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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Exportadora De Sal SA De CV v Corretaje Maritimo Sud-Americano Inc [2018] EWHC 224 (Comm) (09 February 2018) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2018/224.html Cite as: [2018] EWHC 224 (Comm)

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IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Rolls Building, Fetter Lane, London EC4A 1NL
		9 February 2018

Mr Justice Andrew Baker :

Introduction

1. This claim concerns a written shipbuilding contract dated 3 July 2014 ('the SBC') entered into between the claimant ('ESSA') as buyer and the defendant ('CMSA') as seller for the design, construction and sale of a self-unloading salt barge for US$27,240,000, payable in four instalments. If on 27 May 2015 the SBC was a valid and binding contract, it was lawfully terminated then by CMSA, leaving ESSA with a liability to pay US$6,810,000 plus contractual interest. That was determined by an award of arbitration dated 7 April 2017 issued by Lionel Persey QC as sole arbitrator ('the Award').
2. There is no challenge to that determination of liability by the Award, if Mr Persey QC had substantive jurisdiction to make it. In particular, there is no challenge, if he had jurisdiction, to his rejection of a claim by ESSA that the SBC resulted from bribery of one of its employees by CMSA.
3. By this claim, however, brought under section 67 of the Arbitration Act 1996, ESSA seeks a declaration that it did not have power to enter into the SBC or the Arbitration Agreement, a declaration that in consequence the Award is of no effect, and an order setting aside the Award.
4. ESSA is a Mexican salt mining company. It is 51% owned by the Mexican Federal Government, through its Trust for Mining Development, and 49% owned by Mitsubishi Corporation. The majority state ownership means that ESSA is a state entity subject under Mexican administrative law to regulatory requirements the impact of which is said to justify the section 67 claim now brought. The primary source of regulatory requirements applicable to ESSA and relevant to its claim is the Law of Procurement, Leasing and Public Sector Services ('LAASSP') enacted by the Mexican Congress. ESSA's Órgano Interno de Control ('the OIC') has particular functions under LAASSP.
5. The essence of the section 67 claim is that, so ESSA asserts, the SBC generally, and the Arbitration Agreement in particular, was deprived retrospectively of efficacy by an OIC Resolution dated 16 November 2016 decreeing the nullity of the tender process under which CMSA had won the business. The OIC Resolution also required ESSA to issue what has been referred to as a 'Statutory Early Termination' of the SBC. It did so as required, on 28 November 2016. Underlying the OIC Resolution was a conclusion reached by the OIC that the negotiation and execution of the SBC between ESSA and CMSA was not preceded by a tender process satisfying the requirements of LAASSP. Despite some appearance to the contrary in the Arbitration Claim Form, Mr Chambers QC confirmed in opening that the claim was limited to reliance upon the decree of nullity of the tender process in the OIC Resolution and that ESSA did not rely on its consequential Statutory Early Termination.
6. If the tender process requirements of LAASSP were indeed not satisfied in relation to the SBC, there might have been an argument that ESSA lacked the legal power to conclude the SBC, and perhaps even the separable Arbitration Agreement within it, at the outset (although whether in a sense that would go to jurisdiction in the arbitration would need to be considered). However, as Mr Davies QC for CMSA submitted, no such argument could be open to ESSA now. ESSA was in a position to know of any failure on its part to comply with LAASSP and of the legal consequences thereof at all material times. It could not hope to avoid the conclusion that any right to object to the Award on the basis of any such original legal defect (if indeed it went to jurisdiction) was lost by operation of section 73(1) of the 1996 Act. Therefore, and as Mr Chambers QC for ESSA accepted, the foundation of a claim that ESSA could seek to argue under section 67 had to be an allegation that the OIC Resolution deprived the arbitrator of substantive jurisdiction.
7. CMSA says that section 73(1) also debars any such section 67 claim, because ESSA first objected to jurisdiction only 5 weeks after the OIC Resolution, on 22 December 2016, and that no such claim is sound in any event, because the effects of the OIC Resolution under Mexican law, whatever they may have been, did not go to the arbitrator's jurisdiction. If required, CMSA also disputes in important respects ESSA's case as to those Mexican law effects.

The Essential Facts

8. CMSA, treating the SBC as then valid and binding, gave notice terminating it on 27 May 2015, as I have already indicated. This followed failure by ESSA to pay the second instalment of the price and its failure to respond to a notice of default sent by CMSA.
9. The arbitration, culminating ultimately in the Award, was commenced by CMSA in August 2015. ESSA did not respond to the notice of arbitration sent to it then and did not thereafter play any part in the arbitration until 25 July 2016, although it was kept informed of progress and given all due opportunity to participate throughout. On that date, ESSA's solicitors came on the record in the arbitration to represent it. By then, the final hearing of the merits had been fixed by the arbitrator to commence on 20 September 2016.
10. In coming on the record, ESSA's solicitors reserved their client's right to challenge jurisdiction or to assert that it was not given proper notice of the arbitrator's appointment or otherwise of the arbitral proceedings. The next day, they wrote again with proposals for the future conduct of the arbitration, stating that they anticipated ESSA would "contest both liability and quantum (and possibly jurisdiction)". Those tentative indications of the possibility of a challenge to jurisdiction were not pursued, however. On 29 July 2016, ESSA's solicitors wrote again advising that ESSA would say the SBC was tainted by illegality. They rightly did not suggest that such an allegation affected the arbitrator's jurisdiction, there was no further mention of any reservation as to jurisdiction, and directions for the conduct of the reference on the merits were made.
11. In response to a specific request by CMSA's solicitors for clarification, on 15 August 2016 ESSA confirmed by its solicitors that it did not seek to advance any case that the SBC was vitiated for want of authority on the part of those by whom it had been concluded. That confirmation was reiterated in closing argument on the final day of the arbitration hearing.
12. On 19 August 2016, ESSA's solicitors sought permission to serve a Defence and Counterclaim, and an adjournment of the hearing, so as to defend the claim on the merits and pursue a counterclaim in line with their indication of ESSA's stance on 29 July 2016. In making that application, ESSA by their solicitors confirmed that it was "now participating actively in the arbitration" and that it asserted "a legitimate defence on both liability and quantum which it wishes to advance." The application was granted by the arbitrator on 11 September 2016, subject to various conditions. On 16 September 2016, the arbitrator set directions for the adjourned final hearing and fixed it for 5 days to commence on 5 December 2016.
13. On 7 October 2016, ESSA applied to the arbitrator for permission to adduce expert evidence of Mexican law on certain issues, an application the arbitrator refused. On 11 October 2016, ESSA applied to amend its Defence and Counterclaim, an application the arbitrator allowed in part on 22 October 2016. ESSA filed its Amended Defence and Counterclaim in final form under that ruling on 4 November 2016.
14. In parallel with that initial period of belated participation by ESSA in the arbitration, its compliance or otherwise with LAASSP in relation to the SBC was being considered by the OIC. It commenced a regulatory audit inspection on 10 August 2016, resulting in an OIC Observations Report issued on 25 August 2016. That in turn triggered an OIC Intervention commenced on 26 August 2016, of which ESSA informed its solicitors' Los Angeles office (which was ESSA's primary point of contact with the firm) on 28 August 2016. There is reason to think from the evidence before me that it may be no coincidence that the OIC got involved at this stage. In short, it appears possible that members of ESSA's procurement department with commercial responsibility for the SBC may have engineered the OIC's involvement at this point in the hope of procuring a decree of nullity in respect of the tender process, in the belief that such a decree would support ESSA in its attempts to resist CMSA's arbitration claim. It will not be necessary to make any finding about that.
15. CMSA was informed of the OIC Intervention on 3 October 2016. It took no part in the process.
16. On 16 November 2016, as the conclusion of the OIC Intervention, the OIC Resolution upon which ESSA now founds this claim decreed the procedure under which CMSA had been awarded the SBC to be a nullity and required ESSA to declare an early termination of the SBC. ESSA issued an early termination declaration as called for by the OIC Resolution on 28 November 2016 (the 'Statutory Early Termination').
17. The final hearing of the arbitration, as re-fixed by the arbitrator, commenced on 5 December 2016. CMSA was represented by counsel instructed by its solicitors; ESSA was represented by its solicitors. On 6 December, ESSA sent the Statutory Early Termination to CMSA and the following morning, at the start of the third day of the hearing, counsel for CMSA brought it to the attention of the arbitrator, saying (unsurprisingly) that CMSA and its legal team had not had a proper opportunity to consider it or its ramifications, that CMSA's position was reserved, but that any question of whether the SBC had been terminated was a matter for the arbitration and not for any Mexican body or tribunal. ESSA's solicitor advocate, Mr David Foster, told the arbitrator he did not have much to add, confirmed that he was aware of a process in Mexico under Mexican law assessing alleged irregularities in the tender process in which his firm was not involved and that he would take instructions. The arbitrator made clear his concern, which was to be told if anything was being done in Mexico that sought to undermine the arbitral process, given that ESSA was playing a full part, and indeed was itself seeking substantive relief, on the basis that the process was valid.
18. The final hearing of the arbitration proceeded to a conclusion and, in the brief remarks in closing to which I referred in paragraph 11 above, Mr Foster again recognised the validity of the arbitral process, indicating that whatever was happening in Mexico was a separate matter.
19. Thus, at no stage during the period of ESSA's activity in the arbitration, up to and including the completion of the final hearing on the merits, did ESSA object to the arbitrator's jurisdiction. Although the possibility of some unspecified challenge to jurisdiction was briefly mooted when ESSA first surfaced in the proceedings, it was almost immediately dropped and ESSA participated on the merits, accepting and invoking the arbitrator's substantive jurisdiction to determine CMSA's claim and ESSA's counterclaim.
20. There can be no doubt, therefore, that ESSA took part and continued to take part in the arbitral proceedings without making any objection that the arbitrator lacked substantive jurisdiction. The first question arising under section 73(1) will be whether ESSA therefore failed to make its objection to jurisdiction "either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part", as to which the burden of proof is on CMSA. If so, then section 73(1) debars the present claim under section 67 unless ESSA "did not know and could not with reasonable diligence have discovered" its ground for objecting at the time of that participation, as to which the burden of proof is on ESSA.
21. During the brief closing exchanges in the arbitration about what OIC had done, Mr Foster said his firm would write to CMSA's solicitors by 16 December 2016. They did so, on that date, saying that the Statutory Early Termination raised issues as to the continued viability of CMSA's claim and possibly as to the arbitrator's jurisdiction. This was followed, on 22 December 2016, by a further letter from ESSA's solicitors finally making a challenge to jurisdiction, as a consequence, it was said, of the operation of Mexican law.
22. Under directions given by the arbitrator in that regard, written submissions followed, concluding on 27 January 2017. As Issue 8 (of 9) considered in the Award, the arbitrator asked himself whether he should admit ESSA's late objection (as he called it) to his jurisdiction. He concluded that there had been delay that ESSA had not justified in raising the objection and that ESSA had taken part and continued to take part in the arbitration when it should with reasonable diligence have been aware of the grounds upon which it had later sought to object to jurisdiction. He therefore refused to admit the objection for consideration by him on its substance. Issue 9 – whether there should be a ruling terminating the arbitration for want of jurisdiction – did not arise, therefore. The arbitrator stated, for completeness, that had he thought it appropriate to admit the objection, he would have convened a further oral hearing, with permission to CMSA to adduce evidence of Mexican law for such hearing, if so advised, ESSA having already served expert evidence of Mexican law with its written submissions on the objection.

The Witness Evidence

23. I heard factual witness evidence from Sra. Estercita Alavez Jimenez, ESSA's General Counsel, called by ESSA. There were also witness statements from Mr Foster, already mentioned, and Mr Andreas Constantine Dracoulis, a partner of CMSA's solicitors. Mr Dracoulis' statement added nothing apart from inadmissible comment to the written record of events and I was told in advance that Mr Dracoulis would not be called to give oral evidence at the hearing.
24. In the case of Mr Foster, his statement also comprised in large part comment and submission rather than evidence of fact. To the extent it did contain evidence of fact, it was for the most part hearsay evidence of what Mr Foster had been given to understand by Ms Alavez Jimenez. In the circumstances, told that Mr Foster was to be called at the hearing, I required that his evidence in chief be limited to such parts of his witness statement as could properly be said to be his first-hand factual testimony. In response to my direction in that regard, Mr McCombe for ESSA helpfully identified shortly before the hearing the limited passages that ESSA would seek to adduce as evidence in chief. The extent or purport of those passages was further clarified (i.e. narrowed) during oral openings. As a result, it became agreed that Mr Foster was not required to give oral evidence after all.
25. I understand the perceived convenience in a section 67 claim of setting out the claimant's detailed case as to the material facts, with explanatory comment or an outline of the proposed argument, in a single, main supporting witness statement from the claimant's solicitor. The same practice is seen in section 68 claims. That supposed convenience does not make the provision of such a statement necessary or appropriate. Where the material facts will be proved by contemporaneous documents, whether generated by the original transaction or by the arbitral proceedings, the proper function of a witness statement may well be only to serve as the means by which those documents can be got into evidence by being exhibited. The claimant's case as to what those documents prove, and as to the conclusions to be drawn, can and should be set out in the Arbitration Claim Form as part of the statement of the "Remedy claimed and grounds on which claim is made", a statement often produced in the form of a statement of case attached to the Claim Form. Indeed, there was just such a statement in this case, running to 11 pages and settled by leading and junior counsel. The content of any witness statement, beyond a bare identification of exhibited documents, can and should be limited to matters of fact intended to be proved, if disputed, by calling the maker of the statement as a factual witness at the final hearing of the claim.
26. If a witness statement served with the Arbitration Claim Form has not been properly limited in that way, then (as illustrated by the example of Mr Foster's statement in the present case) it is essential, if the maker of the statement is to be called as a witness at the final hearing of the claim, that proper thought is given to which parts of the statement it is necessary or appropriate to take as their factual evidence in chief. That should preferably be done well ahead of the hearing. Any dispute over what should be allowed as evidence in chief can then be identified and resolved, by the court if necessary; the parties can then prepare cross-examination limited accordingly; and the hearing can then be listed upon the basis of a time estimate that is better informed. (As it happens, in this case Mr Foster's not being called did not have a material impact on the time required for the hearing; but that will not always be so.)
27. I have focused in those observations upon the evidence served with an Arbitration Claim Form in support of a claim under section 67 (or 68). That is not to say the problem is limited to such evidence. Again, the present case is a clear example. Mr Dracoulis' statement was, it seems to me, for the most part unnecessary. As to the merits of the claim, except to the extent it simply identified and exhibited additional documentary evidence, the statement just set out CMSA's case at argumentative length. That were better done by way of statement of case or skeleton argument, so that those acting for ESSA could see what was in issue, and the nature of the case they had to pursue and/or meet, without having to waste time and effort considering whether they should call for Mr Dracoulis to attend for cross-examination. (I say his statement was unnecessary 'for the most part' because the last few pages dealt with matters of case management including draft directions proposed by CMSA rather than with the merits.)
28. The directions proposed by CMSA, as in due course finalised by a Consent Order of Leggatt J (as he was then) dated 27 July 2017, included permission for each party to adduce expert evidence of Mexican law. A subsequent change in the expert to be called by ESSA was dealt with by a further Consent Order of Popplewell J dated 16 November 2017. As a result, I was assisted by the expert evidence as to Mexican law of Sra. Cecilia Azar-Manzur, called by ESSA, and Sr. Alfonso Martin López Melih, called by CMSA. They agreed on a number of matters, but firmly disagreed on key views each had expressed in their reports. Whether those disagreements matter depends, however, on what, if anything relevant, falls to be determined by reference to Mexican law in the first place.
29. I am confident both experts gave me their honest, considered and unbiased opinions on Mexican law. Neither is immune from criticism as to the scope of the evidence they chose, or were asked by those instructing them, to offer in their reports. For example, Sr. López Melih offered a brief analysis of whether ESSA should have raised its jurisdiction objection earlier than it did, which was not a matter for him at all, and Sra. Azar-Manzur offered a wide-ranging discussion of matters of Mexican law mostly not relevant to the narrow claim pursued by ESSA, and did not appear to appreciate that the compliance or otherwise of the SBC tender process with LAASSP was a contentious issue on which the OIC's view was not relevant in this court. In addition, Sr. López Melih's treatment of some of the Mexican case law relied on by Sra. Azar-Manzur or referred to in the OIC Resolution was not very satisfactory. But I did not for those or similar reasons conclude that I could not trust that where the experts gave me their views as to relevant matters of Mexican law, they each did so honestly, impartially and after careful consideration. I do not accept Mr Chambers QC's submission that Mr López Melih descended to advocacy to such an extent that I should be wary generally of the opinions he gave me, nor Mr Davies QC's equivalent submission, albeit more lightly pressed, as regards Sra. Azar-Manzur.

The Nature of the Claim

30. As I noted in paragraph 6 above, ESSA had to show that the OIC Resolution of 16 November 2016 deprived the arbitrator of a substantive jurisdiction he had hitherto enjoyed (or at all events a substantive jurisdiction that ESSA could not deny he otherwise enjoyed). As Mr Chambers QC put it in his skeleton argument: "It is not suggested … that the Arbitrator lacked substantive jurisdiction at the outset of the proceedings (but rather that this became so after the OIC Resolution …)"; "It is ESSA's case that the Arbitrator did not have substantive jurisdiction to decide any of the matters in the arbitration from the time when the OIC Resolution … became effective …)".
31. In my judgment, Mr Davies QC was right to submit that ESSA therefore does not in truth challenge its capacity to conclude the Arbitration Agreement, or for that matter the SBC as a whole, so as to be bound as a matter of contract thereby. Since the foundational relief sought by ESSA is a declaration that it "did not have the legal capacity to enter into the SBC or the Arbitration Agreement", Mr Davies QC proceeded to submit that the claim can and should be dismissed without more. As will be seen below, I agree. To be clear, that is not because there is an arguable challenge to the arbitrator's jurisdiction that ESSA has mischaracterised as an issue of capacity. I would not dismiss the claim if it had arguable substance but there was mischaracterisation of the issue in the Arbitration Claim Form as a technicality. It is not a technicality, however, because the SBC, the Arbitration Agreement and the arbitral proceedings were all governed by English law. The relevance, if any, of the Mexican law effects of the OIC Resolution is therefore a question of the conflict of laws, in which a proper characterisation of the issue identifies the applicable choice of law rule. The only basis upon which ESSA could say in this case that Mexican law applied is if the question were indeed one of its capacity to bind itself to the Arbitration Agreement as concluded in July 2014.
32. Leaving that there for the moment, what did ESSA say was the nature or effect under Mexican law of the OIC Resolution of 16 November 2016?
33. The OIC Resolution set out the OIC's conclusion that the SBC had not been preceded by a tender process that complied with LAASSP. Its findings as to fact and reasoning are very lengthy. They do not themselves matter, however, as they do not constitute findings that could be binding between the parties before me, or for that matter before an arbitrator appointed and acting under English law. Nor did ESSA seek to prove before me that the SBC tender process did in fact fail to comply with LAASSP, something CMSA would dispute. What matters, therefore, and alone gave rise to the claim asserted before me is that by its Resolution, the OIC decreed to be a nullity the tender process by which CMSA won what became the SBC and required ESSA to declare its early termination. The Statutory Early Termination of the SBC dated 28 November 2016 was issued by ESSA so as to comply with that requirement, and I have no doubt that ESSA had an obligation under Mexican administrative law, as a regulated state entity, to comply with the OIC Resolution in that way (unless it obtained some relief from the appropriate Mexican court entitling it not to do so).
34. Sra. Azar-Manzur summarised her views in seven sub-paragraphs at the outset of her report. For reasons that do not now matter, her report was served in reply to that of Sr. López Melih, so that her seven key views were articulated as her essential reasons for disagreeing with his opinion. Those seven key views were the following:

a) Under Mexican law, it is not possible to dissociate the bidding procedure from the contract resulting from it. The acts that compose a bidding procedure, the contract resulting from such procedure, and the acts carried out by the public entity in connection with the contract are all administrative acts related one to the other. As a result, if the initial act - the bidding procedure - is illegal, the contract resulting from such procedure is illegal as well, including all of its sections. It is therefore incorrect to sustain, as Mr López Melih states, that the Contract was legally executed.

b) Pursuant the principle of legality …, unlike private entities, public entities are only allowed to do what is strictly permitted by their respective laws and regulations. Conversely, private entities are allowed to do everything that is not expressly prohibited by the law. …

c) In the case at hand, it is given that, as a result of several irregularities identified by the OIC through its investigation process, the Public Tender that gave birth to the Contract was declared null. The main irregularity identified by the OIC was the lack of authorisation from the internal competent corporate body for ESSA to carry out the Public Tender in the terms it did and to sign the Contract. This meant that ESSA entered into the Contract without holding legal powers to do so and therefore, as stated in article 54 Bis of the LAASSP, had to early terminate it on the order of the OIC.

d) The consequence of the principle of legality, the OIC Ruling and the subsequent mandatory early termination was that ESSA did not have the legal power, under Mexican law, to enter into the shipbuilding contract or the (separate) arbitration agreement contained within it.

e) Pursuant to article 15 of the LAASSP, articles 3, 5 and 6 of the LFPA and article 8 of the CCF, any government entity entering into an agreement without holding the necessary powers and in violation of … administrative laws … results in the nullity of such agreement, including all of its clauses.

f) When dealing with administrative acts, nullity does not accept degrees. The LFPA, the statute applicable to the inefficacies in Administrative Law, only makes reference to the concept of total nullity and annullability (subject to annulment). Under article 6 of the LFPA, the declaration of nullity will produce retroactive effects, as it happens with absolute nullity in Civil Law.

g) As a natural consequence, the fact that the Contract is the product of the Public Tender, the declaration of nullity of the Public Tender by the OIC produces the nullity of the Contract and all the clauses included therein. Such nullity is retroactive, as if the shipbuilding contract and the arbitration agreement had never existed.

(My emphasis throughout.)

35. It will be seen immediately why I said that if LAASSP tender requirements were not fulfilled (which it was not for Sra. Azar-Manzur to say and I was not asked to find), there may have been an argument over capacity (subject to close examination of the sense in which it was said that ESSA therefore lacked lawful power to conclude the SBC). That not being an argument open to ESSA, however, most of Sra. Azar-Manzur's key views were simply not pertinent. Her only views that matter are the ones I have underlined. (Two later paragraphs in Sra. Azar-Manzur's report and one short passage in her cross-examination to which Mr Chambers QC referred in closing as supplementing what I have quoted above did not add anything of substance.) ESSA's relevant case, then, on the basis of Sra. Azar-Manzur's evidence, was that the effect of the OIC Resolution as a matter of Mexican administrative law was to nullify the SBC, including the separable Arbitration Agreement within it, with retrospective effect.

Discussion

36. The main thesis of Sra. Azar-Manzur's evidence was that under Mexican law, ESSA, as a state entity whose activities are regulated by LAASSP (and by the more general Federal Law of Administrative Procedure ('the LFPA')), had power to contract for the acquisition of a new barge only if it conducted a public tender process conforming to the requirements of LAASSP. In her view, ESSA therefore was not capable of giving consent so as to create binding contractual relations unless such a conforming tender process was first completed. But any claim that the SBC, or the Arbitration Agreement in particular, was void ab initio upon such an understanding of Mexican law would require a proof that ESSA did not attempt (that it did not conduct a conforming tender process) and would fail in any event because of section 73(1) of the 1996 Act. As I have already mentioned, Mr Chambers QC indeed did not advance any such claim.
37. Not least because that was Sra. Azar-Manzur's analysis of the applicable Mexican law, I found it elusive to discern from her written evidence or her explanations in cross-examination whether she held an opinion capable of supporting the claim actually advanced by ESSA. For example, I am not at all sure that by the passages I underlined when quoting her key views, above, she meant to suggest that the OIC Resolution rendered invalid an otherwise valid contract or arbitration clause; rather, I think her opinion proceeded upon an assumption that, as concluded by the OIC, the tender process leading to the SBC had been non-compliant, or possibly upon the view that it was not for her to question whether the OIC was correct in thinking that there had been a non-compliant tender process.
38. Even if that is wrong, however, and I should understand Sra. Azar-Manzur's view to be that the OIC's decree of nullity had legal effects under Mexican law irrespective of its correctness, that would mean ESSA was seeking to rely upon a nullification of the SBC on 16 November 2016 and not upon any original lack of effective consent within ESSA's capacity. That is so even if, which would then be the thesis, the basis upon which after 16 November 2016 Mexican administrative law would say the SBC was to be treated as null was that it should be treated as if ESSA had not had power to conclude it. That 'as if' analysis would explain why the nullification of the SBC (in the eyes of Mexican administrative law) was a nullification ab initio, and not only prospectively. As with the rescission of a contract under English law for misrepresentation, that would not mean that there never was any binding contract, let alone in particular that there had not been valid consent binding ESSA to the Arbitration Agreement.
39. Although, then, the doctrine of Mexican law asserted by ESSA relied in an analytical hypothetical upon notions of capacity, it is in truth a doctrine as to the discharge of a contract (as it happens, a discharge with a retrospective character, like rescission). But questions as to the discharge of a contract are of course questions to be determined under the governing law of the contract, in this case English law not Mexican law. Just as the fact that a foreign law does not describe the effect of a particular doctrine in terms of nullity or voidity does not preclude the doctrine from being a matter of capacity to contract for the purpose of English conflict of laws rules (see Haugesund Kommune et al. v Depfa ACS Bank [2012] QB 549 (C/A)), so also the fact that the foreign law does describe the effect of a doctrine by reference to notions of nullity does not mean the doctrine must be so characterised. A doctrine that accepts and acknowledges that a valid and binding contract was concluded, including a valid and binding arbitration agreement, but requires by reason of the act of an administrative body over two years later that it thereafter be treated as if it had never been validly concluded is, by nature, not a doctrine concerning capacity to contract.
40. In the circumstances, ESSA's section 67 claim fails in limine. ESSA's case on Mexican law does not go to Mr Persey QC's substantive jurisdiction to make the Award. It is not necessary in the circumstances to lengthen this judgment by a detailed consideration of the difficulties with that case (i.e. ESSA's case on Mexican law). Suffice it to say that:

i) In my judgment, on no view did Sra. Azar-Manzur's evidence support the proposition that the Arbitration Agreement, if valid and binding when concluded, ceased to be so on 16 November 2016, even if it be assumed that the validity of the SBC was impugned by the OIC Resolution. She confirmed in her report that if a contract so impugned contained an arbitration clause then Mexican law like English law would regard that arbitration agreement as separable, and she confirmed in her oral evidence that in such a case Mexican law would regard an otherwise duly appointed arbitrator as competent under LAASSP and the LFPA to determine and declare the nullity of the impugned contract. Her real opinion, in my judgment, was not that arbitral jurisdiction had been destroyed, but that the arbitrator ought to have concluded that the SBC had been nullified and (presumably) that CMSA's claim ought to have been dismissed on that ground.

ii) Sra. Azar-Manzur acknowledged that the OIC had not by its Resolution decreed the nullity of the SBC, let alone the Arbitration Agreement in particular, and indeed in her view the OIC was not competent to do so. She maintained that the SBC was nonetheless impugned by the OIC Resolution, but by reason that it found ESSA guilty of non-compliance with LAASSP and such non-compliance had the result in her view that ESSA did not have power to conclude the SBC as it did in July 2014. But that is the possible argument of original incapacity that is not open to ESSA and was not advanced by it.

iii) Sr. López Melih was firmly of the view that the administrative law provisions relied on by ESSA did not in any event affect the validity of the SBC as between ESSA and CMSA, as a matter of Mexican contract law governed by the Mexican Federal Civil Code. In other words, whilst those provisions could create an administrative law obligation on the part of ESSA to treat the tender process as a nullity, the SBC was nonetheless a contract within ESSA's capacity to bind itself as a matter of contract.

41. As to that last point, in cross-examination Sra. Azar-Manzur explained that in her view CMSA would be treated as having accepted the OIC's entitlement to interfere in or affect CMSA's rights under the SBC, by its (CMSA's) participation in the tender process. But whether that is right or not is a question of the meaning and effect of (or perhaps implications in) the SBC, that is to say a question of the contractual merits governed by English law and not something affecting the arbitrator's jurisdiction. I prefer, and accept, Sr López Melih's opinion that contractual capacity – ESSA's ability in law to bind itself by contract – is not governed by the administrative law relied on by Sra. Azar-Manzur. The limits on its 'competence' or 'legal power' to act relied on by ESSA do not limit its substantive power to enter into binding contractual obligations (to echo the language used in Haugesund, supra, per Aikens LJ at [47]-[48] and [58]-[59]). Rather, I find, they are limits upon the way in which Mexican administrative law obliges ESSA to exercise such substantive power to conclude commercial contracts as its corporate constitution confers. If a contract like the SBC, or the Arbitration Agreement within it, is concluded 'illegally' in the sense that the requirements of administrative law to render lawful the exercise of ESSA's power of contracting have not been satisfied, that may have administrative law consequences, but it does not put the contract outside ESSA's capacity to contract, that being conferred and defined by its constitution. (It is not in dispute here that ESSA's corporate constitution conferred the power to purchase salt barges for ESSA's business.)
42. Thus, Mr Foster's indication to the arbitrator at the hearing that whatever the OIC process was, it did not affect the validity of the arbitration, was accurate, as well as being, I would think, the instinctive reaction of any experienced international arbitration practitioner. ESSA's subsequent decision to assert that the validity of the arbitral process had been undermined perhaps put Mr Foster in not the most envious of positions. Be that as it may, he and in turn counsel on his instruction put the case in support of that assertion as ably as it could be put, but that case does not succeed.
43. If, contrary to the foregoing, ESSA had a viable claim that the OIC Resolution deprived Mr Persey QC of substantive jurisdiction, I would agree with Mr Davies QC in any event that the claim is barred by section 73(1) of the 1996 Act. Since the only claim asserted is indeed that the OIC Resolution robbed the arbitrator, on and from 16 November 2016, of a substantive jurisdiction he otherwise enjoyed, Mr Chambers QC was correct to submit that section 31(1) of the 1996 Act did not govern when it fell to be raised, if at all, before the arbitrator. He submitted that the case was one of exceeding jurisdiction within the scope of section 31(2) so that ESSA was required by the Act to object to jurisdiction on the basis of the OIC Resolution "as soon as possible" after it was issued, unless under section 31(3) the arbitrator admitted it, though not raised as soon as possible, because he considered the delay to be justified.
44. By contrast, Mr Davies QC submitted, firstly, that capacity to contract either exists or not, as the case may be, when a contract is concluded and therefore an objection founded upon incapacity must necessarily fall within section 31(1). But the question of when ESSA's objection to jurisdiction should have been raised only arises if, contrary to the premise of that submission, it raises an issue going to jurisdiction despite depending upon an event occurring only in November 2016, over two years after the contract was concluded. Upon that basis, Mr Davies QC submitted, secondly, that neither section 31(1) nor section 31(2) applied. Continuing to act after jurisdiction has been lost is not, according to that submission, exceeding jurisdiction within section 31(2).
45. It makes no difference in the present case whether that second submission of Mr Davies QC is correct. If it is, then section 73(1) prima facie debars ESSA's section 67 claim if it did not raise its objection before the arbitrator "forthwith". If there be any difference between "forthwith" and "as soon as possible", it is not one that will affect the outcome here. For completeness, however, I prefer Mr Chambers QC's submission. The burden of ESSA's case under section 67 is that the arbitrator's jurisdiction was, that is to say it came to be, limited by time – it ceased to exist on 16 November 2016. That may make the case unusual. But if it were nonetheless viable, I find it entirely natural to describe an arbitrator who continues to act after his temporally limited jurisdiction has expired as exceeding his jurisdiction. This reading of section 31(2) avoids a lacuna in section 31 that seems to me unlikely to have been intended. I also agree with Mr Chambers QC that this reading of section 31(2) finds support in the definition of exceeding jurisdiction given by section 82(1) of the Act, by reference to section 30(1)(a) to (c). Thus, I proceed on the basis that section 31(2) indeed applied. ESSA was bound to raise its objection to jurisdiction as soon as possible after the OIC Resolution had been issued, since the arbitrator did not agree under section 31(3) to admit a later objection.
46. Since ESSA was well aware from late August 2016 at the very latest that an OIC Resolution decreeing the nullity of the tender process was distinctly possible, I have no doubt at all that it would have been possible for ESSA, if it did not understand already, to inform itself in advance of any impact upon the ongoing validity of the arbitration proceedings of such a Resolution. It would have been perfectly possible, therefore, to make any objection to the arbitrator's ongoing jurisdiction immediately following receipt by ESSA of the actual Resolution on 17 November 2016. Whilst detailed explanatory submissions might have required a little longer to prepare, it is important to bear in mind that the allegedly operative decree of nullity is part of a short, single paragraph within a very brief dispositive section at the end of the Resolution document; and it was in precisely the terms indicated provisionally by the OIC in its Observation Report as liable to result. The very great length and detail of the whole final Resolution document was no impediment to the simple assertion that, the OIC having decreed the tender process null, the arbitral proceedings no longer had juridical foundation. In my judgment, ESSA failed to comply with the requirement of section 31(2) to raise that assertion as soon as possible after the Resolution, when it failed to do so within a working day or two of receiving it.
47. It follows that ESSA did not raise the objection to jurisdiction upon which it later sought to challenge the Award under section 67 either forthwith or within the time allowed by the 1996 Act or the arbitrator. The section 67 claim was precluded by section 73(1), therefore, unless ESSA when continuing to participate in the arbitration after receiving the OIC Resolution could not with reasonable diligence have appreciated that its ground of objection to jurisdiction existed.
48. The general context in which that question of reasonable diligence falls to be assessed is that when faced with a legal claim asserted through arbitration, logically and practically the first question any respondent can fairly be expected to consider and keep under review throughout is whether it accepts the validity of the process. The particular context in which that question falls to be considered in the present case is that of a final hearing on the merits set to commence in less than three weeks in an arbitral reference in which the respondent had been actively participating for a period of months, was pursuing a counterclaim and had secured that very hearing date to ensure it was in a position to present its full case on the merits. Given that general context, and in that particular context, reasonable diligence on the part of a respondent in ESSA's position involved treating the OIC Resolution upon receipt as a development of the highest priority (unless, of course, it did not wish to treat it as having any potential relevance to the validity of the arbitral process). Treated with appropriate priority, I have no doubt that the ground of objection to jurisdiction later said to result from the Resolution could and would have been identified within a week of ESSA's receipt of it, enabling it to raise the objection by Friday, 25 November 2016 at the latest. All that was required, and only because this had not been done in advance, was that urgent advice be obtained as to the meaning and legal effect of the OIC's decree that the tender process was a nullity. Having not done so in advance of the actual Resolution, in my judgment there is simply no excuse for failing to seek such advice immediately. Had that been done, with the urgency of the position properly emphasised, I see no reason why the necessary advice could not have been obtained within a matter of a very few days. Certainly, there is no basis in evidence for supposing otherwise.
49. It is nothing to the point whether, had the objection been thus diligently raised at least a working week before the hearing, the hearing would have proceeded as it did (except now under protest as to jurisdiction and without prejudice to that objection). Nor in any event could I find that that would have been so.
50. That is sufficient for the conclusion that the section 67 claim pursued before me was not open to ESSA. However, in my judgment, the position is in fact even more stark. Whilst I agree with Mr Chambers QC that an objection founded upon the OIC Resolution could not be made prior to the Resolution, I do not agree that ESSA could not be expected to consider in advance the legal effect of an OIC decree of nullity in respect of the tender process, if it was to be able to say it acted with reasonable diligence. I described in paragraph 46 above what was required for it to be possible for ESSA to raise the objection it actually raised on 22 December within a working day or two of receipt of the Resolution on 17 November. Nothing so required called for more than reasonable diligence on ESSA's part in the particular circumstances of this case.
51. Mr Chambers QC submitted in closing that it would be wrong in principle, in testing what reasonable diligence could have achieved, to have any regard at all to anything that could have been but was not in fact done by ESSA prior to receiving the Resolution. However, I agree with Mr Davies QC that there is no basis upon which to restrict or fetter the enquiry under section 73(1) in that way. What might be said to go beyond reasonably diligent conduct, or to fall within its scope, is to be judged in all the factual circumstances of any particular case. Indeed, that there is no such principle as initially submitted by Mr Chambers QC is demonstrated by his acceptance in reply that if the OIC had notified ESSA in advance, but in definitive terms, of what its Resolution was going to say, it could have been reasonable to expect ESSA to prepare in advance to act very promptly when the Resolution was in fact issued. He maintained that it was nonetheless 'wrong in principle' to consider that possibility in this case, but to my mind the example of firm notice in advance just demonstrates that the matter is one of fact and degree, not legal principle.
52. In the present case, the OIC had made very clear, albeit provisionally, what it thought and that therefore it was likely by its eventual Resolution to decree the tender process a nullity. Further, on the evidence of Sra. Alavez Jimenez it was the view within ESSA from as far back as early 2015 that the tender process had been defective. Further still, according to the internal report to ESSA's Director of Finance and Administration at the end of August 2016 following the OIC Observation Report and Intervention, ESSA was in fact requesting that the conclusion of the Intervention be a decree of nullity of the tender process. In all those circumstances, and given the immediate procedural context in the arbitration I have already emphasised, I regard it as quite plain that preparing properly to raise immediately in the arbitration any effect or consequence of such a decree, if and when it came, would have been well within the purview of reasonable diligence.

Conclusion

53. ESSA participated on the merits in a London arbitration governed by English law in respect of a shipbuilding contract also governed by English law. ESSA accepts that the arbitration was validly commenced and that the arbitrator had jurisdiction over CMSA's substantive claim at the outset. The resulting award on the merits went against ESSA. The circumstances of the OIC's involvement from August 2016, together with the way ESSA introduced that into the arbitral process, has caused CMSA understandable suspicion that ESSA may be guilty of gamesmanship or worse. It is not necessary to consider whether such suspicion is well-founded or to make any finding about it.
54. The only claim advanced by ESSA, unarguably no other claim being available to it, was that the OIC Resolution in November 2016 somehow took away the arbitrator's substantive jurisdiction. It did not do so. Had it been otherwise, it would have been possible, expecting of ESSA only that it act with reasonable diligence, for the objection to jurisdiction later raised to have been made a month or so earlier. During that month or so when ESSA reasonably could have raised but did not raise its objection, it continued to participate in the arbitration, on the merits, defending CMSA's claim and pursuing its counterclaim, in particular playing a full part in the 5-day final hearing. The (supposed) objection to jurisdiction said to found the section 67 claim brought by ESSA was therefore not open to it to raise in any event, by operation of section 73(1).
55. ESSA's section 67 claim therefore fails and is dismissed.