Global Aerospares Limited v Airest AS

The Claimant supplies parts for aircraft, and is a company registered in England and Wales. The Defendant is a company registered in Estonia, and carries on a business repairing aircraft from Tallinn airport. By a Part 8 Claim Form issued on 17 October 2022, the Claimant seeks directions pursuant to section 18 of the Arbitration Act 1996 (“the 1996 Act”). Section 18 is the section which provides for the court to give directions where there is a failure of the procedure for the appointment of the arbitral tribunal. The Claimant’s preference is that the arbitration be conducted by the London Court of International Arbitration (“LCIA”) but it would be content for the Court to appoint a named arbitrator. The Defendant contests the Court’s jurisdiction to try the claim, and has applied for an order setting aside the Claim Form.

The Claimant’s case is that it supplied aircraft parts to the Defendant which it has not paid for. The claim relies on a written Exchange Pool Agreement (”the Agreement”) made in December 2014. The Claimant’s case is that the Agreement has been terminated as a consequence of the Defendant’s failure to pay what it owed. The claim is put at a sum approaching $400,000. The Agreement has an arbitration clause, but it makes no provision for the appointment of an arbitrator; it simply says this:

The Defendant initially denied that it knew anything about the Claimant, but now accepts that the two companies dealt with each other. In its letter of 29 October 2021 responding to the letter of claim, the Defendant accepted that the Agreement was signed in 2014, but said that it was signed by a former employee who did not have authorization to conclude the Agreement. It denies liability, although the precise basis of that denial is not entirely clear. Mr Page submits that the Defendant’s approach to this claim is indicative of an attempt to avoid or delay payment of a liability for which it has no genuine defence. Mr Berragan submits that the Defendant does have a defence to this claim, but that in any event, the merits of the underlying dispute are not the issue on this application. I am in no position to reach a concluded view on the underlying merits of the dispute. For the purposes of this application it is sufficient to note that the Defendant accepts that there is a good arguable case that there is a valid arbitration agreement. That is as far as I need to go.

Following the issue of the Claim Form, I made an order on 25 October 2022 in the following terms:

The Claim Form and the witness statement in support were then served on the Defendant, and on 9 December 2022 the Defendant filed an Acknowledgement of Service indicating that it intended to dispute the Court’s jurisdiction. On 19 January 2023 the Defendant made this application pursuant to CPR Part 11(1) for an order declaring that the Court has no jurisdiction to try the claim, and for the Claim Form and the order for service to be set aside.

The basis of the application is that:

The first issue to consider is whether the Part 11 procedure is apt to deal with matters which go wider than issues of territorial jurisdiction. Mr Berragan submits that it is, and that this is apparent from the terms of Part 11 itself:

A defendant who wishes to –

That proposition is drawn from the following passage in the judgment of Dyson LJ at [22] –[23], who gave the leading judgment in Hoddinott:

The facts of Hoddinott are of relevance. The validity of the Claim Form in that case expired on 22 September 2006. The Claimants obtained an extension to 22 November 2006. The Defendant then applied to set aside the order for an extension. The Claimants served the Claim Form on 21 November 2006, and the Defendant filed an Acknowledgement of Service indicating an intention to defend the case, but not indicating an intention to contest jurisdiction. The court then set aside the order for the extension of time, holding that Part 11 did not require the Defendant to make an application to challenge the court’s jurisdiction in order to apply for the extension of time to be set aside. The Claimants appealed, successfully. The Court of Appeal held that because the Defendant had failed to contest jurisdiction in the Acknowledgement of Service it was to be treated as having accepted that the court could exercise its jurisdiction to try the claim, even though the Claim Form had been served late. The Defendant was to be treated as having abandoned its earlier application to set aside the order for an extension, and consequently the Judge had been wrong to set aside the extension.

The argument in this case is rather different. It is not said that the Court has no jurisdiction to try the case because the Claim Form has not been served in time, or because there is some other problem with the constitution of the claim. The effect of the Defendant’s argument is that the Court’s power under section 18 of the 1996 Act is not engaged. To my mind, that is a matter which goes to the merits, rather than to the jurisdiction of the court to try the case or to exercise its jurisdiction to try the case.

Section 18 of the 1996 Act provides as follows:

Those powers are—

The Defendant’s case is that there has been no failure of the procedure for the appointment of the arbitral tribunal, and that consequently the Court does not have "jurisdiction” under section 18 to make the directions sought. That is the point which the Defendant submits goes to the court’s jurisdiction, or the exercise of that jurisdiction, for the purposes of Part 11(1).

If a Claim Form is not validly served, then unless the court makes an order which cures the defect, the claim cannot proceed. The court cannot try the case because there is no valid claim before it. That goes to the “jurisdiction” of the court. The claim form in this case was validly served. There is no defect in the process. It may be that the Court does not have the power to make the order which the Claimant seeks because a pre-condition for the exercise of that power has not been met. But I agree with Mr Page that that is a matter which goes to the merits of the claim rather than to the jurisdiction of the court. Consequently the Defendant’s application as framed must fail.

In Hoddinott the Court of Appeal considered the effect of a failure to comply with Part 11, and it is instructive to look at the consequences of the Defendant’s approach to the breadth of the rule from that perspective. If a Defendant intended to argue in its Defence that the court did not have a certain statutory power, or that it should not exercise that statutory power, it would be incumbent upon it to contest the court’s jurisdiction when acknowledging service. If that were not done, that Defendant would be taken to have accepted that the Court had that power and should exercise it. That would be a surprising outcome.

Whilst the Claimant succeeds on the procedural issue, it wanted to move the matter along. The parties had argued the matters which lay at the heart of the issue on the claim, and it was plainly better for the Court to determine those matters rather than adjourn them to another hearing at some point in the future. Consequently I turn to the question of whether the Court can make directions pursuant to section 18 on the facts of this case. There are a few references to the documents in the hearing bundle, with page numbers given in square brackets.

The starting point is a consideration of the relevant provisions of the 1996 Act. Section 14 is headed “Commencement of arbitral proceedings”. It provides as follows:

If there is no such agreement the following provisions apply.

There is no agreement in this case as to when arbitral proceedings are to be regarded as commenced. Nor does the Agreement name an arbitrator or provide for their appointment by a third person. Consequently the default provisions set out in section 14(4) apply. Nor is there an agreement as to the number of arbitrators, so by section 15(3) of the 1996 Act … the tribunal is to consist of a sole arbitrator.

Section 16 deals with the procedure for the appointment of arbitrators. It provides as follows:

There is no agreement as to the procedure for appointing an arbitrator, so the default provision at section 16(3) apply. The Claimant no doubt had this provision in mind when it sought to serve its request in writing to appoint an arbitrator. This was done by sending an email to the Defendant on 30 November 2021, followed by an airmail letter.

The Defendant’s case is that the request was not a valid request to appoint an arbitrator within the meaning of section 16(3), and that as a result the process for the appointment of an arbitrator provided for by the 1996 Act has not been begun. If the process has not been begun, it cannot be said that there has been a failure of that process. In the absence of such a failure, the courts powers under section 18 do not arise, or should not be exercised. The Defendant’s challenge to the validity of the request to arbitrate is put on two bases. Firstly that the content of the request is not sufficiently clear to comply with the requirements of the 1996 Act; and secondly that it has not been validly served.

The Claimant’s case is that:

The request in this case is a substantial document [46-51]. It is headed up in the following way:

The request then refers to clause 11 of the Agreement, and sets out the Claimant’s case as to the nature and circumstances of the dispute. At paragraphs 17-18 it deals with “Procedural Matters” in the following way:

Dealing firstly with the question of whether the content of the notice is sufficient. Mr Berragan referred me to paragraph 5-25 of Russell on Arbitration 24^th ed..

That summary accords with the judgment of Moore-Bick J (as he then was) in Atlanska Plovidba v. Consignaciones Asturianas SA (The “Lapad”) [2004] 2 Lloyd's Rep. 109 at 113:

Mr Berragan points to a number of matters which he submits take this notice out of the realm of a notice which complies with section 16. He refers to the covering letter sent with the Request for Arbitration [79], which includes the following:

Mr Berragan submits that the reference to filing the documents with the LCIA to commence proceedings is inconsistent with a request to appoint an arbitrator. Further, the time limit of 21 days for a response is not the time limit provided for by section 16(3) – which is 28 days. He submits that objectively, this is not a request to join in the appointment of an arbitrator. He also notes that in paragraph 18(d) of the Request for Arbitration, the Claimant indicates that in the absence of response it will proceed to appoint unilaterally, when it had no right to proceed in that way.

This letter has to be read with the Request for Arbitration it enclosed. It may be that documents had been sent to the LCIA and the Claimant got the time limit wrong (and went too far in saying that it would proceed unilaterally if there was no response within that time limit), but when the Request for Arbitration is considered, there can be no sensible doubt that the Claimant is asking the Defendant to agree to the appointment of an arbitrator. The prominent title of the document, and the section dealing with “Procedural Matters” identifying three named candidates for appointment are particularly compelling. I regard this request as sufficient to comply with the requirements of the 1996 Act.

Secondly, the service of the request. Mr Berragan refers me to Russell at paragraph 5-30:

Clause 9 of the Agreement provides as follows:

On a literal reading of the words, this clause requires a notice to be served personally (the word used is “must”), and then (after a semi colon) requires service of the same notice (the word used is “and”) by airmail or some other similar means. The language used in a written contract between two commercial parties would normally carry significant weight, but I was puzzled as to the purpose of a requirement to serve the same document twice in an agreement such as this; particularly when the first requirement was for personal service, rather than some other form of “service” which might not involve the recipient actually receiving the document. How was this consistent with “commercial common sense”? Had something gone wrong with the language? Did the parties to the agreement use the term “served personally” to mean something other than the term of art employed by lawyers when they speak of personal service? Did, for example, the words after the semi colon somehow provide for how a notice was to be “served personally”.

I raised those matters with Mr Berragan at the outset of his submissions. I was reminded that the parties had not provided the Court with the relevant authorities because this point was not being taken. Mr Berragan submitted that the parties may well have seen the benefit of a second copy of a notice being provided by air mail or some equivalent means, particularly when they carried on business in different countries. The court was not to re-write the parties contract for them. The mistake had to be an obvious one, and there needed to be an obvious “correction”. The Arbitration Act emphasised party autonomy in these matters, and this was the parties’ agreement. Whilst I raised the issue, I determine the matter before me on the basis of the points which were argued before me.

I return to the language below, but the first argument to consider is whether clause 9 applies at all. Mr Page submitted that following the Defendant’s breach of the Agreement, the Claimant terminated it. Consequently, the terms of the Agreement “fall away” and the requirements of clause 9 with it. Mr Page observed that clause 11 does not expressly incorporate clause 9, and that whilst clause 6 includes some saving provisions for the parties existing rights in the event that the agreement is terminated, there is no saving provision to preserve the effect of clause 9. I pause to observe that in those circumstances, it appears that the requirements for service of the request to arbitrate would be those provided for by section 76 of the 1996 Act; in other words by any effective means. In this case we know the request was received.

This line of argument was not foreshadowed in Mr Page’s skeleton argument, which focussed on the construction of clause 9. Indeed it appears that the Claimant had been proceeding on the basis that it had to serve the request in accordance with clause 9; that seems to be the effect of the evidence the Claimant’s solicitor gave at paragraph 9 of her witness statement in support of the application to serve out of the jurisdiction [153]. Nor was it argued before me that clause 9 did not apply to a notice to be served under the arbitration agreement (clause 11) during the lifetime of the Agreement. No doubt that was because Clause 9 expressly applies to “any notice to be given for the purposes of this Contract”, which is apt to cover any notice to be served pursuant to clause 11. Mr Page’s submission relied upon the effect of termination.

In reply Mr Barragan submitted that whilst the Agreement may have fallen away, the arbitration agreement survives; see section 7 of the 1996 Act. He submits that this would not simply be clause 11, but would include any other parts of the Agreement which were incorporated into the arbitration agreement, including the notice provisions in clause 9.

Despite the fact that the point arose rather late, Mr Page’s argument is an attractive one. That said, I am not persuaded that it is correct. If clause 9 was to apply to notices served pursuant to the arbitration agreement during the lifetime of the Agreement, then it can properly be said to have formed part of the arbitration agreement (or to have been incorporated into it as Mr Berragan submits). The arbitration agreement survived termination, and the better analysis is that (insofar as it applies to notices for the purposes of the arbitration) clause 9 survived with it.

Mr Page’s second line of argument is to construe the requirements of clause 9 “purposively” (my word rather than his). In other words, the purpose of the clause is to ensure that the recipient of the notice actually receives it, and the mechanics of how that is done cease to be relevant once that is achieved. Here that might be achieved by reading the clause as a directory provision rather than a mandatory one. Mr Page refers to the decision in Yates Building Company v Pulleyn and Co [1976] 1 EGLR 157, where the Court of Appeal considered a clause which required a written notice … to be sent by registered post or recorded delivery. The case is to be distinguished from this one. The clause in Yates was an option clause, which (in effect) was an offer. Lord Denning MR says this towards the bottom of 157:

The language of clause 9 is clear. It provides that the notice … must be in English, in writing and must be served personally; The language is mandatory and not directory. Whilst the effect of that construction is “double service”, the result is not an absurd one. It may be that Mr Page would be on stronger ground arguing that the words after the semi colon were directory, given the absence of the word “must” in that part of the clause. But that would not assist him on the present facts. Clause 9 requires that the notice be served personally. There is no evidence that personal service of the request was attempted.

Mr Page’s third line of argument is to consider the meaning of the opening words of clause 9 – “Unless otherwise specified …”. Given that there is no provision in the agreement which specifies otherwise, he submits that this can be read as a reference to the Court specifying the means of service. He submits that the terms of clause 11 indicate that the parties were willing to accept the supervisory powers of the English court over their dispute. The argument is that because the order of 25 October 2022 as to service gave the Claimant permission to serve “any other documents in these proceedings” by alternative means, that is a means of service which is “otherwise specified” for the purposes of clause 9.

There are a number of problems with that argument. Firstly, my reading of the opening words of clause 9 is that they refer to some means of service being “otherwise specified” within the agreement. The fact that the agreement does not actually make some other provision does not take away from the clarity of the language. Secondly, it would need something more to give a third party (here the Court) a power to determine how contractual machinery was to work. Thirdly, the application for alternative service and the order of 25 October 2022 were expressed to be in relation to the Claim Form and any other document in these proceedings issued under the above claim number. The request to arbitrate is not such a document. Fourthly, the order for alternative service post dated the service of the request for arbitration by nearly a year.

Consequently I conclude that the request to arbitrate has not been served in accordance with section 14(4) of the 1996 Act, and that the process for the appointment of an arbitrator has not been validly begun. The Defendant’s case is that a process cannot have failed if it has not been begun. I can see no way around the logic of that submission.

Finally, I come to the question of whether the court has power to make an order under section 18 of the 1996 Act in circumstances where there has been no failure of the procedure for the appointment of an arbitrator (here) because of the failure to serve a valid request to arbitrate. In the Atlanska case (supra) Moore-Bick says this at [12]:

Section 18 is not expressly subject to the requirements of sections 14 and 16, but this Part of the 1996 Act provides for a series of default procedures which interlock and are to be read together. If there has been no failure in the appointment procedure an application for directions under section 18 will fail; see for example Silver Dry Bulk v Homer Hulbert Maritime [2017] EWHC 44 (Comm) per Males J at [32]. In that case, there was no failure of the process because the arbitration agreement provided “automatically” for the consequences of the “failure” which had occurred, and so there was no failure of the process, in the same way that a default caught by the provisions of section 17 is not to be seen as a failure for the purposes of section 18; see section 18(1).

Even if Mr Page is right in his submission that a party can make a “freestanding” section 18 application (without there having been a failure of the process of appointment), and the court had power to make orders, the fact that the contractual machinery had not been properly invoked would count against exercising the discretion to make such an order. If there had been difficulties in effecting personal service, and there was evidence of attempts to comply with the requirements of clause 9 which had been thwarted by the Defendant’s evasion of service, then an application could be made for an order pursuant to section 77 of the 1996 Act. Here, whilst there is the evidence which justified the order of 25 October 2022, it is not said that there has been any attempt to serve the request personally. It may be unattractive for the Defendant to take the point, and the Claimant may be frustrated by its approach, but the Claimant is obliged to comply with the requirements of the Agreement.

The Defendant’s application fails for the reasons I give at paragraphs 7-14 above, but the effect of the decisions I have made on the substantive issue is that the claim fails (or will fail). Having given a preliminary view on costs in the draft judgment circulated in May, the parties have agreed the terms of the order I should make on the handing down this judgment. They are that: