Arbitration vs. Court Litigation

It is unusual for the English Courts to set aside an arbitral award, particularly when the award is issued by an experienced tribunal under the rules of a major arbitral institution such as the LCIA. The recent Commercial Court decision in A v B [2017] EWHC 3417 (Comm) is one of these rare occasions and provides a salutary warning of the need for parties commencing arbitrations under multiple contracts to carefully consider whether all the claims can be brought in a single arbitration or whether it is necessary to commence multiple arbitrations for claims under each separate contract.

The case raised two issues:

  1. Whether a single request for LCIA arbitration was valid, when seeking to refer disputes under two separate but similar contracts between the same parties and each containing an LCIA arbitration clause; and
  2. Whether, if the arbitration request was not valid, the respondent has lost the right to object to such invalidity by failing to take the point in its Response and raising the issue for the first time seven months after the commencement of the arbitration and shortly before its Statement of Defence was due.

Background

The defendant in the proceedings (“B”) sold two consignments of crude oil to the claimant (“A”) pursuant to two separate, but identical contracts. Each contract contained an LCIA arbitration clause and was governed by English Law.

B commenced arbitration against A in September 2016, claiming that A did not pay the price due under the contracts. B delivered a single Request for Arbitration and paid a single registration fee, claiming the full purchase price under both consignment contracts.  A served its Response to the request in October 2016, denying liability, and sought to reserve its right to challenge the jurisdiction of the LCIA and any arbitral tribunal subsequently appointed.

Seven months later, in May 2017, A challenged the validity of B’s Request for Arbitration on the grounds that, by purporting to refer claims under two crude oil contracts, B’s Request failed to identify the particular dispute and the particular arbitration agreement to which it related. A’s challenge was made shortly before it’s Statement of Defence was due, and A served its Statement of Defence on its due date expressly without prejudice to its challenge to the jurisdiction of the tribunal.

In July 2017, the Tribunal made a partial award on jurisdiction dismissing A’s challenge to its jurisdiction on the grounds that it was brought too late.

One request or two?

In August 2017, A commenced proceedings under Section 67 of the Arbitration Act 1996 challenging the award on the grounds that the tribunal lacked jurisdiction. A contended that Article 1 of the LCIA Rules makes clear that a request for arbitration must identify “the dispute” to which it relates and the particular “arbitration agreement” which is being invoked. In this case, the Request referred to two disputes governed by two distinct arbitration clauses, which renders it impossible to determine which dispute and which arbitration clause are the subject matter of the arbitration.

In response, B argued that its Request had validly commenced two separate arbitrations, one for each crude oil contract entered into with A and contended that references to arbitration (singular) in the LCIA Rules can and should be read as including arbitrations (plural) based on the presumption in section 61 of the Law of Property Act 1925 that in all contracts the singular includes the plural and vice versa, unless the context otherwise requires.

In his judgment, Mr Justice Philips dismissed B’s arguments and found that the wording of Article 1 of the LCIA Rules refers to a single “written request” giving rise to “an arbitration”, and the payment of a single set of fees. He found it significant that under Article 22.1 of the LCIA Rules, the arbitral tribunal, once formed, has the power to consolidate multiple arbitrations into a single arbitration, but only where the parties agree.

The Judge further found that the Request made no reference to the commencement of more than one arbitration: amongst other things it referred to a single amount of damages and the payment of one registration fee, indicating that B had the intention to commence a single arbitration. He concluded that the Request was an ineffective attempt to refer separate disputes to a single arbitration, and held that the Request invalid on this basis.

Was the jurisdictional challenge made “as soon as possible”?

Article 23.3 of the LCIA Rules provides that an objection by a respondent that the tribunal does not have jurisdiction “shall be raised as soon as possible but not later than the time for its Statement of Defence.” In the arbitration, the Tribunal ruled that, except in exceptional circumstances, the words “as soon as possible” mean that any objections known to the respondent at the time of receipt of the Request must be raised by the time for service of Response.

Mr Justice Philips disagreed, concluding that an objection may be raised up until submission of the Statement of Defence, or the equivalent stage at which the merits of the dispute are contested. The judge concluded that the phrase “as soon as possible” was not to be interpreted so strictly that a party could lose the most fundamental of objections without having even appointed an arbitrator. He stated that Article 23.3 should instead be construed as excluding “untimely objections”.

Accordingly, it was held that A did not lose the right to challenge the Tribunals’ jurisdiction, as it objected before the time for service of its Statement of Defence.

Lessons learned

Claimants in disputes involving multiple contracts need to carefully consider the requirements for the commencement of arbitration proceedings under the applicable arbitration rules to establish whether or not it is permissible to refer separate disputes to a single arbitration. In light of the decision in A v B, the wording of Article 1 of the LCIA Rules as it currently stands requires the claimant to submit separate requests for arbitration in respect of each contract, unless the arbitration clause varies the LCIA Rules by agreement to permit disputes under multiple contracts to be referred to a single arbitration (as is commonly the case in many transactions involving multiple contracts).

If there is any doubt about the ability to include claims under different contracts in a single arbitration, then the prudent approach is to commence multiple arbitrations and apply to have them consolidated. The LCIA Rules provide that arbitrations between the same parties under comparable arbitration agreements may be consolidated by an arbitral tribunal with the approval of the LCIA Court under Article 22.1(x).

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