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Commencing Multi-Contract Arbitration: For the want of an “s” the arbitration collapsed

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It is rare for the English High Court to set aside an arbitration award, still less common for an award issued under the rules of one of the major arbitral institutions to be annulled.  So, the decision in A v B [2011] EWHC 3417 (Comm) is, without doubt, significant, raising as it does questions about both the English Courts’ approach to the supervision of arbitration and the drafting of a major set of institutional arbitration rules.

The Issues

The judge, Mr Justice Phillips, considered two issues:

  • whether a single request for LCIA arbitration was valid where the claimant sought to refer disputes under two separate but similar contracts made between the same parties, and each containing an LCIA arbitration clause; and
  • whether, if the request was not valid, the respondent had lost the right to object by making the challenge too late in the proceedings.

On the first question, the judge took a strict approach, on the basis that the claimant should have filed two separate requests for arbitration rather than one.  But on the question of the time to set out a jurisdictional objection, his approach was more liberal, permitting the challenge to be set out months after the relevant events despite the requirement in the LCIA Rules for such challenges to be made “as soon as possible”.  The end-result was the setting aside of the LCIA award.

Background Facts

The dispute concerned the sale of two consignments for identical quantities of crude oil under two contracts, one made in September 2015, the other made in October 2015.  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, in September 2016, B commenced LCIA arbitration against A by delivering a single Request for Arbitration to the LCIA.

In October 2016, A served a Response denying liability and, without spelling out its challenge, sought to reserve its rights to make a challenge on jurisdiction of the LCIA.  A waited until May 2017 to challenge the validity of the Request.
In July 2017, the tribunal made a partial award on jurisdiction dismissing A’s challenge to the validity of the Request on the grounds that it was brought too late and that A should have raised its objection to jurisdiction by the date of its Response.  The tribunal did not decide on the merits of the objection.

A applied to the court under Section 67 of the Arbitration Act challenging the award on the tribunal as to its substantive jurisdiction.

Validity of the Request 

A argued that Article 1 of the LCIA Rules requires a Request to identify “the dispute” to which it relates and “the arbitration agreement” being invoked – requiring a separate written Request 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 be read as including arbitrations (plural).

Mr Justice Phillips 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 include a power to consolidate arbitrations into a single arbitration: in the judge’s view, the presence in the Rules 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 can be brought in a single reference. 

He accepted that in a previous decision, The Biz [2011] 1 Lloyd’s Rep 688, the relevant requirements for the initiation of an arbitration were interpreted broadly and flexibly, in the manner contended by B.  In that case, Mr Justice Hamblen had allowed a single notice to commence arbitrations covering disputes arising between the same parties under ten related contracts.  Mr Justice Phillips distinguished that decision as being one in which no institutional arbitral rules applied, which, given the wording of the LCIA Rules, Mr Justice Phillips considered to be sufficient as a basis not to follow the flexible approach set out in The Biz

Mr Justice Phillips also gave short shrift to B’s proposition that the use in the LCIA Rules of the singular was rendered meaningless by the terms of the Law of Property Act 1925 (“61. 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 was the decisive; hence his finding that B’s Request for Arbitration was invalid.  He then turned to examine the question of the timing of A’s challenge to the Request’s validity.

Loss of the right to object

Section 31(1) of the Arbitration Act provides that any objection to the substantive jurisdiction of a 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.

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.

A contended that a challenge to jurisdiction will not be lost provided it is raised at the latest in the Statement of Defence.  The tribunal rejected this contention and 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) by the service of the Response (due 28 days after the Request).

Mr Justice Phillips disagreed.  He held that the starting-point should be a consideration of Section 31(1), which is a mandatory provision of the Arbitration Act.  Section 31(1) does not impose a requirement that an objection to the substantive jurisdiction be raised as soon as possible.  The only requirement of section 31(1) is that the objection is raised not later than the stage at which the merits are contested.  He rejected the suggestion that the intention of Article 23.3 of the LCIA Rules was to introduce a new and strict regime for jurisdictional challenges, considering that the better construction of Article 23.3 was that, despite the inclusion in the LCIA Rules of the phrase “as soon as possible”, it excludes “untimely objections” relating back to the requirement than an objection shall be made “not later than” the time for the Statement of Defence.

BLP View

This case illustrates the issues that can arise in multi-contract arbitrations.  A classic theory of contract would hold that each contract is completely independent, but this does not necessarily correspond to commercial reality or the expectations of the parties. Where parties have entered into two or more contracts with arbitration clauses in identical terms should this be taken as consent to arbitrate claims under multiple contracts in the same arbitration?  If so, how is the arbitration to be commenced and in what circumstances should the claims proceed in a single arbitration?

It is questionable whether this decision sits well with the generally permissive and liberal approach to the conduct and supervision of arbitration in England, with form arguably prevailing over substance in this case, but undoubtedly the case highlights a gap in the wording of the LCIA’s Rules.

In recent years, a number of arbitral institutions have sought to modernise their rules to adapt to commercial reality in various ways, including by spelling out that a single arbitration can include disputes under multiple contracts.  Examples include Article 9 of the ICC Rules, Article 29 of the HKIAC Rules, Article 6 of the SIAC Arbitration Rules and Article 14 of the SCC Rules. Although it may have been considered by many to have been implicit in the LCIA Rules that a single arbitration can include claims amongst the same parties under separate but related contracts, and such references are common, the LCIA Rules (the current version of which only came into effect in 2014) do not contain any express provision referring to arbitral proceedings being initiated under multiple contracts.

 It is not clear whether the decision in A v B will be appealed, but in any event it will be interesting to see whether the LCIA decides to revise its rules to deal with the lacuna the decision highlights and bring its Rules in line with those of other institutions.  In the meantime time, the decision in is a salutary reminder of the importance of understanding and complying with the provisions of any applicable arbitration rules when commencing an arbitration.

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