Central Trading & Exports Ltd v Fioralba Shipping Company

On a challenge to an arbitration award under section 67 of the Arbitration Act 1996, in what circumstances can the court prevent a party from relying on evidence which is relevant and admissible, but was not adduced before the arbitrators? Does it matter that the party who now seeks to rely on new evidence to challenge the award failed to comply with orders made by the arbitrators that such material should be produced? On this application the claimant, who seeks to challenge an award made by experienced maritime arbitrators Colin Sheppard and David Farrington dismissing its cargo claim on the ground that it did not have title to sue, submits that the court’s power to prevent new evidence being adduced is very limited and that its failure to comply with the arbitrator’s order is irrelevant.

The claimant’s claim is for loss and damage to a cargo of bagged rice carried from Thailand to Nigeria pursuant to five bills of lading on board the defendant’s vessel “KALISTI.” The voyage was completed, and discharge was commenced, as long ago as 17 September 2009. The bills were subject to English law and each contained a London arbitration clause. The claimant claims that it became the holder of the bills and that rights of suit were transferred to it pursuant to the provisions of the Carriage of Goods by Sea Act 1992. It accepts that it became the holder at a time when the bills were spent, discharge having taken place without production of the bills pursuant to letters of indemnity, but contends that it did so “by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such a right to possession ceased to attach to production of the bill.” If that is so, it has title to sue in accordance with the Act. The defendant challenges this contention, pointing to evidence which suggests that any such arrangements may only have been put in place at a later stage. The substantive issue for determination at a hearing now fixed for 13/14 October 2014 is whether the claimant became the holder of the bills pursuant to such prior arrangements.

There is no doubt that the defendant is a party to contracts of carriage containing valid arbitration clauses. Equally, there is no doubt that, if the claimant has any rights at all, those rights are subject to an arbitration clause and it is obliged to arbitrate its claim. However, if the claimant cannot bring itself within the scope of the 1992 Act, the consequence is that its claim not only fails on the merits for lack of title to sue, but there is no contract between the parties and therefore no arbitration clause which binds the defendant to submit to arbitration by this particular claimant. In such circumstances, what are the parties to do?

One obvious solution in such circumstances would be for the parties to agree to submit the issue of the claimant’s title to sue to binding arbitration. There could be no serious objection to that course. The claimant wants to arbitrate its claim and the defendant (which has stipulated for arbitration in the bills of lading which it has issued) obviously has no objection to arbitration as a process to resolve precisely this kind of dispute. If that course is taken, the arbitrators will produce an award which, subject only to the possibility of a section 69 appeal on a question of law, will be final and binding. That ought to satisfy both parties.

Another possibility would be to agree not to arbitrate the title to sue issue, but to go straight to decision by the court. If either party wants to reserve the possibility of a section 67 jurisdictional challenge to an unfavourable decision by the arbitrators, for which permission is not required, that course would save time and costs. If the court holds that the claimant has title to sue, the arbitrators could then determine any remaining issues about responsibility for any loss and damage to the cargo. If not, the claim will be at an end. However, that course would require the parties’ agreement or the permission of the tribunal under section 32 of the 1996 Act.

What does not appear to be sensible is what the parties actually did in this case, which was to have full argument on the merits of the title to sue issue before the arbitrators with extensive written submissions, all under cover of a reservation by the defendant as to the arbitrators’ jurisdiction – with the consequence that, if the defendant lost, its right to challenge the award under section 67 was preserved. Ironically, it was the claimant who lost, so that it is the claimant (who contends that the arbitrators had jurisdiction and ought to have held that it had title to sue) who now challenges the award and the defendant (who contended that the arbitrators had no jurisdiction) who now seeks to uphold the award.

In fact, although this is formally a section 67 challenge on jurisdictional grounds, the award itself says nothing about jurisdiction. It is described as an award on a preliminary issue, and simply determines the substantive issue of title to sue, concluding that the claimant did not become holder of the bills and that its damages claim for US $1,705,966.66 must therefore be dismissed.

However, it is common ground in these circumstances that the claimant is entitled to bring a challenge to the award under section 67.

A series of first instance cases has made clear that a section 67 challenge involves a rehearing (and not merely a review) of the issue of jurisdiction, so that the court must decide that issue for itself. It is not confined to a review of the arbitrators’ reasoning, but effectively starts again. That approach has been confirmed by the Supreme Court in Dallah Real Estate & Tourism Holding Company v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46, [2011] 1 AC 763, which also makes clear that the decision and reasoning of the arbitrators is not entitled to any particular status or weight, although (depending on its cogency) that reasoning will inform and be of interest to the court.

Lord Mance put the matter in this way at [26]:

Lord Collins said this at [96]:

I draw attention to Lord Mance’s reference to “a full judicial determination on evidence” and to the approval of the Azov Shipping case.

The question then arises whether the claimant is limited to the evidence which was before the arbitrators, or whether it is entitled (and if so, subject to what constraints) to adduce further evidence on this section 67 challenge.

Often, at any rate where both parties have taken a full part in the arbitration (albeit subject to an objection as to jurisdiction), the evidence to be placed before the court will be the same as that which was before the arbitrators. In such a case no difficulties about evidence will arise. But that is not necessarily so. Obviously a party who has taken no part in the arbitration proceedings, whose right to invoke section 67 is expressly set out in section 72, will be entitled to adduce evidence, so that the evidence before the court will inevitably be different from the evidence before the arbitrators. Even where there has been full evidence and argument before the arbitrators, however, there is nothing in the Act to limit the evidence which may be adduced before the court on a section 67 challenge.

The question whether there is any such limitation did not arise in Dallah, but has been considered in some of the first instance cases.

It first arose in the Azov Shipping case, where the issue was whether, after a full hearing before the arbitrators, the party challenging the award could seek an order for directions “with the full panoply of oral evidence and cross examination”. Rix J held that it could:

In a case where there is oral evidence and cross examination, the evidence before the court will inevitably be different from the evidence before the arbitrators, even if it is broadly to the same effect.

Colman J referred to this approach in Kalmneft v Glencore International A.G. [2002] 1 Lloyd’s Rep. 128, saying:

Three points should be noted. First, it does not appear that the question whether to admit further evidence on a section 67 challenge actually arose for decision in that case. Second, Colman J appears to have contemplated not only that new evidence could be adduced but even that evidence which the arbitrators had refused to admit might (at least in some circumstances) be adduced on a section 67 challenge before the court. Third, he referred to the possibility of serious prejudice being suffered, giving the example of a witness who had died. However, I do not read this final sentence as saying that “prejudice” would of itself be a ground for refusing to admit such evidence. He was merely noting that this could occasionally occur.

The next case is Electrosteel Castings Ltd v Scan-Trans Shipping & Chartering Sdn Bhd [2002] EWHC 1993 (Comm), [2003] 1 Lloyd’s Rep. 190. Gross J stated the position as follows:

On this approach the new evidence is admissible, apparently as of right (at any rate there is no suggestion to the contrary), and the concern that a party should not have “two evidential bites of the cherry” is dealt with as a matter going to weight and costs rather than admissibility.

Thomas J expressed his “entire agreement” with this approach in The Joanna V [2003] EWHC 1655 (Comm), [2003] 2 Lloyd’s Rep 617, referring to a party’s right to challenge an award on jurisdictional grounds under section 67 in these terms at [25]:

Once again, the adducing of new evidence is described as a matter of right.

Finally, in The Ythan [2005] EWHC 2399, [2006] 1 Lloyd’s Rep. 457, Aikens J put the position in these terms:

This passage appears to introduce a limit on a party’s right to adduce new evidence on a section 67 challenge, as a matter of admissibility rather than weight, which is not derived from the terms of the Act or the CPR but from the court’s right to control its procedure. Prejudice is here referred to as a ground for preventing evidence from being adduced. This is a development from the approach of Colman J in Kalmneft and Gross J in Electrosteel which may have the consequence that otherwise relevant and admissible evidence is shut out. The passage leaves open whether there are other grounds on which such evidence may be excluded.

Aikens J went on in [64] to add that the fact that the arbitrators would not have allowed a party to argue a point would not prevent it from being argued before the court provided that the right to take the point had not been lost pursuant to section 73 of the 1996 Act.

Both counsel confirmed that there is no authority which has considered further these passages from The Ythan. Mr Ben Olbourne for the claimant told me that there does not appear to be a single instance of a court hearing a section 67 challenge refusing to consider new evidence on which a party wished to rely.

In the light of these authorities Mr Olbourne submitted that prejudice is the only ground on which permission to adduce new evidence should be refused and therefore that permission should always be granted unless admission of the evidence would cause the opposing party prejudice that cannot be remedied by an appropriate award of costs or, if necessary, an adjournment – which, he said, is not the case here. Mr Robert Bright QC for the defendant submitted that (1) a party seeking to rely on new evidence must obtain the court’s permission to do so, (2) the admission of new evidence is subject to control by the court, (3) although prejudice to a respondent is one ground on which permission may be refused it is not the only ground, a party’s disregard of an order made by the arbitrators being another important factor, and (4) in any event there would be serious and irremediable prejudice if the claimant were permitted to rely on the new evidence on which it seeks to rely in this case.

My starting point is that in general, as the cases show, a party is entitled to adduce evidence in a section 67 challenge which was not before the arbitrators. No doubt that is subject to the control of the court, but speaking generally, the court will not normally exclude evidence which is relevant and admissible, even if it may cause prejudice to the other side -- for example, if a claimant has deliberately waited until the end of the limitation period to bring his claim and in the meanwhile the other side’s key witness has died. It is therefore necessary to consider the nature of the control which the court is to exercise and on what principle it should act in considering whether such evidence may be shut out in a section 67 case. Is there anything special in this respect about section 67 cases and, if so, what is it?

In my judgment the answer to these questions lies in the nature of a section 67 application as established by the cases cited above. In principle, this is no different from other contested applications where the court has to determine disputed questions of fact and/or law. Arbitration and the existence of an award which is the subject of the challenge provide the context in which the question arises, but do not fundamentally transform the nature of what the court has to decide or the way in which it should decide it. Thus a section 67 challenge is “a full judicial determination on evidence”, in this respect like any other. It is in general up to the parties here (as elsewhere within our adversarial system) to determine the evidence on which they wish to rely, and that evidence is not limited to whatever evidence was before the arbitrators. That does not mean, however, that the parties’ right to adduce evidence is unconstrained by the court’s rules of procedure. On the contrary those rules provide for the way in which evidence is to be received and enable the court to exercise control over the disclosure of documents, the service of evidence in the form of witness statements and, where necessary, experts’ reports, and the adducing of oral evidence with cross examination. That control is to be exercised in accordance with established principles, in particular the overriding objective and the interests of justice.

In a section 67 case the parties should generally be able to agree about these matters, particularly if (as is often the case) there has already been a contested hearing before the arbitrators and the parties are represented by experienced solicitors. They should seek to do so at an early stage, so that the procedural framework for the hearing is clear. They may, for example, be able to agree to dispense with some formalities which generally apply to disclosure or evidence in the interests of saving time and costs. If, however, they cannot agree, there will need to be a case management hearing before the court at which any issues about disclosure, service of evidence and the procedure for the hearing can be resolved.

I do not consider that the court has an unfettered discretion to exclude relevant evidence or that the only ground on which it may do so is that the admission of new evidence would cause prejudice to the other party. I doubt, moreover, whether “prejudice” in the abstract is a free standing ground on which such evidence may be excluded and I do not read Aikens J in The Ythan as saying that it is. Undoubtedly, however, in a section 67 case as in any other, the court may refuse to allow a party to produce documents selectively where that would prejudice the other party. Equally, it may refuse to allow evidence which does not comply with the court’s rules for ensuring that evidence is presented in a fair manner, such as the rules relating to witness statements contained in CPR 32. That too is a form of prejudice which may not be capable of being remedied. Where that is the position, it may not be enough to say that the opposing party can make submissions as to the weight of the evidence. Fairness may require that the evidence is not adduced at all.

Further, the court is not bound by procedural rulings made by the arbitrators, for example as to the scope of disclosure to be provided by the parties. The court must reach its own conclusions about these matters. That is clear from what Colman J said in the Kalmneft case cited above and from Aikens J’s judgment in The Ythan at [64]. Nevertheless, depending on the circumstances of the particular case, a party’s failure to comply with an order made by the arbitrators may be a highly relevant consideration.

In the light of these principles I turn to the material on which the claimant wishes to rely.

The new evidence on which the claimant seeks to rely consists of (1) certain passages from witness statements made by Mr Sulu-Gambari, the claimant’s Nigerian lawyer who represented it in the arbitration (which passages include things which he has been told by the claimant’s executive director Mr Reddy, although there is no statement from Mr Reddy), (2) some contemporary documents which are said to relate to the financing and purchase of the goods by the claimant, although many of them are completely illegible, and (3) a letter from their Nigerian bank, Skye Bank, dated 4 December 2013. All of this evidence was available to the claimant in the arbitration. The bank’s letter did not exist until after the award was published, but all of the information which it contains was available to the claimant and could therefore have been adduced.

Mr Bright did not suggest that this new evidence (at least so far as it is legible) is irrelevant to the question of title to sue which arises for decision on the section 67 application. He made three submissions about it:

First, that the claimant should not be permitted to rely on any of this material having taken a deliberate decision, contrary to a clear final order by the arbitrators, not to disclose relevant documents in the arbitration.

Second, that the documents now produced by the claimant are incomplete and that the claimant has been selective, producing only those documents which it considers will assist its case and failing to produce other potentially highly relevant documents (or failing to give a coherent explanation of why, if it is the case, such documents cannot be produced).

Third, that the form of the evidence sought to be adduced from Skye Bank and (indirectly) from Mr. Reddy is objectionable and that, if such evidence is to be admitted at all, it should be by way of witness statements from the relevant individuals which comply with CPR 32.

In order to put these submissions into context, it is necessary to say something about the procedure adopted in the arbitration. This consisted of the service of written submissions accompanied by documents on which the party in question wished to rely. However, there was (to say the least) constant pressure by the defendant for proper disclosure to be given by the claimant, and repeated complaints that it was not being given.

The issue came to a head in the context of an application by the claimant to amend its Reply Submissions. The arbitrators agreed to permit this, in their words “with a degree of reluctance”, but only on terms. Those terms were set out in an email of 10 June 2013 which the arbitrators subsequently repeated in their award:

There is no change in the identity of the claimants.

The claimants will by schedule to the amended reply provide full and complete disclosure and/or relevant documents concerning title to sue, and the claimants will attach to the amended reply legible copies of that disclosure and/or those documents. The claimants will not be permitted thereafter to make any further disclosure on title to sue without the express prior consent of the tribunal.

The claimants immediately pay all the costs of and occasioned by the amendment including (if appropriate) the respondents’ costs of the jurisdiction issue in the event that the amendments reasonably justify the respondents withdrawing their application in that regard.

It is apparent that the claimant failed to comply with this order for full disclosure. Mr Olbourne accepted this. It is apparent too that this failure was deliberate, although Mr Olbourne did not accept this, suggesting that the failure was the result of a misguided failure to understand what was required. In summary, the explanation put forward is that the claimant was confident that it had adduced sufficient evidence to satisfy its burden of proof in the arbitration, that it did not understand the defendant’s focus on matters which it regarded as irrelevant, and that it “could not have predicted that the Tribunal would fail to appreciate the significance of certain important evidence”. In other words, it thought it had done enough to win and was confident of victory. There cannot be many arbitration lawyers practising in London who do not bear the scars of a similar mis-judgment but this hardly provides an excuse for deliberately failing to comply with a crystal clear final order for disclosure.

It is apparent that, even now, the claimant has not given full disclosure of documents relating to the title to sue issue which must exist or have existed and, if they no longer exist, it has made no attempt to say what has become of them. These include such basic documents as the contract by which the claimant purchased the goods (or, if there was no formal written contract, some explanation of how and when any contract was concluded), documents relating to the opening of the various letters of credit used to pay for the goods and, in one case, documents showing when and how a letter of credit already issued was allocated to goods shipped under one of the bills of lading. It is unnecessary to go into further detail as Mr Olbourne candidly accepted that he was not in a position to confirm that full disclosure has now been given.

I accept Mr Bright’s submission that against this background it would be unjust to permit the claimant to rely now on a selection of documents without giving the full disclosure which it was ordered to give in the arbitration. It is apparent that the claimant’s current approach has been, as Mr Olbourne put it, “to provide further confirmation in relation to certain of these matters which the Tribunal identified as being important lacunae in the Claimants’ factual case”. However, it is not the function of an award to operate as an advice on evidence enabling the claimant to plug the gaps in its case identified by the arbitrators. Although Mr Bright identified various inconsistencies and contradictions in the documents on which the claimant now relies on which he will if necessary rely at the substantive hearing of this section 67 challenge, it must be assumed for the purpose of this present application that these new and selected documents may possibly make all the difference to the outcome. But if that were to be so, the defendant would suffer an irremediable prejudice.

This is not to give the arbitrators’ decision to order full disclosure in the arbitration any kind of primacy over the court’s own decision. I must decide for myself whether this is a case where selective disclosure would be appropriate, as it sometimes may be. Indeed, disclosure may now be dispensed with altogether in court proceedings or limited in whatever way the court considers appropriate, with no presumption in favour of standard disclosure (see CPR 31.5). However, this is in effect an application by the claimant to be entitled to rely on the limited documents which it has chosen to adduce as supporting its case. It has not offered to provide standard disclosure and in any event it is probably now too late for that to be provided without jeopardising the October hearing dates which were fixed by agreement of the parties. The background set out above provides confirmation that this would be unfair.

Similarly in relation to the “evidence” provided in the form of the letter from Skye Bank and (indirectly) from Mr. Reddy, it would be unjust in my judgment to allow the claimant to give evidence in this form.

The letter from Skye Bank is a document signed by two individuals in the bank’s legal department. It is not in the form of a witness statement complying with CPR 32. It does not, for example, contain a statement of truth which would expose the makers of the statement to proceedings for contempt if they knowingly make a false statement (CPR 32.14). It is not at all apparent whether the signatories have personal knowledge of the matters of which they speak or, if they do not, what is the source of their information (CPR 32 PD paras 17-20). It does contain a statement that “the above relationship detail is given on the instruction of Central Trading and Exports Limited and same is given in good faith and without liability”. On one view, that tends to confirm that the signatories have no personal knowledge of events and are simply saying what they have been asked by the claimant to say, which is obviously unsatisfactory.

The requirement for witness statements to comply with CPR 32 provides important safeguards for the quality of the evidence upon which the court decides cases. The circumstances in which this letter comes to be produced as an attempt to plug the gaps in the claimant’s case identified by the arbitrators after a deliberate failure to comply with their order for disclosure provides a powerful reason not to dispense with those safeguards in this case.

So far as Mr Sulu-Gambari’s evidence of what Mr Reddy said to him is concerned, despite the general relaxation of the hearsay rules in civil proceedings in recent years it is not the usual practice of the court for evidence which could be given by an available witness of fact to be given instead in the form of a hearsay statement by his solicitor. No reason has been given as to why Mr. Reddy himself has not supplied a witness statement containing such evidence as he is able to give. The court has power to give directions as to (among other things) the way in which evidence is to be placed before the court (CPR 32.1(1)). It would not be appropriate to permit evidence from Mr. Reddy to be given in the way which is proposed.

Still less would it be appropriate, even if these formal defects were to be cured, to permit evidence in the form of assertions by Skye Bank and Mr Reddy without the claimant providing the proper disclosure which would be necessary to enable the defendant to test those assertions, either by cross examination or by submission.

I do not accept that the defendant’s objections to all this new evidence can be fairly dealt with by submissions as to the weight which ought to be given to it. In my judgment they are more fundamental than that.

Applying the ordinary case management principles set out above, I conclude that the claimant should not be permitted to rely on the new evidence which it seeks to adduce. The hearing of this section 67 challenge will therefore be limited to the material which was before the arbitrators.