Construction Law International - June 2021 - Country Updates: England
Update from the English High Court on preconditions to arbitration: Republic of Sierra Leone v SL Mining Ltd
Freshfields Bruckhaus Deringer, Dubai
Freshfields Bruckhaus Deringer, London
Multi-tiered dispute resolution clauses are a frequent feature in many contracts and are particularly prevalent in the major projects sector. These clauses set out certain preconditions to be met before a dispute can be escalated to a binding form of dispute resolution, such as arbitration or court litigation. The issue of compliance with tiered dispute resolution clauses arises every so often, and the consequences of failing to comply can differ across jurisdictions. On one end of the spectrum, there are instances where a claim may be dismissed for being pre-emptive, while on the other, failure to comply may be treated as a formality and claims may be permitted to proceed.
The English High Court (the ‘Court’) recently considered this question in Republic of Sierra Leone v SL Mining Ltd1(Sierra Leone and SL Mining respectively) by way of a challenge to an arbitral tribunal’s partial final award pursuant to section 67 of the English Arbitration Act 1996 (the ‘Act’). The Court held that non-compliance was ultimately a question of admissibility of the claim before the arbitral tribunal, and not a question of the tribunal’s jurisdiction. As a result, the tribunal’s decision was not open to challenge under section 67 of the Act.
The underlying dispute before the arbitrators related to the suspension and subsequent cancellation of a large-scale mining licence, which contained a multi-tiered dispute resolution clause. In sum, the clause required the parties to ‘in good faith endeavour to reach an amicable settlement’ within a period of three months following the notification of a dispute, following which the dispute could proceed to arbitration in the manner prescribed by the clause.
SL Mining issued a Notice of Dispute on 14 July 2019, followed by an application invoking the Emergency Arbitrator procedure on 20 August 2019. Under the Emergency Arbitration procedure, SL Mining was then required to issue a Request for Arbitration within ten days. Mindful of the multi-tiered dispute resolution clause, SL Mining proposed delaying the issuance of this Request until three months had passed from the Notice of Dispute. However, Sierra Leone refused this proposal. SL Mining issued a Request for Arbitration ten days later on 30 August 2019, approximately six weeks from the date of the Notice of Dispute.
Sierra Leone raised a challenge before the tribunal that arbitration could not be commenced before 14 October 2019 at the earliest, being three months from the issuance of the Notice of Dispute, and as a result, the tribunal had no jurisdiction. A subsidiary argument before the tribunal equally challenged the Emergency Arbitrator procedure.2 The arbitral tribunal ultimately concluded that it had jurisdiction over the claims brought by SL Mining.
Sierra Leone’s challenge before the Court proceeded under section 67 of the Act, which provides that an application may be made to the Court to challenge the ‘substantive jurisdiction’ of an award. ‘Substantive jurisdiction’ is in turn defined under section 82(1) of the Act as matters specified in section 30(1) as follows:3
‘30 Competence of tribunal to rule on its own jurisdiction.
(1) Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to—
(a) whether there is a valid arbitration agreement,
(b) whether the tribunal is properly constituted, and
(c) what matters have been submitted to arbitration in accordance with the arbitration agreement.’
Sierra Leone claimed that pursuant to section 30(1)(c), given arbitral proceedings could not be commenced until the lapse of the prescribed three-month window for negotiations, the dispute had not been submitted to arbitration as contemplated by the parties’ arbitration agreement.
In reaching its decision, the Court considered the following four questions:
- Was the challenge to the alleged prematurity of the award within section 67 of the Act?
- Had Sierra Leone waived the condition precedent?
- What is the proper construction of the multi-tiered dispute resolution clause?
- Did SL Mining breach the multi-tiered dispute resolution clause?
In line with the Act’s stance on limited court intervention, only matters of jurisdiction could be brought before the Court for the purposes of a challenge under section 67.4 The parties agreed that there is a distinction between challenges where a claim is allegedly not admissible before a tribunal (admissibility) and challenges whereby the tribunal is said to have no jurisdiction to hear a claim (jurisdiction). This common ground aligned with previous Court jurisprudence.
In finding the distinction between jurisdiction and admissibility, the Court surveyed the views of ‘leading academic writers’, finding that the overwhelming support in a challenge such as the present, does not go to matters of jurisdiction. Irrespective of those views, however, the matter under English law is whether the question of prematurity falls within section 30(1)(c) of the Act. Although the claimant put forward an argument that the distinction between jurisdiction and admissibility was to be resolved by reference to the precise wording of the dispute resolution clause in question, the Court held there is no difference between a clause that provides:
‘No arbitration shall be brought unless X’ and ‘In the event of X the parties may arbitrate’.
In delineating the difference between jurisdiction and admissibility, the Court cited a passage from the Singapore Court of Appeal in BBA v BAZ:
‘Jurisdiction [and so susceptibility to a s 67 challenge] is commonly defined to refer to “the power of the tribunal to hear a case”, whereas admissibility refers to “whether it is appropriate for the tribunal to hear it”’.5
The question before the Court, therefore, is not whether the issue is arbitrable, as contemplated by section 30(1)(c), but rather whether the claim has been presented prematurely. Ultimately, section 30(1)(c) was not engaged by the condition precedent which required the provision of a period for amicable settlement. As a matter of admissibility, the question was one for the arbitrators to determine.
The Court in obiter discussed whether Sierra Leone had waived any non-compliance with the prescribed three-month period by insisting arbitration be commenced on 30 August 2019, instead of agreeing to the proposal of the emergency arbitrator to defer service to 14 October 2019. The Emergency Arbitrator ordered service of the Request for Arbitration on 30 August 2019, and while it included an expression of willingness for a stay, if so ordered, no such stay was sought. The Court opined that irrespective of a stay, Sierra Leone by insisting on service, consented to service with the effect of waiving the three-month period (if it otherwise applied). Ultimately, the Court’s decision did not turn on arguments of waiver.
Had the requirement to amicably attempt settlement not been waived, the Court considered whether non-compliance would bar the pre-emptive issuance of the Request for Arbitration, which was a matter of the proper construction of the clause. The Court held that the three-month period did not act as an absolute bar to proceedings, but rather provided a window to explore settlement, and enable earlier commencement of proceedings if amicable settlement could not be reached. This required an objective consideration as to whether the additional six weeks for settlement discussions would have brought about an amicable settlement. In this respect, the Court held ‘there was not a cat’s chance in hell of an amicable settlement by 14 October’. On that basis, SL Mining had not breached the clause on its proper construction.
The Court’s decision is not by any means surprising, considering leading commentary and international practice. It is significant however, in that it continues to demonstrate England as an arbitration-friendly jurisdiction, when viewed from the lens of limiting national court intervention in arbitration. In this decision, the Court has signalled it will not entertain jurisdictional challenges pursuant to section 67 on the grounds of non-compliance with a condition precedent, where the question raised is more appropriately categorised as one of admissibility rather than of tribunal jurisdiction. This case has also provided welcome clarity following the widely criticised case of Emirates Trading Agency LLC v Prime Mineral Exports Pte Ltd,6 which dealt with a condition precedent in a multi-tier dispute resolution clause as an issue of jurisdiction under section 67 of the Act.
Ultimately, non-compliance with multi-tiered dispute resolution clauses still carries certain risks, and parties should not breach apparent condition precedents without caution. For instance, a party to a dispute may challenge the admissibility of a claim before an arbitral tribunal, who is entitled to rule that the dispute, or indeed certain claims, are premature. In such circumstances, a party risks having to comply with certain preconditions before appointing a new tribunal, and in doing so incurs unnecessary delays and costs.
It does, however, remain to be seen whether a court would differ in its decision where the fulfilment of a condition precedent is also expressed as a condition to consent to arbitration, and so arguably goes to the very jurisdiction of a tribunal.
1  EWHC 286 (Comm).
2 This subsidiary argument was swiftly dismissed by the Court, holding that the Claimant, Sierra Leone, had consented to the adoption of the Emergency Arbitration Procedure. See Republic of Sierra Leone v SL Mining Ltd  EWHC 286 (Comm), para 5.
3 English Arbitration Act 1996, s 30(1).
4 English Arbitration Act 1996, s 1(c).
5 Republic of Sierra Leone v SL Mining Ltd  EWHC 286 (Comm), para 18.
6  1 WLR 114.
|Stefan Pislevik is a Legal Consultant at Freshfields Bruckhaus Deringer in Dubai.
He can be contacted at email@example.com.
Natalie Keir is an Associate at Freshfields Bruckhaus Deringer in London. She can be contacted at firstname.lastname@example.org.