High Court determines application under Arbitration Act 1996, s.67(1) to challenge GAFTA arbitration award

The contracts

LLC Agronefteprodukt was the seller and Ameropa AG was the buyer of quantities of Russian milling wheat under two separate sale contracts dated 21 June 2018 and 10 July 2018.  Each contract contained an arbitration clause requiring any dispute arising out of or under the contract to be referred to arbitration under the Grain and Feed Trade Association (GAFTA) Rules (No. 125).

Notice of arbitration

On 30 August 2018, the buyer sent a notice of arbitration (the “Notice”) to the seller in relation to disputes which had arisen under both contracts in the following terms:

“Dear Sirs,

Subject: Contract 180833 dated 21st June 2018 and Contract 181013 dated 10th July 2018.

We have been appointed by Ameropa AG through its branch office Ameropa SA in Lausanne.

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.

We appoint Mr Ben Leach (copied) as our client's arbitrator for the disputes related to the two Contracts.

Not later than the 9th consecutive day after today, you shall appoint a second arbitrator and serve a notice of the name of the arbitrator so appointed.

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 arbitration 

Following the seller’s failure to respond to the Notice, at the buyer’s request GAFTA appointed an arbitrator on behalf of the seller on 14 September 2018.  The seller then wrote to the buyer on 21 September 2018 seeking to discuss “variants of settlements to avoid arbitrations” and the parties entered into what was termed a “Washout Agreement” (English law, GAFTA arbitration) under which the buyer agreed to accept a settlement sum in respect of “the Claim” in consideration for withdrawing the Claim. The seller failed to pay under the Washout Agreement and the buyer informed the seller that it would “continue the arbitration” to recover its loss.

Later, on 24 May 2019 and prior to taking any substantive steps in relation to the merits of the claims, the seller wrote to GAFTA disputing the jurisdiction of the tribunal on the grounds that the buyer had incorrectly purported to commence a single consolidated arbitration of two separate disputes under the two separate contracts and without its consent to consolidation.

The GAFTA first tier tribunal ruled that it had jurisdiction finding that the seller had waived its right to challenge its jurisdiction by its silence in response to the buyer’s suggestion that the disputes under the two contracts be determined under a single arbitration reference and by the same tribunal.  This decision was upheld by the GAFTA Board of Appeal on the basis that by the time of the seller’s objection the tribunal had already been appointed with the buyer having relied on the term of the Washout Agreement that there was a single arbitration and that the seller had waived the right to object.

Application to the High Court to challenge the award and court’s judgment

The court considered first whether arbitration had been commenced properly in accordance with section 14 of the Arbitration Act 1996 which requires the service on the other party of “a notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter.”

The court followed previous authorities which advocated a commercial approach and a broad and flexible interpretation of notices of arbitration particularly when prepared by non-lawyers. The judge focused on the substance rather than the form of the Notice and concluded that the final paragraph of the Notice supported the buyer’s position that it had given notice to commence two arbitrations – “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 seller advanced an alternative argument that if the Notice was effective in commencing two arbitrations, the buyer’s subjective intention in the Notice and in the position adopted in the arbitration was that there was a single dispute and that it intended to commence one arbitration with a single notice.  It contended that on this basis the Notice should be rectified to reflect this intention.  The court dismissed this argument on the basis that the grounds for rectification on the basis of unilateral mistake had not been satisfied; quite simply, the buyer’s position was that there had been no mistake on its part.  The court further decided that as an equitable remedy, rectification would not be appropriate in light of the Washout Agreement in which they buyer had agreed that the seller could continue with the arbitration if the settlement monies were not paid.

The seller also argued that the buyer should be estopped from arguing that it had commenced two arbitrations since during the arbitration it was said to have had made representations to suggest that a single arbitration had been commenced.  The court rejected the argument that there had been an estoppel by convention in that an application under section 67 of the 1996 Act allowed a re-hearing and since there was no restriction on the arguments that could be re-run, there was no question of a loss of a right to run particular arguments in a re-hearing under section 67.  Further, the seller had not demonstrated that it had relied on any such representations to its detriment by incurring wasted costs. 

Finally, the court was satisfied that there was a sufficiently clear common understanding between the seller and the buyer in the Washout Agreement that the Notice was valid and/or that arbitration had been commenced validly and that it was not open to the seller subsequently to resile from that position.  The court dismissed the seller’s challenge to the arbitration award.

The case is an interesting illustration of the court’s approach to interpreting a notice commencing arbitration proceedings and an example of the complications that can arise where there is an intention to commence arbitration under two separate contracts but where this has been communicated in a single document.