An issue that may arise in arbitration is whether a party’s failure to comply with a dispute resolution clause (DR clause – also referred to as an ADR clause, tiered clause or an escalation clause) gives rise to an issue of admissibility, and therefore for the arbitral tribunal to determine, or whether it is an issue of jurisdiction, in which case it will be for the Commercial Court to determine under section 67 of the Arbitration Act 1996.

The distinction between admissibility and jurisdiction is important. If the arbitral tribunal lacks jurisdiction over a particular issue, then it cannot render an award on the merits of that issue, and if it does, then the award is susceptible to challenge in the national courts (if the seat of arbitration is London, then the challenge will be heard in the Commercial Court). Admissibility, on the other hand, concerns whether the arbitral tribunal may exercise its powers to determine the merits in respect of the claims submitted to it. Furthermore, although the issue of jurisdiction can be challenged in the courts, the arbitral tribunal’s decision on admissibility cannot generally be reviewed by the courts. In the recent important decision of NWA v NVF [2021] EWHC 2666 (Comm), Mr Justice Calver considered the issue of compliance with a pre-arbitral DR clause and whether it was an issue of admissibility or jurisdiction.

The DR clause required the parties to engage with mediation before commencing arbitration under the London Court of International Arbitration (LCIA) Rules. The defendants issued a request for arbitration which included a stay in order for the parties to engage with mediation. The claimant did not respond to the LCIA’s request for its views on the defendant’s request following which the LCIA appointed a sole arbitrator who rendered a partial award, finding that the agreement of the parties to engage with mediation was not a condition precedent to the commencement of the arbitration and that he had substantive jurisdiction to determine the matter. The claimants issued an application in the Commercial Court challenging the award under section 67 on the grounds that no mediation had taken place and, therefore, the arbitrator lacked jurisdiction to decide the dispute.

Calver J noted that the central issue was whether the failure to comply with the obligation to engage with mediation was a matter affecting the admissibility of the claim or whether it went to the tribunal’s substantive jurisdiction. Calver J referred to the guidance by Lord Hoffmann in Premium Nafta Products Ltd & Others v Fili Shipping Company Ltd [2007] UKHL 40 (the ‘Fiona Trust’) on the interpretation of arbitration clauses. In that case, Lord Hoffmann held that the proper approach when construing an arbitration clause ‘requires the court to give effect, so far as the language used by the parties will permit, to the commercial purpose of the arbitration clause’.

Following that guidance, it was clear to Calver J that the parties as rational businessmen consensually agreed and intended that any dispute in connection with their agreement should be referred to arbitration. He rejected the claimant’s argument that the dispute is not arbitrable because the parties did not seek settlement through mediation; that contention concerned the admissibility of the claim, rather than whether the arbitrator had jurisdiction to determine the claim at all. Calver J also cited with approval the decision of Sir Michael Burton in Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm) in which the court rejected the claimant’s contention that the arbitrators lacked jurisdiction because the parties had failed to engage in settlement negotiations before commencing arbitration; the court held that the challenge concerned the admissibility of the claim, rather than jurisdiction.

As Sir Michael put it: ‘In interpreting the parties’ agreement, the better approach is to presume… that pre-arbitration procedural requirements are not “jurisdictional”. As a consequence, in most legal systems, these requirements would presumably be both capable of resolution by the arbitrators and required to be submitted to the arbitrators (as opposed to a national court) for their initial decision. Similarly, the arbitral tribunal’s resolution of such issues would generally be subject to only minimal judicial review in subsequent annulment or recognition proceedings.’

Calver J held that the dispute had been validly referred to arbitration and that it was for the arbitrator to determine the consequences of any alleged breach of the procedural condition to first engage with mediation. The fact the parties had agreed that both the mediation and arbitration would be controlled by the LCIA court reinforced the conclusion that LCIA mediation was part of the procedure which must be followed in respect of the LCIA arbitral reference, which was a procedural matter for the tribunal to determine. He also rejected the claimant’s argument that the failure to engage with mediation meant that there was no valid arbitration agreement pursuant to section 30(1)(a) because the failure to comply with a procedural condition of this type within the arbitration agreement does not affect its validity or make the arbitration agreement itself inoperative. Thus, the arbitration agreement had not ceased to have legal effect.   

NWA and Sierra Leone are significant because they confirm that pre-arbitral dispute resolution obligations are not matters of jurisdiction, rather they are a matter of admissibility which are for arbitral tribunals to determine. Both cast further doubt on the decision in Emirates Trading Agency LLC v Prime Mineral Exports Pte Ltd [2015] 1 WLR 1145 in which a challenge to a time condition precedent was accepted by Tear J as appropriate pursuant to section 67, thereby depriving the arbitral tribunal of its powers to determine the issue. In Emirates the issue of admissibility was not argued and section 67 jurisdiction was simply assumed without argument. By following the reasoning in Sierra Leone, NWA provides welcome judicial clarification and guidance on the issue which seeks to uphold and protect the institution of international commercial arbitration.

Masood Ahmed is an associate professor at the University of Leicester and a member of the Civil Procedure Rule Committee

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