Azov Shipping Co v Baltic Shipping Co

Factual and Procedural Background

An arbitration was initiated by Company A against Company B, both former Soviet shipping companies, concerning disputes arising from the breakup of the USSR. The dispute centered on whether Company B was a party to an agreement among several ex-Soviet shipping companies addressing container issues. This agreement contained an arbitration clause binding only on parties to it.

The parties agreed that if jurisdiction existed (i.e., if Company B was a party to the agreement), a sole arbitrator would be appointed. The arbitrator was initially tasked with deciding his jurisdiction under section 30 of the Arbitration Act 1996, with Company B reserving its right to dispute jurisdiction.

A three-day hearing on jurisdiction took place before the arbitrator, who ultimately ruled that Company B was a party to the agreement and that he had jurisdiction. The arbitrator noted some uncertainty in his decision despite oral evidence and cross-examination, and found Company B’s expert witness to be evasive and partisan.

Company B, as the losing party, challenged the arbitrator’s jurisdictional award under section 67 of the Arbitration Act 1996.

Legal Issues Presented

1. Whether, following a full hearing on jurisdiction before the arbitrator under section 30, a party challenging the arbitrator’s jurisdictional award under section 67 is entitled to a complete rehearing before the court with oral evidence and cross-examination.
2. The appropriate procedural approach and court directions for such a challenge, including the scope of evidence permissible.
3. The application and interpretation of sections 30, 32, 67, and 72 of the Arbitration Act 1996 in the context of jurisdictional challenges.

Arguments of the Parties

Appellant's (Company B's) Arguments

• Company B contended it was entitled to challenge the arbitrator’s jurisdictional award under section 67 with full oral evidence and cross-examination before the court, effectively a rehearing of the arbitrator’s jurisdictional determination.
• They argued that justice required such an approach, especially given the arbitrator’s admitted uncertainty and the partisan nature of the expert evidence before him.
• Company B sought directions for mutual exchange of supplementary witness and expert statements followed by oral evidence, allowing a full presentation of their case on jurisdiction.

Appellee's (Company A's) Arguments

• Company A submitted that permitting a full rehearing with oral evidence on jurisdiction would be unjust, uneconomical, and cause unnecessary duplication of costs.
• They argued that parties wishing to challenge jurisdiction substantially should either participate fully in the arbitrator’s jurisdictional hearing under section 30 or stand aloof and seek court determination under sections 72 and 67 without rehearing.
• Company A emphasized the importance of finality and efficiency, cautioning against allowing challenges that would routinely duplicate arbitrator hearings.
• On procedural directions, Company A proposed mutual exchange of supplementary witness and expert statements before oral evidence, aligning with trial-like procedures.
• Company A sought costs for the application, arguing the point was novel but properly ventilated.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court analyzed the statutory framework under the Arbitration Act 1996, focusing on sections 30, 32, 67, and 72, which govern jurisdictional challenges and the role of the court versus the arbitrator.

The court acknowledged three procedural options for challenging arbitrator jurisdiction: participating in the arbitrator’s jurisdictional hearing under section 30, seeking court determination under section 32 (subject to strict conditions), or standing aloof and applying for court relief under section 72 and subsequently challenging the award under section 67.

While recognizing the policy favoring arbitration efficiency and the narrow scope for court intervention under section 32, the court concluded that in this case, given the full hearing before the arbitrator and the arbitrator’s admitted uncertainty, justice required permitting Company B’s challenge under section 67 to proceed with oral evidence and cross-examination before the court. This would allow the court to properly assess factual and foreign law issues without being bound by the arbitrator’s findings, especially since the arbitrator found the opposing expert witness partisan.

The court balanced the potential prejudice to expedition and cost against the imperative of justice, concluding that justice must prevail, even if it entails increased time and expense.

The court also addressed procedural directions, ordering mutual exchange of supplementary factual and expert witness statements followed by oral evidence, with timelines adjusted to reflect the parties’ prior experience.

Regarding costs, the court found it appropriate for Company B, as the successful party in this application, to recover costs.

Finally, the court considered the question of leave to appeal on the fundamental point of principle raised but refused leave, indicating that any appeal would have to be sought from the Court of Appeal.

Holding and Implications

The court granted Company B’s application to challenge the arbitrator’s jurisdictional award under section 67 with oral evidence and cross-examination before the court.

The court ordered directions for a rehearing on jurisdiction including mutual exchange of supplementary witness and expert statements followed by oral evidence, with extended timelines reflecting the parties’ needs.

Costs of this application were awarded to Company B.

The decision underscores that where substantial factual and foreign law issues arise on arbitrator jurisdiction, and the arbitrator’s findings reflect uncertainty, the court may permit a full rehearing on jurisdictional challenges under section 67, notwithstanding concerns about cost and expedition. This does not establish new precedent but clarifies the court’s discretion to ensure justice in complex jurisdictional disputes.