It takes two (Requests for Arbitration) to tango…

A recent judgment by the Commercial Court highlights the importance of taking care when preparing Requests for Arbitration.

The arbitration proceedings

(B) sold two consignments of crude oil to (A) pursuant to two, separate contracts. Both contracts were governed by English law and contained an LCIA arbitration clause. (B) subsequently commenced arbitration proceedings against (A) claiming that (A) had failed to pay the contract price under both contracts. (B) delivered a single Request for Arbitration and paid a single registration fee. (A) served its Response, reserving its right to challenge the jurisdiction of the LCIA. The Tribunal was appointed. Shortly before its Defence was due, (A) challenged the validity of the Request under section 30 of the Arbitration Act 1996 (the "1996 Act") and Article 23 of the LCIA Rules 2014 (the "LCIA Rules") on the basis that, by purporting to refer claims under both contracts, the Request failed to identify the particular dispute and the particular arbitration agreement to which it related. (A) then filed its Defence, expressly without prejudice to its jurisdictional challenge. The Tribunal dismissed (A)'s challenge on the grounds that it was too late.

The court proceedings

(A) made an application pursuant to section 67 of the 1996 Act. Mr Justice Phillips held that:

Was one Request valid to commence multiple arbitrations?

  • 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.
  • It is inconceivable that the LCIA Rules could be read as permitting a party to pay only one registration fee when commencing multiple arbitrations.
  • This is supported by the language used in Article 1.1 of the LCIA Rules which refers to "an arbitration" and "a written request" rather than "arbitrations" and "written requests".
  • This is also supported by Article 22.1(ix) of the LCIA Rules which enables a tribunal to consolidate multiple arbitrations but only where all parties agree.
  • The case can be distinguished from The Biz [2011] 1 Lloyd's Rep 688 (in which one notice of arbitration, given in respect of claims under 10 separate bills of lading, was held to be valid) because that was a case in which no arbitral rules were applicable.

Was A's challenge too late?

  • Section 31(1) of the 1996 Act closely follows the text of Article 16(2) of the UNCITRAL Model Law of International Commercial Arbitration.
  • Article 16(2) requires a challenge to be made prior to the submission of a statement of defence, whereas section 31(1) requires it to be made before the party "takes the first step in the proceedings to contest the merits".
  • The intention behind this change, as explained in the Departmental Advisory Report for the Arbitration Bill published in 1996, was to account for cases where no formal pleading was required.
  • Section 14 of the LCIA Rules, which refers to any challenge being made "as soon as possible", cannot have been intended to materially diverge from section 31, which is a mandatory provision.
  • As such, an objection must be raised not later than the submission of a statement of defence (where pleadings are required) or the equivalent stage at which the merits are contested.

Comments

The judgment makes sense in the context of arbitrations conducted under the LCIA Rules, and indeed for those conducted under the auspices of other institutions where a registration fee is payable. It would be nonsense if the same fee were payable notwithstanding whether one arbitration was commenced, or multiple. However, the position may well be different for ad hoc arbitrations conducted under the 1996 Act or under other institutional rules, particularly where no registration fee is payable. Parties should therefore be aware that a single Request for Arbitration filed in respect of multiple contracts may be valid pursuant to some rules, yet invalid in accordance with others.

Commercial parties who enter into several small, repeat contracts with their customers may wish to agree a "master contract" if they are going to use the LCIA Rules, to avoid the need to pay multiple registration fees and then seek consolidation, although this concept was not specifically considered by the court, and there can be no guarantee that such a structure would lead to a different outcome.

Extra care must be taken by claimants where limitation is an issue. The ruling that an objection to jurisdiction need not be made any earlier than the time for the Respondent's Statement of Defence means that a valid objection could be made several months after the Request has been filed (in the present case the Defence was filed over 8 months after the Request). If the Request is then found to be invalid, the claimant's claim may be time-barred.  

For more information contact Garbhan Shanks, Partner in the Commercial Disputes team, or Harriet Chopra, Associate.