X v Y & Anor

Preliminary issues are appropriate where they raise discrete questions of law with a real prospect of substantially reducing the scope, cost and length of an arbitration challenge. The court must weigh the possible saving against the risks of duplication, delay, increased costs and irrelevance. A party’s entitlement to a full judicial determination of jurisdiction does not prevent suitable issues being tried first. The issues may be determined on assumed facts where the legal questions do not depend on the amount or extent of alleged corruption. The court should order preliminary issues where they are capable of being divorced from the merits and there is a realistic prospect that they will dispose of substantial parts of the application.

X applied under sections 67 and 68 of the Arbitration Act 1996 to challenge an arbitration award concerning a contract for the sale of goods. X alleged that the contract and arbitration agreement had been procured by bribery and corruption, challenged the assignment of the contract to Z, and alleged serious irregularities concerning corruption findings, public policy, decision-making and tribunal conduct.

Y and Z sought the determination of several preliminary issues, principally concerning separability, Iranian law, assignment, public policy and the scope of the section 68 complaints. X contended that all issues, including corruption, should be tried together. The central question was whether the proposed issues were suitable for, and should be ordered as, preliminary issues.

1. The court ordered the proposed preliminary issues, save for issue 5.2 concerning civility and decorum. The issues concerned discrete questions of English or Iranian law and had a real prospect of determining the jurisdictional challenge and much of the serious-irregularity challenge without a lengthy trial of the corruption allegations.

2. The proposed separability issues were suitable for preliminary determination. The submission that the arbitration agreement would not be invalidated merely because the main contract was allegedly procured by corruption had a real prospect of success. The issue could be determined through expert evidence of Iranian law.

3. The issues concerning whether corruption made the contract void or voidable, the effect of participation in the arbitration, assignment under article 16.1, the Iranian doctrine of lazarar, and the adequacy of the pleaded jurisdiction points were also suitable for preliminary determination. For those issues, the alleged corruption was to be assumed for the purpose of the preliminary hearing where necessary.

4. The public-policy issue was suitable for preliminary determination. There was a real prospect that an award which had considered the corruption evidence but rejected the allegation could not be characterised as contrary to public policy. The further questions concerning English and Iranian public policy were discrete legal issues.

5. The complaints about the tribunal’s treatment of the corruption evidence arguably could not amount to a serious irregularity within section 68, and that question was suitable for preliminary determination. The related complaint about civility and decorum was to be tried with the complaint concerning the alleged exclusion of the dissenting arbitrator.

6. The court applied the case-management factors identified in Steele v Steele and the succinct-knockout-point guidance in Boyle v SCA Packaging Ltd. The likely substantial saving of time and expense outweighed the risks of duplication and delay. The order was therefore just and convenient.

7. The entitlement to a full judicial determination of jurisdiction recognised in Dallah Real Estate & Tourism Holding Company v Ministry of Religious Affairs of the Government of Pakistan did not require every issue to be determined in a single hearing.