In Guangzhou Dockyards Co Ltd v ENE Aegialii [2010] EWHC 2826 (Comm), the High Court recently upheld the well-established principle that under English law, appeals against arbitral awards cannot be made on issues of fact. The case did, however, present the novel argument that it would be permissible to bring such an appeal either under the Arbitration Act 1996 (the Act) or under the inherent jurisdiction of the court where there was an agreement between the parties that an appeal could be made on “any issue arising out of any award”.

Background

By a contract dated 7 November 2007, the parties agreed that the claimant (GD) would convert a crude carrier owned by the defendant (ENE) into an ore carrier. However, the work could not be done and a dispute arose as to the cause. The terms of the contract included a choice of law and arbitration clause (Article 22) which provided that the contract would be governed by English law, that disputes were to be referred to arbitration in London and that either party could appeal to the High Court against the arbitration award on “any issue”.

The arbitration panel decided in favour of ENE and ordered GD to pay damages of US $59,614,214 plus interest and refund ENE’s first instalment payment of US $9,250,000 plus interest. GD subsequently launched two appeals in the High Court. The first was grounded on issues of law under section 69 of the Act (which was pending at the time of this decision and was not in issue before the court). The second was an appeal on an issue of Chinese law. In accordance with English law, this is treated as an issue of fact and so cannot be appealed. As such, ENE made an application to strike it out.

The application was heard before Mr Justice Blair who had to determine three principal issues: (1) whether the court could hear such an appeal on the basis of the meaning of section 69 of the Act and the principle of party autonomy enshrined in section 1(b) of the Act; (2) whether such an appeal could be heard on the basis of the inherent jurisdiction of the court; and (3) whether Article 22, on its true construction, did in fact constitute an agreement between the parties that an appeal could be made on an issue of fact.

Party Autonomy and Section 69 of the Act

GD submitted that the Act reflects the general English law concept of freedom of contract. This was evidenced by section 1(b) which stipulates that “the parties should be free to agree how their disputes are resolved”. GD also referred to section 69 of the Act, which deals with appeals on questions of law and begins “Unless otherwise agreed by the parties…”. GD contended that these opening words underscored the principle of party autonomy and were intended to have a wide ambit, such that the parties could agree to diverge from the strict wording of the Act and make their own arrangements. The parties could, therefore, agree that an appeal under section 69 could be made to the High Court on an issue of fact.

Blair J held that section 69 only provided for an appeal to the court on a question of law. The opening words of section 69 simply concerned an agreement between the parties in the context of an appeal on a question of law. They could not “be construed as expanding the jurisdiction of the court to include an appeal to the court on a question of fact on the basis that the parties had agreed to such an appeal…”.

Inherent Jurisdiction of the Court

GD submitted that since the contemplated appeal on the facts was not expressly prohibited by the Act and was consistent with the principle of party autonomy, it fell within the court’s inherent jurisdiction, akin to an ordinary claim for breach of contract. Article 22 provided that the award would only become a final, unappealable award after being referred back to the arbitrators following a final, unappealable judgment of the English High Court. Consequently, as the award was non-binding at the time of the present appeal, GD argued it could be reviewed in its entirety. This was consistent with the principles in the Act as stated at section 1(b), which dealt with party autonomy and section 1(c) (which prohibited the court from intervening in the arbitration except as provided by Part 1 of the Act). GD submitted there would be no true “intervention” on the part of the court in this case because the parties had provided for the court’s involvement as part of the arbitral process.

Blair J was not persuaded by these submissions. He agreed with ENE that section 1(b) of the Act did not bestow wide powers upon the parties, but instead focused on the conduct of the arbitration. Moreover, if the court were to entertain an appeal on the facts, this would certainly constitute an “intervention” as prohibited by section 1(c) of the Act. He concluded that the present appeal could not be properly compared to an ordinary breach of contract claim such that the court’s original jurisdiction was invoked, because the present appeal related to the arbitration award, rather than the underlying facts giving rise to the dispute.

Blair J stated that GD could only succeed in maintaining its factual appeal if, on the basis that parties had agreed to such an appeal, the court had an inherent jurisdiction to hear it. Having considered the earlier judgment of Mustill J (as he then was), in Finelvet AG v Vinava Shipping Co Ltd (The Chrysalis) [1983] 2 All E.R. 658, he stated that “it is very doubtful that the court has jurisdiction to hear an appeal from arbitrators on questions of fact, even if the parties were to agree to such an appeal.” However, Blair J went no further than this in his analysis on the basis that there was no requirement to consider the issue of the court’s jurisdiction unless the parties had in fact made an agreement to allow an appeal on an issue of fact.

Agreement to Hear an Appeal on the Facts

In relation to the true construction of Article 22, GD submitted that key phrases demonstrated that the parties had intended to widen the scope of their agreement and that it was not for the court to impose a different bargain to that which had been agreed. Article 22 stated that “any issue” could be subject to an appeal and failed to make any qualification which would limit an appeal to an issue of law. ENE countered this position, stating that very clear words were required to depart from the well-established principle that arbitrators’ findings of facts could not be challenged in subsequent appeals by the parties.

Blair J agreed with ENE and stated the phrasing in Article 22 was of limited significance when considered in context. Instead of attempting to expand the court’s jurisdiction to hear factual appeals (which would have required far clearer expression to be the proper construction), the parties had merely intended to dispense with the requirement to obtain permission for an appeal on a question of law in accordance with section 69 of the Act.

Impact of the Case

This case demonstrates that English courts have no appetite for undermining the finality of arbitral awards and will only consider putting the decisions of arbitrators under scrutiny in very limited circumstances. This desire for finality as to the facts decided by an arbitrator will, it seems, override the respect which is given to the principle of party autonomy.

Blair J’s decision reinforces the well-established rule that appeals under section 69 of the Act are strictly confined to issues of law. It also strongly suggests that the court’s inherent jurisdiction will not extend to hearing an appeal on a question of fact (including a question of foreign law), even in circumstances where there was clear agreement between the parties that such an appeal was permitted. The decision therefore provides a significant degree of certainty to parties in drawing up their arbitration agreements, effectively eliminating the scope for further appeals on questions of fact.