Court upholds validity of Notice of Arbitration in commodities dispute

11 Jan

LLC Agronefteprodukt v. Ameropa AG [2021] EWHC 3474 (Comm)

The Court has dismissed the Sellers’ jurisdictional challenge to GAFTA arbitration awards against them. Whilst the Buyers were successful in this instance, this case serves as a reminder that care needs to be taken to commence arbitration proceedings arising under different contracts properly, so as to avoid any challenges to the awards further down the line.

The background facts

This was a challenge to GAFTA arbitration awards on grounds of lack of jurisdiction under s. 67 Arbitration Act 1996 (the “AA”). A s.67 challenge takes the form of a rehearing, meaning parties are able to adduce new arguments which were not advanced before the arbitrators.

By two contracts of sale dated 21 June 2019 and 10 July 2012, LLC Agronefteprodukt (the “Sellers”) agreed to sell to Ameropa AG (the “Buyers”) parcels of 40,000MT and 25,000MT of Russian Milling Wheat on FOB Novorossiysk terms. Each sale contract contained an arbitration clause referring any disputes arising out of or under the contract to arbitration in London in accordance with the GAFTA Rules No. 125.

Disputes arose under the two sale contracts and the Buyers advanced a claim against the Sellers. The Buyers sent a Notice of Arbitration (the “Notice”) to the Sellers which referred to both of the sale contracts in the subject but the rest of the Notice referred to arbitration in the singular. The Notice also included a request for the Sellers’ agreement that the two disputes be adjudicated under a single arbitration and by the same tribunal for cost and efficiency purposes. The Sellers did not respond to the Notice and GAFTA appointed the arbitrator on behalf of the Sellers.

The parties then entered into a Washout Agreement, which provided that the Sellers were to pay a settlement sum to the Buyers and if payment of the settlement sum was not made within the agreed period, the Buyers were entitled to terminate the Washout Agreement and continue the claim in arbitration. This is exactly what happened.

Before contesting the merits in the reinstated arbitration proceedings, however, the Sellers wrote to GAFTA asserting that the Tribunal had no jurisdiction over the claim on the grounds that the Buyers had failed to commence arbitral proceedings properly. The Sellers argued that the Buyers should have commenced arbitration separately under each contract, but instead had wrongfully purported to commence a single consolidated arbitration under two separate contracts without the Sellers’ consent (as required by the GAFTA rules).

The GAFTA arbitration

The GAFTA First Tier Tribunal found that the Sellers had waived any right to object by reason of their silence in response to the Buyers’ suggestion that the disputes be adjudicated in a single arbitration. The Board of Appeal upheld this decision but based its reasoning on the terms of the Washout Agreement. It found that, by entering into that Agreement, the Sellers had accepted that there was a single arbitration and they had waived their right to object to that.

The Commercial Court decision

On appeal, the Sellers argued among other things that the First Tier Tribunal and the Board of Appeal did not have substantive jurisdiction to make such a determination because the Buyers had failed to commence two separate arbitrations and had instead illegitimately commenced a single arbitration. Alternatively, the Sellers argued that if the Notice was interpreted objectively, it evidenced an intention to commence a single arbitration due to the references to arbitration in the singular throughout the Notice. The Buyers contended that the Notice was valid as, on its face, it intended to commence two separate arbitrations, one under each contract of sale. Furthermore, objectively interpreted, the Notice commenced two arbitrations as otherwise the request for consolidation would not have made any sense.

The Court found in the Buyers’ favour that the Notice had validly commenced two separate arbitration proceedings and it was clear that the intention was to commence two arbitrations in light of the request for consolidation. No-one would have reasonably concluded otherwise.

The Court also found that there was an implicit common understanding between the parties at the time at which the Washout Agreement was concluded that the Notice was valid or that the arbitration had in fact been properly commenced, otherwise the Buyers would never have entered into the Agreement.

Comment

In this case, the Buyers prevailed. Nonetheless, while the courts will take a commercial approach to the interpretation of such notices, they should in any event be drafted carefully to leave no room for dispute. A party seeking to commence arbitration where there are multiple contracts may wish to consider whether it should send one notice to cover all of the contracts (in which case great care should be taken in the drafting) or simply send multiple notices addressing the separate disputes individually.

One further interesting point that arose was whether the Court can rectify a notice of arbitration. In this case, the Court found that there was no basis for rectification so did not need to decide the point. However, it did note that there was no example in the authorities of a notice of arbitration being rectified.

Author

Sreedharan Subramaniam