“Killing two birds with one stone”: Commercial Court upholds validity of a single Notice of Arbitration for two separate arbitration proceedings

In LLC Agronefteprodukt v Ameropa AG [2021] EWHC 3473 (Comm), the English Commercial Court dismissed a jurisdictional challenge to Awards issued by GAFTA’s First Tier Tribunal Award and by the Board of Appeal, the challenge being brought under section 67 of the Arbitration Act 1996, finding that a single Notice of Arbitration had validly commenced the two separate arbitration proceedings in question.

Background

The underlying disputes

LLC Agronefteprodukt (the ‘Sellers’) and Ameropa AG (the ‘Buyers’) entered into two separate FOB contracts (dated 21 June 2018 and 10 July 2018) for the sale and purchase of Russian Milling Wheat.

Each of the contracts contained an arbitration agreement that any dispute arising out of or under the contract would be determined by arbitration in accordance with GAFTA Arbitration Rules No. 125, seated in London.

Disputes arose between the parties under both contracts and the Swiss Buyers, referring to both contracts in the subject line, sent a Notice of Arbitration (the ‘Notice’) to the Russian Sellers on 30 August 2018 stating the following:

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.

[…]

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. On 14 September 2018, GAFTA appointed an arbitrator on the Sellers’ behalf.

The parties subsequently began settlement discussions and, on 16 November 2018, concluded a “Washout Agreement” (the ‘Agreement’) under which the Sellers agreed to pay USD 1.1 million in respect of the amounts due under both contracts. In the event that the Sellers did not pay the settlement amount, the Agreement provided for the Buyers to terminate the Agreement and to “continue the Claim in arbitration for the full value of their loss”. The Sellers failed to pay the settlement amount and accordingly, the Buyers continued the arbitration.

The GAFTA arbitration and Section 67 challenge

In May 2019, the Sellers wrote to GAFTA contesting the Tribunal’s jurisdiction over the Claim on the basis that the Buyers had failed to validly commence arbitration proceedings under each contract. The Sellers argued that the Notice was invalid as it purported to commence a single arbitration in respect of claims under separate contracts, without the Sellers’ consent to such consolidation.  

The First Tier GAFTA Tribunal rejected the Sellers’ objection on the grounds that the right to object had been waived by their silence as regards the Buyers’ suggestion for consolidation in the Notice. The Appeal Board upheld this decision.

The Sellers proceeded to challenge both the First Tier Tribunal Award and the Appeal Board determination under section 67 of the Act.

Commercial Court

Sir William Blair dismissed the Sellers’ Section 67 challenge.

Blair J began by considering section 14(4) of the Act. Noting that the provisions of this section do not contain any formalities for issuing a Notice of Arbitration other than it being in writing, he confirmed that the courts would take a commercial approach when interpreting such a Notice.

As per the principles set out in The Biz [2011] 1 Lloyd’s Rep 688, particularly the one according to which section 14 of the Act should be interpreted “broadly and flexibly”, Blair J concluded that it is the substance rather than the form of the Notice that matters. The Buyers had requested that the two contracts/disputes be adjudicated under a single arbitration “for efficiency and economy”, a request that would make no sense unless the Notice was commencing two arbitrations.

The Court also found that there was an implicit common understanding between the parties, at the time at which the Agreement was concluded, that the Notice was valid or that the arbitration had been properly commenced. Otherwise, the Buyers would never have entered into the Agreement. The Sellers’ arguments for rectification and estoppel were not accepted for this reason.

Comment

This case serves as a reminder to parties who face disputes under multiple contracts to check whether under the applicable arbitral rules, consolidating arbitration notices is an option. If a party opts to proceed with a single Notice of Arbitration in relation to disputes arising under more than one contract, this Notice should be drafted as clearly and carefully as possible to avoid future challenges. Although fact specific, this decision further demonstrates the Court’s flexible and commercial approach to interpreting notices of arbitration.

Finally, it should be remembered that GAFTA 125 provides that, in the absence of the parties’ agreement, the tribunal has, in any event, the right to conduct arbitral proceedings concurrently with other arbitral proceedings, and, in particular, concurrent or consolidated hearings may be held, but separate awards shall be made pursuant to each contract.

First featured in Gaftaworld, Issue 254, February 2022