Substance over form? The English High Court rejects jurisdictional challenge based on a notice of arbitration
In LLC Agronefteprodukt v. Ameropa AG  EWHC 3474 (Comm), the English High Court dismissed a challenge under s.67 of the Arbitration Act 1996 (“AA”) to an arbitration award on the grounds of lack of jurisdiction. The main issue in dispute concerned the effectiveness of the Notice of Arbitration (the “Notice”) and whether it illegitimately purported to commence a single arbitration in respect of two separate claims under two contracts. The judgment is a valuable demonstration of the English Court’s commercial, substance focused, approach , but also serves as a reminder of the potential consequences of procedural missteps.
In 2018, LLC Agronefteprodukt ("Seller") and Ameropa AG ("Buyer") entered into two contracts for the sale and purchase of Russian milling wheat. Both contracts contained an arbitration clause referring any disputes to London seated arbitration under the “Grain and Feed Trade Association” (“GAFTA”) Rules No.125.
Disputes arose under each of the contracts and the Buyer sent the Seller the Notice purporting to commence arbitration proceedings. Despite the disputes involving claims under two separate contracts, the Notice frequently referred to operative words in the singular (for example an “arbitration” and “the arbitration clause”). However, the final paragraph of the Notice also included an express request to the Seller to accept, for efficiency’s sake, that “the two contracts/disputes be adjudicated together under a single arbitration”. The Seller did not respond to the Notice.
The parties subsequently negotiated a settlement under which the Seller agreed to pay sums to the Buyer and acknowledged that, if they failed to do so, the Buyer would became entitled to continue their claim in arbitration. No settlement payment was made, and the Buyer informed the Seller that it would resume the arbitration.
Challenging the tribunal’s jurisdiction
Following those events, the Seller wrote to GAFTA objecting that the Tribunal had no jurisdiction on the grounds that the Buyer had failed to commence arbitration under each contract properly, instead wrongfully purporting to commence a single consolidated arbitration without the Seller’s consent (pursuant to s.1.1 and 7.1 of the GAFTA Arbitration Rules No. 125, all relevant parties must consent to consolidation). Both the First Tier GAFTA Tribunal and, after, the GAFTA Board of Appeal dismissed the Seller’s objection on the grounds that the right to object to the Notice had been waived by the Seller’s silence to it, and on the basis that it had, under the terms of the earlier settlement, accepted that the Buyer could recommence the arbitration. The Seller applied to the High Court under s.67 AA.
In the High Court, the Seller’s primary case mirrored the original objection to the arbitral tribunal, namely that the Notice was ineffective as the Buyer had failed to commence two arbitrations under each contract but instead merely served the Notice commencing “an arbitration”. The Buyer, on the other hand, maintained their position that the Notice was in respect of two arbitrations, and that the consolidation request in the final paragraph of the Notice would make no sense unless the Notice was intending to commence both.
The judge agreed with the Buyer. On the question of the interpretation of the notice, the judge started with s.14AA (in particular, in this case, s.14(4)) which set out provisions which, in the absence of agreement, the parties must follow to commence arbitration. The judge noted that s.14 AA should be interpreted “broadly and flexibly”, and went on to note that minor linguistic points aside, the only sensible reading of the Notice was that it sought to commence two separate arbitrations in relation to the separate claims. In this respect the Sellers had attempted to rely on a 2017 decision of A v B in which a request for arbitration was ruled out for non-compliance with the certain provisions of the LCIA Rules (provisions which have since been changed). As the judge noted, however, the GAFTA rules were not the same (and reflected s.14(4) AA) and the notice was in any event drafted very differently here.
In addition, the Seller also attempted to assert that the Buyer had evidenced an intention to commence a single arbitration, or had represented the same. Generally, the court gave these arguments short shrift, largely on the basis of the Seller’s acceptance, in the settlement, that the Buyer was entitled to proceed with the arbitration (in fact, that estopped the Seller from arguing differently)
The judge was therefore satisfied that the Seller’s jurisdictional challenge under s. 67 AA failed, as the Notice had validly commenced two separate arbitrations as was required under the relevant contracts.
The judge prefaced his analysis stating the English Courts have generally taken a commercial approach in their interpretation of notices. In light of this, this judgment is not hugely surprising, although it would have been a great relief to the Buyer all the same. This case illustrates how what may seem like very procedural points or imprecisions can turn into a headache for parties later on. It is important to give due consideration to the requirements and content of a notice to commence arbitration, paying close attention to the relevant rules, institutional or otherwise, so as to avoid lengthy arguments on technicalities at a later stage.
Click here for a copy of the judgment.
Charalampos Dimoulis would like to thank Amalia Notariello for her assistance in preparing this article.