Transport & Logistics

Publish date

21 February 2022

How a recent decision by the High Court highlights the difficulties of challenging a GAFTA arbitration award

It is always a difficult task to appeal against an arbitration award as was seen in the recent decision of the High Court in Agronefteprodukt v Ameropa AG [2021] EWHC 3474 (Comm) whereby the Court dismissed the claimant’s challenge to an arbitral award made by the GAFTA First Tier Tribunal.

The Facts of the Case 

The claimant was LLC Agronefteprodukt (the Sellers) which is a Russian seller of milling wheat and the defendant was a Swiss company called Ameropa AG (the Buyers). The parties entered into two separate contracts, on different dates, for the sale of the wheat.  Both contracts contained a clause which required any dispute under either contract to be referred to arbitration pursuant to the GAFTA  Rules No. 125.

A dispute arose under the terms of both of the contracts and the Buyers sent the Sellers a Notice of Arbitration (the Notice) which stated:

“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 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 Sellers did not respond to the Notice and the Buyers requested that GAFTA appoint an arbitrator on behalf of the Sellers. The Sellers did respond one week later and contacted the Buyers in order to try and reach a compromise by entering into “variants of settlements to avoid arbitration”.

After some six weeks of negotiations between the Buyers and the Sellers, the parties entered a settlement agreement – coined a “Washout Agreement” – which also contained a similar clause to the initial contracts stating that any dispute would be referred to arbitration under the GAFTA Rules No. 125.

The Sellers did not honour the payment obligations as set out in the Washout Agreement and the Buyers continued with the original arbitration. However, the Sellers objected to this and wrote to GAFTA and challenged the jurisdiction of the Tribunal on the basis that the Buyer had not commenced two separate arbitrations under the two separate contracts. The Sellers contended that the acts of the Buyers to consolidate the two arbitrations was defective and without consent.

The Sellers’ arguments were rejected by the GAFTA First Tier Tribunal, and later by the Board of Appeal, on the basis that the Buyers had previously attempted to consolidate the two separate arbitrations in the Notice. The Sellers’ failure to respond to the Notice, and the Buyers’ request for consolidation, meant that the Sellers had waived any right to object to the consolidation of the two separate arbitrations.

The contents of the Washout Agreement, despite also being breached by the Sellers, was also indicative that the Sellers were treating the two disputes as one consolidated arbitration.

The Challenge to the Award at the High Court

Dissatisfied with the findings of the GAFTA First Tier Tribunal and the Board of Appeal, the Sellers submitted a challenge to the Award at the High Court under section 67(1) of the Arbitration Act 1996, on the basis that the Tribunal lacked jurisdiction to make the Award.

The Court first considered the provisions of section 14(4) of the Arbitration Act 1996 which provides that arbitral proceedings are commenced in respect of a matter when a party serves a notice in writing requiring that party to appoint an arbitrator, or agree to the requesting party’s choice of arbitrator. The Court considered the linguistics which were used in the Notice and attached minor importance to the fact that the Notice was largely framed in the singular rather than the plural.

Instead, the Court focused on the substance of the Notice rather than the form and placed particular importance on the final paragraph (underlined above), whereby the Buyers had requested the two arbitrations be consolidated and that request would “make no sense unless the Notice is commencing two arbitrations” .

The Court also dismissed the Sellers’ alternative argument for rectification of the Notice on the basis that the Buyers’ subjective intention of the Notice was to commence one arbitration rather than two.

The Court was further dissatisfied with the Sellers’ line of argument that the Buyers were estopped from relying on the Notice to commence two arbitrations. The Court’s dismissal was on the basis that the parties had entered into the Washout Agreement which meant that there was a common intention between the parties that the Washout Agreement was in respect of both arbitrations.

Although the challenge to the Award was dismissed, the facts of this case show the importance of responding to a Notice of Arbitration and seeking clarification from the requesting party if you are unsure as to the terms of the request.

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