Clear failure required: High Court refuses directions under s 18 of the Arbitration Act 1996 where procedure for appointing arbitrator had not failed

The recent judgment of the English High Court in Global Aerospares Limited v Airest AS [2023] EWHC 1430 (Comm) demonstrates that the court will not issue directions under section 18 of the Arbitration Act 1996 (AA 1996), until it is satisfied that the procedure for appointing an arbitrator has indeed failed. The court dismissed a claim for directions under section 18 which is described as a "gateway provision", providing a way of getting an arbitration started or preventing its abortion where there is a failure in the parties' agreed appointment process. It gives the court powers as to the arbitrator appointments, including the power "to give directions as to the making of any necessary appointments" and "to direct that the tribunal shall be constituted by such appointments … as have been made".

Background

The claimant, a company supplying aircraft parts and registered in England and Wales, sought to pursue claims based on an alleged contract with the defendant, a company registered in Estonia, which included a London arbitration clause. However, the arbitration clause in the contract did not specify the procedure for the appointment of an arbitrator. 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." Absent the appointment procedure in the arbitration clause, the default provisions in sections 14(4) and 15(3) of the AA 1996 applied, by which the claimant was entitled to initiate arbitration by serving the defendant a notice, requiring it to consent to the appointment of a sole arbitrator. Additionally, the default procedure for appointment as stated in section 16(3) was also engaged, which mandates the parties to "jointly appoint the arbitrator not later than 28 days after service of a request...".

The claimant’s preference was that the arbitration be conducted by the London Court of International Arbitration (LCIA). Accordingly, the claimant sent a notice (Notice) to the defendant by email and airmail proposing the appointment of a sole arbitrator with a list of possible candidates, inviting the defendant to respond within 21 days. A copy of a request for arbitration (RFA) that the claimant had filed with the LCIA was sent with the Notice.

Subsequently, the claimant filed an arbitration claim under section 18 of the AA 1996 in the English High Court. The defendant conceded that there was a valid arbitration agreement. The court granted permission to serve the claim form on the defendant outside the jurisdiction. However, the defendant challenged the court's jurisdiction under CPR 11(1), arguing that there was no failure in the appointment procedure as required for a section 18 application. One of the defendant's arguments was that the claimant's Notice, which aimed to initiate the arbitration process, did not meet the requirements of the AA 1996 and was not validly served.

Decision

The underlying merits of the dispute were not at issue in the application. The court first decided that the defendant's arguments were related to the merits of the claim rather than the jurisdiction of the court. As a result, the defendant's application under CPR 11 was dismissed. On the substance of the claim, the court acknowledged that the Notice, in conjunction with the accompanying documents, met the requirements of the AA 1996 for commencing an arbitration. However, the court found that the method of service did not adhere to the terms of the parties' contract which required personal service of notices (the notice…"must be in English, in writing and must be served personally"). Consequently, the notice was deemed ineffective in initiating the appointment process for the tribunal, meaning that the process had not yet failed. Therefore, there was no basis for an order under section 18.

When coming to this conclusion, the court analysed the failure procedure under section 18 in conjunction with various default provisions contained in sections 14 and 16 of the AA 1996. In particular, the court considered section 14(4) which states that "[w]here the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when 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". The court also considered the default provision in section 16(3) of the AA 1996 which deals with the appointment of the arbitrator where there is no agreement as to the procedure for appointing an arbitrator ("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.").

The court then turned to the question of whether the court has power to make an order under section 18 of the AA 1996 in circumstances where there has been no failure of the procedure for the appointment of an arbitrator (as had happened in this case) because of the failure to serve a valid request to arbitrate.

Although section 18 was not expressly subject to the requirements of sections 14 and 16, that part of the AA 1996 provided a series of default procedures which "interlock and are to be read together". Having found that a notice of arbitration under section 14(4) of the AA 1996 had not been served, the court concluded that the process for the appointment of an arbitrator had not been validly begun. Because the notice in initiating the process of appointing the tribunal was ineffective, the appointment procedure had not yet failed. As a result, there was no basis for an order under section 18.

Comment: This ruling provides a valuable guideline on section 18 of the AA 1996, as it confirms that when determining what constitutes 'a failure of appointment procedure', it is important to apply section 18 in conjunction with various default provisions within the AA 1996 that pertain to the initiation of arbitration and the appointment of a tribunal.