Award - Enforcement - Action to enforce award

Sovarex SA v Romero Alvarez SA [2011] All ER (D) 225 (Jun), [2011] EWHC 1661 (Comm)

The claimant company allegedly contracted with the defendant company to sell to the defendant 5,000 MT of sunflower seeds CIF Seville for shipment between 15 September and 15 October 2008.

The contract provided for English law and contained an arbitration agreement providing for London FOSFA arbitration and making it a breach of contract to start legal proceedings elsewhere.

It was the defendant's case that there had been no concluded contract and it issued proceedings in Spain in October 2008.

On 6 July 2009, the Spanish court dismissed an application made by the claimant for a stay in favour of the FOSFA arbitration which it had initiated on 16 December 2008.

In September 2010, the Spanish court dismissed the defendant's action.

The defendant appealed. In due course, an award was issued by the FOSFA tribunal in the claimant's favour.

The claimant applied for permission to enforce the arbitration award in the same manner as a judgment and to enter judgment in the terms of the award pursuant to s 66 of the Arbitration Act 1996 (the Act).

Section 66 of the Act so far as material provided that an award made by a tribunal pursuant to an arbitration agreement might by leave of the court be enforced in the same manner as a judgment and judgment could be entered in the terms of the award.

Under s 66(3) of the Act, leave to enforce the award would not be given where the person against whom it was to be enforced showed that the tribunal lacked substantive jurisdiction to make the award.

The defendant's position was that the award was a nulity because no contract had been concluded and that ultimately the tribunal had lacked the jurisdiction to make the award.

It was common ground between the parties that the question of whether the defendant had lost the right to raise objections to enforcement under s 66(3) depended on whether or not the defendant had taken part in the arbitration proceedings. If it had not done so, then its rights under s 66(3) would have been preserved.

If it had done so then its right to rely on s 66(3) would have been lost (by reason of s 73(2) of the Act).

The issues were, inter alia, first whether on the evidence the defendant had participated in the arbitration proceedings.

In that regard, the claimant submitted that the defendant's participation was reflected by the fact that tribunal had included a section in its award entitled 'respondent's submissions' and had made 'findings' in respect of such submissions.

The defendant submitted that any 'submissions' had in fact been an objection to the commencement of the atbitration proceedings and a preliminary protest regarding the jurisdiction of the tribunal and could not be read as a submission by the defendant to the tribunal's jurisdiction on kompetenz-kompetenz grounds.

Secondly whether the s 66 application should be dismissed or stayed. In that regard, the defendant submitted, inter alia, that the s 66 application should be dismissed because the evidence showed that there was real ground for doubting the validity of the award.

It was the defendant's case that s 66 of the Act was a summary procedure that was not available where 'there is a real ground for doubting the validity of the award'.

It submitted that the evidence before the court clearly established a real basis for doubting that any contract was concluded. The claimant submitted that in the circumstances the s 66 proceedings should be dismissed and the claimant left, if so advised, to bring an action on the award.

The claimant accepted that the defendant had sufficiently shown there were grounds for doubting the validity of the award.

However, it submitted that that was an issue which could and should be dealt with in the context of the instant proceedings and that there was no warrant for requiring it effectively to start all over again.

The court ruled: (1) Case law drew a distinction between protesting that the arbitration tribunal had no jurisdiction, asserting that the issue should be decided by some other court or tribunal, and asking the tribunal to consider the issue of jurisdiction.

In the latter case, the party was likely to be held to have invoked the jurisdiction of the tribunal (see [23] of the judgment).

In the instant case, the correspondence had done not more than make it clear that the defendant was protesting the jurisdiction of the tribunal and asserting that they should decline to exercise any jurisdiction that they might have pending determination of the jurisdiction issue by the Spanish court.

It had never recognised that the tribunal had jurisdiction, still less had it invited them to consider or determine the issue of jurisdiction.

The letters had been directed at explaining why the defendant was not going to participate in the arbitration.

They had not been inviting any jurisdiction to be exercised.

They had been asserting that any jurisdiction the tribunal might have should not be exercised at that stage. Inviting the tribunal to decline jurisdiction had not in itself been an invocation of its jurisdiction (see [29], [30] of the judgment).

The claimant's argument that the defendant had lost the right to object to the jurisdiction of the arbitration under s 66(3) of the Act would be rejected (see [31] of the judgment).

Caparo Group Ltd v Fagor Arrasate Sociedad [2000] ADLRJ 254 considered; Law Debenture Trust Corpn plc v Elektrim Finance BV [2005] All ER (D) 08 (Jul) considered; Broda Agro Trade (Cyprus) Ltd v Alfred C Toepfer International GmbH [2010] All ER (D) 106 (Oct) considered.

(2) The court had the power to direct that there be a determination of disputed issues of fact under s 66 of the Act and there was no necessity for that to be done by way of action on the award.

In cases of complexity it would still be appropriate for the proceedings to continue as if it were an action, however, in relatively straightforward cases of fact such as were commonly determined on an application under s 67 of the Act.

It was appropriate for the issues to be dealt with under s 66 and for appropriate directions to be given under CPR 62.7 (see [48] of the judgment).

The proviso in s 66(3) of the Act, applied where the person resisting enforcement 'showed' that the tribunal had lacked jurisdiction.

That indicated proof of that fact rather than merely that it involved a triable issue.

It also indicated that that was a matter which could be determined in the context of the s 66 procedure.

By contrast in an action on an award, it was incumbent on the claimant to 'plead and prove both the arbitration agreement and the award' and to establish that the dispute was within the terms of the submission and that the arbitrator was duly appointed.

If the party who had obtained an award could not rely on s 66 and was compelled to start an action on the award the burden of proof would accordingly be the reverse of that contemplated under s 66(3) and he would therefore lose that benefit, a benefit which the Act conferred on him.

In effect, the party who had obtained an award had the benefit of a presumption of validity and it was for the party resisting recognition to prove otherwise.

Section 66 conferred that benefit but one which would be lost if an action on the award was the only means by which disputed issues of validity could be resolved (see [41]-[43] of the judgment).

The defendant's case that the s 66 application should be dismissed or stayed would be rejected, however, the defendant had not lost the right to challenge jurisdiction and directions for that determination needed to be given (see [66] of the judgment).

David Lewis (instructed by Gateley LLP) for the claimant. David Semark (instructed by Ashfords LLP) for the defendant.