Jamila Khan Partner
Court upholds LMAA tribunal’s jurisdiction to rule on costs
Sun United Maritime Ltd v. Kasteli Marine Inc (IMME)  EWHC 1476 (Comm)
In this recent case, the Commercial Court has affirmed the jurisdiction of the appointed arbitrators to rule on whether the parties reached a binding agreement regarding the recoverable costs of the arbitration.
The background facts
In a LMAA charterparty dispute between Sun United as Charterers and Kasteli as Owners, Owners’ claims had been secured by money paid into an escrow account in the name of Charterers’ solicitors.
There were claims and cross-claims in the arbitration, but Charterers ended up as the paying party. The principal/interest sums payable were paid from the escrow account to Owners’ solicitors; the balance of the escrow funds was sufficient to cover Charterers’ liability for costs.
Before the Tribunal published their Award on costs, an agreement was said to have been reached between the parties’ solicitors over the telephone on 29 May 2013 in respect of Charterers’ liability for costs. Charterers’ solicitor said that it had been agreed during that telephone conversation that Charterers would pay €50,000 in respect of Owners’ recoverable costs; however, Owners’ solicitor said that it was a stated condition during that telephone conversation that a written agreement be drawn up in order for there to be a binding agreement (because only a written agreement would be sufficient in order for the costs to be paid from the monies held in escrow).
Owners contended that because there was no written agreement, there was no binding agreement with regards to costs. They therefore referred the costs issue to the Tribunal.
Charterers contended that an agreement had been reached in relation to costs and that the Tribunal therefore had no jurisdiction to deal with costs on that basis. The Tribunal held that no written agreement had been reached and awarded Owners the sum of €55,661.11 in respect of their recoverable costs.
The Commercial Court decision
Charterers applied to the Commercial Court under section 67 of the Arbitration Act 1996 (the “Act”) on the grounds that the Tribunal had no jurisdiction to make the costs award and also sought permission to appeal under section 69 on the basis of an alleged error of law by the Tribunal.
The section 67 application
The Court, observing that neither party had been able to refer to any authority or textbook on point, held that the dispute did not fall within the scope of section 67 (and so Charterers’ application failed on this first hurdle).
The Act defines a section 67 challenge to the Tribunal’s “substantive jurisdiction” to make its Award as a challenge as to (a) whether there is a valid arbitration agreement; (b) whether the Tribunal was properly constituted; or (c) whether matters have been submitted to arbitration in accordance with the arbitration agreement.
Charterers contended that the issue here (as to whether there remains a dispute in the arbitration reference) fell within (c) in the present case.
The Owners argued in response that the Tribunal had not been asked any of the questions in (a) to (c) – it had been asked to rule whether the parties had bindingly settled all questions of costs; and since the parties had agreed for it to rule on that question, they were bound by its decision.
The Court ruled in favour of the Owners:
- Owners’ claim for recoverable costs was a claim which had been brought in the arbitration reference (which reference includes the power to make an award on costs) and the alleged fact of settlement would be a defence which the Charterers could bring to Owners’ continuing claim for their costs – though even where there is a settlement, it does not generally bring the arbitration reference to an end.
- The issue here was whether a matter which had already been submitted to the Tribunal had been resolved by agreement. It was not an issue as to whether “matters have been submitted to arbitration in accordance with the arbitration agreement”.
- On this basis, section 67 did not apply.
Was there a binding agreement on costs?
The Court alternatively held that, even if section 67 did apply, on the evidence it was satisfied that a written agreement was an essential condition for the costs settlement to be binding – so there was no binding settlement without it. It followed from this, therefore, that the Tribunal had jurisdiction to rule on the issue as to costs.
The section 69 challenge
The Court held that the question of whether or not a final and binding agreement was concluded in the telephone conversation on 29 May 2013 was an issue of fact. As it did not therefore raise any question of law, the Court had no jurisdiction to grant permission to appeal.
The Court found on this occasion that neither section 67 nor section 69 of the Act applied, as the Tribunal had simply made a finding of fact in relation to the question of whether a matter submitted to arbitration had been resolved. This is not something that falls within section 67 or section 69. However, it is suggested that the case may show some support for the arbitral principle of “competence-competence”, namely that the Tribunal has jurisdiction to rule on the existence and scope of its own substantive jurisdiction, as expressed in section 30(1) of the Act.
Of course, parties seeking to compromise any aspect of their arbitral claims would be well advised to make it clear that all verbal discussions are provisional only and subject to written agreement. If it is unclear and a dispute arises in relation to whether a verbal conversation has resulted in a binding agreement settling some aspect of the dispute, this case appears to confirm that there is no basis for challenging the Tribunal’s finding either on grounds of jurisdiction or error of law.
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