REUTERS | Ernest Scheyder

When does a party lose the right to object that the tribunal lacks substantive jurisdiction at the outset of proceedings in international arbitrations?

Sections 31 and 73 of the Arbitration Act 1996 (AA 1996) prescribe the circumstances in which a party may lose the right to object to the tribunal’s jurisdiction. These provisions are mandatory.

Section 31(1) provides:

“An objection that the arbitral tribunal lacks substantive jurisdiction at the outset of the proceedings must be raised by a party not later than the time he takes the first step in the proceedings to contest the merits of any matter in relation to which he challenges the tribunal’s jurisdiction”.

Section 73 provides:

“(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,

he may not raise that objection later…”

Provision is made in some arbitration rules as to when challenges to the tribunal’s substantive jurisdiction must be made. In the event of a conflict between the arbitration rules and the AA 1996, it falls to be considered how that conflict should be resolved and, therefore, when the party challenging jurisdiction must raise its objection for it to be in time.

This question was recently considered by Phillips J in A v B, in respect of an arbitration under the London Court of International Arbitration (LCIA) Rules 2014. The relevant facts were as follows:

  • A purchased crude oil from B under two separate contracts.
  • B purported to commence arbitration under both contracts pursuant to a single request for arbitration.
  • A served its response to B’s request but did not raise any challenge to the validity of B’s request.
  • Prior to service of its statement of defence, A challenged the validity of the request. It argued that, by purporting to refer claims under two contracts, the request had failed to identify the particular dispute and the particular arbitration agreement to which it related.
  • The request was held by the judge to be invalid, such that there were grounds for challenging the tribunal’s substantive jurisdiction at the outset.

The issues that therefore arose were whether A’s jurisdictional challenge was too late by reference to Article 23.3 of the LCIA Rules 2014 and, if it were, was the Article valid insofar as it required a challenge to be made within a shorter period of time than the AA 1996. The tribunal held that the challenge was too late as it should have been made no later than the date of A’s response but Phillips J held that the challenge had been in time.

Article 23.3 provides:

“An objection by a respondent that the Arbitral Tribunal does not have jurisdiction shall be raised as soon as possible but not later than the time for its Statement of Defence…”

B argued that A had lost the right to challenge jurisdiction because:

  • There was no bar in the AA 1996 to prevent parties agreeing that challenges to substantive jurisdiction at the outset should be made “as soon as possible” and, therefore, earlier than “the time he takes the first step in the proceedings” set out in section 31(1).
  • Since Article 23.3 was a contractual provision, it had to be given its natural and ordinary meaning. The challenge had not been made “as soon as possible” and, therefore, could not permissibly be advanced.

The judge held that service of the statement of defence was the first step in the proceedings to contest the merits in an LCIA arbitration such that Article 23.3 followed the structure and effect of sections 31(1) and (2) of the AA 1996.

The key question, therefore, was whether the wording “as soon as possible” present in Article 23.3 but absent in the AA 1996 ought to be read as introducing a stricter requirement than section 31(1) of the AA 1996, such that, if a challenge was not made “as soon as possible”, the respondent lost the right to object, even if the time for service of the statement of defence had not yet passed. The judge held that it did not have that effect because:

  • It was “inconceivable” that the intention of the 2014 Rules in adding that wording was to have such a significant change without the use of clearer words.
  • Article 23.3 only provided a sanction if a challenge was not made by the time of the statement of defence; the failure to challenge “as soon as possible” attracted no sanction.

He therefore concluded that Article 23.3 had the same effect as section 31(1) of the AA 1996. It was thus unnecessary for him to consider whether, had the Article provided for a shorter time for making objections, it would have been valid given the mandatory nature of the provisions of the AA 1996. His obiter view was that it would not have been valid because section 73(1) had the effect that an objection could permissibly be brought within the longest of the various times set out therein. In other words, if “such time as is allowed by the arbitration agreement” was shorter than “any provision of this Part”, that is, section 31(1), the challenge would be in time if brought within the period established by the latter.

The following points emerge:

Firstly, a respondent to an arbitration on the LCIA Rules 2014 will not lose the right to object to the tribunal’s jurisdiction if it fails to raise its objection “as soon as possible” provided that:

  • The objection is raised no later than the statement of defence (or the tribunal grants permission for it to be brought out of time).
  • It does not by unequivocal words or conduct make an ad hoc submission to the tribunal’s jurisdiction.

Secondly, the precise circumstances in which the parties can legitimately agree to depart from the times for making a challenge set out in the AA 1996 remain uncertain. The judge’s obiter view was that they could do so only if the timings agreed by the parties were more generous to the party raising the complaint. However, it is not obvious from the language of section 73(1) that that is a correct interpretation, as it reads in words that are not present. Further, the fact the parties’ agreement gives more not less time to make the challenge does not change the nature of section 31(1) from a mandatory provision.

Thirdly, whether the parties can legitimately agree to extend the time for making a challenge beyond the taking of the first step in the proceedings to contest the merits remains potentially important, even in the context of LCIA arbitration. The judge was dismissive of the argument that A first contested the merits upon service of the response, denying liability on the basis that “it is not seriously arguable that the time for making an objection under section 31(1) expires on the service of that predominantly formal document rather than on the service of the Statement of Defence”. However, it has been left open in the context of the International Chamber of Commerce (ICC) Rules whether – depending upon its content – the service of an answer to a request can amount to the first step in the proceedings to contest the merits: see Republic of Sudan v Imagesat International NV. It is, therefore, theoretically possible that a party to an LCIA arbitration could, depending on the content of its response to a request for arbitration, take a first step in the proceedings to contest the merits.

Finally, the sensible course remains that, if at all possible, a respondent should raise its challenge at the earliest possible opportunity. This means that, whether the arbitration is on LCIA or (especially) ICC terms, the soundest approach is to raise it in the response or answer to request for arbitration respectively.

Quadrant Chambers Paul Toms

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