Integral Petroleum SA v Melars Group Ltd

On a jurisdiction challenge under Arbitration Act 1996, the court conducts a rehearing of the tribunal’s jurisdiction, rather than a review of its decision. The scope of an arbitration agreement depends on its wording, read in its commercial context. A clause referring to disputes under an agreement may extend to disputes under a cancellation agreement where the parties have accepted that construction, but it does not thereby cover every dispute factually connected with the transaction. A tribunal which fails to recognise jurisdiction over a dispute within the arbitration agreement may nevertheless produce an inconsequential error where it would necessarily have rejected the claim on the merits. Relief under section 67 is discretionary.

Integral Petroleum SA applied under section 67 of the Arbitration Act 1996 to set aside an LCIA award dated 13 November 2013 and remit its claims for determination.

The claims concerned debt-collection and criminal proceedings brought by Melars Group Ltd in Switzerland. Integral alleged that those proceedings breached a settlement clause in an agreement cancelling an earlier gasoil sale contract. The arbitrator concluded that Integral’s claims fell outside the arbitration agreement. The central issues were whether the tribunal had jurisdiction over the settlement-clause dispute and, if so, whether the court should grant relief.

1. Rehearing. On an application under section 67 of the Arbitration Act 1996, the court rehears the issue of jurisdiction and does not merely review the tribunal’s decision. Oral evidence may therefore be heard.
2. Scope of the arbitration agreement. The agreement covered disputes under the original sale contract. The parties accepted that the arbitration clause also applied to the cancellation agreement. It followed that the tribunal had jurisdiction to decide whether Melars’s Swiss proceedings breached the second sentence of the settlement clause, and to determine any resulting relief.
3. The arbitration agreement did not extend to every dispute concerning the Swiss proceedings. Its wording could cover disputes whose resolution depended on applying the settlement clause, but the expression “hereunder” could not permissibly be interpreted as covering all claims arising from the wider factual background or from a separate contract between Melars and Dartex.
4. Relief. Section 67(3) gives the court a discretion to confirm, vary or set aside an award in whole or in part. Although the tribunal erred in failing to recognise jurisdiction over the settlement-clause dispute, the error was inconsequential. The arbitrator had made clear that he considered the settlement clause inapplicable to the Swiss proceedings and would have rejected Integral’s claim in any event. That conclusion was correct and was not realistically challengeable under sections 68 or 69.
5. The section 67 application was refused. The tribunal was entitled, and consistently with the unchallengeable reasoning in the award was bound, to reject all the claims.