In the recent decision in LLC Agronefteprodukt v Ameropa AG [2021] EWHC 3473 (Comm), the English Commercial Court (the ‘Court’) dismissed a jurisdictional challenge under section 67 of the Arbitration Act 1996 (the ‘Act’), finding that a single Notice of Arbitration validly commenced separate arbitration proceedings. The decision is of particular interest given that the Court reached a different outcome from the earlier decision of A v B [2017] EWHC 3417 (Comm) (blog post available here), in which the Court upheld a section 67 challenge in similar circumstances.

Background

The Underlying Contracts and Disputes

Under two separate contracts of sale (the ‘Contracts‘), LLC Agronefteprodukt (the ‘Sellers‘) agreed to sell quantities of Russian Milling Wheat to Ameropa AG (the ‘Buyers‘). The Contracts both contained an arbitration clause which provided for arbitration under the GAFTA rules, seated in London.

The Buyers commenced arbitration in August 2018 under both Contracts in a single Notice of Arbitration (the ‘Notice‘). This Notice included a paragraph (the ‘Final Paragraph‘) which read “On a separate note, [the Buyer wondered] if, for efficiency and economy, [the Sellers] would accept the two contracts/disputes be adjudicated under a single arbitration and by the same Tribunal“. The Sellers did not respond, and an arbitrator for the Sellers was appointed by GAFTA.

In September 2018, the parties entered into negotiations and concluded an agreement (the ‘Washout Agreement’) under which the Sellers would pay a sum to the Buyers (the ‘Settlement Sum‘) to terminate the claim. The Sellers failed to make payment, and the Buyers continued the arbitration.

The Underlying Awards and S67 Challenge

The Sellers contended that the Tribunal lacked jurisdiction on the basis that the Buyers had failed to validly commence arbitration proceedings under each contract. They argued that the Notice was invalid as it illegitimately purported to commence a single arbitration in respect of claims under separate Contracts. Under the GAFTA Rules, the Sellers would have to consent to any such consolidation, which they did not. This jurisdictional challenge was rejected by the First Tier GAFTA Tribunal and the Appeal Board in their awards (the ‘First Tier Tribunal Award‘ and ‘Appeal Board Award‘ respectively).

The Sellers proceeded to challenge both the First Tier Tribunal Award and the Appeal Board Award under section 67 of the Act (the ‘Section 67 Challenge‘).

Decision

Sir William Blair dismissed the Section 67 Challenge, finding that the Notice validly commenced separate arbitration proceedings.   He also rejected the Sellers’ arguments that (i) the Notice should be rectified and (ii) the Buyers were estopped from claiming that the Notice started two arbitrations because of a common assumption held by the parties during the arbitration proceedings.

The Notice Finding

Blair J started his analysis by stating that, as provided for in section 14(4) of the Act, no statutory formalities are necessary for issuing a Notice of Arbitration, other than that it must be writing. He then emphasized, by reference to The Biz case (here) that the Court will take a commercial approach when interpreting the Notice of Arbitration.

In the Section 67 Challenge, the Sellers sought to argue that the Notice “objectivelyevidenced an intention to commence a single arbitration“, citing, among other things, the use of singular nouns such as “arbitrator” rather than “arbitrators“, “arbitration in London”, rather than “arbitrations in London” and made reference to a single arbitration throughout the Notice, except in the Final Paragraph.

While these were “fair linguistic points“, they were dismissed as being “relatively minor” and were outweighed by the Final Paragraph of the Notice in which the Buyers had made it clear there were seeking to have the “two contracts/disputes be adjudicated together under a single arbitration and by the same Tribunal“. The judge agreed with the Buyer that such a request would not have made sense unless the Notice was commencing two arbitrations.

The Sellers relied on the decision in A v B, which involved a successful section 67 challenge in circumstances where a party filed a single Request for Arbitration (the ‘Request‘) to refer separate disputes to a single arbitration. In that case, the Request was held as invalid under the LCIA Rules. Blair J held, however, that the Final Paragraph distinguished this case from A v B. He considered that it was clear that the Buyer was intending to commence separate arbitrations, while this was not the case in A v B. In that case, the Court found it to have been “clear that the intention was to commence a single arbitration and no reasonable reader would conclude otherwise”. Further, the LCIA Rules contain further requirements to issue a notice on top of those laid out in s.14(4) of the Act, whilst the GAFTA rules do not.

Additionally, the Sellers sought to argue, as had formed part of the reasoning in A v B, that only one fee was paid by the Buyers, whereas the GAFTA Rules require fees in relation to each arbitration. Blair J dismissed this argument, on the basis that it did not affect the jurisdiction question which depended on the interpretation of the Notice.

Rectification and Estoppel

The Sellers submitted that if the Notice did validly start two arbitrations, the Buyers had argued throughout the arbitration proceedings that there had been a single dispute, following a merging of the contracts in the Washout Agreement. The Sellers argued this amounted to a unilateral mistake by the Buyers in the drafting of the Final Paragraph and that it should therefore be rectified. Blair J found that the Buyers had not made a mistake. Additionally, he held that “it would be plainly inequitable” to change the meaning of the Notice, causing the tribunal to lose jurisdiction when both parties had agreed the Buyers were entitled to continue with the arbitration following the breach of the Washout Agreement by the Sellers.

The Sellers also attempted to argue that the Buyers should be estopped from asserting that the Notice had started two proceedings challenging jurisdiction. Blair J dismissed the Sellers’ estoppel argument on similar grounds.

Comment

This decision provides useful commentary on the principles governing the construction of notices or requests for arbitration, notably an emphasis on substance over form. It demonstrates that careful consideration should be given as to the requirements of any applicable arbitral rules on the contents of the notice or request for arbitration, and that parties should make their intentions clear, particularly when a party intends to commence a dispute under multiple contracts through one notice.

As the GAFTA Rules do not go beyond the requirements laid out in s.14(4) of the Arbitration Act 1996, the Court determined the matter by ascertaining the intention of the Buyers through interpretation of the Notice of Arbitration. This can be contrasted with A v B, where the effect of the old LCIA Rules was that multiple separate Requests for Arbitration had to be issued. The updated LCIA Rules 2020 now permit a party to commence more than one arbitration in a single request – although an application for consolidation must still be made in the usual way.

For more information, please contact Chris Parker, Partner, and Charlie Morgan, Senior Associate, or your usual Herbert Smith Freehills contact.

Chris Parker QC
Chris Parker QC
Partner
+44 20 7466 2767
Charlie Morgan
Charlie Morgan
Senior Associate
+44 20 7466 2733

The authors would like to thank Alessandra Yolland for her assistance in preparing this blog post.