Kyla Shipping Company Ltd v Bunge S.A.

The Court of Appeal has no jurisdiction to grant permission to appeal where the High Court has refused permission under section 69(8) of the Arbitration Act 1996. Its residual jurisdiction is confined to setting aside an apparent refusal produced by a fundamental failure in the decision-making process.

An error of law, an arguably incorrect reason or perversity does not suffice. The defect must concern the integrity or fairness of the process and be so substantial that the refusal cannot properly be regarded as a decision. This is an extraordinarily high threshold, applied with particular care to preserve the statutory finality of arbitration.

An arbitrator found that a time charterparty had been frustrated after the vessel was seriously damaged and the probable repair cost exceeded its market value. The charterers obtained permission under section 69 of the Arbitration Act 1996 to appeal on the effect of a contractual warranty requiring hull and machinery insurance at a stipulated level.

Flaux J allowed that appeal. He held that the charterparty allocated to the owners the risk of repair costs within the insured value and therefore was not frustrated. He subsequently refused the owners permission to appeal under section 69(8).

The owners applied to the Court of Appeal to set aside that refusal. The central questions were whether the Court of Appeal could itself grant permission and whether the High Court's reasoning involved a fundamental defect in the fairness or integrity of the decision-making process.

1. The application was refused unanimously. Section 69(8) of the Arbitration Act 1996 entrusts permission to appeal to the High Court. The Court of Appeal therefore had no jurisdiction to grant permission against the High Court's refusal. Its only possible intervention was to set aside that refusal through its narrow residual jurisdiction.

2. The residual jurisdiction addresses the integrity of the decision-making process, not the correctness of the decision. It arises where bias, chance, whim, personal interest, unfairness or another fundamental failure means that the apparent refusal cannot properly be characterised as a decision. An error of law, inadequate merits reasoning or perversity is insufficient. The process must contain such a substantial defect in fairness that the decision is invalidated. The threshold is extraordinarily high and the jurisdiction must not be used to circumvent the statutory finality of arbitration.

3. Hamblen J's preliminary conclusion, reached on the papers, that the proposed question was of general public importance did not bind Flaux J after the substantive appeal. Flaux J had heard extensive adversarial argument and delivered a detailed judgment. He was entitled to conclude that the dispute turned upon particular contractual clauses and its own facts. In any event, his separate conclusion that a further appeal had no real prospect of success independently precluded residual intervention.

4. The complaint concerning Flaux J's observation that the underwriters were prepared to repair the vessel was likewise no more than criticism of a reason. His central and unexceptionable point was that the owners had elected to cease performance without repairing the ship. The additional inference concerning the underwriters was supported by the award.

5. Nor had Flaux J exceeded his jurisdiction by reconsidering general importance or relying upon an inference not expressly recorded as an arbitral finding. The Court of Appeal declared that it lacked jurisdiction to grant permission and expressly refused to set aside Flaux J's order.

1. Court of Appeal (Civil Division): In [2013] EWCA Civ 734, declared that it had no jurisdiction to grant permission to appeal and refused to set aside Flaux J's refusal of permission.

2. High Court, Commercial Court (Flaux J): Allowed the charterers' section 69 appeal, held that the charterparty was not frustrated, and subsequently refused the owners permission to appeal under section 69(8) of the Arbitration Act 1996.

3. High Court (Hamblen J): Granted the charterers permission to appeal the arbitral award under section 69 after concluding on the papers that the proposed question was of general public importance and that the arbitrator's decision was open to serious doubt.

4. Arbitration: The arbitrator held that the insurance clause did not require the owners to use insurance proceeds for repair and that the charterparty was frustrated because repair costs exceeded the vessel's value.