Case of the week: Arbitration

A decision under the Arbitration Act 1996 s.18(3) appointing a sole arbitrator on the basis that, pursuant to s.15(3) of the Act, there had been no agreement as to the number of arbitrators was caught by the restriction on appeals in s.18(5). Application refused

Itochu Corp v Johann MK Blumenthal GmbH & Co KG. [2012] EWCA Civ 996. Burnton LJ; Gross LJ; Maurice Kay LJ. 24 July 2012

The applicant Itochu applied for permission to appeal against an order providing for the appointment of a sole arbitrator in an arbitration between it and the respondents, Johann MK Blumenthal, under a letter of guarantee.

The letter of guarantee contained an arbitration clause in the following terms: “Any dispute arising out of this letter of guarantee shall be submitted to arbitration held in London in accordance with English law, and the award given by the arbitrators shall be final and binding on both parties”.

The respondent asserted that the clause provided for a sole arbitrator, whereas the appellant argued that it provided for more than one arbitrator so that the tribunal should consist of three arbitrators.

The respondent applied to the Commercial Court for an order under the Arbitration Act 1996 s.18(3)(d) that a particular individual should be appointed as sole arbitrator. The appellant resisted the application, arguing that the court should instead give directions under s.18(3)(a) for the appointment of a tribunal of three arbitrators.

The judge found that s.15(3) applied (this provided that if there was no agreement as to the number of arbitrators the tribunal should consist of a sole arbitrator) and made an order appointing the individual mentioned. The judge also refused an application by the appellant for leave to appeal to the Court of Appeal.

Application refused

The first issue was whether the instant court had jurisdiction to entertain the intended appeal. The answer was no.

The intended appeal was caught by the restriction on appeal provided by s.18(5) of the act. S.18(5) stated that the leave of the court (being the court of first instance) was required for any appeal “from a decision of the court under this section”. S.18(5) applied here because the judge’s decision had been made under s.18(3), even if his reasons (necessarily) encompassed s.15, Virdee v Virdi [2003] EWCA Civ 41 applied, Cetelem SA v Roust Holdings Ltd [2005] EWCA Civ 618, [2005] 1 WLR 3555, ASM Shipping Ltd of India v TTMI Ltd of England (Permission to Appeal) [2006] EWCA Civ 1341, [2007] 1 Lloyd’s Rep 136 and Sumukan Ltd v Commonwealth Secretariat [2007] EWCA Civ 243, [2007] Bus LR 1075 considered.

In any event, the judge had plainly been correct in the conclusion to which he came. The court was content to proceed on the assumption that the parties contemplated more than one arbitrator. Even so, it was impossible to read into the arbitration clause an agreement “as to the number of arbitrators”.

Absent such an agreement s.15(3) provided unambiguously for a default position of a single arbitrator.

For the appellant Itochu Corp; Adam Johnson, Herbert Smith

For the respondents Johann MK Blumenthal; Luke Parsons QC and Stewart Buckingham, Quadrant Chambers. Mark Goodrich, White & Case


Luke ParsonsQC
Luke Parsons QC

Luke Parsons QC

Quadrant Chambers

The judgment in this case sets strict limits on the right of the Court of Appeal (CoA) itself to grant leave to appeal, where permission has been refused by the first instance court.

This reflects the policy behind the Arbitration Act 1996 – to restrict appeals in order to protect parties from unnecessary delay and expense.

If the section under which the first instance order was made contains a restriction on the right to appeal, the CoA will have no right to give permission itself. The restriction applies even if the judge’s reasons depend on consideration of sections of the act that do not contain any restriction.

While the CoA may give permission where the first instance judge had no jurisdiction to make the order, that exception will only apply where the judge had no jurisdiction to hear the application.

The CoA also concluded that where there is uncertainty in the arbitration clause on the number of arbitrators, the default position is that only one arbitrator will be appointed notwithstanding that the parties may have contemplated more than one arbitrator. This again reflects the arbitration policy of reducing delay and expense.