A -v- B [2017] EWHC 3417 (Comm)
Details
In this case, the Commercial Court considered an application under section 67 of the Arbitration Act 1996. The claimant in these proceedings (A), the respondent in the arbitration, challenged the arbitral tribunal’s decision that its right to object to an allegedly invalid request for The London Court of International Arbitration (LCIA) arbitration brought by the defendant (B) had been lost as it was served after A’s response. Mr Justice Philips reviewed the requirements for a valid commencement of LCIA arbitration and examined when a challenge to jurisdiction must be made under the LCIA Rules.
Factual background
B sold two consignments of crude oil to A, pursuant to two separate contracts dated September and October 2015. Each contract was governed by English law and contained an LCIA arbitration clause. B claimed that A failed to pay the price due under the contracts and commenced LCIA arbitration against A on 23 September 2016. B delivered a single request for arbitration, paid a single registration fee and claimed the full purchase price due under both contracts.
A served its response in time, denying liability and reserving its right to challenge ‘the jurisdiction of the LCIA and any arbitral tribunal appointed’. On 24 May 2017, shortly before serving its statement of defence, A challenged the jurisdiction of the tribunal based on the alleged invalidity of the arbitration request pursuant to section 30 of the Arbitration Act 1996 and Article 23 of the LCIA Rules 2014. In particular, A contended that by purporting to refer claims under both contracts, the arbitration request failed to specify the particular dispute and arbitration agreement to which it related.
The tribunal made a partial award on jurisdiction and dismissed A’s challenge on the basis that it was brought too late. Subsequently, on 4 August 2017 A commenced these proceedings seeking to challenge the partial arbitration award on jurisdiction pursuant to section 67 of the Arbitration Act 1996.
Legal issues
Mr Justice Philips had to consider two key questions:
- Was the arbitration request valid?
- If the request was not valid, had the respondent lost its right to object to the tribunal’s jurisdiction?
Article 1 of the LCIA Rules requires an arbitration request to identify ’the dispute’ to which it relates and ‘the arbitration agreement’ which is being invoked. B contended that its single arbitration request had effectively commenced two separate arbitrations, one under each contract. Relying on section 61 of the Law of Property Act 1925, B said the court should adopt a wide interpretation of Article 1 and suggested that a reference to ‘arbitration’ in the singular should be read as including ‘arbitrations’ in the plural.
The court rejected this argument and held that the LCIA Rules do not envisage several arbitrations being commenced under a single request. Mr Justice Philips found the procedure for the commencement of an arbitration under the LCIA Rules entirely clear and distinguished the decision of Hamblen J in The Biz [2011] 1 Lloyd’s Rep 688 because no arbitration rules were applicable in that case. The judge believed that the intention was to commence a single arbitration, hence he decided that B’s request seeking to refer two separate disputes to a single arbitration was ineffective and accordingly invalid.
B also argued that A had lost its right to challenge the tribunal’s jurisdiction. Article 23.3 of the LCIA Rules provides that any objection by a respondent to the arbitral tribunal’s jurisdiction ‘shall be raised as soon as possible but not later than the time for its statement of defence’. The arbitral tribunal held that save in exceptional circumstances, ‘as soon as possible’ ordinarily means (where a respondent knows of an objection from the moment it receives the request) the service of the response (due 28 days after the request).Therefore, A should have raised its objection to jurisdiction by 31 October 2016 at the latest.
The judge disagreed with the tribunal’s decision and suggested that the starting point in the analysis should be a consideration of the mandatory sections 31 and 73 of the Arbitration Act 1996. In particular, section 31(1) of the Act which provides that any objection to the substantive jurisdiction of an arbitral tribunal ‘must be raised by a party not later than the time he takes the first step in the proceedings to contest the merits of any matter in relation to which he challenges the tribunal’s jurisdiction’. The suggestion that the intention of Article 23.3 of the LCIA Rules was to introduce a new and strict regime for raising jurisdictional challenges, was rejected as it departed dramatically from section 31(1) of the Act and was characterised as ’inconceivable’.
In his judgment, Mr Justice Philips explained that the better construction of Article 23.3 is that it excludes ‘untimely objections’ which effectively relate back to the requirement that an objection shall be made ‘not later than’ the time for the statement of defence. This was consistent with the approach followed by Morrison J in AIG Europe (Ireland) Ltd. -v- Faraday Capital Ltd [2006] 2CLC 770. Therefore, the arbitration request was invalid, the tribunal had no substantive jurisdiction and A had not lost the right to challenge the tribunal’s jurisdiction.
Comment
This case clarifies the requirements for a valid commencement of LCIA arbitration and provides useful guidance on when a challenge to jurisdiction must be made under the LCIA Rules.
Furthermore, Mr Justice Philips’ judgment serves as a reminder for claimants commencing LCIA arbitrations that the existing LCIA Rules do not envisage several arbitrations being commenced under a single request.
The decision of the Commercial Court highlights the significance of complying with the provisions of any applicable arbitration rules and understanding the context within which an arbitration agreement operates. In fact, several other arbitral institutions have now adopted a liberal approach permitting parties to commence a single arbitration to resolve disputes arising under multiple related agreements. It would be interesting to see if this decision prompts the LCIA to revise its rules, essentially adapting to this new commercial reality.
This article originally appeared in the March 2018 edition of shipping case digest. Other articles include:
