Law Debenture Trust Corporation Plc v Elektrim Finance BV & Ors

A person who challenges the existence, scope or constitution of an arbitration may apply to the court under section 72 of the Arbitration Act 1996 without submitting the jurisdictional dispute to the arbitrators. Mere correspondence asserting that the tribunal lacks jurisdiction does not necessarily amount to participation in the arbitration.

Where the arbitration agreement gives one party an express option to litigate, that option may be exercised despite an arbitration already commenced by another party. The court should construe the agreement commercially, but should not impose limits or notification requirements which its wording does not contain. A stay should not ordinarily send a root-and-branch jurisdiction challenge to the tribunal whose authority is disputed.

Law Debenture, trustee of bonds issued by Elektrim Finance BV and guaranteed by Elektrim SA, commenced proceedings for payment following acceleration of the bonds. The trust deed contained an arbitration clause, but also gave Law Debenture and the bondholders an exclusive option to apply to the English courts.

The Elektrim defendants sought a stay under section 9 of the Arbitration Act 1996 and contended that the arbitral tribunal should determine its own jurisdiction. Law Debenture sought declarations under section 72 and an injunction restraining continuation of the arbitration. The central issues were whether Law Debenture had participated in the arbitration, whether the court should determine jurisdiction, and whether clause 29.7 permitted litigation despite the arbitration clause.

1. Law Debenture was entitled to invoke section 72 of the Arbitration Act 1996. The expression “alleged to be a party” covers a person challenging whether the proceedings are properly arbitrable against it, including a challenge to the matters submitted to arbitration.

2. Law Debenture had taken no part in the arbitration. Its letters asserted that there was no arbitral jurisdiction and sought to prevent an appointment. Saying that it would nominate an arbitrator if the court later found jurisdiction did not constitute an appointment. A telephone response giving no information about future participation was likewise insufficient.

3. The court should determine the jurisdiction issue. The challenge involved construction of the trust deed, not a fact-intensive inquiry. Sending the matter to the arbitrators would incur unnecessary expense and could require the claimant to submit to the authority it disputed. A stay under sections 9 or 49(3) of the Supreme Court Act 1981 was therefore refused.

4. Clause 29.2 contained the general arbitration agreement, but clause 29.7 operated notwithstanding it. Clause 29.7 gave Law Debenture and the bondholders an exclusive option to apply to the English courts. The Elektrim parties could be required to arbitrate, subject to counterclaim where court proceedings were brought, but Law Debenture could not be forced to arbitrate if it elected to litigate.

5. The option could be waived by commencing or sufficiently participating in an arbitration, but no waiver had occurred. The court rejected a construction making the result depend on which party first commenced proceedings. The stays were refused, Law Debenture was entitled to maintain the proceedings, the dispute fell outside the arbitration provisions in the circumstances, and an injunction was granted restraining the guarantor from pursuing the arbitration.

Not stated in the judgment.