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Pragmatism in the High Court: Correcting errors in arbitration

22 September 2016. Published by Amelia Payne, Associate and Jonathan Wood, Head of International Arbitration

The High Court has held that the words "any errors of a similar nature" within r27.1 of the London Court of Arbitration Rules 1998 covered clarifying or removing ambiguity within an award by a tribunal.

In an example of high court pro-arbitration pragmatism in Xstrata Coal & ors v Benxi Iron and Steel, the High Court has granted an application under s78 of the Arbitration Act 1996 to extend the time-limit within which a party could apply to the tribunal to correct an ambiguity regarding the identity of a claimant, under Article 27 of the LCIA Rules 1998.

 

The facts

The Defendant agreed to buy a large amount of coking coal. There were four sellers acting in a joint venture, consisting of the three claimants and another company. The other company was either the fourth claimant or another.  


The agreement between the buyer and the sellers was known as the "Oaky Contract" and was signed "for an on behalf of the Seller" by Xstrata Queensland Pty Limited and dated 15 August 2008. The Oaky Contract described the 'Seller' as:


"SELLER: Xstrata Coal Queensland Pty Limited (ABN 69098156702) as agent for the Oaky Creek Joint Venturers (being Sumisho Coal Australia Pty Limited, Xstrata Coal Queensland Pty Ltd, Itochu Coal Resources Australia Pty Limited and ICRA NCA Pty Limited) …"


A dispute arose under the Oaky contract and was referred to arbitration in London. The tribunal issued an award requiring the buyer to pay to the claimants $27,846,000 as well as interest and costs. Paragraph 109 of the award made by the tribunal stated:


"The Oaky Contract defines the 'Seller' XCQ 'as agent for the Oaky Creek Joint Venturers', which jointly comprises all four individual claimants…"


A problem arose, however, as a result of a separate agreement dated 31 December 1997 (and restated as at 1 March 2005), and named the Oaky Creek Joint Venture Agreement, four companies confirmed that they had by the agreement "associated themselves in an unincorporated joint venture, known as the 'Oaky Creek Joint Venture'…".


The fourth company identified in the Oaky Creek Joint Venture Agreement was ICRA OC Pty Limited, not ICRA NCA Pty Limited (the company named as an Oaky Creek Joint Venturer under the Oaky Contract).


The Award incorrectly named ICRA OC Pty Limited as one of the joint claimants, rather than ICRA NCA Pty Limited. No reasons were provided by the tribunal as to why it was treating ICRA OC Pty Ltd as a party to the arbitration rather than ICRA NCA Pty Limited.

The buyer did not pay the award ordered by the tribunal.


All of the claimants made an application to the Shenyang Intermediate People's Court in China (the buyer is incorporated in China and conducts trade there as well) for recognition and enforcement of the award under the 1958 New York Convention. The buyer successfully argued that the application for recognition and enforcement of the whole Award should be refused on the basis that ICRA OC Pty Limited (the fourth claimant named in the award), was not a party to the Oaky Contract and could not be entitled to any award in the arbitration


The Shenyang Intermediate People's Court issued a decision on 25 April 2014 and stated that:


"Shenyang Court found that there is no contractual relationship between ICRA OC and the Respondent [the Buyer], therefore, the arbitration agreement does not exist. Therefore, ICRA OC shall not be deemed as one of the claimants under the arbitration request submitted to LCIA (the tribunal)…"


The claimants, including ICRA OC, sought to address the issue by requesting the tribunal to use its authority under Article 27 of the applicable LCIA Rules.  Under Article 27 any application for a correction of the Award has to be made within 30 days of the publication of the Award. The claimants approached the tribunal on 30 May 2014, having awaited the Shenyang ruling, but were informed by the LCIA that "while sympathetic to the claimants' position…absent agreement of the parties or an order from a competent court extending time for the application" the tribunal was "functus officio".

 

Decision

The Commercial Court was therefore presented with a request that it extend the deadline, using its powers under section 79 of the Arbitration Act 1996. Section 79(1) of the Act provides:


"Unless the parties otherwise agree, the court may by order extend any time limit agreed by them in relation to any matter relating to the arbitral proceedings…"


Section 79(4) explains that such extension may be made even after the time limit has already expired. The Court observed that, in practice, in almost all occasions, the time limit under Article 27 of the LCIA Rules 1998 would "expire before the outcome was known of a contested attempt under the New York Convention to obtain recognition and enforcement of an award in another country".


The court also considered s57 of the English Arbitration Act 1996 as this permits the arbitral tribunal to correct an award so as to remove "any error arising from an accidental slip or omission or clarify or remove any ambiguity…".  S57 had been considered by the court previously in the case of Torch Offshore LLC v Cable Shipping Inc in which the court held that the Act permitted a party to request reasons from the tribunal where none had previously been given.


The court in the present case, considered that the "errors of a similar nature" described in Article 27(1) were addressing materially the same issues as the "ambiguity" described in s57. It would therefore be appropriate for the tribunal to correct the error contained in the Award. The court stated:


"The absence of an explanation from the arbitral tribunal thus leaves uncertainty about the Award, and that impedes the arbitral process. Justice requires that that uncertainty be resolved…"


The court also found that there had been no undue delay by the claimants in making the s79 application; they had acted reasonably in awaiting the outcome of the Chinese proceedings.

 

Comments

The decision demonstrates the English High Court's relatively pro-arbitration stance and its willingness to work pragmatically to ensure the smooth operation of the arbitral process by ensuring the process can correct itself where ever possible. The Court has also clarified that it is not essential for parties to seek clarification prior to bringing enforcement proceedings to honour an award. While in some cases parties might not be equipped with sufficient information regarding the impact of an error prior to receiving a court's ruling on enforcement, in this case the fact the tribunal awarded damages to a party who was not a party to the arbitration agreement perhaps was an issue which could have been addressed prior to enforcement.