English Commercial Court dismisses s.67 challenge to GAFTA award holding that it is the substance of the Notice to commence arbitration, not its form, that matters

Facts of the case

The dispute arose over two contracts for the sale of Russian Milling Wheat. Both contracts contained an Arbitration clause which stated that disputes would be settled ‘in accordance with the Arbitration Rules no.125 of the Grain and Feed Trade Association’ (GAFTA). Separate disputes arose under both contracts, which resulted in Ameropa AG (the ‘Buyers’) sending a single Notice of Arbitration to the Sellers.

The Sellers ignored the Notice. GAFTA appointed an arbitrator on behalf of the Sellers, but a month later, following successful negotiations, the parties entered into a settlement agreement which was also subject to GAFTA arbitration. However, the Sellers failed to pay under the settlement agreement and as a result the Buyers continued the original arbitration.

The Sellers then wrote to GAFTA disputing the jurisdiction of the GAFTA Tribunal arguing that the Buyers should have commenced a separate arbitration in respect of each disputed contract. The First Tier GAFTA Tribunal and the GAFTA Board of Appeal held that the GAFTA Tribunal did have jursidiction. Following this, the Sellers brought proceedings in the English Commercial Court challenging the tribunal’s jurisdiction under s.67 AA 1996, asserting that the Notice of Arbitration ‘illegitimately purported to commence a single arbitration in respect of two claims’.

The Court dismissed the s.67 challenge. Under s.67, an award can be challenged on the basis that the tribunal lacked ‘substantive jurisdiction’. On a successful challenge under s.67, the court may set aside the award in whole or in part, or declare the award to be of no effect.

Commencing an arbitration

The court started with s.14(4) AA 1996. This section sets out the provisions the parties must follow to commence an arbitration. It states that, subject to any other agreement between the parties, ‘arbitral proceedings are commenced … when one party serves on the other party … notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator’.

The Court noted the importance of taking a commercial approach to interpreting s.14, and made reference to the principles laid out by Hamblen J in The Biz [2011] 1 Lloyd’s Rep. 688, which included that s.14 should be interpreted ‘broadly and flexibly’, and that the focus should be on the substance of the Notice, not the form. Given this focus, and the fact that there are no statutory prescribed formalities under s.14 for a written Notice, the Judge held that the linguistic points raised by the Sellers, notably that the Notice only referred to elements in the singular such as ‘an arbitrator’, ‘the arbitration clause’ and ‘arbitration in London’, were “relatively minor”. The “more important point” came from the final paragraph of the Notice, which read: ‘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 judge held that this final paragraph could only make sense if the Notice was to commence two arbitrations. Otherwise there would be no reason to request that the disputes be adjudicated together. The Notice therefore validly commenced two arbitrations.

Institutional rules matter

The Court distinguished the facts in this case from the decision in A v B [2017] EWHC 3417 (Comm), an arbitration under LCIA Rules 2014. The Notice to commence arbitration in A v B did not refer to two or more arbitrations. The LCIA Rules 2014 treat a request for arbitration as commencing a single arbitration, including in relation to the payment of fees, albeit the GAFTA Rules also provide for fees in relation to each arbitration commenced. There was however a difference in the applicable arbitral rules in that the GAFTA rules mirrored s.14 (4), but the LCIA Rules 2014 contained provisions beyond those set out in the statute. Ultimately, the most important difference with A v B was the terms of the Notice. In A v B, it was “clear that the intention was to commence a single arbitration and no reasonable reader would conclude otherwise”. In the Judge’s view, the converse was true in the present case.

Rectification and Estoppel

The Sellers submitted a number of other arguments which the Court dismissed. Firstly they argued that, if the Court held that the Notice commenced two arbitrations, the Notice should be subject to “rectification” to reflect the fact that the Buyers intended to commence a single arbitration. It was argued that rectification could be used where ‘any written instrument does not correctly record the true intentions of the person or persons making it’, although no case was cited where this has been done with a notice of arbitrationThe Court dismissed this argument finding that the requirements for rectification were not present. It also noted that the Court is “unlikely” to order rectification of a notice of arbitration “assuming that there is power to do so” on the application of the other party if the effect was a decision that the tribunal lacked jurisdiction following the giving of an award.

Both parties made arguments in estoppel. The Sellers argued that the Buyers should be estopped from contending that the Notice commenced two arbitrations given comments made in the GAFTA proceedings giving rise to a common assumptrion that there was a single arbitration. The Judge dismissed the Seller’s arguments, including on the basis that s.67 challenges are re-hearings such that there are no restrictions on which arguments can be re-run whether or not advanced in the arbitration (citing GPF GP Sàrl v The Republic of Poland [2018] EWHC 409 (Comm)).

The Buyers sought to rely on the settlement agreement submitting that when the parties entered into the settlement agreement, there was no suggestion from the Sellers that the Notice of Arbitration was not valid and so there was a common assumption between the parties that the arbitration could be resumed if the sum under the agreement was not paid. The Court agreed, holding that when both parties entered into the settlement agreement they had a common understanding that the Notice of Arbitration was valid and so the Sellers could not now argue to the contrary.

Substance not Form

This case demonstrates the court’s flexible and commercial approach to interpreting Notices of Arbitration, highlighting how the court will aim to give effect to the substance of the Notice commencing an arbitration rather than focusing on its form. In this respect the decision is fact specific, but the Court looked carefully at the parties and their actions in determining how the Notice should be interpreted. Practically and commercially, it was sensible for the Tribunal to deal with both disputes, which were between the same parties at the same time.

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