Challenging Jurisdiction Under the LCIA Rules – The English Commercial Court Clarifies When Rights May Be Lost

by Reed Smith
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The English Commercial Court has recently clarified the interpretation of time limits under the LCIA Rules 2014 for a party to bring an objection to the substantive jurisdiction of an arbitral tribunal.

Where a party has an objection to jurisdiction at the outset of the proceedings, it has until the time for filing its statement of defence to raise its objection.

The court also confirmed that, under the LCIA Rules 2014, potential claimants cannot bring claims in respect of multiple arbitration agreements under one request for arbitration. Where claimants attempt to do so, the request will be invalid and no arbitration will have been commenced.

The decision provides certainty in relation to when parties involved in an LCIA arbitration can exercise the fundamental right of objecting to a tribunal’s jurisdiction. It also underlines the importance of complying with any particular procedural requirements in commencing arbitral proceedings, as failure to do so can have very serious consequences for the defaulting party.

The full judgment can be found at A v. B [2017] EWHC 3417.

Background

The defendant, ‘B’, sold two consignments of crude oil to the claimant, ‘A’, under two separate contracts. Each contract was governed by English law and contained an LCIA arbitration clause.

B claimed that A failed to pay the purchase price. On 23 September 2016, B submitted a single request for arbitration in respect of both contracts (the Request) and paid a single filing fee.

On 31 October 2016, A served its response to the Request (the Response) (1) denying liability, (2) stating that the Response should not be construed as submission to jurisdiction and (3) reserving A’s rights to challenge the jurisdiction of any LCIA tribunal.

On 24 May 2017, A challenged the validity of the Request under section 30 of the Arbitration Act 1996 and article 23 of the LCIA Rules 2014, on the grounds that by purporting to refer both claims under the two separate oil contracts, the Request failed to identify the particular dispute and the particular arbitration agreement to which it related.

On 7 July 2017, the tribunal made a partial award on jurisdiction, dismissing A’s challenge on the grounds it was brought too late (the Award).

On 4 August 2017, A challenged the Award in the English courts under section 67 of the Arbitration Act 1996 (challenge to the jurisdiction of the tribunal).

When can an objection to jurisdiction be made?

The right to object to the substantive jurisdiction of a tribunal is one of the most fundamental rights of any party involved in an arbitral dispute. The question of jurisdiction has potentially far-reaching consequences – such as on the conduct of the proceedings, confidentiality and enforcement.

It is critically important that it is clear to the parties when that right can (and should) be exercised and when it can be lost.

The right to object to the jurisdiction of the tribunal in an arbitration seated in England and Wales is provided by section 30 of the Arbitration Act 1996 and is also often enshrined in the applicable arbitral rules, such as article 23 of the LCIA Rules 2014.

The tribunal in A v. B focussed on the application of article 23 of the LCIA Rules 2014 in dismissing A’s objection to jurisdiction. Article 23.3 requires that any challenge to jurisdiction “shall be raised as soon as possible but not later than the time for [the Respondent’s] Statement of Defence”.

In applying this provision, the tribunal held that, in cases where a respondent knows of an objection from the moment it receives a request for arbitration, “as soon as possible” under article 23 ordinarily means no later than the point of filing the response to the request.

The tribunal took the view that a party cannot keep open its right to object to the tribunal’s jurisdiction until after the time for filing the response, simply by reserving its position on jurisdiction.

As A had raised its objection after it served the Response, the tribunal held that A’s challenge was made too late and should be dismissed.

In overturning the Award, the court emphasised that the starting point in considering whether an objection to jurisdiction has been made out of time is under sections 31 and 73 of the Arbitration Act 1996. These are mandatory provisions that apply to all arbitrations seated in England and Wales and it is not possible to contract out of these provisions.

In particular, section 31(1) provides that a party must raise any objection at the outset of the proceedings “not later than the time he takes the first step in the proceedings to contest the merits of any matter in relation to which he challenges the tribunal’s jurisdiction”. Importantly, section 31(1) does not require it being made “as soon as possible”. In arbitrations under the LCIA Rules 2014, which require formal pleadings, “the first step in proceedings to contest the merits” is the statement of defence, not the response.

The court held that, as a matter of interpretation, article 23.3 does not impose a stricter deadline than that under section 31(1). The correct interpretation of article 23.3 is that a respondent must file its objection to substantive jurisdiction by the time it serves its statement of defence.

Can parties agree a shorter deadline?

Even if article 23 of the LCIA Rules 2014 does not impose a shorter deadline than that under section 31(1) of the Arbitration Act 1996, could parties to an arbitration nonetheless agree to apply a shorter deadline?

In A v. B, the court did not have to decide this issue. However, the court stated that, had it been necessary to do so, it would have held that section 31(1) takes precedence over any agreement between the parties.

The court considered that section 73 of the Arbitration Act 1996 – which provides that a party will lose the right to object to jurisdiction where it does not do so by the time allowed under the arbitration agreement, by the tribunal, or under the Arbitration Act 1996 – had the effect of applying the longest deadline available under these various sources, not the shortest.

Although not a binding decision on this point, these comments provide a strong indication that parties will not be able to enforce a shorter deadline for raising an objection to substantive jurisdiction than the time for contesting the merits set out under section 31(1).

Can a party refer multiple disputes under one request?

A argued that B’s Request could not validly commence claims under each contract as, under the LCIA Rules 2014, a request for arbitration must identify “the dispute” to which it relates. A argued that B had attempted to refer two separate disputes, under two arbitration clauses, in respect of two separate contracts and, therefore, failed to identify the particular dispute to which the Request related.

While B accepted that an LCIA arbitration can only cover a dispute under one arbitration agreement, it argued that its Request commenced two separate arbitrations – one in relation to each contract.

As a general point of English law, it is possible for parties to agree an arbitration clause that allows them to commence a number of arbitrations under a single request. However, where an arbitration clause incorporates a specific set of arbitral rules, such as the LCIA Rules, any request must comply with the requirements under those rules.

Article 1.1 of the LCIA Rules 2014 provides that commencement of “an arbitration” requires delivery of “a written request” including details of “the Arbitration Agreement”, “the nature and circumstances of the dispute” and confirmation that “the registration fee...has been or is being paid”.

On this basis, the court held that the LCIA Rules 2014:

  1. treat a request as giving rise to a single arbitration and the formation of a single tribunal only;
  2. do not allow for the commencement of multiple arbitrations by submitting one request and paying one registration fee; and
  3. do not allow for consolidation of claims without the consent of the other party or a decision of the LCIA Court, through bringing multiple claims under one request.

Consequently, the court held that B’s request was ineffective in its attempt to refer separate disputes to a single arbitration and was invalid.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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