JSC Zestafoni G Nikoladze Ferroalloy Plant & Ors v Ronly Holdings Ltd

An ad hoc arbitration agreement made by two parties to a multi-party contract may validly confer jurisdiction between those parties, even where the contract’s arbitration clause specifies a different tribunal. The agreement does not bind the other parties unless the contracting parties had authority to bind them.

A contractual clause requiring written variation signed by the parties may apply to the arbitration clause. A party’s several liability and enforcement rights do not, without more, authorise it to vary that clause alone. A jurisdiction objection must ordinarily be raised before the arbitrator on every ground later relied upon under section 67 of the Arbitration Act 1996.

The claimant applied under sections 67 and 69 of the Arbitration Act 1996 concerning an interim award by a sole arbitrator. The underlying agreement was made between two groups of parties and contained an arbitration clause requiring a three-member tribunal.

The defendant and the claimant later agreed by correspondence to appoint a sole arbitrator. The arbitrator held that he had jurisdiction and that the defendant could sue in its own name for sums said to be due under the agreement. The claimant challenged jurisdiction and sought permission to appeal on title to sue. The central issues were whether the later agreement was binding, whether it could be challenged on Georgian-law and public-policy grounds, and whether the arbitrator was plainly wrong on title to sue.

1. Section 67 application dismissed. All three challenges to jurisdiction failed.
2. The agreement to appoint a sole arbitrator was a variation of the arbitration clause. The contractual requirement for written variation signed by the duly authorised representatives of the parties applied to that clause. Ronly’s authority under the group-party provisions did not extend to varying the arbitration agreement alone, and all four parties’ authorised representatives would have been required for such a variation under the underlying contract.
3. That conclusion did not prevent Ronly and Zestafoni Plant from making a separate ad hoc arbitration agreement between themselves. The correspondence, particularly the signed and stamped confirmation of 28 May 2002 received on 30 May, established agreement to appoint Mr Kinnell as sole arbitrator. The agreement could confer jurisdiction over disputes between those two parties, although it could not bind Fapet or Redwater without authority to do so.
4. The Georgian-law objection was barred by section 73(1) of the Arbitration Act 1996. A party continuing to participate without raising each known or reasonably discoverable jurisdiction objection cannot later raise it under section 67. The claimant failed to show that it lacked the relevant knowledge or could not with reasonable diligence have discovered the alleged absence of Ministry of Justice authorisation.
5. The court further observed that, even if Georgian law rendered the ad hoc agreement void, it was impliedly governed by English law, made in England when the fax was received, and performable in England. The foreign-law public-policy principle in Regazzoni v K C Sethia (1944) Ltd did not apply where performance involved no unlawful act in the foreign state.
6. Permission to appeal under section 69 was refused. Clause 19 entitled Ronly to receive and sue for sums due from Zestafoni in its own name, and the arbitrator was plainly correct on that issue.