English court rejects jurisdiction challenge under section 67 of the Arbitration Act based on an alleged failure to comply with a pre-condition for mediation

NWA and others v NVF and others [2021] EWHC 2666 (Comm)

Facts of the case

The parties entered into a written agreement dated 25 June 2007 (the "Agreement") concerning the reorganisation of their business dealings in relation to patents and pending applications for patents of intellectual property, specifically concerning life-size 3D video holograms.

Clause 10.2, the dispute resolution clause in the Agreement, provided that

“(a) In the event of a dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity, termination, interpretation or effect, the relevant parties to the dispute shall first seek settlement of that dispute by mediation in accordance with the London Court of International Arbitration ("LCIA") Mediation Procedure...

(b) If the dispute is not settled by mediation within 30 days of the commencement of the mediation … the dispute shall be referred to and finally resolved by arbitration under the LCIA Rules from time to time in force”.

The Defendants (claimants in the arbitration) initiated LCIA arbitration in a Request for Arbitration ("RFA") sent to the LCIA in April 2019. In it, the Defendants requested that the arbitration, once commenced, be immediately stayed to allow the parties to seek settlement by mediation as required by clause 10.2. A letter in substantially similar terms, together with the copy of the RFA, was also sent to the Claimants (respondents in the arbitration). The LCIA invited the Claimants to comment on the mediation proposal. Neither the Defendants nor the LCIA received any response. Various other attempts were made by the Defendants to invite a mediation of the dispute with which the court found the Claimants had failed to engage.

The tribunal’s award

The sole arbitrator found that the mediation provision was not sufficiently clear and certain to be enforceable as a condition precedent. In any event, the Claimants were arguably not in breach since they had made efforts (including concurrently with the RFA) to seek settlement by mediation. The arbitrator also held that clause 10.2(b) should not be read literally, that it did not contain a negative stipulation or injunction preventing a reference to arbitration until 30 days following commencement of mediation, or, even if it did, that it would not have been enforceable.

Section 67 challenge

The Claimants challenged the arbitral award under section 67 AA 1996, which enables a party to challenge “any award of the arbitral tribunal as to its substantive jurisdiction”. They argued that by requesting mediation at the same time as arbitration, the Defendants did not “first seek” settlement by mediation, and so the arbitrator subsequently had no jurisdiction to hear the dispute.

The court’s decision

The first and central question considered by the court was whether the challenge did in fact relate to the substantive jurisdiction of the tribunal (which was a matter which the supervisory court could be asked to review under section 67), or whether alleged non-compliance with such a pre-arbitration requirement to mediate was rather a question of admissibility (in which case, it was a matter for the tribunal, and not susceptible to review by the court).

The court’s first task was to construe the contractual provisions in question. The court noted a clear intention in the Agreement that any dispute “shall be referred to and finally resolved by arbitration”. The parties did not intend that disputes should be litigated, and indeed by clause 10.2(g) they had waived "any right of recourse to national courts in order to challenge or appeal against any arbitral award". The intention for a swift resolution of disputes was indicated both by the short window for mediation and a requirement that arbitral proceedings should be concluded within three months of the LCIA's receipt of the RFA, with an award made within 30 days thereafter.

On the wording of clause 10.2, the court noted that the obligation to first seek settlement by mediation was imposed on all parties to the dispute. Thus, “[i]f Party A refuses to mediate with Party B under clause 10.2(a), then I do not consider that there is any obligation upon Party B nonetheless pointlessly to continue to seek settlement of the dispute by mediation under the LCIA Mediation Procedure. Mediation is a consensual process and if Party A refuses to mediate, it is not possible for the terms of clause 10.2(a) to be satisfied.” But the court rejected the suggestion that this would mean the arbitral tribunal would not have jurisdiction to resolve the dispute, despite the clear intention to submit disputes to arbitration within clause 10.2, since that would not give the clause the construction that rational businesspeople would have intended. The argument that the dispute was not yet arbitrable, because the parties had not yet sought to settle the dispute by mediation concerned the admissibility of the claim, rather than whether the arbitrator has jurisdiction to determine the claim at all.

Calver J also referred to the very similar issue addressed by Sir Michael Burton in his judgment in Sierra Leone v SL Mining Limited [2021] EWHC 286 (Comm) handed down shortly after the sole arbitrator’s award. In Sierra Leone, the clause also referred to the parties to a dispute attempting an amicable settlement. If no such settlement was reached within 3 months, either party was entitled to submit the dispute to arbitration. Sir Michael held that these preconditions were procedural requirements, and therefore matters of admissibility, not matters going to jurisdiction.

Agreeing with Sir Michael Burton, and after summarising various of the academic commentary on the same issue, Calver J held that it was appropriate to give an arbitration clause such as clause 10.2 a commercial construction so that pre-arbitration procedural requirements are not jurisdictional. In particular, it would not make commercial sense for the pre-arbitration procedural requirements to be jurisdictional because, regardless of a failure to comply, the dispute would remain the same and of the kind which the parties had agreed to submit to arbitration. Thus, it was the arbitrator who should determine the consequences of any breach of such a precondition, not the court.

Conclusion

The case is helpful guidance for parties and tribunals considering whether compliance (or alleged non-compliance) with contractually specified pre-conditions to arbitration implicate issues of jurisdiction or admissibility as a matter of English law. As the court here stressed, the outcome of each case will depend on the proper construction of the arbitration agreement at issue. It is important that parties in similar situations give due thought to the issues canvassed by Calver J, not least since this will indicate whether their arguments are matters which may ultimately be raised with the supervising court, or whether they are solely within the remit of the tribunal.

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