Notice of arbitration and jurisdiction

It is trite law that arbitral proceedings commence when a party to an arbitration agreement serves a written notice of arbitration on the other party (section 14 of the Arbitration Act 1996). What is the position, however, when a single notice purports to commence arbitration in respect of two separate contracts? Is that notice valid or can the arbitral award be successfully challenged on the grounds that, because separate notices should have been served, the arbitral tribunal lacked substantive jurisdiction (section 67)? These issues came before Sir William Blair (sitting as a High Court judge) in LLC Agronefteprodukt v Ameropa AG [2021] EWHC 3474 (Comm). 

By a contract dated 21 June 2018, the seller (the respondent) agreed to sell 40,000MT of Russian milling wheat to the buyer (the claimant). By a separate contract dated 10 July 2018, the seller agreed to sell a further 25,000MT of wheat on the same terms. The contracts each contained an arbitration clause referring any dispute to arbitration in London in accordance with the Grain and Feed Trade Association (GAFTA) rules.

Disputes arose under each of the contracts and the buyer sent to the seller a notice of arbitration which purported to commence arbitration in respect of both contracts. The seller wrote to GAFTA arguing that the tribunal had no jurisdiction over the claim on the grounds that the buyer had failed to commence arbitration under each contract. GAFTA rejected this and rendered an award in favour of the buyer. The seller then brought an application in the Commercial Court seeking to challenge the award on the grounds that the tribunal lacked substantive jurisdiction under section 67.

The seller argued that the notice of arbitration purported to commence a single arbitration whereas there were two contracts, and a notice of arbitration was required to be given under each of them. Although it was common ground that consolidation was possible, that was dependent on the mutual consent of the parties which was lacking.   

The judge dismissed the application. He noted from section 14 that, aside from the requirement of writing, there were no statutory prescribed formalities in respect of a notice, and that the courts have taken a commercial approach to their interpretation. The principles from the authorities in construing a notice of arbitration were set out by Hamblen J in The Biz [2011] 1 Lloyd’s Rep 688:

• When asking whether the requirements of section 14 have been complied with, one should interpret s14 ‘broadly and flexibly’ avoiding a strict or technical approach;
• The requirements of s14 will generally be satisfied if the notice sufficiently identifies the dispute to which it relates and makes clear that the person giving notice is intending to refer the dispute to arbitration; and
• In considering whether these requirements are met, one should concentrate on the substance rather than the form of the notice 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.

Hamblen J’s approach was followed in A v B [2018] Bus LR 778. That case was relied upon by the claimant. It concerned an arbitration under the London Court of International Arbitration (LCIA) rules, which treat a request as giving rise to a single arbitration, including in relation to payment of fees. However, the judge noted that A v B differed from the present case because, although both the GAFTA and the LCIA rules provide for payment of a fee in respect of each arbitration commenced, whether or not the arbitration was subsequently treated as a single arbitration did not affect the jurisdiction question, which depends on the interpretation of the notice of arbitration. He also said there was a difference between the applicable arbitral rules, since the GAFTA rules reflect the language of section 14(4), while the LCIA rules contain further relevant provisions to be considered. Finally, and most importantly, in A v B, there was no equivalent of the final paragraph that appeared in the notice of arbitration.

The judge also rejected the seller’s arguments on rectification and estoppel. It was not necessary for the court to decide whether a notice of arbitration could, in principle, be rectified because the requirements for rectification did not exist in the present case, and a court would be unlikely to rectify a notice of arbitration (assuming that there was power to do so) if the effect was to decide that an arbitral tribunal lacked jurisdiction. In respect of estoppel, the seller argued that the buyer presented one argument in the GAFTA proceedings and a different one in court. The judge followed GPF GP Sarl v Republic of Poland [2018] EWHC 409 (Comm) in which the court held that ‘it is difficult to see how a waiver could arise in circumstances where it is well established that there can be a re-hearing under section 67 (a fact parties are taken to know), and in the context of no restriction being set out in section 67 itself restricting what arguments may be re-run, no question of any loss of a right to advance particular arguments on a re-hearing under section 67 can arise’. The judge held that although the passage from GPF GP Sarl referred to waiver, the same considerations applied to estoppel.

The decision provides a reminder to tread cautiously when drafting and serving the notice of arbitration where there are multiple contracts; a failure to do so may result in the time-consuming and expensive process of having to defend an award challenged for lack of substantive jurisdiction. The decision also raises the interesting point of whether a notice of arbitration can be rectified. Although the judge noted that there was no example in the authorities of a notice being rectified, he confirmed that a court would be unlikely to rectify a notice if the effect was to decide that an arbitral tribunal lacked jurisdiction. The judge’s approach on the rectification issue is to be welcomed because it holds parties to their agreement to resolve disputes through arbitration, thereby upholding the principle of party autonomy which underpins the institution of arbitration.

Masood Ahmed is an associate professor at the University of Leicester and research fellow on the Vici Affordable Access to Justice project, Erasmus University, Netherlands