This charterparty time-bar case demonstrates that great care should be taken to ensure that the formal requirements for commencing (as opposed to merely threatening) arbitration are observed in the drafting of the notice.
S.14 of the Arbitration Act states that contracting parties are free to agree the method of commencing arbitration but that in the absence of agreement, arbitration in respect of a matter is commenced when "one party serves on the other party ...notice in writing requiring him ...to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter."
In this case, the first relevant solicitor's letter stated that "we are instructed to notify you that failing payment ...within 7 days ...we are instructed to commence arbitration against you ....Further in the absence of agreement to settle this outstanding claim we hereby invite you ...to agree one of these following arbitrators... as sole arbitrator."
A later letter said "As your members have failed to pay the outstanding balance and have decided not to agree to appoint a sole arbitrator we are now instructed to appoint our client's arbitrator in order to commence arbitration proceedings...we hereby give you notice of our appointment of ....[BW]. Please appoint your member's arbitrator within 14 days."
The arbitration tribunal ruled that the first letter was a demand for payment and only in default of payment were the solicitors instructed to commence arbitration, hence this was not a valid notice and the complaint was time-barred. The second letter did constitute valid notice but was too late to save the claim.
On appeal to the Commercial Court the Applicants were reprieved. The Court affirmed that s.14 was to be interpreted in a broad and flexible way and since the first letter made it clear it was invoking the arbitration agreement and required the Respondent to appoint an arbitrator, it was valid and complied with s.14's requirements. The fact that the second letter explicitly appointed the Applicant's arbitrator did not detract from this, since the commencement of arbitration under s.14 is to be distinguished from taking a step to constituting the tribunal.
Sometimes arbitrations are commenced simultaneously with court proceedings where, for example, a reinsurance contract wording cannot be found, but is suspected to contain an arbitration clause and a "belts and braces" approach is required. Great care needs to be taken in drafting a notice in these and other situations where the arbitration is contingent upon something happening or existing, or not, as the case may be.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.