It is becoming increasingly common in international commercial and trade matters for multiple claims to flow backwards and forwards between parties. When a dispute arises in the context of a complex network of contracts, the question may arise as to which claims and/or counterclaims can be referred to the arbitral tribunal. This is a balancing exercise between, on the one hand, the principle of consent as the basis of arbitration, and on the other, the need to promote efficiency and certainty of outcome.
The parties in this case had entered into four separate charter contracts for the loading of coal, each contract providing for certain charges to be paid either by the Respondent or by the Appellant depending on the cause of any delay beyond an agreed minimum loading-rate.
Two arbitration notices were sent by the Respondent to the Appellant:
- In the first, the Respondent gave notice in writing that it was commencing “arbitration proceedings against [the Appellant] in respect of their claims under this Contract”. The notice contained the Respondent’s nomination of an arbitrator and required the Appellant to nominate an arbitrator in turn. The Appellant responded by nominating a second arbitrator “in relation to all disputes arising under the [contract]”.
- In the second, the Respondent gave notice in writing that it was commencing “arbitration proceedings against [the Appellant] in respect of claims under this Contract” (unlike the first notice, the word “their” was not used). The notice contained the Respondent’s nomination of an arbitrator and required the Appellant to nominate an arbitrator in turn. Again, the Appellant responded by nominating a second arbitrator “in relation to all disputes arising under the [contract]”.
By the time the Appellant had served defence and counterclaim submissions in the two arbitrations, the limitation period for claims under the contracts had expired, causing two members of the tribunal to find that the counterclaims were time-barred. The third member of the tribunal dissented, taking the view that the notices commencing the arbitrations included both claims and counterclaims, and the tribunal’s decision was appealed to the Commercial Court as raising a question of law.
The judge found that the reference in the notices to “claims” and to “all disputes arising under the contract” had the effect of referring counterclaims for payment of charges by the Respondent, and not just claims for payment of charges by the Appellant, to the arbitrations. As a result the counterclaims were not time-barred. In particular, it was noted that:
- The context was one of a contract under which delay was capable of giving rise to money obligations on either side of an account, with a net sum falling for payment.
- It was commercially unlikely that the parties would contemplate that the payment of charges by the Respondent and payment of charges by the Appellant would be separate for the purposes of reference to arbitration, so that only one and not the other would be within a reference unless the parties were more explicit that both were within the reference.
- The fact that there had been no indication of a counterclaim at the time when the notices were served did not alter the analysis. If the notices had referred to “all claims and counterclaims” and no counterclaim had by that point been indicated, the arbitrators would, generally speaking, have had jurisdiction over a counterclaim when one was later indicated.
- The responses made by the Appellants in this case, referring to “all disputes arising under the contract” were no more affected by the absence of indication of a counterclaim at the time when the notices were served.
- Whilst the judge’s answer to the question of law was based on the facts of the particular case, the foundations of the answer would firmly indicate the same answer in other contract cases of a “balance of account” nature where the two-way commercial relationship involves a netting-off.
This judgment is good news for users of arbitration. In considering questions of law regarding the jurisdiction of arbitral tribunals, the English court has demonstrated that it can be relied upon to construe the parties’ arbitration agreement with commerciality and efficiency in mind. As long as a reference to arbitration has been made within the applicable substantive limitation period, it is unlikely that a counterclaim which is notified subsequently will be excluded from the reference in particular where that counterclaim arises from the same set of facts as the primary claim and gives rise to a balance of accounts.
However, if you are a respondent in an arbitration you should still proceed with caution because the issue is nuanced. Leading commentators have noted that an arbitral tribunal is not a “standing body” empowered to hear any dispute which arises between parties at any time during the currency of a contract. There are necessary limitations and parameters to the jurisdiction of an arbitral tribunal depending upon the scope of an arbitration agreement and the parties’ intent as to multiple claims. Complications can arise where different national laws are involved because some legal systems draw a distinction between counterclaims (which may or may not arise on a discrete set of facts) and set-off (which is seen as a defence or ‘shield’ to the primary claim). These issues were not addressed by the judgment because they did not arise on the facts – they are certainly academic in nature but they have very real practical implications for users of arbitration.