 2010 movement. Contract 2 was entered into Buyers' computer system on 15 July 2010. …"

18. The arbitrator found that Contract No. 2 was entered into the Respondent's computer system, and that a contract confirmation was sent by post to the Appellant; and that the contract was included in the quarterly purchase contract statements sent by the Respondent to the Appellant. At paragraph 1.41 he found that the Appellant did not challenge the existence of Contract No. 2 for 4 months after its oral agreement.
19. Not surprisingly, the arbitrator found that the Appellant had broken both contracts by failing to deliver the wheat to which they referred.
20. The arbitrator assessed the Respondent's loss under each contract separately, but made a single award combining the sums he had found to which the Respondent was entitled under the 2 contracts. He awarded the Respondent a combined total of damages in the sum of £46,601.06. He also awarded the Respondent interest and ordered the Appellant to pay the costs and fees of the arbitration.

The proceedings in the Commercial Court

21. The Respondent issued its claim form on 9th July 2013, seeking permission under section 66 of the Arbitration Act 1996 to enforce the award in the same manner as a judgment or order. The Appellant filed and served an acknowledgement of service in which he stated that he was seeking to have the claim struck out. As mentioned above, Cooke J made the order sought by the Respondent, but gave the Appellant permission to apply to set aside his order within 14 days. The Appellant duly applied to set the order aside. He filed a defence dated 12 August 2013, in which he stated:

"At the time I disputed this claim and in particular the assertion by the claimant of a 300 ton contract that I had no knowledge of committing to particularly as it was for a variety of wheat that Bratt Brothers had not grown.

The alleged default claim relates to the date 10th January 2011… and was extended with the enclosed notice dated 9th January 2012… citing rule 2.4 of the AIC Arbitration Rules…

I heard nothing further on the alleged default throughout 2012 until 10^th of January 2013 when the claimant sent by recorded post a bundle of documents known as the Arbitration Submissions.

The Court will please note the date on the letter introducing this bundle… as the 9^th of January 2013 and the delivery date as mention in an email… to Peter Brown as having been delivered and signed for on the 10^th of January 2013."

22. The Appellant then set out Rule 2.4 of the Rules and continued:

"Furthermore I contend that the claim was invalid as it breached rule 2.4 and should have never of been presided over by the arbitrator Mr Peter Brown.

It is my final contention that the Arbitration settlement, to which I wasn't a party, is for the reasons cited above, null and void and the claim in its entirety should be dismissed and set aside."

23. In its Reply, the Respondent contended that it had complied with Rule 2.4. It had extended the period for the submission of its documents to the arbitrator by serving notice of renewal of 9th January 2012, by one year, and it had served its documents on 9th January 2013, which was within one year of 9 January 2012. It also relied on Rule 2.3, cited above, which it contended precluded the Appellant from relying on any failure to comply with Rule 2.4.
24. The Appellant served a "response" to the Respondent's Reply, in which he submitted that the Respondent could not rely on Rule 2.3 on the ground that it related only to Rule 2.2. He had received the Respondent's documents on 10th January 2013, which was 2 days out of time.
25. The Respondent then served what it described as a Rejoinder, in which it cited sections 66(2) and 73(2) of the Act and submitted that, since the Appellant had not challenged the award within the appropriate time limits, he could not now do so.
26. The Appellant served a Further Response, contending that it was for the Respondent to inform the arbitrator that its claim was out of time so that he could make an informed decision on the question.
27. Before Blair J, the Appellant made two submissions:

(a) He had not entered into Contract No. 2.

(b) The claim had lapsed by the failure of the Respondent to serve its documents as required by Rule 2.4. The Appellant accepted that the notice of renewal served by the Respondent had been in time, but they were required by that Rule to ensure that he received the documents by 8 January 2013. In fact, they were only sent on 9 January 2013 and received by him on 10 January 2013.

28. The Respondent contended:

(a) The Appellant had participated in the arbitration, and had lost the right to challenge the arbitrator's jurisdiction by virtue of section 73(2) of the Act.

(b) In any event, his denial of having entered into Contract No. 2 was a bare denial. There was no real ground to doubt the validity of the award.

(c) It was for the Appellant to raise the timing issue with the arbitrator, or on appeal to the Board of Appeal. It did not go to the jurisdiction of the arbitrator.

29. The Judge found that the Appellant had participated in the arbitration, and had as a result lost his right to contest the jurisdiction. The timing issue did not go to the jurisdiction of the arbitrator, and not having raised it with the arbitrator or on appeal to the Board of Appeal the Appellant had no right to raise it as a ground for the invalidity of the award.

The issues before the Court of Appeal

30. Before us, both parties made the same submissions as had been before the Judge. In addition, the Appellant contended that the arbitrator had had no power to hear the arbitrations under both contracts (assuming he had entered into Contract No. 2) together. Mr Hamilton, for the Respondent, submitted that that complaint did not affect the jurisdiction of the arbitrator, and therefore could not now be raised by the Appellant.

The applicable provisions of the Act

31. Section 67 confers on a party the right to make an application to the Court to challenge the substantive jurisdiction of an arbitrator tribunal. It provides:

A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).

32. Section 70 requires any such application to be made within 28 days of the date of the award.
33. Section 73 of the Act is as follows:

Loss of right to object.

(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection—

(a) that the tribunal lacks substantive jurisdiction,

(b) that the proceedings have been improperly conducted,

(c) that there has been a failure to comply with the arbitration agreement or with any provision of this Part, or

(d) that there has been any other irregularity affecting the tribunal or the proceedings, he may not raise that objection later, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection.

(2) Where the arbitral tribunal rules that it has substantive jurisdiction and a party to arbitral proceedings who could have questioned that ruling—

(a) by any available arbitral process of appeal or review, or

(b) by challenging the award, does not do so, or does not do so within the time allowed by the arbitration agreement or any provision of this Part, he may not object later to the tribunal's substantive jurisdiction on any ground which was the subject of that ruling.

Discussion

34. Since the Appellant did not make an application to the Court to challenge the substantive jurisdiction of the arbitrator within the 28 day period required by section 70, if he participated in the arbitration relating to Contract No. 2, he has lost the right to do so.
35. In my judgment, a party who participates in the appointment of an arbitrator without qualification does take part in the arbitration proceedings for the purposes of section 73. In the present case, there were putatively two arbitration agreements, which could have been the subject of individual arbitrations. If the Appellant had clearly accepted Mr Brown's appointment in respect of the arbitration under Contract No. 1, but disputed his appointment in relation to Contract No. 2 on the ground that he had not entered into that Contract, and had maintained that rejection of his appointment in relation to that contract, in my judgment he would not have taken part in the ensuing arbitration in so far as it concerned Contract No. 2. Mr Hamilton accepted this proposition. It follows that whether the Appellant lost the right to challenge the substantive jurisdiction of Mr Brown in relation to Contract No. 2 turns on the email correspondence between the parties, as well, in my judgment, as their correspondence with Mr Brown himself.
36. The Respondent's case is that the Appellant did not maintain his rejection of the appointment of Mr Brown in relation to Contract No. 2. Ms Somervell's email of 19th January 2011 expressly and clearly sought the Appellant's decision as to the appointment of an arbitrator "to act in these two arbitrations". Mr Bratt's response of 25th January was unqualified and was not confined to the arbitration under Contract No. 1.
37. Like the Judge, I have not found this an entirely easy question. However, I have come to a different conclusion. It is clear that the Respondent and Mr Brown believed that the Appellant had accepted Mr Brown's appointment in relation to both arbitrations. However, the correspondence is to be viewed objectively. In his first email, Mr Bratt made it clear that he would not accept any arbitration under Contract No. 2 because he did not recognise it. Ms Somervell's email of 19 January 2011 dealt with two matters, Mr Brown's acceptability as an independent and impartial arbitrator, and the Appellant's contention that he had not entered into Contract No. 2. His response, "In principle Mr Brown is acceptable to me", addressed the first matter, but not the second. In my view, the Appellant did not abandon his objection to any arbitration relating to Contract No. 2. It follows that he did not play a part in the arbitration relating to Contract No. 2. It also follows that he did not lose the right to challenge Mr Brown's substantive jurisdiction in relation to that Contract.
38. However, it is not sufficient for a party simply to deny the existence of an agreement to arbitrate. He must show a real prospect of success, a triable issue. There is no practical difference between these formulations: Ashworth v Newnote Ltd [2007] EWCA Civ 793 at paragraph 33, and Collier v P & M J Wright Ltd [2007] EWCA Civ 1329 [2008] 1 WLR 643 at paragraph 21. A mere denial, in the face of sufficiently cogent contrary evidence, will not generally suffice.
39. Having found that the Appellant had lost the right to dispute the substantive jurisdiction of the arbitrator, the Judge did not have to determine this issue. Again, it is not entirely straightforward.
40. The arbitrator found that Contract No. 2 had been duly entered into the Respondent's computer system, had been confirmed in writing to the Appellant, and had appeared in the quarterly statements sent to the Appellant. Mr Bratt states that he would have seen any contract received by the Appellant. He points out that he did not grow the variety of wheat that was to be supplied under that Contract. That is not conclusive: as Mr Hamilton pointed out, the Appellant might have thought that he would be able to buy in that variety from another farmer at a price lower than that offered by the Respondent. But it is a factor. Furthermore, as Lord Justice Jackson pointed out, there is a contrast between paragraph 1.3 of the Award, in which Mr Brown identified who on behalf of the Respondent and who on behalf of the Appellant had orally made Contract No. 1, and paragraph 1.14, in which he merely stated that "On 15th July 2010 contract number 368570 (Contract 2) was concluded between Buyers and Sellers …" There is nothing to show that Mr Brown had any witness statement or oral evidence as to the making of what would have been an oral contract confirmed in writing.
41. Whether a party's case has a real prospect of success must be determined taking into account the evidence on both sides. Neither we nor the Judge had any witness statement evidencing the making of Contract No. 2. I accept that confirmations were sent, but their receipt, at least by Mr Bratt, is denied. In this evidentially sparse situation, my view is that the Appellant has shown he has a real prospect of success.
42. It follows that I would allow the appeal and set aside the order of Blair J giving permission for the enforcement of the award. It is therefore strictly unnecessary to determine the other issues raised by the Appellant. However, it seems to me that his other points do not go to the substantive jurisdiction of the arbitrator; they could, and should, have been raised, at least in the arbitration in respect of Contract No. 1, and if the award was otherwise valid, they cannot now be raised.
43. If my Lords agree with my judgment, I would ask the parties to consider whether any consequential orders are appropriate, and if so to seek to agree those orders, including the order for costs.

Lord Justice Jackson

44. I agree.

Lord Justice Longmore

45. I also agree.