The Claimant and the Defendant had entered into a Long Term Contract (LTC) for the purchase of 500,000 MT of 58% iron ore fines per annum for 5 years. The LTC provided for arbitration in London in accordance with the Rules of Arbitration of the International Chamber of Commerce (ICC).
Disputes arose between the Parties due on failure on the part of the Claimant to lift any quantity of ore from the third shipment year. About 18 months after the Claimant had lifted its previous shipment, the Defendant terminated the LTC and commenced arbitration.
The Claimant challenged the jurisdiction of the Tribunal on the grounds that the Defendant had failed participate in friendly negotiations for a continuous period of three months before initiating arbitration proceedings, which was a condition for invocation of arbitration as provided in the LTC in Clause 10 – “Any Party may notify the other Party of its desire to enter into consultation to resolve a dispute or claim. If no solution can be arrived in between the parties for a continuous period of three (3) months, then the non-defaulting Party can invoke the arbitration clause.”
The Tribunal issued a Partial Final Award on Jurisdiction wherein it rejected the objections raised by the Claimant and held that it had the jurisdiction to decide the matter because the friendly negotiation provision was too uncertain to be enforceable in law.
The Claimant failed to challenge the award within 28 days as provided under Section 70(3) of the Arbitration Act[1]
After the Partial Final Award on Jurisdiction was issued, two arbitrators (out of the three member tribunal) had to be replaced. The Parties were invited by the re-constituted tribunal under Article 12(4) of the 1998 ICC Rules to make submissions as to whether any of the proceedings conducted before the previous tribunal should be repeated. The Claimant requested a fresh hearing on their jurisdictional challenge but the tribunal refused this submission as the Claimant had not raised any objections as to the independence of the arbitrators or the correctness of the Award.
The Final Award was issued on 2nd September, 2014. The Tribunal upheld the defendant’s claim in full, along with interest and costs. The Claimant challenged the Final Award under Section 67 of the Arbitration Act[2] on same grounds contended in the Jurisdiction Award.
The defendant argued that “the issue has been finally and conclusively decided by the Tribunal in the Jurisdiction Award, from which there was no appeal. Accordingly an issue estoppel arises and the present application is barred by s. 73(2) of the Act.”
Challenge of Award under Section 67 of the Act
A partial award or an interim final award is final and binding with respect to the matters it decides under Section 58 of the Act[3]. Furthermore, Article 28 of the ICC Rules also provides that “every award” shall be binding on the Parties.
This position is further reinforced by Section 73(2) which bars a Party from raising an objection regarding the Tribunal’s jurisdiction later if it fails to challenge or appeal or review the tribunal’s ruling on this matter when it had the opportunity to do so.[4]
Thus, the failure of the Claimant to challenge the Partial Final Award on Jurisdiction within 28 days created an issue estoppel preventing them from challenging the Final Award under Section 67 on the same grounds that already been settled finally.
The Court also ruled that the discretionary power vested in a re-constituted tribunal to reopen prior proceedings did not prevent an issue estoppel from arising because a re-constituted tribunal does not have the power to review or change a decision which has become final and binding with respect to the matters it decides. Thus, the replacement of arbitrators has no bearing on the finality of an interim award issued by the Tribunal before its re-constitution.
Analysis
This decision is a reminder that partial or interim awards issued by a tribunal seated in England must be challenged in a timely fashion to prevent an issue estoppel. The powers of a re-constituted tribunal under Section 12(4) of the 1998 ICC Rules were also interpreted narrowly to prevent unnecessary objections by the losing Party in the event that some of the arbitrators need to be replaced. The decision is very pro-arbitration as “any other conclusion would be contrary to the scheme of speedy finality inherent in the 1996 Act and in international arbitration.”
[1] Section 70(3) of the Arbitration Act, 1996: Any application or appeal must be brought within 28 days of the date of the award or, if there has been any arbitral process of appeal or review, of the date when the applicant or appellant was notified of the result of that process.
[2] Section 67 of the Arbitration Act, 1996: (1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court—
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).
[3] Section 58 of the Arbitration Act, 1996:
[4] Section 73 of the Arbitration Act, 1996: (2) Where the arbitral tribunal rules that it has substantive jurisdiction and a party to arbitral proceedings who could have questioned that ruling—
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.
By : Adv. Niharika Dhall info@lawsenate.com
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