Where a party takes part in arbitral proceedings without raising any objections, as provided under section 73 of the Arbitration Act 1996, then that party will lose its right to raise an objection at a later stage, unless it can demonstrate ‘…he did not know and could not with reasonable diligence have discovered the grounds for the objection’.
The Court of Appeal recently provided guidance on the issue of ‘participation’ in arbitral proceedings in the case of Frontier Agriculture Ltd v Bratt Bros (A Firm)  EWCA Civ 611. The case also dealt with the application of section 67 of the act.
Section 67 confers on a party the right to make an application to the court to challenge the substantive jurisdiction of an arbitral tribunal. Section 70 requires any such application to be made within 28 days of the date of the award. Section 73 provides as follows: ‘Loss of right to object.
(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this part, any objection –
(a) that the tribunal lacks substantive jurisdiction,
(b) that the proceedings have been improperly conducted,
(c) that there has been a failure to comply with the arbitration agreement or with any provision of this part, or
(d) that there has been any other irregularity affecting the tribunal or the proceedings, he may not raise that objection later, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection.
(2) Where the arbitral tribunal rules that it has substantive jurisdiction and a party to arbitral proceedings who could have questioned that ruling–
(a) by any available arbitral process of appeal or review, or
(b) by challenging the award, does not do so, or does not do so within the time allowed by the arbitration agreement or any provision of this part, he may not object later to the tribunal’s substantive jurisdiction on any ground which was the subject of that ruling.’
Frontier v Bratt Bros
The parties entered into two contracts which provided that any dispute shall be referred to arbitration and determined in accordance with the arbitration rules of the Agricultural Industries Confederation Limited.
A dispute subsequently arose between the parties and the respondent, Frontier, attempted to commence arbitration proceedings against the appellant, Bratt Bros. Although Bratt Bros agreed to the appointment of an arbitrator under the first contract, it consistently denied that it had entered into the second contract and refused to participate in the arbitral proceedings.
The arbitration proceeded without Bratt Bros and an award was subsequently made against it. Bratt Bros subsequently applied to have the arbitral award set aside on the grounds that it had not entered into the second contract and Frontier had failed to serve various documents in accordance with the arbitral rules. Frontier countered by arguing, inter alia, that Bratt Bros had participated in the arbitration and had lost its right to object under section 73 of the act. The judge at first instance, Blair J, found that Bratt Bros had participated in the arbitration and had, as a result, lost its right to contest the arbitral tribunal’s jurisdiction.
The parties repeated their arguments before the Court of Appeal.
Giving the judgment of the court, Sir Stanley Burnton made clear that, where a party participates in the appointment of an arbitrator without qualification, then that party is to be taken to have participated on the arbitration proceedings for the purposes of section 73. In the present case, there were two arbitration agreements which could have been the subject of individual arbitrations.
If Bratt Bros had clearly accepted the appointment of the arbitrator in respect of the first contract but disputed his appointment in relation to the second contract on the ground that it had not entered into that contract, and had maintained that rejection of the arbitrator’s appointment in relation to that contract, then Bratt Bros would not have taken part in the subsequent arbitration in so far as it concerned the second contract. It followed that whether Bratt Bros had lost the right to challenge the substantive jurisdiction of the arbitrator in relation to the second contract turned on the email correspondence between the parties and the arbitrator.
Analysing the correspondence between the various parties it was clear that Frontier and the arbitrator believed that Bratt Bros had accepted the appointment of the arbitrator in relation to both arbitrations.
However, the correspondence was to be viewed objectively. It was clear from the correspondence that Bratt Bros made clear it would not accept any arbitration under the second contract because it did not recognise it. This objection had not, according to Burnton’s assessment of the correspondence, been abandoned by Bratt Bros and it followed that he did not lose the right to challenge the arbitrator’s substantive jurisdiction in relation to the second contract.
However, it was not sufficient for a party simply to deny the existence of an agreement to arbitrate; that party must demonstrate a real prospect of success. A mere denial will not generally suffice. The arbitrator had found that the second contract had been entered into Bratt Bros’s computer system, had been confirmed in writing, and had appeared in the quarterly statements sent to Bratt Bros. Burnton noted that there was nothing to show that the arbitrator had any witness statement or oral evidence as to the making of what would have been an oral contract confirmed in writing.
His lordship held: ‘Whether a party’s case has a real prospect of success must be determined taking into account the evidence on both sides. Neither we nor the judge had any witness statement evidencing the making of contract No. 2. I accept that confirmations were sent, but their receipt, at least by Mr Bratt, is denied. In this evidentially sparse situation, my view is that the appellant has shown he has a real prospect of success.’
Allowing the appeal, the court noted that Bratt Bros’s argument in respect of the substantive jurisdiction of the arbitrator could and should have been raised in respect of the first contract.
As Frontier makes clear, an objective approach must be adopted when considering whether a party has participated in arbitral proceedings and this will require a careful assessment of the relevant evidence. Where a party consistently argues that it is not a party to a contract containing an arbitration agreement then that party will retain its right to raise objections under section 73 of the act.
Therefore, a party wishing to commence arbitration must ensure that it has the evidence necessary to prove that the objecting party was a party to the contract containing the arbitration agreement. A failure to do this will, as Frontier illustrates, lead to the incurring of unnecessary and substantial costs to the parties.
Masood Ahmed, University of Leicester