Court of Appeal

Published December 18, 2007

Sumukan Ltd v Commonwealth Secretariat (No 2)

Before Sir Anthony Clarke, Master of the Rolls, Lord Justice Waller and Lord Justice Sedley

Judgment November 15, 2007

Failure to comply with proper procedure in appointing an arbitrator rendered the appointment invalid and the award a nullity.

The Court of Appeal so held, allowing the appeal of Sumukan Ltd, the claimants, against the dismissal on February 14, 2007, by Mr Justice Toulson of their applications under sections 67 and 68 of the Arbitration Act 1996 challenging the validity of an arbitration award on April 25, 2005, made under the Statute of the Commonwealth Secretariat Arbitral Tribunal 1995, amended 1999 and 2004.

Mr Anthony Speaight, QC and Ms Kate Livesey, instructed under the Bar Council’s public access rules, for Sumukan; Mr Colin Nicholls, QC and Mr Tom Poole for the Commonwealth Secretariat; Mr Paul Letman for the Commonwealth Secretariat Arbitral Tribunal, intervening.

LORD JUSTICE WALLER said that the tribunal had held that on the proper construction of a contract between the parties, the title in software, developed by Sumukan for the Commonwealth Secreteriat, had passed to the secretariat. Sumukan attacked the validity of that award.

Mr Justice Colman ([2006] EWHC 304 (Comm)) held that the contract excluded a right of appeal to the courts under section 69 of the Arbitration Act 1996. The Court of Appeal dismissed Sumukan’s appeal (The Times April 13, 2007; [2007] Bus LR 1075).

The applications, which attacked the arbitrators’ substantive jurisdiction under section 67, and the award on the basis of irregularity under section 68 of the 1996 Act, came before Mr Justice Toulson. He dismissed them ([2007] EWHC 188 (Comm)).

Sumukan argued that the contract compelled them to arbitrate before a tribunal effectively appointed by the other party, giving rise to a perception of partiality; and in the process of the appointment of that tribunal, the procedures which might have given them some protection against any lack of independence were not even complied with.

The secretariat and the tribunal maintained that Sumukan were bound by the contract, that the tribunal was totally impartial and any failure to comply with procedures did not undermine its jurisdiction. Sumukan could, in any event, have discovered any of those points with reasonable diligence and section 73 of the 1996 Act precluded them from complaining at that stage.

His Lordship said that Sumukan were bound by the contract. The key issues were: (i) whether any noncompliance with the relevant statute in appointing the president of the tribunal affected the substantive jurisdiction under section 67 of the panel that sat and made its award; and (ii) if so, whether any failures were cured, or Sumukan could with reasonable diligence have discovered the failures, so as to preclude reliance on them by reason of section 73.

His Lordship held that there was noncompliance with the relevant statute in the appointment of the president of the tribunal.

Even if Sumukan were to be taken as having agreed to a tribunal appointed without any input from them and with a major influence of the other contracting party, they were at least entitled to rely on the secretariat’s compliance with any measure which might protect, even slightly, the independence of the panel or the president. The failure to comply had not been cured.

In the arbitration context, the de facto concept did not apply.

Mr Justice Toulson had held that section 73 should not be construed so as to hold that Sumukan could with reasonable diligence have discovered facts which they neither knew, nor believed, nor had grounds to suspect.

Indeed since under the statute, the secretariat was to be instrumental in carrying out the requisite procedures and appreciated that the procedures had not been followed, it could be said that the secretariat ought to have drawn the matter to Sumukan’s attention and to have sought a waiver.

His Lordship said that Sumukan were entitled to rely on the fact that the secretariat would not have proposed a particular tribunal unless the procedures had been complied with. It followed that the award had to be set aside and the matter remitted to a differently and properly constituted tribunal.

The Master of the Rolls and Lord Justice Sedley delivered concurring judgments.

Solicitors: Speechly Bircham LLP; Charles Russell LLP.

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