The Republic of Kazakhstan v Istil Group Ltd.

Where a first-instance judge determines a challenge to an arbitral tribunal’s substantive jurisdiction under section 67 of the Arbitration Act 1996 and refuses permission to appeal, the Court of Appeal has no jurisdiction to grant permission. Section 67(4) is compatible with article 6.

A residual jurisdiction permits review of the fairness of the process by which permission was determined. It applies only where a substantial procedural defect invalidates that decision. An error of law, perversity or disagreement with the judge’s reasoning is insufficient. The jurisdiction is exceptionally narrow and cannot be used to circumvent statutory finality.

An arbitral tribunal awarded Istil Group Ltd approximately US$6 million against the Republic of Kazakhstan. The Republic challenged the award under section 67 of the Arbitration Act 1996, contending that the tribunal lacked substantive jurisdiction.

David Steel J set aside the award and refused permission to appeal. Istil applied to the Court of Appeal, arguing that section 67(4) should be read compatibly with article 6 as permitting the Court of Appeal to grant permission. It alternatively alleged procedural unfairness and a failure by the judge to engage with material arguments.

The central issues were whether the Court of Appeal possessed jurisdiction to grant permission and whether the judge’s determination fell within the residual jurisdiction protecting procedural fairness.

1. Appeal dismissed. The Court of Appeal had no jurisdiction to grant permission to appeal after the first-instance judge had determined the section 67 challenge and refused permission. Athletic Union of Constantinople v National Basketball Association [2002] EWCA Civ 830 was binding on that issue.

2. Section 67(4) of the Arbitration Act 1996 was compatible with article 6, provided it was read as preserving the narrow residual jurisdiction recognised in CGU v AstraZeneca [2006] EWCA Civ 1340. That jurisdiction permits the Court of Appeal to review the fairness of the process by which permission was determined. It does not permit reconsideration merely because the decision was legally wrong or perverse.

3. The restriction pursued the legitimate statutory aims of resolving arbitral disputes fairly and without unnecessary delay or expense, and limiting court intervention. A jurisdictional objection ordinarily receives consideration first by the tribunal and then by the court under section 67. Treating any further appeal as effectively a second appeal was therefore appropriate. Entrusting the first-instance judge with the final assessment of whether an appeal had a reasonable prospect of success was proportionate.

4. The judge had engaged with Istil’s argument that the unchallenged partial award was binding under section 58. He concluded that Istil first had to challenge the final award’s determination that the partial award was a nullity. Whether that reasoning was right or wrong did not establish procedural unfairness or a failure to engage.

5. The judge’s oral reasons showed that he applied the reasonable-prospect-of-success test. A difference of wording in later written reasons did not displace the oral judgment or demonstrate application of a stricter test.

6. Longmore LJ emphasised that the residual jurisdiction would succeed only exceptionally and must not become a means of subverting statutory finality. Toulson LJ agreed, adding that limited court control is integral to the optional arbitral regime. Arden LJ agreed with both judgments, while leaving open whether the partial award would have been useless to Istil following the corporate mergers.

1. Court of Appeal (Civil Division): Dismissed the appeal and held that it lacked jurisdiction to grant permission after the first-instance judge’s refusal, subject only to the narrow residual jurisdiction concerning procedural fairness: [2007] EWCA Civ 471.
2. Queen’s Bench Division (Commercial Court): David Steel J held that the arbitral tribunal lacked substantive jurisdiction, set aside the final award under section 67 of the Arbitration Act 1996, and refused permission to appeal. No citation is stated in the judgment.