The KSLR Forum

latest post 8/5/2022

 Multiple Contracts and Single Arbitration in LLC Agronefteprodukt v Ameropa AG: Moving Closer to the Indian Position?

Chaturbhuj Yadav[1] and Hridyanand Ojha[2]

Introduction

The English and Welsh High Court (‘EWHC’) case, LLC Agronefteprodukt v. Ameropa AG (‘LLC Agronefteprodukt’) sets the context for this note’s discussion. The authors note that the approach to consolidate parallel arbitration proceedings remains controversial: it varies by jurisdiction and even between courts within the same jurisdiction.

In LLC Agronefteprodukt, the EWHC dismissed a challenge under Section 67 of the English Arbitration Act 1996 (‘the English Act’) to an Arbitration Award on the grounds of lack of jurisdiction. The main issue in dispute concerned the effectiveness of the Notice of Arbitration, and whether it illegitimately purported to commence a single arbitration in respect of two separate claims under two contracts i.e., consolidation of arbitral proceedings. The judgment is a valuable demonstration of English law’s commercial, substance-focused approach, and serves as a reminder of the potential consequences of procedural missteps. In light of the EWHC ruling, the authors examine whether this ruling brings the British position closer to Indian law?

Background

Facts

The claimant, and respondent to the arbitration, LLC Agronefteprodukt (‘sellers/claimant’) is a Russian company that was the seller of the goods, Russian Milling Wheat.  The defendant and buyer of the goods, Ameropa AG (‘buyers/respondent’), is a Swiss company that was the claimant in the arbitration.

The claimant brought the challenge under the English Act on the grounds of lack of jurisdiction against an adjudication made by the Grain and Feed Trade Association (‘GAFTA’) Board of Appeal, affirming the award of the GAFTA First Tier Tribunal made on 13 March 2020. The original two contracts of sale entered between the parties contained an arbitration clause, stipulating London as the arbitration seat if any dispute arose. The dispute arose under both contracts and the buyers proceeded with a Notice of Arbitration, informing the sellers about the initiation of arbitration proceedings. The highlight of the Notice was the last paragraph that stated:

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.

When the sellers did not reply, the buyers requested GAFTA for the appointment of an arbitrator on behalf of the sellers, to which GAFTA obliged. The sellers requested that the buyers enter into a negotiation and entered in a “Washout Agreement” with them for the settlement of the dispute; if this failed, the proceedings before the Arbitration Tribunal would, and indeed did, continue.

The First Tier GAFTA rejected the sellers’ claim citing the reason that the sellers waived their right to object by remaining silent when they received the Notice of Arbitration. The appellate body upheld this. Furthermore, it held that by the time the sellers brought their objection, the buyers had already appointed Arbitrators and relied on the Washout Agreement to assert that the sellers had accepted single arbitration.

The buyers argued that while entered into the Washout Agreement, the parties had a common understanding upon which the buyers relied. The sellers did not suggest that they considered the Notice of Arbitration invalid and both the parties expressly agreed to the resumption of original proceedings if the sum of settlement was not paid. The sellers responded that they did not accept, ratify or validate the commencement of a single arbitration under the two contracts by way of the Washout Agreement.

Main Legal Issue

The main legal issue is whether a notice of arbitration purported to commence a single arbitration in respect of two claims under two different contracts.

Judgment of the EWHC

The EWHC rejected the challenge to jurisdiction brought by the sellers. The court took a commercial approach and held that while interpreting the Notice, the court has to construe the clauses not by delving into the form of the Notice, but by adhering to its substance.[3] The court remarked that it was the final paragraph of the Notice that made more sense, as it provided the basis of the request, by commencing a single arbitration.[4]

The EWHC also pointed out that an English court may rectify a document on one of two grounds, namely, a common mistake or a unilateral mistake.[5] Observing that it seemed unlikely that a court would rectify a Notice of Arbitration on the application of the other party, the court determined that there was no mistake that could be said to be common between the parties.[6]

Finally, in dealing with the question of whether buyers and sellers are estopped, the court held that the sellers had not made out their case that they relied on such representations to their detriment by incurring wasted costs and could not resile from the common understanding between the parties while concluding the Washout Agreement.[7]

The English and Indian Positions at Crossroads

The approach to consolidating parallel arbitrations varies by jurisdiction. The English position is compared by the authors to the Indian position and the authors argue that there is a significant difference in approach.

In the case of Olympus Superstructure Pvt. Ltd. V Meena Vijay Khetan & Ors., the Supreme Court of India elucidated on the persisting issue of consolidation and allowed consolidation of arbitrations. Similarly, in PR Shah Shares and Stock Brokers Private Limited & Others v M/s BHH Securities (P) Ltd., the Supreme Court adopted a liberal interpretation to allow it to consolidate arbitral proceedings if it both involved the same question of facts and law and the original contract allows it. The Supreme Court seemed to dilute the element of express consent of parties and allowed enforcement of arbitration agreements even against non-signatories to an arbitration agreement (through ‘Group of Companies Doctrine’). Following this, the Supreme Court delivered a similar judgement in . This doctrine has acquired renewed significance in India after its use by the emergency arbitrator in the Amazon.com NV Investment Holdings LLC v Future Retail Limited & Ors dispute. Consequently, Indian courts take a markedly different approach to English courts.

In England and Wales, consolidation of parallel proceedings does not seem to be possible without the parties’ consent as provided by  . A classic example of this is Guidant LLC v Swiss Re International SE and Others (Guidant LLC’) where the EWHC ruled that neither a tribunal nor the court has the power to consolidate two arbitral proceedings without the consent of the parties. While the EWHC dismissed the jurisdictional challenge in the case of LLC Agronefteprodukt, it supported the reasoning of Guidant LLC  to an extent.

The comparative point to take away is that Indian Courts appear to adopt a liberal interpretation to include non-signatories whereas English Courts appear to place emphasis on the parties’ consent. The EWHC in LLC Agronefteprodukt placed its reliance on ‘substance over form’ in interpreting the Notice commencing arbitration proceedings, whereas the Indian courts have followed ‘substance over form’ in interpreting the main agreement’s arbitration clause. Therefore, the liberal judgement delivered in LLC Agronefteprodukt, it is argued, takes the English position one step closer to the Indian position.

Still, the law relating to consolidation stands unclear in Indian as well as English and Welsh law. However, the predominant debate appears to be that whether the EWHC judgment needs to be read as accepting consolidation of arbitral disputes or just providing useful commentary on the principles governing the construction of Notices. Courts need to be more clear on the fundamental element of arbitration, i.e. consent, when ruling on consolidation matters because consent cannot be ignored.

Conclusion

The authors suggest that the EWHC judgment shows an interesting commercial approach by the court in the interpretation of Notices commencing arbitration proceedings. It is a great illustration of how procedural points can turn into a headache for parties later on. The authors believe that the EWHC judgment in In India, taking the cases such as Chloro Control, Duro Felguera, SA v M/s Gangavaram Port Limited, and Ameet Lalchand to be in favour of consolidation of arbitration proceedings between same parties under different contracts raises less of an issue than cases in favour of bringing non-signatories without their consent. The balance to be struck between consolidation and consent of the parties remains in question.

[1] Candidate, Batch of 2022 B.A., LL.B. (International Trade & Investment Law Hons.) National Law University, Jodhpur

[2] Candidate, Batch of 2024 B.A., LL.B. (Hons.) Institute of Law, Nirma University, Ahmedabad

[3] LLC Agronefteprodukt v Ameropa AG, [2021] EWHC 3474 (Comm), [2021] 12 WLUK 280 [17], [19].

[4] ibid [19].

[5] ibid [25].

[6] ibid [26].

[7] ibid [36].