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Generative AI: A global guide to key IP considerations
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United Kingdom | Publication | 十月 2024
In a recent decision, the English High Court struck out what it described as a ‘hopeless and abusive’ claim that amounted to a de facto challenge to an award issued in a London-seated LMAA arbitration and, in doing so, issued useful guidance on:
Similar to Czech Republic v Diag Human SE (which we reported on here), this judgment is a reminder of the importance of raising jurisdiction objections in a clear and timely manner during an arbitration, and pursuing available challenges under the Act promptly.
The dispute between the Claimant, Tumpuan Megah Development (TMD), and the Defendants, O.W. Bunker (OWB) and ING Bank (ING), has a long procedural history involving two sets of arbitral proceedings in London and Malaysia before the English Court proceedings.
To summarise briefly:
In the London arbitration, TMD amended its grounds of jurisdictional challenge two years after commencement of proceedings to add an argument that the SOA AA was the exclusive and applicable forum-selection covering all dealings between the parties such that a London-seated tribunal had no jurisdiction over the dispute.
By the London Award, the tribunal rejected TMD's challenge on the basis that:
Shortly after the London Award, TMD commenced an arbitration in Malaysia against OWB and ING advancing a claim for breach of the SOA AA.However, in the Malaysian Award, the tribunal determined that it did not have jurisdiction to consider the merits of TMD’s claim due to the preclusive effect of the London Award.
TMD did not challenge the London Award under section 67 of the Act and OWB and ING obtained an English judgment enforcing it (the Cockerill Order). TMD also had the opportunity to challenge the Cockerill Order under section 66(3) of the Act, but again did not do so. OWB and ING then sought to have the Cockerill Order recognised in Malaysia (and did not pursue the more conventional New York Convention enforcement route because of the ongoing Malaysian arbitration and a desire to reinforce res judicata effect of the London Award in England).
TMD did however seek to set aside the Malaysian Award in Malaysia on grounds of alleged bias and denial of natural justice and then challenged registration of the Cockerill Order, again in Malaysia. Both applications are pending before the Malaysian courts.
The Court dismissed TMD’s claim, finding that the English litigation amounted to a challenge to the London tribunal’s jurisdiction ruling in substance, if not in form, and the issue of whether the SOA AA conferred jurisdiction upon a Malaysia-seated tribunal (not a London-seated one) was one that had been determined by the London Award, and had res judicata effect between TMD, OWB and ING.
In so finding, the Court observed that:
Rather than challenge jurisdiction within the London arbitration (an ‘active’ challenge), TMD could have started a parallel arbitration in Malaysia or sought an anti-arbitration injunction (a ‘passive’ challenge). However, having opted to make an active challenge before the London-seated tribunal, TMD had invited that tribunal to determine the issue. Its only recourse in those circumstances was a challenge before the English courts under the Act, a route that was barred because of TMD’s failure to comply with the Act’s requirements (however procedurally creative TMD’s claim). The Court found that, where a party fails to question a tribunal’s ruling on jurisdiction within the appropriate time limits, “Section 73(2) operates as a form of statutory issue estoppel within this jurisdiction”.
TMD also argued that, where it had chosen to exercise its rights to make a 'passive' challenge in Malaysia rather than an ‘active’ challenge in England under the Act, the status of the SOA AA could not be conclusively determined by the London Award, the Cockerill Order or the English courts. It required a global inquiry as to the legal effect (if any) of the London Award.
The Court agreed that a party’s right to challenge an arbitral award before courts was “inalienable”, observing as follows:
“[…] an award debtor or other party who disputes arbitral jurisdiction in whole or in part may avail itself of either (and in some instances both) of its so-called 'active' or 'passive' rights of challenge. No arbitral tribunal has authority to self-certify its own jurisdiction. This depends on private consent and autonomy which can only ultimately be determined by a court with appropriate jurisdiction. The right to have such elemental matters determined in court is inalienable in the sense that a party cannot enforceably forego or compromise such right, even though it may choose not to use or exercise it (fully or otherwise) when available or may lose it through non-compliance with mandatory conditions. This accords with public policy as reflected in the scheme of the NYC and the 1996 Act in this jurisdiction.”
However, the Court was not however persuaded the English courts should take into account TMD’s passive challenges in Malaysia. TMD had chosen to make a substantive claim in England and the Court’s concern was the legal effect of the London Award and/or Cockerill Order as a matter of English law. The existence of pending challenges to registration/recognition of the Cockerill Order or the validity of the Malaysia Award in another jurisdiction was not relevant to the question of the London Award’s legal effect in England.
The Court therefore found that TMD’s claim was precluded by the findings of the London Award as enforced by and endorsed in the Cockerill Order. While the findings of the Malaysia Award (which dismissed TMD’s very similar arbitration claim on very similar ground) fortified the inherent sense and justice of the Court’s decision, it did not affect the legal analysis.
The Court’s judgment highlights the important difference between 'active' and 'passive' jurisdiction.
Active (also known as ‘proactive’ or ‘offensive’) challenges target the arbitration itself and are subject to the exclusive jurisdiction of the courts of the seat. For English arbitrations, active challenges can made prospectively under sections 32 and 72 of the Act or retrospectively under sections 66(3) and 67, in each case subject to section 72.
Passive (also known as ‘reactive’ or ‘defensive’) challenges target international award enforcement (usually under the New York Convention) because attacking the validity of an arbitration agreement is a ground for resisting enforcement. A party’s right to make a passive challenge before the court seised of a process seeking enforcement of a foreign award is independent and inalienable. As nothing the arbitral tribunal says can affect the court's decision, questions such as issue estoppel as a result of the prior determination of the tribunal or the curial court, do not arise.
However, if a party intends to embark on an active challenge by raising the matter before the tribunal, it must comply with the requirements of the applicable procedural law (i.e. the law of seat) when pursuing the challenge otherwise there is a risk that its right to do so may be lost. For English arbitrations, that means raising any active challenge “forthwith” or within time limits agreed between the parties (including under institutional rules), determined by the tribunal or under the Act, and challenging any tribunal ruling on jurisdiction within time limits agreed between the parties or set out under the Act.
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