"Clear and unconditional communication" determines whether arbitrator appointment was valid

On 20 June 2022, the English High Court issued summary judgment in the case of ARI v WJX.

The judgment arose from a dispute as to the validity of the arbitrator appointment in a London Maritime Arbitrators Association Arbitration (LMAA) and decided that it is the clear and unconditional communication by an arbitrator which determines whether their appointment was valid, as opposed to whether a contract had been formed with the arbitrator.

The claimant together with related shipowning companies chartered vessels to the defendant over a number of years, on bareboat terms. In 2018, the claimant and the defendant entered into a Reconciliation Agreement in relation to those vessels subject to charter, which provided for instalment payments by the defendant of outstanding amounts.

The dispute resolution clause in the Reconciliation Agreement provided that "[i]n case of any dispute or impasse that may arise regarding the execution or implementation of this agreement, the parties elect the forum stipulated in the Bareboat Charter contracts for the resolution of disputes."

The relevant Bareboat Charters, in turn, provided that the arbitration should be conducted in accordance with the LMAA terms current at the time when the arbitration proceedings are commenced. As to the composition of the tribunal, the relevant clause provided that the dispute should be resolved by three arbitrators, with the defendant required to appoint an arbitrator within 14 days of receiving the claimant's notice of arbitration. In the event the defendant failed to appoint its arbitrator within the allotted timeframe, the claimant would seek to appoint its arbitrator as sole arbitrator without prior notice.  

Having received the notice of appointment of arbitrator by the claimant, the defendant appointed its arbitrator and sent a notice of such appointment to the claimant on 5 January 2022, i.e. within the prescribed 14-day period.

A month later, the defendant's appointed arbitrator said that they would not be able to act as an arbitrator because the maximum rate of compensation fell significantly below the level of their firm's charge-out rate. This led to the defendant seeking to appoint a replacement arbitrator, and the claimant to appoint its arbitrator as a sole arbitrator. 

A dispute arose between the parties as to whether the defendant's arbitrator appointment was valid. The claimant argued that the defendant did not validly appoint its arbitrator within the prescribed timeframe and that its own appointed arbitrator should serve as sole arbitrator in the case.

The defendant sought summary judgment dismissing the claimant’s attempt to install its appointed arbitrator as sole arbitrator

In the judgment, Mr Justice Foxton noted that under s.16(1) of the Arbitration Act 1996, the parties “are free to agree on the procedure for appointing the arbitrator or arbitrators”. In this case the parties agreed a form of arbitration agreement which requires a party to appoint its arbitrator as part of the process of commencing an arbitration. Mr Justice Foxton noted that the timing of appointing arbitrators may have significant implications for limitation purpose, and some arbitration agreements bar claims where appointments have not been completed within a certain timeframe. Mr Justice Foxton emphasised  that "this is particularly likely to be the case in the maritime context, in which there are usually shorter time periods for bringing claims". The 

The claimant's submission was that an arbitral appointment required the conclusion of a valid contract with the potential arbitrator. In support of its position, the claimant referred to K/S Norjarl v Hyundai and Hashwani v Jivraj, concerning tripartite contracts which come into existence between the parties and the arbitrators when all the elements of a valid appointment have been completed. In this case, because no agreement on the arbitrator fees was reached and no contract between the defendant and the potential arbitrator was concluded, the clamant argued that the defendant's arbitrator appointment was invalid. 

While the cases referred to by the claimant suggest that it is open to an arbitrator before the appointment to reach a special agreement with the appointing party as to their renumeration as a condition of accepting the appointment, Mr Justice Foxton did not read "the majority judgments as
determining that the issue of appointment turns on whether a contract has been concluded between the appointing party and the arbitrator." Although Mr Justice Foxton accepted that there can be a contractual relationship between an appointing party and the arbitrator it is appointing, he said that "[t]hat does not necessarily entail, however, that the issue of whether an arbitrator has been appointed for the purposes of commencing an arbitration under an arbitration agreement such as this one is to be determined by a contractual analysis of the dealings between the appointing party and the arbitrator it has approached." Accordingly, he rejected the Claimant’s submissions and instead followed the Court of Appeal’s "pragmatic" approach in its 1970 decision in Tradax Export SA v Volkswagenwerk AG (La Loma), concerning a party who had notified the other of the appointment of a particular arbitrator without having first secured confirmation of the arbitrator's willingness to act. In that case Lord Denning MR said that three things were necessary to constitute the appointment of an arbitrator: (1) it was necessary to tell the other side; (2) to tell the appointee himself and (3) the appointee “should be willing to act and have intimated his willingness to accept the appointment”. In that case the court found there had been no valid appointment without the appointee's express confirmation of their willingness to accept the appointment.

Based on this precedent, Mr Justice Foxton concluded that all that was required to show a valid appointment was “a clear and unconditional communication of acceptance of the appointment by the arbitrator, which is then notified to the other party, or communication of an unconditional willingness by the arbitrator to accept the appointment, which the appointing party then acts upon by communicating the appointment to the appointee and the other party”. 

Having analysed the correspondence between the defendant and the arbitrator, Mr Justice Foxton concluded that the arbitrator in the case had clearly communicated his willingness to be appointed and the defendant had clearly communicated the fact of the appointment to the claimant and the already appointed arbitrator. 

Comment

This decision provides guidance on an important practical issue. It confirms the principles that will be applied by the English courts in determining the validity of arbitrator appointments. In particular, a clear and unconditional communication of acceptance of the appointment by the arbitrator would be sufficient to determine the validity of their appointment. Any wider contractual analysis is not necessary. Such an arbitration-friendly approach will discourage parties from disputing the validity of arbitrator appointments which can lead to time-consuming and expensive arbitration-related litigation.