English court sets aside tribunal’s award on jurisdiction, finding that the LCIA Rules do not permit a party to bring claims under multiple contracts in a single arbitration

In its recent decision in the case of A v B [2017] EWHC 3417 (Comm) (available here), the English Commercial Court (the “Court“) set aside the tribunal’s award upholding its own jurisdiction, on the grounds that the LCIA Rules 2014 do not permit a party to commence a single arbitration in respect of disputes under multiple contracts.  As a result, the Claimant’s Request for Arbitration was invalid. The Court also held (contrary to the tribunal’s award) that the Respondent had not lost its right to object to the tribunal’s jurisdiction by failing to raise its jurisdictional challenge until shortly before filing its Statement of Defence.

This is a rare instance of the English court setting aside a tribunal’s award and a significant reminder to parties to transactions involving multiple related contracts to consider efficient resolution of disputes at the contract drafting stage.

Background to the case and summary of the arbitration proceedings

Under two separate contracts (the “Contracts“) B agreed to sell to A two consignments of crude oil. The Contracts were governed by English law and provided for arbitration under the LCIA Rules 2014, seated in London.

B commenced arbitration in September 2016 in a single Request for Arbitration (the “Request“) accompanied by payment of a single registration fee, claiming the full purchase price due under each of the Contracts.  A served its Response, denying liability and stating that its Response should not be construed as submission to the arbitral tribunal’s jurisdiction to hear B’s claim as formulated.  A reserved its rights to challenge the jurisdiction of the LCIA and any tribunal appointed and repeated similar statements in subsequent correspondence with the LCIA and the tribunal.

On 24 May 2017, A challenged the jurisdiction of the tribunal contesting the validity of B’s Request on the grounds that it purported to refer claims to a single arbitration under both Contracts.  A served its Statement of Defence on 2 June 2017 (the “Defence“), without prejudice to its jurisdictional challenge.

On 7 July 2017, the tribunal issued a partial award on jurisdiction dismissing A’s challenge on the grounds that it was brought after the expiry of the period for doing so under Article 23.3 of the LCIA Rules. The tribunal did not determine the merits of A’s objection to jurisdiction.  On 4 August 2017, A challenged the tribunal’s award under section 67 of the Arbitration Act 1996 (the “Act“).  The Commercial Court upheld the challenge.

The parties’ arguments and the Court’s findings

The Court decided two key issues.

  1. Was a single Request for LCIA arbitration, seeking to refer disputes under two separate contracts (each containing an LCIA arbitration clause) valid?
  2. If the Request was not valid, had the Respondent lost the right to object by failing to take the point until shortly before its Defence was due?

 

  • Validity of the Request for Arbitration

A contended that the Request was contrary to Article 1(1) of the LCIA Rules and that it was therefore invalid and ineffective. B accepted that an arbitration under the LCIA Rules can only encompass a dispute arising under a single arbitration agreement, but argued that the Request validly commenced two separate arbitrations under each of the Contracts.  B asserted that the references to the singular in Article 1 (a single “arbitration”, a single “written request” and a single “arbitration agreement”) include the plural.

The Court denied that references to the singular under Article 1 should be read as including the plural, holding:

  • The LCIA Rules treat a single Request as giving rise to a single arbitration, the payment of fees for one arbitration and the formation of a single arbitral tribunal. This is reinforced by Article 22.1(x), which gives the tribunal the power to consolidate two or more arbitrations into a single arbitration, but only where all parties consent.
  • B’s position that it commenced two arbitrations was inconsistent with the LCIA Rules because B’s case: (i) would allow it to pay only one registration fee; and (ii) would require that the tribunal be appointed in respect of both arbitrations, notwithstanding that the absence of party consent to this.
  • Other cases in which it had been possible to commence a single arbitration referring to multiple contracts could be distinguished from the present case because in those cases there were no applicable arbitral rules preventing a single arbitration.
  • A reasonable person in the position of the recipient would have understood the Request as starting a single arbitration (for example, B claimed a single amount of damages and referred to the seat of arbitration and the governing law of the arbitration agreement in the singular). The Request was therefore an ineffective attempt to refer separate disputes to a single arbitration, as a result of which it was invalid. The tribunal therefore did not have jurisdiction to make the award.

 

  • Loss of the right to object to the tribunal’s jurisdiction

Article 23.3 of the LCIA Rules provides that an objection to the tribunal’s jurisdiction “shall be raised as soon as possible but not later than the time for its Statement of Defence“.

The tribunal’s analysis of Article 23.3

The tribunal reasoned that: (i) save in exceptional circumstances, “as soon as possible” in Article 23.3 requires a Respondent who knows of an objection when it receives the Request to raise that objection in its Response and, more generally, requires a Respondent to raise an objection as soon as it knows or ought to know the facts giving rise to the objection; and (ii) a general reservation of a party’s position as to jurisdiction does not serve to keep the right to object open.  On the basis that A’s delay in raising its objection was unjustifiable, the tribunal rejected A’s challenge.

The Court’s analysis of Article 23.3

The Court concluded that A had not lost the right to object to the tribunal’s jurisdiction by only raising its objections shortly before its Defence was due:

  • The starting point to determine the timeframe in which A was entitled to object should be sections 31 and 73 of the Act, as those provisions are mandatory and “it is highly unlikely that the LCIA Rules were intended to have an effect which materially diverges from such provisions“.
  • Section 31(1) (which provides that an objection to the substantive jurisdiction of the tribunal at the outset of the proceedings “must be raised by a party not later than the time he takes the first step in the proceedings“) does not impose a requirement that an objection be made as soon as possible (or earlier than the Statement of Defence). This closely follows the equivalent provision in the UNCITRAL Model Law.  Section 31(1) requires only that the objection be raised not later than the Statement of Defence.
  • The words “as soon as possible” in Article 23.3 of the LCIA Rules do not impose a stricter requirement than section 31(1), but operate to exclude “untimely objections”.
  • Although section 73 of the Act provides that the right to object is lost where a party takes part in proceedings and does not raise an objection “forthwith”, this does not impose any stricter requirement nor require Article 23.3 to be read as doing so. An alternative to the requirement to object “forthwith” is to object “within such time as is allowed by the arbitration agreement or the tribunal or by any provisions of this Part“, which includes section 31(1).

Comment

The Court’s decision underlines the need to consider carefully at the outset of proceedings what is required by the applicable institutional rules to commence an arbitration, particularly in the case of multi-contract or multi-party proceedings.  Specifically, the decision highlights the contrast between the position under the LCIA Rules and the rules of other major institutions which permit parties to commence a single arbitration in respect of multiple contracts.

Under the LCIA Rules, rather than commencing a single arbitration, parties instead need to issue multiple separate Requests for Arbitration and then seek to have the separate arbitrations consolidated.  In order to circumvent this, parties choosing LCIA arbitration should expressly agree in their arbitration clauses that the parties are permitted to commence a single arbitration to resolve disputes arising under different related agreements, and they should consider consolidation at the contract drafting stage.

It will be interesting to see if the LCIA makes any further amendments to its Rules going forward in order to allow parties to bring claims under multiple contracts in a single arbitration.  This would be consistent with the changes already introduced in the LCIA Rules 2014 to increase efficiency in respect of claims under multiple related contracts.

 

For more information, please contact Chris Parker, Partner, Elizabeth Reeves, Associate, or your usual Herbert Smith Freehills contact.

Chris Parker
Chris Parker
Partner
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+44 20 7466 2767
Elizabeth Reeves
Elizabeth Reeves
Associate
Email
+44 20 7466 2310

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