Invalid service of Request for Arbitration not a failure of appointment procedure, says English court

In Global Aerospares Limited v Airest AS [2023] EWHC 1430 (Comm), the English Commercial Court dismissed a claim for directions under s18 of the Arbitration Act 1996 (Act). Failing to serve a Request for Arbitration under s14(4) of the Act, with the consequence that the process for the appointment of an arbitrator had not validly begun, was not considered a failure of procedure for the appointment of an arbitrator. Accordingly, s18 of the Act was not engaged and the claim was dismissed.

Background

The Claimant, Global Aerospares Limited (GAL), supplied aircraft parts to the Defendant, Airest AS (Airest), an aircraft repair business at Tallinn airport. A dispute arose and GAL wished to commence arbitration proceedings. The arbitration clause was very basic and made no provision for the appointment of arbitrators. It simply said: "This Agreement is subject to English jurisdiction. If a dispute cannot be settled by negotiation it shall be settled by arbitration in London".

GAL sent a covering letter enclosing a Request for Arbitration (Request) in which it proposed the appointment of a sole arbitrator. It identified three potential arbitrators and invited Airest to respond within 21 days. It also stated that documentation had been filed with the LCIA in order to commence arbitration proceedings. GAL subsequently issued a claim in the English Commercial Court, seeking directions under s18 of the Act regarding the appointment of a sole arbitrator.

Airest opposed the application and made an application under CPR Part 11(1) for an order that the Court had no jurisdiction. The basis for this argument was that the Court's power under s18 of the Act was not engaged. Alternatively, it argued that GAL's Request was not a valid request to appoint an arbitrator within the meaning of s16(3) of the Act because it was not sufficiently clear to comply with the requirements of the Act and had not been validly served. It argued that, as a result, the process for the appointment of an arbitrator provided for by the Act had not been begun. If the process had not been begun, it could not be said that there has been a failure of that process, and so the Court's powers under s18 could not be exercised.

Relevant provisions of the Act

S14(4) of the Act provides that "where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter where one party serves on the other party or parties 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". S15(3) of the Act specifies that where there is no agreement as to the number of arbitrators, the tribunal shall consist of a sole arbitrator. S16(3) also provides that if the tribunal is to consist of a sole arbitrator, the parties shall jointly appoint the arbitrator not later than 28 days after service of a request in writing by either party to do so.

Decision

Procedural issue

The judge (His Honour Judge Worster) first considered whether the CRP Part 11 procedure was relevant in this case.  He determined that the question of whether s18 of the Act was engaged went to the merits of the claim rather than to the jurisdiction of the Court to try the case or to exercise its jurisdiction to try the case. Thus Airest's application as framed failed.

Substantive issue

The second, more substantive issue in this case was the question of whether the Court could make directions pursuant to s18 of the Act.

Airest argued that GAL's Request was not a valid request to appoint an arbitrator within the meaning of section 16(3) because the reference to filing the documents with the LCIA was inconsistent with a request to appoint an arbitrator, and because the time limit of 21 days was inconsistent with the 28 day period in section 16(3). The Court disagreed. It stated that when the notice was read with the Request, there could be "no sensible doubt" that GAL was asking Airest to agree to the appointment of an arbitrator. Therefore this was sufficient for the purposes of complying with the requirements of the Act.

Airest further argued that the Request has not been validly served. The notice provision in the contract stated:

"Notices: Unless otherwise specified, any notice to be given for the purposes of this Contract must be in English, in writing and must be served personally; and sent by email (or such other postal service as is likely to achieve delivery in 7 days) to the address of the parties specified in this Agreement or such other address as that party notifies in writing".

The Request was sent by email, and a further copy was sent by airmail. However, no attempt was made to serve it personally. On a literal reading, this clause required service of the same document twice. The Court determined that clause 9 was clear, requiring the notice to be served personally and then requiring service of the same notice by airmail or some other similar means. As such, the Court concluded that the Request had not been served in accordance with the contract and, therefore, section 14(4) of the Act. Therefore, the process for the appointment of an arbitrator had not validly begun.

Citing Silver Dry Bulk v Homer Hulbert Maritime [2017] EWHC 44 (Comm) (see our blogpost on that case here) the Court held that if there is no failure in the appointment procedure, an application for directions under s18 would fail. Although the Court noted that a party can make a "freestanding" s18 application and the Court does have powers to make orders, the Court concluded that "the fact that the contractual machinery had not been properly invoked would count against exercising the discretion to make such an order".

Comment

This rare example of an application under s18 demonstrates the importance of parties to ad hoc English-seated arbitration clauses complying with any applicable contractual notification provisions and ss14-16 of the Act. Failure to do so can lead to wasted time and costs, as was the case here.

It is usually best practice to specify an arbitrator appointment mechanism in the arbitration clause or, where the parties choose institutional arbitration, to rely on the default provisions in the applicable institutional rules.

For more information contact Charlie Morgan, Partner, Liz Kantor, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

The authors would like to thank Csilla Cao for her assistance with this blogpost.