Attacking Reference or Award by Non-Party

Section 72 of the Arbitration Act 1996 provides a right of challenge for a person who does not participate in arbitral proceedings to which it is alleged that he is a party, but which he denies.  Sections 30 to 32 provide a route for admitted parties to challenge the extent of the tribunal’s jurisdiction but that is plainly not an option for a party who denies it is a party to the alleged contract.

The options available to such a party are, firstly, to ignore the proceedings.  The risk is that an enforceable award may follow and the challenge will have to come at the stage of a Court granting leave to enforce.  That can be a high risk strategy.  In England that would be on the basis that the tribunal lacked substantive jurisdiction (s.66(3)) but the party needs to be aware of the different jurisdictions that enforcement would be available and the relevant ability to challenge enforcement in each jurisdiction.  Of course, many jurisdictions will have similar enforcement provisions by reason of the New York Convention.

The second option is by Court proceedings seeking a declaration of invalidity and / or an injunction to restrain the arbitral proceedings: Law Debenture Trust v Elektrim Finance [2005].  The Court may grant such a declaration or an injunction, for example, where there is a forged signature to the alleged agreement: Albon v Naza Motor [2007] or where an award is obtained by fraud: Arab National Bank v El-Abdali [2005].

The third option is to participate, challenge the jurisdiction under s.30 and, if necessary, challenge the award under s.67.  Any s.30 challenge to the tribunal must be undertaken promptly having regard to s.73.  Where a party challenges before the tribunal its jurisdiction and fails, there can be no valid objection to his participating thereafter in a determination on the merits: Hackwood v Areen Design Services [2005].

In yet another eminently sensible decision the Court of Appeal has taken a broad view on the ambit of the “proceedings” referred to in s.72. In Broda Agro Trade v Alfred Toepfer [2010] T commenced arbitration proceedings against B under the rules of GAFTA claiming damages for breach of an alleged contract for the supply by B to T of a quantity of milling wheat. B took the view that no contract was concluded and requested GAFTA not to accept jurisdiction. The GAFTA tribunal issued an interim award on jurisdiction concluding that there was a binding contract. B did not participate in the steps leading to that interim award.  In the substantive dispute B served and filed submissions but continued to maintain that there was no binding contract. The tribunal held that B was in breach of contract and awarded damages to T. The judge held that, although B had not taken part in the proceedings leading to the interim award on jurisdiction, it had taken part in the proceedings on the merits and therefore could not make an application questioning whether there was a valid arbitration agreement under s. 72. B submitted that on its true construction the reference in s.72 to a person “who takes no part in the proceedings” was to a person who did not take part in the proceedings in which the tribunal decided whether it had substantive jurisdiction.

The Court of Appeal held that the wording of s.72 was clear. There was no basis for an implied restriction of the words “takes no part in the proceedings” to the proceedings relating to the determination of the substantive jurisdiction of the arbitrators. The purpose of the requirement was clear. A person who considered that he had not entered into an arbitration agreement was entitled to ignore the arbitration proceedings. If he took that course, his right to claim relief from the court could not be restricted because he did not participate in those proceedings. If, on the other hand, he participated in the proceedings, whether in relation to the jurisdiction of the arbitrators or in relation to the exercise of their asserted substantive jurisdiction, and was disappointed by their decision, he could fairly be required to bring proceedings to challenge their award within the limited time applicable to an application under s.67.

It is clear from Broda Agro that if the strategy of no-participation is followed it must be complete and a party cannot partially participate and try and ‘have its cake and eat it.’  Non-participation must be total.

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