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:
- 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 - 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).
-END-
About Hogan Lovells
Hogan Lovells is an international legal practice that includes
Hogan Lovells International LLP, Hogan Lovells US LLP and their
affiliated businesses.
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:
- 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 - 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).
-END-
About Hogan Lovells
Hogan Lovells is an international legal practice that includes
Hogan Lovells International LLP, Hogan Lovells US LLP and their
affiliated businesses.