George Lambrou
“Functus officio” and section 67 of the Arbitration Act 1996
by George Lambrou and Dimitris Anassi
Sun United Maritime Ltd v Kasteli Marine Inc (The “Imme”) [2014] EWHC 1476 (Comm)
Arbitration Act 1996, section 67 – Scope – Challenging an arbitral award for lack of substantive jurisdiction – Disputed settlement on costs.
The Imme: The Facts
Sun United (the charterers) and Kasteli (the owners) had been involved in an LMAA arbitration over a charterparty dispute in respect of the “M/V Imme”.
The owners had obtained security for their claim by way of amounts paid into an escrow account that was held by the charterers’ solicitors. The agreement under which those monies had been paid into the account required that amounts would only be released upon production of either a settlement agreement or a final and unappealable judgment or arbitral award.
The owners were largely successful and were awarded their costs. In the award, the tribunal reserved its jurisdiction in respect of the assessment of costs, so the parties’ solicitors entered into negotiations in an attempt to reach agreement over costs. During those negotiations, a dispute arose out of a telephone call between the two solicitors acting for the parties. The owners’ solicitors asserted that no binding agreement on costs had been reached on the telephone, whereas the charterers’ solicitors asserted that a full and binding agreement had been reached on the telephone and, therefore, the tribunal was functus officio and, as such, not capable of making any further award on costs. Upon application, the tribunal held that no agreement had been reached and issued an award on costs.
Dimitris Anassis
Application under the Arbitration Act 1996, section 67
The charterers applied to the court under the Arbitration Act 1996, section 67, claiming that the tribunal had no substantive jurisdiction to decide the dispute that had arisen over costs. The court considered the definition of “substantive jurisdiction” in section 30(1) of the Act, which states:
“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.”
The owners argued that the tribunal had not been asked to deal with any of the above questions (so that section 67 was not applicable) and that the real question that the tribunal had been asked to address was whether or not the parties had reached a binding agreement over costs. The owners added that this was clearly within the scope of the tribunal’s jurisdiction, since the tribunal had expressly reserved its jurisdiction, absent agreement between the parties, to assess costs in its original award. The charterers responded that, in cases where there is an issue whether any disputes remain in the arbitration, this is a dispute within the ambit of section 30(1)(c).
Hamblen J held that the owners were correct that section 30(1)(c) was not applicable. The question was not whether a matter had been “submitted to arbitration in accordance with the arbitration agreement” (a question of law) but whether a binding agreement had been reached (a question of fact). The judge then found that the question of whether a claim that has already been referred to arbitration has been settled is a matter for the tribunal to decide (since it will be a defence to the claim that continues in arbitration) and that the same applied to the matter of costs.
Hamblen J added that this was all in line with section 51 of the Act (dealing with settlements), as even an agreement on costs does not of itself bring the reference to an end.
There are two questions here. First, does an arbitration tribunal have the jurisdiction to determine whether or not a settlement between the parties had been reached? Under the doctrine of kompetenz–kompetenz, there can be little question that it does, and this was common ground between the parties.
Secondly, if a tribunal does determine that it continues to have jurisdiction, and that it is not “functus officio” does either party have a right to bring a claim under the Arbitration Act 1996, section 67 (lack of substantive jurisdiction) or is the only and proper remedy under section 69 of the Act (appeal on a question of law)?
The second question is of interest because it is not difficult to imagine a factual scenario where one party, in the midst of negotiations, may assert that it considers it has reached a final and binding settlement. Until now there does not appear to be any case law on this point, nor much textbook commentary. The court held that the question of whether a claim referred to arbitration has been settled will generally fall within the jurisdiction of the tribunal and the fact of settlement will be a defence to the claim that is already proceeding in arbitration, and as such (as in the case of any other defence), it would be a matter for the tribunal involved in that particular reference to decide on. That decision would, in the usual way, be subject to the legal scrutiny of the Court under s.69.
Despite charterers’ efforts, the court refused to deviate from the definition of “substantive jurisdiction” for the purposes of considering a section 67 application. Such definition is contained in section 30(1), thereby leaving little leeway for applicants seeking judicial protection under section 67, and the complete re-hearing of the dispute it entails, to engage in creative efforts to expand its scope.
