Arbitration analysis: LLC Agronefteprodukt v Ameropa AG

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Arbitration analysis: Sir William Blair (sitting as a judge of the High Court in the Commercial Court) refused the Russian claimant company’s substantive jurisdiction challenge, made under section 67 of the Arbitration Act 1996 (AA 1996), to an award issued in favour of the defendant Swiss company by a Gafta First Tier Tribunal and upheld by a Gafta Board of Appeal.

While this case concerned yet another unsuccessful AA 1996, s 67 challenge, the judgment is of note to arbitral users as it considered whether a single notice of arbitration had validly commenced arbitrations under two contracts. It is a salient reminder for parties who have disputes under multiple contracts to carefully check the prescribed arbitral rules to see whether a composite notice for a single arbitration can be served on the respondent or, in the case of certain institutional arbitrations, a composite request for arbitration can be filed with the institution, or whether notice of a separate arbitration under each contract is required and, if so, how it should be drafted.

What are the practical implications of this case?

Arbitral users often face the situation of what to do where there are disputes between the same parties arising under more than one agreement. A question often posed is whether a claimant must commence separate arbitrations, serve more than one notice or issue more than one request for arbitration in respect of each contract and whether that means that the claims will be conducted separately.

AA 1996, s 35 clearly provides that unless parties agree or otherwise ‘confer such power on the tribunal, the tribunal has no power to order consolidation of proceedings or concurrent hearings’. The decision in A v B [2017] EWHC 3417 (Comm) provided a clear reminder to parties that, in an institutional arbitration, a single request for arbitration cannot be filed in respect of disputes under multiple contracts unless parties have agreed or the applicable rules state otherwise (ie requests for arbitration need to be filed in respect of each contract) (see News Analysis: LCIA award on jurisdiction set aside under AA 1996, s 67 (A v B)).

In order to address this issue, certain institutional arbitration rules adopted procedures whereby multiple requests could be filed and the tribunal could then consolidate the proceedings into one arbitral reference. Certain institutional rules have adopted procedures to allow for composite requests to be made in respect of single or multiple arbitrations between the same parties under multiple contracts (for example, respectively, Article 9 of the 2021 ICC Arbitration Rules and Article 1.2 of the 2020 LCIA Arbitration Rules).

However, other arbitration rules do not provide for composite notices of arbitration to be made or permit parties to otherwise issue multiple requests for arbitration and ask the tribunal to order that they be consolidated into one arbitral reference. For example, in this case, the arbitrations were conducted under the Gafta Arbitration Rules No 125 (Gafta 125). Consolidation of arbitrations is permitted under Rules 1.1 and 7.1 of Gafta 125 provided that both parties consent. If consent is not given, then Rule 7.2 of Gafta 125 provides that a tribunal has the right to direct that multiple arbitrations be conducted together (ie with concurrent or consolidated hearings) but that separate awards need to be made in respect of each contract.

While the buyer in this case was able to argue that its single notice of arbitration successfully commenced arbitrations under two contracts, issuing separate notices of arbitration in respect of each contract could have avoided the difficulties it faced in this case. Practitioners should continue to adopt caution where composite procedures are not available under the chosen prescribed rules and issue notices or requests for arbitration in respect of each contract and then apply for the claims to be consolidated. For the sake of a small fee at the start, it can avoid an expensive challenge later on.

What was the background?

The case concerned two contracts entered into in June 2018 and July 2018 respectively between a buyer and seller to purchase Russian Milling Wheat on FOB Novorossiysk terms. Both contracts contained arbitration agreements that any dispute arising out of each contract would be determined under Gafta125.

Disputes arose under both contracts. In August 2018, the buyer issued a single notice of arbitration (the Notice). The Notice referred to both contracts in the title. The Notice stated that ‘Pursuant to the terms of the “Arbitration Clause” of the above-referenced contracts, we hereby declare arbitration in London in accordance with Gafta Arbitration Rules No 125. We appoint [Arbitrator] as our client’s arbitrator for the disputes related to the two Contracts’. It then stated in the final paragraph that:

"On a separate note, we wonder if, for efficiency and economy, you would accept the two contracts/disputes be adjudicated under a single arbitration and by the same Tribunal."

The sellers did not respond to the Notice. Accordingly, Gafta appointed the arbitrator on behalf of the sellers.

In late September 2018, there were settlement discussions and the parties agreed a Washout Agreement whereby the seller agreed to pay US$1.1m in respect of the amounts due under both contracts. The Washout Agreement provided the claim would be discontinued if the settlement amount was paid. It further provided that if the settlement amount was not paid, the buyers would be entitled to terminate the Washout Agreement ‘and to continue the Claim in arbitration for the full value of their loss’.

The sellers failed to pay the settlement amount and therefore the buyer continued with the arbitration. The sellers submitted in the arbitration that the tribunal did not have jurisdiction as the buyer had failed to commence arbitrations under each contract. The Gafta First Tier Tribunal rejected the objection. The Board of Appeal (a procedure available under Gafta 125) also rejected the objection.

The seller challenged the award to the High Court under AA 1996, s 67 on the grounds that the tribunal did not have jurisdiction because the notice of arbitration was ineffective.

What did the court decide?

Sir William Blair dismissed the AA 1996, s 67 challenge.

The judge accepted at para [15] that consolidation was possible under Rules 1.1 and 7.1 of the Gafta 125 provided both parties consented. However, the judge rejected the argument that the Notice did not purport to commence arbitration in respect of both contracts. He determined that there are no statutory prescribed formalities under AA 1996, s 14(4) which a notice of arbitration must follow save that it be in writing. The judge relied upon the principles set out by Mr Justice Hamblen in Easybiz Investments v Sinograin (The Biz) [2011] 1 Lloyd’s Rep 688 (not reported by LexisNexis) at para [11] of how courts should interpret notices of arbitration. The key principle being that ‘one should interpret section 14 ‘broadly and flexibly’ avoiding a strict or technical approach. The judge attached importance to the final paragraph of the Notice which requested that the disputes under both contracts ‘be adjudicated under a single arbitration and by the same Tribunal’. He found that this made it clear that the buyer intended the Notice to be commencing ‘two arbitrations’.

The seller also ran a rectification argument on the basis that the buyer’s subjective intention in writing the Notice (which it said was clear from correspondence and pleadings) was that they intended to commence a single arbitration under a single Notice. The judge rejected this argument. This was because under English law, a court can rectify a document on the grounds of either common mistake or unilateral mistake. There was no common mistake between the parties as the seller was not mistaken as to how it interpreted the Notice. Unilateral mistake was also not engaged as the buyer was not purporting to rectify the Notice on the basis that it was mistaken as to the meaning of the Notice. It would also be unequitable to do so where the seller had signed the Washout Agreement by which the seller agreed the buyer could continue the arbitration should the settlement sum not be paid.

The judge also rejected an argument that the buyer should be estopped from contending that the Notice commenced two arbitrations because the seller made various representations giving rise to a common assumption during the arbitration that the Notice purported to commence a single arbitration. He determined that was not a realistic argument where the parties had agreed in the Washout Agreement that in the event the seller failed to pay the settlement sum then the buyer would be entitled to terminate the Washout Agreement and to continue its arbitration against the seller.

Case details

  • Court: Commercial Court, Queen’s Bench Division, Business and Property Courts of England and Wales, High Court of Justice
  • Judge: Sir William Blair (sitting as a judge of the High Court)
  • Date of judgment: 21 December 2021

This article was first published by Lexis®PSL on 12 January 2022.

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