Finding a ‘cat’s chance in hell’: jurisdictional challenges in multi-tier arbitration clauses [1]

[1] Republic of Sierra Leone v. SL Mining Ltd [2021] EWHC 286 (Comm) [36] (Eng.).

Multi-tier arbitration clauses are increasingly utilized as a way of allowing parties to settle a dispute before arbitration. However, with the increased use of such clauses comes a greater concern about the clause’s effect on the arbitral proceedings – does non-compliance with any one step of the clause invalidate the arbitral tribunal’s jurisdiction? While academic scholarship is firmly on the side of characterizing this as an admissibility issue, case law is still rather split. The English High Court (Commercial Court Division) recently grappled with this very problem in Republic of Sierra Leone v. SL Mining Ltd. In a commercially minded judgement, Sir Michael Burton endorsed the predominant academic scholarship, holding that compliance with a multi-tier dispute resolution clause is not an issue of substantive jurisdiction for the purposes of the Arbitration Act of 1996, but a question of admissibility for the tribunal to determine. This paper takes a closer look at the case and argues that SL Mining crucially clarifies the English position, which had been left uncertain by previous case law, and significantly brings English law in line with the academic authorities on the issue.

I. Factual Background

The underlying dispute arose out of the grant of a 25-year mining licence and subsequent licence agreement by the government of Sierra Leone to SL Mining on 29 March 2017 and 6December 2017 respectively. The parties had inserted the following provision into the mining licence and agreement (“MLA”), stating that:

6.9 Interpretation and Arbitration

  • The parties shall in good faith endeavor to reach an amicable settlement of all differences of opinion or disputes which may arise between them in respect to the execution performance and interpretation or termination of this Agreement…
  • In the event that the parties shall be unable to reach an amicable settlement within a period of 3 (three) months from a written notice by one party to the other specifying the nature of the dispute and seeking an amicable settlement, either party may submit the matter to the exclusive jurisdiction of a Board of 3 (three) Arbitrators who shall be appointed to carry out their mission in accordance with the International Rules of Conciliation and Arbitration of the… ICC.’ [1]

The licence was suspended on 3 July 2018 and then terminated unilaterally by Sierra Leone. SL Mining then served a notice of dispute on 14July 2019, triggering the three-month ‘amicable settlement’ period stipulated in clause 6.9(c). On 20 August 2019, SL Mining invoked the Emergency Arbitrator provisions of the ICC Rules which require the service of a Request for Arbitration (“RFA”) within 10 days of the request for emergency relief. [2] Pursuant to clause 6.9(c), SL Mining suggested that the emergency arbitrator should defer service of the RFA until the settlement period elapsed on 14 October 2019. However, Sierra Leone insisted that SL Mining serve the RFA within the 10-day period stipulated in the ICC Rules. Therefore, SL Mining served the RFA on 30 August 2019.[3]

During the arbitration proceedings, Sierra Leone challenged the Tribunal’s jurisdiction since the provisions of clause 6.9(c) had not been complied with and arbitration proceedings had been commenced before 14October 2019. The Tribunal rejected Sierra Leone’s challenge, rendering a Partial Award in favor of SL Mining on 6 March 2020.[4] In doing so, the Tribunal concluded that the challenge was not a question of jurisdiction but of admissibility and ruled that SL Mining’s claim was indeed admissible.[5]

Consequently, Sierra Leone brought a challenge in the English High Court with respect to the Award under section 67 of the Arbitration Act. The case raised the issues of whether the prematurity of the RFA challenged the arbitrators’ jurisdiction under section 67, whether Sierra Leone had consented or waived the condition precedent and about what the proper construction of clause 6.9 should be.[6]

II. The High Court’s Judgement

Sir Michael Burton dismissed Sierra Leone’s claim, holding that there was no basis for a challenge under section 67 of the Arbitration Act. In determining the case, Sir Burton tackled the following three issues in turn:

A.     Jurisdiction versus Admissibility within the Scope of a Section 67 Challenge

Burton J cited the distinction between questions of admissibility and jurisdiction, which has recently emerged in English case law[7], starting with Butcher J’s opinion in PAO Taftnet v. Ukraine,  in which he stated that ‘issues of jurisdiction go the existence… of a tribunal’s power to ajudge the merits of a dispute; issues of admissibility go to whether the tribunal will exercise that power in relation to claims submitted to it’.[8] Section 67 of the Act stipulates that a party may challenge an award based on the tribunal’s substantive jurisdiction.[9] The definition of substantive jurisdiction is provided by section 82(1) of the Act and refers back to section 30(1)(c) which provides that ‘the arbitral tribunal may rule on its own substantive jurisdiction… as to…. (c) what matters have been submitted to arbitration in accordance with the arbitration agreement’.[10] In its submission, Sierra Leone had tried to argue that their challenge fell under section 30(1)(c), contending that ‘no matters have been “submitted to arbitration in accordance with the arbitration agreement”’.[11]

After surveying the academic landscape, Burton J concluded that ‘the international authorities are plainly overwhelmingly in support of a case that a challenge such as the present does not go to jurisdiction’.[12] Indeed, the issue of compliance with a multi-tier arbitration clause, in this case, was not a question of whether the claim itself was arbitrable but concerned whether the claim was admissible due to the prematurity of the proceedings. Therefore, it was clearly a matter of admissibility. As such, Sierra Leone would be precluded from a section 67 challenge. Burton J agreed with the Tribunal that if the settlement period is viewed as a condition precedent for the arbitration ‘it could therefore only be a matter of procedure, that is, a question of admissibility of the claim, and not a matter of jurisdiction’.[13]

SL Mining contended that Sierra Leone plainly consented to the RFA being served on 30 August 2019, thereby barring Sierra Leone from bringing forth a challenge according to section 73 (loss of right to object) of the Arbitration Act and Article 40 of the ICC Rules (waiver).[14] Sierra Leone’s rejection of SL Mining’s proposal to postpone service of the RFA until 14October 2019, and insistence that SL Mining complies with the ICC timelines, was deemed by the Court to be implicit consent and waiver of the amicable settlement period.

C.     Construction and Interpretation of Clause 6.9

Both parties clearly considered that the escalation stipulated in clause 6.9 was mandatory and not directory.[15] However, Burton J held that on its proper construction, the period in clause 6.9(c) ‘is subsidiary to the obligation to attempt an amicable settlement’ and as such was not ‘an absolute bar to bringing proceedings within three months’.[16] Instead, the three-month period simply provided a time frame in which the dispute could, but need not, have been resolved amicably. Failing this, it would be subject to earlier proceedings if it were clear that no such objective settlement could be achieved. Given that Sierra Leone had taken drastic action against SL Mining, including a temporary suspension of its licence and a criminal investigation of its employees, it was clear that relations between the two parties were so hostile that ‘there was not a cat’s chance in hell of an amicable settlement by 14 October’.[17] Therefore, even if Sierra Leone had not consented or waived its right to the three-month period, that on an objective analysis, there was no chance that the parties would have reached an amicable settlement by the end of the period and so there was no failure to comply with clause 6.9(c).[18]

III. Analysis

The decision has rightly attracted a fair amount of attention amongst arbitration practitioners and scholars [19]. The decision in SL Mining is of particular interest in light of the prevailing English authorities on challenges to arbitral awards with similar multi-tier dispute resolution clauses. For example, in Sul América CIA Nacional de Seguros v. Enesa Engenharia, the Court held that mediation was not a binding condition precedent to arbitration because the multi-tiered clause did not contain clear language stipulating such a condition.[20] Similarly, in (Wah) Tang v. Grant Thornton International Ltd, the Court stressed that tiered alternative dispute resolution provisions are only enforceable if they outline a clear commitment to the process, with readily identifiable steps.[21] However, in Emirates Trading Agency LLC v. Prime Mineral Exports Pte Ltd, the Court held that a contractually-mandated ‘friendly discussion’ acted as a mandatory condition precedent to the right to refer a claim to arbitration.[22]

Emirates and Tang had attracted vast amounts of criticisms for their treatment of multi-tier dispute resolution clauses as jurisdictional questions and in both cases section 67 jurisdiction was assumed.[23] For example, Merkin & Flannery opined that the decision in Emirates was an ‘unnecessary leap’, turning a binding and enforceable obligation to settle a dispute into a prerequisite to the tribunal’s jurisdiction that ‘may turn out to be dangerous precedent’. [24] As such, Burton J’s decision is even more noteworthy because it signals a welcome clarification on the English position towards multi-tier arbitration clauses. Burton J himself found that the reasoning in these earlier cases was not only unpersuasive and non-binding but also out of step with other academic scholarship on the issue.[25] For example, Born’s treatise on International Commercial Arbitration clearly concludes that ‘pre-arbitration procedural requirements are not “jurisdictional” …. the arbitral tribunal’s resolution of such issues would generally be subject to only minimal judicial review in subsequent annulment or recognition proceedings’ much like other procedural decisions made in the arbitral process.[26] In his work, Paulsson took a similar stance on the question of jurisdiction versus admissibility.[27] In this author’s view, therefore, the judgement in SL Mining signals a shift in the right direction, bringing English law in line with the prevailing academic opinions about multi-tier dispute resolution clauses.

However, while the weight of academic authority in arbitration leans in favor of such a failure to comply with multi-tier arbitration clauses being characterized as an admissibility issue, legal jurisprudence around the world is much more divergent. As one commentator claimed, ‘the lack of coherence in the treatment of such provisions is tangible and significant’.[28] As such, this shift in English law is the first step in crystallizing and clarifying a common law approach to non-compliance with multi-tier dispute resolution clauses. The case has already been followed in NWA v. FSY, another High Court judgement from November, in which Calver J held that a similar failure to mediate before entering into the arbitration was a question of the admissibility of the claim and not the Tribunal’s jurisdiction.[29]

The judgement also brings English law closer in line with the US precedent set in BG Group plc v. Republic of Argentina. In BG, the Court held that the claimant’s failure to comply with the local litigation requirement, which was a condition precedent prior to the arbitration, was a procedural issue and not a jurisdictional one.[30] Two similar decisions have also come out of the Singapore Court of Appeals in BBA v. Baz and BTN v. BTP, in which the judges specifically approved the views expressed by Paulsson and Merkin & Flannery that pre-conditions to arbitration, such as time limits and escalating dispute resolution mechanisms, are matters of admissibility and not jurisdiction.[31]

IV. Conclusion

Ultimately, the decision in SL Mining has clarified the English interpretation of multi-tiered clauses and consolidated a common law approach. Preconditions to arbitration ought to be treated as a mechanism for facilitating settlement but do not constitute an absolute bar to proceedings (or challenges) as they concern the admissibility of a claim in front of the tribunal, not the tribunal’s jurisdiction itself.

Iqra Bawany is an LL.M. Candidate at the NYU School of Law, specializing in International Business Regulation, Litigation & Arbitration. Prior to attending NYU, she received a B.A. in Law from the University of Cambridge and a B.A. in History & Spanish from Columbia University.

[1] Id. at [3].

[2] Int’l Comm. Arb. Arbitration Rules 2021, Appendix V, Article 1(6)  

[3] SL Mining’s parent company also pursued an ICSID claim against Sierra Leone; See Gerald International Ltd v. Republic of Sierra Leone, ICSID Case No. ARB/19/31, Award (July 8, 2020).

[4] Republic of Sierra Leone v. SL Mining Ltd [2021] EWHC 286 (Comm) [4] (Eng.).

[5] Id. at [8].

[6] Id. at [6].

[7] See generally PAO Taftnet v. Ukraine[2018 EWHC 1797 (Comm) [97] (Eng.); Obrascon Huarte Lain S.A. v. Qatar Foundation for Education[2020] EWHC 1643 (Comm) [19] (Eng.).; Republic of Korea v. Dayanni [2020] 2 All ER (Comm) 672 (Eng.).

[8] PAO Taftnet v. Ukraine[2018] EWHC 1797 (Comm) [97] (Eng.).

[9] Arbitration Act 1996 c.23 § 67(1)(a) (Eng., Wales & N. Ir.).

[10] Arbitration Act 1996 c.23 §82(1); § 30(1) (Eng., Wales & N. Ir.).

[11] Republic of Sierra Leone v. SL Mining Ltd [2021] EWHC 286 (Comm) [10] (Eng.).

[12] Id. at [16].

[13] Id. at [21].

[14] Arbitration Act 1996 c. 23 § 73 (Eng., Wales & N. Ir.); Int’l Comm. Arb. Arbitration Rules 2021, Art. 40 (supra note 3)

[15] Republic of Sierra Leone v. SL Mining Ltd [2021] EWHC 286 (Comm) [30] (Eng.).

[16] Id. at [32].

[17] Republic of Sierra Leone v. SL Mining Ltd [2021] EWHC 286 (Comm) [36] (Eng.).

[18] Id. at [37].

[19] See generally Benjamin Tham, Case Note: Republic of Sierra Leone v SL Mining Ltd., 2 Sing. Arb. J. 166, 179 (2021); Masood Ahmed & Syed Ali International Arbitration: Clause & Effect, New L. J., Feb.18, 2022 at 15; Robert Merkin, Substantive Jurisdiction and the Arbitration Act 1996, 3 J. of Bus. L., 273 (2021).

[20] Sul América CIA Nacional de Seguros v. Enesa Engenharia [2012] EWCA (Civ) 638.

[21] (Wah) Tang v. Grant Thornton International Ltd [2012] EWHC 3198 (Ch).

[22] Emirates Trading Agency LLC v. Prime Mineral Exports Pte Ltd [2014] EWHC 2104 (Comm) [26] (Eng.).

[23] See generally Ned Beale & Cara Gillingham, Dispute Escalation Clauses in England and Wales: A New High Water Mark, 26 Int’l Co. & Com. L. Rev., 102 (2015); Louis Flannery & Robert Merkin, Emirates Trading, Good Faith, and Pre-arbitral ADR Clauses: a Jurisdictional Precondition? 31 Arb. Int’l, 63 (2015); Keith Han & Nicholas Poon, The Enforceability of Alternative Dispute Resolution Agreements – Emerging Problems and Issues 25 Singapore Academy of L. J., 455 (2013); Robert Rhodes & Andrew Maguire, Have the risks of ADR Escalation Clauses Reduced?, 82 Arbitration, 16 (2016).

[24] Louis Flannery & Robert Merkin, Emirates Trading, Good Faith, and Pre-arbitral ADR Clauses: a Jurisdictional Precondition? 31 Arb. Int’l 63, 103 (2015).

[25] Republic of Sierra Leone v. SL Mining Ltd [2021] EWHC 286 (Comm) [12] (Eng.).

[26] Gary Born, International Commercial Arbitration(3d ed. 2021), 1000.

[27] See Jan Paulsson, Jurisdiction and Admissibility, 693 Global Reflections on International Law, Commerce and Dispute Resolution (ICC Publishing) 601, 616–617 (2005).

[28] Hamish Lal et al., ‘Multi-Tiered Dispute Resolution Clauses in International Arbitration – The Need for Coherence’ 38(4) Swiss Arb. Ass’n (ASA) BULL., 796 (2020).

[29] NWA v. FSY & ors [2021] EWHC 2666 (Comm) (Eng.).

[30] BG Group Plc. v. Republic of Argentina,134 S.Ct. 1198 (2002).

[31] BBA v. Baz [2020] 2 SLR 453 [77]-[78] (Singapore); BTN v. BTP [2020] SGCA 105 [70] (Singapore).