England – Court clarifies requirements for validly appointing arbitrators – #646

As our readers know, Canadian courts have been generating a wealth of jurisprudence on many international arbitration-related issues of late. However, there are still some lacunae in Canadian jurisprudence, which courts will often fill by referring to jurisprudence from other leading arbitral jurisdictions, including England and UNCITRAL Model Law on International Commercial Arbitration jurisdictions such as Australia, New Zealand and Singapore. Article 2A(1) of the Model Law explicitly provides for this: “In the interpretation of this Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith.” Because of this, Arbitration Matters will occasionally report on interesting cases from other jurisdictions which could be applied in Canada if the issue were to present itself here. One such case made our radar this week, because it deals with an issue that is seldom fought about in Canada: whether an arbitrator was validly appointed. In ARI v. WXJ, [2022] EWHC 1543 (Comm), Justice Foxton of the English Commercial Court rejected the Claimant’s argument that the Respondent’s appointee was invalidly appointed, and that the arbitrator appointed by the Claimant should therefore decide the dispute as sole arbitrator.

The underlying dispute arose in the context of a ship chartering relationship. The relevant arbitration clause provided for arbitration seated in London before a three-arbitrator tribunal under the rules of the London Maritime Arbitrators Association. The process for appointing the tribunal followed a formula that is very common in international arbitration agreements: (1) the Claimant appoints an arbitrator, (2) the Respondent appoints an arbitrator within 14 days of receiving notice that the Claimant has appointed an arbitrator, and (3) the two party-appointed arbitrators appoint the presiding arbitrator.

The arbitration clause had a more unusual component that gave rise to the dispute about the validity of the tribunal’s appointment. The clause provided that, “[i]f the other party does not appoint its own arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator.

The Respondent appointed an arbitrator on time. However, a disagreement between the Respondent and the arbitrator subsequently ensued regarding the arbitrator’s fees, and the arbitrator stated that they could no longer participate. The Respondent sought to appoint a replacement arbitrator.

The Claimant sought to have its arbitrator appointed as sole arbitrator, arguing that the Respondent had not appointed an arbitrator within the 14-day period because there was no agreement on the essential terms of the relationship (i.e., fees).

Section 16(1) of the Arbitration Act, 1996 (U.K.), c. 23 states that the parties, “are free to agree on the procedure for appointing the arbitrator or arbitrators.” This language is nearly identical to that of Article 11(2) of the Model Law, which provides in relevant part that the parties “are free to agree on a procedure of appointing the arbitrator or arbitrators”.

Justice Foxton held that the issue of what “appointment” requires in this context was ultimately a question of construing the requirements of the arbitration clause. Citing the English Court of Appeal’s Lord Denning-authored judgment in Tradax Export SA v. Volkswagenwerk AG (The Loma), [1970] QB 537, he found that three elements were necessary to validly appoint an arbitrator: (1) inform the other side of the appointment; (2) inform the appointee of the appointment; and (3) the appointee “should be willing to act and have intimated his willingness to accept the appointment.”

Considering prior case law on this point, Justice Foxton found that:

“[T]he question for the court when determining whether the arbitrator has accepted the appointment for the purposes of a clause such as [the one at issue] is whether there has been 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 […]”

By the 14-day deadline, the Respondent-appointed arbitrator had confirmed that they were “available for this assignment” and cleared conflicts. Thus, the fact that a dispute over fees subsequently ensued that led to the arbitrator’s withdrawal did not mean that the Respondent had failed to appoint an arbitrator within the 14-day deadline.

Therefore, the Claimant was not entitled to treat the arbitrator it appointed as the sole arbitrator. The replacement arbitrator appointed by the Respondent was validly appointed as a replacement arbitrator to replace the first arbitrator who resigned.

Contributor’s notes

I can’t help but think that there was more context to this case than is immediately apparent from the reasons, because it is hard to believe that the Claimant thought it could get away with this, especially in a consensual arbitration process.

Litigation tactics aside, this case is interesting because it fleshes out a three-part test for validly appointing an arbitrator. This is useful, because the “appointment” language is found in the Model Law, Canadian domestic arbitration statutes, most arbitration rules and most arbitration agreements, but the precise mechanics of “appointing” an arbitrator and a tribunal are rarely defined in granular detail.

This case could provide a useful precedent if a dispute arises in Canada about whether an appointment was validly made. Canadian courts are quite fond of citing Lord Denning – recall Justice Brown’s opening line of, “In wintertime ice hockey is the delight of everyone” in Canada (Attorney General) v. Igloo Vikski Inc., 2016 SCC 38 (paraphrasing Lord Denning’s “In summertime village cricket is the delight of everyone”, Miller v. Jackson, [1977] 1 Q.B. 966 (C.A.). Disputes over arbitrator appointments may provide a less colourful excuse for them doing so.