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A Cautionary Tale for Commencing Multi-Contract Arbitrations

It’s unusual for English courts to set aside an arbitral award, but the Commercial Court did just that in the recent case of A v B [2017] EWHC 3417 (Comm). It warned parties entering arbitration not to assume a single arbitration will cover disputes between the same parties under multiple contracts.

Two issues came up:

  1. whether a single request for LCIA arbitration would include disputes under separate contracts; and
  2. what timings the respondent would have to abide by to challenge an arbitration request.

 

The dispute

A buyer and seller agreed two identical contracts for deliveries of crude oil. English law governed the contracts, and each included an LCIA arbitration clause.

When the buyer didn’t pay the price under the contracts, the seller took the dispute to the LCIA. The seller filed one request for arbitration — claiming the price of both contracts — and paid one registration fee.

In response, the buyer denied liability and reserved the right to challenge the jurisdiction of the tribunal. Seven months later, shortly before submitting their statement of defence, the buyer challenged the validity of seller’s request for arbitration. They argued that the seller should have filed two requests: one for each contract.

The tribunal dismissed the jurisdictional challenge for being brought too late.

 

One request or two?

In a turn of events, the buyer then filed proceedings against the seller. Under Section 67 of the Arbitration Act 1996, the buyer maintained that the tribunal lacked jurisdiction. This claim centred on Article 1 of the LCIA Rules, which makes clear that a request for arbitration must identify both “the dispute” and the “arbitration agreement” it relates to.

In response, the seller argued that the single request for arbitration had validly started two separate arbitrations — one under each contract. The seller pointed to section 61 of the Law of Property Act 1925 which provides that in all contracts the singular includes the plural, and vice versa, unless the context otherwise requires.

Mr Justice Philips dismissed this argument. He pointed out that the arbitral tribunal, once formed, has the power to consolidate multiple arbitrations into a single arbitration, but only where the parties agree to it (Article 22.1 of the LCIA Rules).

The seller had referred to two disputes governed by separate arbitration clauses — but in one arbitration request. This made it impossible to work out which dispute and arbitration clause were the subject of the arbitration.

The judge found the seller hadn’t shown they intended to start more than one arbitration. Instead, they had tried to refer separate disputes to a single arbitration.

 

What about the timing of the jurisdictional challenge?

The tribunal ruled that, other than in exceptional circumstances, objections known at the time the arbitration is requested must be raised by the deadline for the defendant to serve their response.

Mr Justice Philips went against the tribunal. He decided an objection may be raised at any time until the statement of defence is submitted. Objecting before the time for service of the statement of defence meant the claimant didn’t lose the right to challenge the tribunal’s jurisdiction. This was to avoid the risk of a party losing the most fundamental of objections without having even appointed an arbitrator (Article 23.3 of the LCIA Rules).

 

Lessons learned

If a dispute involves multiple contracts, claimants will need to carefully consider whether the disputes may be referred to a single arbitration. This case shows that 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 agreed otherwise.

To be on the safe side, claimants should consider starting multiple arbitrations and then apply to consolidate them, which the LCIA Rules allow where the contracts are between the same parties under comparable arbitration agreements.