REUTERS | Clodagh Kilcoyne

Validity of notices and requests for arbitration: when context and rules are key factors

Usually, the first formal step in an arbitration is the service of a notice or request for arbitration. The parties are generally free to agree how arbitration proceedings are to be commenced and, historically, the courts have tended to have a robust approach to the construction of notices of arbitration. However, it would be wrong to underestimate the importance of getting the notice or request for arbitration right. If you don’t, claims may become time-barred because an ineffective arbitration notice will not stop time running for the purposes of statutory or contractual time limits. Failure to commence an arbitration effectively may affect the jurisdiction of the tribunal to make a binding award. At the very least, it may result in wasted costs.

Two recent Commercial Court cases in England have highlighted some of the issues that can arise with arbitration notices and the emphasis that the court will place on context and applicable institutional arbitral rules if called upon to construe them.

The Agarwal case

In Agarwal Corporation(s) Pte Ltd v Harmony Innovation Shipping Pte Ltd the court had to consider whether a notice of arbitration sent to two parties had the effect of commencing one tri-partite arbitration or two separate arbitrations against two parties.

Disputes arose in relation to contracts of affreightment between Harmony and two companies – Agarwal India and Agarwal Singapore. The contracts included an identical arbitration clause referring any disputes to a three member tribunal in a London-seated arbitration.

Harmony commenced arbitration by sending two separate notices of appointment of an arbitrator to each of Agarwal India and Agarwal Singapore, as there was some uncertainty regarding the identity of the respondent(s). The notices were identical and stated that it was formal notice of the commencement of arbitration (singular) against both companies. Agarwal India and Agarwal Singapore appointed two separate arbitrators by two separate notices of appointment and reserved their rights as to jurisdiction. Subsequently, the appointed arbitrators in both references appointed the same third arbitrator.

Harmony and the tribunals considered that two separate arbitrations had been commenced and the tribunals made awards on jurisdiction on that basis.

Agarwal India and Agarwal Singapore challenged the awards on the basis that the tribunals were not properly constituted because, they claimed, the notice of arbitration commenced one tri-partite arbitration against the two parties, not two separate arbitrations.

The case turned on the construction of the notice of arbitration which, as this was an ad hoc arbitration seated in London, required the court to consider the provisions of section 14 of the English Arbitration Act 1996 (AA 1996), which deals with the commencement of arbitral proceedings.

Section 14(4) provides:

“Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter”.

The parties agreed and the English courts have consistently held that section 14 should be interpreted broadly and flexibly, not strictly and technically, and that the focus should be on the substance, not the form, of the document by which the arbitration is said to have been commenced. One of the cases referred to by the judge in support of this proposition is Seabridge Shipping AB v AC Orssleff EFTS A/S, where it was held that a strict and technical approach to the application of section 14 requirements had no place in the scheme of the AA 1996.

This broad, flexible approach was endorsed in Easybiz Investments v Sinograin & Chinatex (“The Biz”), where Hamblen J set out principles as follows:

  • Section 14 should be interpreted broadly and flexibly, avoiding a strict or technical approach, particularly where the notice has been drafted by non-lawyers.
  • The requirements of section 14 will generally be satisfied if the notice sufficiently identifies the dispute to which it relates and makes it clear that the person sending the notice is intending to refer the dispute to arbitration.
  • In considering whether these requirements are met, one should focus on substance rather than form and consider how a reasonable person in the position of the recipient would have understood the notice, given its terms and the context in which it was written.

Adopting this approach, Cockerill J held that the arguments advanced by the Agarwal parties in support of the commencement of a tri-partite arbitration placed far too much weight on a literalist analysis of the notice and too little on the context. The court cited the judgment of the Supreme Court in Wood v Capita Insurance Services that literalism, even in contractual construction, is not a trump card.

Cockerill J considered that focus on the use of the singular (commencement of arbitration) in the notice of arbitration was artificial, because a notice addressed to more than one party, but with a reference to a single arbitration, could sensibly be read by a reasonable party in context, as editions of a single notice to each party. Considering the notice in context, the court held that it made sense if it was regarded as two notices commencing two arbitrations, but was very far from the notice one would expect for a tri-partite arbitration, which would have had to propose a mechanism for the appointment of the tribunal. As a result, the judge dismissed the challenge to the arbitral awards.

The A v B case

A month later after the Agarwal case, in A v B, the court had to consider whether a single request for arbitration was valid where the claimant sought to refer disputes under two separate but similar contracts made between the same parties, and each containing a London Court of International Arbitration (LCIA) arbitration clause.

Disputes arose in relation to two contracts for the sale of crude oil. Each contract was made between the same parties, incorporated the same general terms and conditions, was governed by English law and contained an LCIA arbitration clause. Alleging non-payment by A under the two contracts, B commenced an LCIA arbitration against A by delivering a single request for arbitration to the LCIA.

A argued that Article 1 of the LCIA Rules required a request to identify “the dispute” to which it related and “the arbitration agreement” being invoked; a separate written request was required for each arbitration commenced.

B accepted that an arbitration could only encompass a dispute arising under a single arbitration agreement but contended that the request validly commenced two separate arbitrations, one in relation to each contract. B contended that the references to an arbitration (singular) in Article 1 of the LCIA Rules should have been read as including arbitrations (plural) and argued that it was permissible to commence two arbitrations by a single request.

Phillips J rejected this submission based on the wording of Article 1 of the LCIA Rules, which only refers to matters in the singular. He also found it significant that the LCIA Rules included a power to consolidate arbitrations into a single arbitration: in the judge’s view, the presence of a specific process for multiple disputes to be brought within a single arbitration undermined the idea that it is implicit in Article 1 of the Rules that closely related disputes between the same parties can be brought in a single reference.

Phillips J accepted the approach set out in The Biz but emphasised the fact that it was a case where default arbitral rules under the AA 1996 applied. Here the request was prepared and submitted under the LCIA Rules and, in view of the wording of Article 1 of LCIA Rules, a reasonable person in the position of the recipient would have understood the request as starting one single arbitration.

Phillips J also rejected B’s proposition that the use in Article 1 of the LCIA Rules of the singular was rendered meaningless by the terms of section 61 of the Law of Property Act 1925 (“In all … contracts …, unless the context otherwise requires – (c) The singular includes the plural and vice versa….”).

For the judge, the use of the singular in the LCIA Rules, and the fact that the request did not record an attempt to commence more than one arbitration and claimed only one amount in damages, was decisive. He concluded that B’s request for arbitration was invalid.

Conclusions

Both of these cases required the court to construe the effect of an arbitration notice and in both cases the test applied by the court was what a reasonable person in the position of the recipient would have understood the notice to mean.

The contrast in approach (the broader and more flexible approach in Agarwal as opposed to the stricter and more literal approach in A v B) highlights the importance that the court will place on applicable institutional arbitral rules. In A v B, the request for arbitration was prepared and submitted under the LCIA Rules and the wording of the LCIA Rules was a decisive factor in construing the request. Conversely, the Agarwal judgment confirms that this arguably formalistic approach has no application in ad hoc arbitrations commenced under the AA 1996, where more emphasis will be placed on context.

It is not clear whether the decision in A v B will be appealed. In the meantime, parties commencing LCIA arbitrations involving multiple contracts will be well advised to commence separate arbitrations by separate requests for arbitrations, including in the cases involving the same parties, identical contracts containing the same arbitration agreement. The request for consolidation of the arbitrations can be made simultaneously, when multiple requests for arbitration are filed, under Article 22.1(ix), 22.1(x) or 22.6 of the LCIA Rules, as applicable.

Berwin Leighton Paisner Nadia Hubbuck

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