Itochu Corporation v Johann MK Blumenthal GmbH & Co & Ors

Where the High Court appoints an arbitrator under section 18 of the Arbitration Act 1996, the decision is one under that section even if it requires construction of section 15. If the judge refuses leave, section 18(5) prevents the Court of Appeal from granting leave or entertaining an appeal.

The restriction does not apply where an anterior issue shows that the judge lacked power to make an order under the relevant section. A dispute about the number of arbitrators did not have that character, because it necessarily fell to be resolved in making the section 18 appointment.

Obiter, an arbitration clause which does not state the number of arbitrators engages the default in section 15(3): a sole arbitrator, even if the parties contemplated more than one arbitrator.

The respondents alleged breach of a ship sale agreement by a seller controlled by Itochu Corporation and claimed under Itochu’s letter of guarantee. The guarantee required disputes to be arbitrated in London under English law but did not specify the number of arbitrators.

The respondents applied under section 18(3)(d) of the Arbitration Act 1996 for appointment of a sole arbitrator. Itochu sought directions under section 18(3)(a) for a three-member tribunal. Andrew Smith J held that section 15(3) applied and appointed Mr Stephen Hofmeyr QC as sole arbitrator. He refused leave to appeal.

The Court of Appeal considered whether section 18(5) nevertheless permitted an appeal on the basis that the dispute raised an anterior question under section 15, and, if so, the proper construction of the arbitration clause.

1. Permission to appeal was refused. The order appointing an arbitrator was, both in form and substance, a decision under section 18(3) of the Arbitration Act 1996. Section 18(5) therefore applied. Since Andrew Smith J had refused leave, the Court of Appeal had no jurisdiction to entertain Itochu’s intended appeal.
2. The relevant question is the character of the order appealed from, not the statutory provisions forming the judge’s reasons. An order made under section 18 remains such an order although the court must construe and apply section 15 in deciding how to cure a failed appointment procedure. The appeal was against the appointment order, not the reasons for it.
3. Cetelem and Sumukan concerned true anterior questions: whether the court could exercise the relevant statutory jurisdiction at all. Here, however, the High Court had jurisdiction to decide the competing applications under section 18(3), whichever view it took of the number of arbitrators. The construction issue under section 15 did not place the decision outside section 18.
4. Obiter, Gross LJ held that the merits would also have failed. Even assuming that the parties contemplated more than one arbitrator, the clause contained no agreement as to their number. Section 15(3) therefore required a sole arbitrator. The default rule supports, rather than improperly intrudes upon, the arbitral process where the appointment procedure has failed.
5. Stanley Burnton LJ agreed, stressing that an appeal is from the lower court’s order rather than its reasons. Maurice Kay LJ also agreed.

• Court of Appeal (Civil Division): permission to appeal refused; the court held that section 18(5) of the Arbitration Act 1996 barred the intended appeal.
• Commercial Court: Andrew Smith J appointed a sole arbitrator under section 18(3)(d) and refused leave to appeal. The rulings were dated 3 and 18 February 2012 respectively.