The decision stands as a rare instance of an English court setting aside an arbitral award. It is also now compulsory reading for any party commencing an LCIA arbitration in relation to a dispute governed by more than one arbitration agreement.
The underlying dispute concerned the sale by “B” of two consignments of crude oil to “A”. The sale of each consignment was formalised under separate contracts of sale incorporating the same terms and conditions. Each contract contained an identical LCIA arbitration agreement.
B contended that A failed to make the required payments under both contracts. On that basis, B filed its Request on 23 September 2016. The Request asserted claims made under both contracts. On 31 October 2016, A served its Response to the Request, which denied liability and reserved its right to make a later jurisdictional challenge.
On 24 May 2017, A issued a challenge to the validity of the Request. A argued that, by attempting to refer both claims to a single arbitration, B had failed to identify the “dispute” between the parties and which arbitration agreement applied to the “dispute”. The jurisdictional challenge was made just prior to the due date for A’s Statement of Defence.
On 7 July 2017, in its partial award on jurisdiction (the “Award”), the Tribunal dismissed A’s jurisdictional challenge. This prompted A to commence proceedings in the English High Court shortly after on 4 August 2017. A’s proceedings before the Court raised two key questions. First, whether the Request was invalid because it purported to refer to arbitration two disputes under different contracts (each containing its own arbitration agreement) in a single request for arbitration. Second, assuming that the Request was invalid, whether A had nonetheless lost its right to object to the invalidity by delaying making its jurisdictional objection until approximately eight months after the date of the Request.
The Validity Of The Request
The Court held that the Request was an invalid attempt to refer two distinct disputes governed by different arbitration agreements to a single arbitration.
In making its decision, the Court analyzed Article 1.1 of the LCIA Rules, which set out the requirements for parties when preparing a request for arbitration. The Court emphasised that key aspects of Article 1.1 are expressed in the singular. That is, in order to commence “an arbitration” a party shall deliver “a written request”, which is to contain the terms of “the Arbitration Agreement” and details of “the dispute”. At no point in Article 1.1 is there a relevant use of a plural.
The Court also considered it to be significant that the Request itself did not purport to commence more than one arbitration, and claimed only one amount in damages. It did not adopt any other language that suggested B intended to commence anything other than a sole arbitration.
The Timing Of The Objection
The Court also disagreed with the Tribunal that, by waiting until just before its Statement of Defence was due, A had lost its right to make an objection to the jurisdiction of the Tribunal.
The Tribunal’s reasoning was based chiefly on the terms of Article 23.3 of the LCIA Rules, which provide that “[a]n objection by a Respondent that the Arbitral Tribunal does not have jurisdiction shall be raised as soon as possible but not later than the time for its Statement of Defence”. The Tribunal concluded that, absent exceptional circumstances, “as soon as possible” means before the service of the Response. There being no “exceptional circumstances” in the case, the Tribunal concluded that A had lost its right to object.
By contrast, the Court premised its analysis on the terms of section 31(1) of the Arbitration Act 1996, a mandatory provision of the Act having effect notwithstanding any agreement to the contrary. Section 31(1) stipulates that an “objection that the tribunal lacks substantive jurisdiction at the outset of the proceedings must be raised by a party not later than the time he takes the first step in the proceedings to contest the merits”.
In these proceedings, the Court held that “the first step” to “contest the merits” was A’s submission of its Statement of Defence (and not A’s service of the Response). Against that background, the Court reasoned that the “as soon as possible” requirement in Article 23.3 of the LCIA Rules was not intended to introduce a strict regime for jurisdictional challenges that departed from section 31(1) of the Arbitration Act. Rather, the effect of Article 23.3 was only to exclude jurisdictional objections made after the time for submitting the Statement of Defence. In that regard, it was considered to be of significance that Article 23.3 did not expressly impose any sanction for failing to comply with the “as soon as possible” requirement. The Court also stated that, even if it had found that Article 23.3 imposed a stricter regime than section 31(1) of the Arbitration Act, the time limit in section 31(1) would still take precedence because it is a mandatory provision.
Based on this analysis, the Court concluded that A was permitted to make a jurisdictional challenge at any time up to the due date for filing its Statement of Defence.
It remains to be seen whether there will be an appeal against the decision and its arguably formalistic application of the LCIA Rules. Until that issue is finalised, the long-term implications of the case will remain unclear. In any event, the decision is likely to have limited scope. The Court made clear that its reasoning was based on the particular wording of the LCIA Rules. It also noted, by reference to a previous decision concerning an ad hoc arbitration, that there is nothing in principle to stop parties from concluding an arbitration agreement that allows for the commencement of several arbitrations by a single notice. There are, for example, express provisions in the rules of other institutions allowing for the resolution of multi-contract disputes by a single arbitration (see Article 9 the ICC Rules).
Assuming that the decision stands, it will be open to a respondent to argue that an LCIA tribunal lacks jurisdiction in circumstances where the claimant’s request purports to refer to arbitration related disputes with a counterparty that arise under more than one arbitration agreement. In accordance with the decision, respondents will have until the due date for filing their Statement of Defence to make an objection. Some LCIA arbitrations that are currently pending may, therefore, be susceptible to jurisdictional challenges on the basis of this authority.
Pending any reversal of this decision or a revision by the LCIA of its Rules, prospective claimants in LCIA arbitrations (and their legal advisors) need to account for this ruling in drafting requests for arbitration. Drafters of arbitration clauses adopting the LCIA Rules may also want to consider adding express language to permit the joinder in a single request for arbitration of multiple related claims arising under different arbitration clauses. For now, however, claimants with disputes arising out of multiple contracts containing distinct LCIA arbitration agreements may consider issuing separate requests for arbitration and then, to avoid the undesirable fragmentation of proceedings, immediately apply for consolidation of the arbitrations pursuant to Article 22.1(ix or x) of the LCIA Rules.
We anticipate that this decision may prompt the LCIA, and any other institution that may have similarly worded rules, to make the relatively minor amendments to their rules necessary to obviate the unexpected consequences of this ruling.
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