NIOC's section 67 challenge rejected by Court of Appeal

English High Court found to have correctly applied Iranian law principles to interpreting arbitration agreement

In National Iranian Oil Company v Crescent Petroleum Company International Limited, Crescent Gas Corporation Limited [2023] WL 04493979, the National Iranian Oil Company ("NIOC") appealed the High Court's decision to reject its application for permission to appeal under s.67 Arbitration Act 1996 for lack of jurisdiction on the basis that the High Court had wrongly interpreted its expert opinion on Iranian law. The Respondent ("CGC") launched a cross-appeal under s.73 of the Arbitration Act on the basis that NIOC was too late in raising its objection to jurisdiction.

Background

The NIOC and Crescent Petroleum Company International Limited ("CPCIL", which later assigned the contract to CGC) had entered into a Gas Sale and Purchase contract on 25 April 2001 for supply of gas from Iran to the UAE. The contract was governed by Iranian law and required the parties to refer "any dispute, controversy or claim arising out of or relating to this contract" to a panel of three arbitrators.

In turn, CGC had entered into a gas supply agreement with a third party ("CNGC") governed by UAE law, and CNGC in turn entered into its own contracts for gas supply to end users.
CGC commenced arbitration in 2009 in London after NIOC failed to observe its obligations, and the arbitral tribunal issued its first award in 2014 confirming that NIOC had been in breach since 2005 and that the tribunal had jurisdiction over the claims presented by CGC following the assignment of the contract from CPCIL.

CGC proceeded to claim damages for breach of contract for various heads of loss, including damages that it owed to CGNC in respect of CGNC's loss of profits on its contracts with third parties. The arbitral tribunal issued an award providing that CGC was entitled to damages of US $1,085.27million for this head of loss.

NIOC sought permission to appeal this award of damages under s.67 of the Arbitration Act 1996, on the basis that the arbitral tribunal had no jurisdiction to determine CGC's liability to CGNC as a matter of Iranian law. To this end, NIOC adduced expert evidence as to the effect of Iranian law. CGNC issued a cross-appeal, claiming that, pursuant to s.73 of the Arbitration Act, NIOC ought to have raised its challenge to jurisdiction far earlier in the proceedings.

High Court

Butcher J first considered CGC's argument as to whether NIOC had effectively left it too late to argue that the tribunal lacked jurisdiction. The Judge concluded that, whilst it was close to the borderline, NIOC had "done just enough to communicate the substance of its ground for objection" [32] prior to the issue of the award, such that it was not precluded from appealing under s.67 now. 

Butcher J then turned to the expert evidence adduced by NIOC as to the application of Iranian law. The expert evidence argued that Iranian law looks at the words of the arbitration agreement itself and construes them narrowly, that is, "there is a presumption that jurisdiction is only conferred on to arbitrators to resolve those specific claims, disputes or controversies that the parties have expressly agreed and articulated in the arbitration agreement to be within the competence of the arbitrators" [34(2)]. It also stated that "Iranian law does not recognise an equivalent of what may be called the Fiona Trust presumption that arbitration clauses are to be interpreted widely such that any dispute arising out of the relationship between the parties should be decided by the same tribunal and that distinctions in the wording of arbitration clauses should not normally result in significant differences in scope" [34(3)].

Butcher J applied these rules of interpretation to the arbitration clause in the agreement between NIOC and CGC and concluded that "Without adopting any ‘pro-arbitration’ construction, or a ‘ Fiona Trust ‘ presumption, and indeed taking a literalistic approach to them, the words used are wide. In particular the words ‘relating to’ are wide, and the category of disputes, controversies or claims which may at least ‘relate to’ [the contract] or to its breach is broad" [35]. For that reason, the Judge rejected the s.67 application, on the basis that the challenge to jurisdiction stood no reasonable prospect of success.

Court of Appeal

NIOC appealed the decision and Counsel for NIOC argued that Butcher J had erred by, inter alia (1) conducting a mini-trial which assessed the expert evidence as to Iranian law incorrectly; (2) adopting a 'literalist approach' to the words 'relating to' in the arbitration clause, rather than the restrictive approach mandated by Iranian law; and (3) failing to allow for the possibility that cross-examination of the Iranian law expert at trial might add to or alter the evidence on Iranian law before the Court.

The Court of Appeal first clarified that, had the arbitration agreement been governed by English law, the claimed damages in respect of CGNC's claim would certainly fall within the arbitrators' jurisdiction. It then revisited Hamblen LJ's principles for the provision of foreign law expert advice on contractual interpretation in BNP Paribas SA v Trattamento Rifiuti Metropolitani SpA as follows:
 

The Court concluded that the Iranian law evidence adduced by NIOC had failed to observe this principle as it was "not confined to explaining the principles of construction under Iranian law which would need to be applied in order to answer [the substantive question of whether the arbitral tribunal had jurisdiction to determine the liability to CGNC claim]" [79]. For that reason, large parts of the expert report were inadmissible.

The Court of Appeal did not accept that Butcher J had carried out a form of mini-trial in the manner alleged or that the matter should proceed to trial in case further detail emerged in the course of cross-examination of the expert, as Butcher J was not required to "speculate whether the result of a trial would be that NIOC’s case on Iranian law was somehow better than the case it had pleaded and put forward in its own expert’s report" [90].

Neither did the Court accept that Butcher J had taken an overly literal approach – NIOC's own expert report stated that a restrictive approach to interpretation should be applied where ambiguity exists, but "if there is no ambiguity, the text is strictly interpreted [94]." The Court agreed that the arbitration provisions in the original agreement were very broadly drafted. It concluded that "there can be no doubt that the Judge applied correctly the principles of Iranian law which he identified. Giving paramount effect to the words of the arbitration agreement, there can be no doubt that the liability to CNGC claim fell within its scope [96]." NIOC's application to overturn the High Court's decision was therefore rejected on the basis that the s.67 challenge had no reasonable prospect of success.

Conclusion

This case provides helpful clarification as to the approach taken by the English Court to the interpretation and application of foreign law expert evidence, particularly the extent to which any such expert report will be deemed admissible. Expert evidence in jurisdictional challenges under s.67 must be aimed primarily at assisting the English Court to interpret the contractual provisions in line with relevant foreign law and not seek to argue the applicant's case.

It also makes plain that the English Court is not required to, nor will it go beyond the expert evidence adduced by the applicant to grant permission to appeal on the assumption that the expert might be able to produce some further and better evidence under cross-examination at trial. This underscores the importance for a party applying for permission to appeal under s.67 of putting its best foot forward in foreign law expert evidence in the first instance, rather than hoping for a second bite of the cherry in due course at trial.

Provided that the above principles are taken into account, litigants in the English Court can have full confidence that the Court will give effect to any relevant foreign law principles of contractual interpretation in s.67 jurisdiction challenges.