U.K. - Appointment of Arbitrators

July 2004

In the recent case of Minermet v Luckyfield* the English law on the appointment of arbitrators was considered. It highlighted the importance of ensuring that time limits and procedural rules set out in an arbitration agreement are strictly complied with, as well as the consequences of failing to do so.

Luckyfield had chartered their vessel to Minermet. In a fax sent on 3 July 2003 by Luckyfield's lawyers to Minermet's, Luckyfield claimed US$67,939.49 as outstanding demurrage. In the same fax, Luckyfield notified Minermet of the appointment of Luckyfield's arbitrator, Mr Oakley, pursuant to the terms of the arbitration clause in the charter party, which read: -

"19a. This charter shall be governed by and construed in accordance with English Law, and any dispute arising out of this charter party shall be referred to arbitration in London in accordance with the Arbitration Acts 1950 and 1979 or any statutory modification or re-enactment thereof for the time being in force. Unless the parties agree upon a sole arbitrator, one arbitrator shall be appointed by each party and the arbitrators so appointed shall appoint a third arbitrator, the decision of the three man Tribunal thus constituted or any two of them shall be final. On the receipt by one party of the nomination in writing of the other party's arbitrator, that party shall appoint their arbitrator within 14 days, failing which the decision of the single arbitrator appointed shall be final."

This notice expressly stated that Minermet now had 14 days to appoint their own arbitrator, failing which Mr Oakley would be appointed as sole arbitrator. It was not disputed that the notice was valid and conformed to the terms of clause 19a.

There followed some exchanges between the respective lawyers which discussed the merits of the claims. Minermet's lawyers advised Luckyfield that the claims were disputed and that they would appoint their arbitrator within the contractual time allowed.

No such appointment followed. On 28 July 2003 Luckyfield's lawyers sent a fax to Mr Oakley, copied to Minermet's lawyers, advising that as Minermet had failed to appoint their own arbitrator in the time allowed, Mr Oakley was to act as sole arbitrator.

An immediate response came from Minermet's lawyers objecting to the appointment of Mr Oakley as sole arbitrator and purporting to appoint Mr Scott as Minermet's arbitrator.

Luckyfield's arbitrator, Mr Oakley, then had to decide whether or not he had been properly appointed as sole arbitrator because Minermet's appointment of Mr Scott was made well after the 14 day time limit had expired. Mr Oakley ruled that he had been properly appointed as sole arbitrator. This ruling was subsequently challenged by Minermet in the High Court on the grounds that there had been a serious irregularity in the proceedings.

The application was made pursuant to section 79 of the Arbitration Act. This provision entitles a party to an arbitration agreement to which the Act applies to ask the Court to exercise its power to extend any time limit if it is satisfied that a substantial injustice would otherwise occur.

Minermet's issue was not with Mr Oakley per se, but rather with his appointed by Luckyfield and his acting as sole arbitrator in circumstances where the arbitration agreement envisaged both parties appointing their own arbitrator.

Minermet's application was dismissed by the Court because Minermet failed to establish that substantial injustice would result from Mr Oakley acting as a sole arbitrator. An award given by a sole arbitrator is as effective as one given by a two or three man tribunal. Furthermore, Minermet had failed to protect their own interests by not complying with the arbitration clause. If they had not wanted Mr Oakley to act as sole arbitrator they should have appointed their own arbitrator within the relevant time limit. Clause 19a was clear and so was the notice given by Luckyfield's lawyers on 3 July 2003 as to the consequences of failure to appoint within 14 days.

It is worth noting that though successful in defeating Minermet's application, Luckyfield (and other parties in similar circumstances) may create difficulties for themselves in other ways; The New York Convention on the Recognition and Enforcement of Arbitration Awards may be applied by some countries in such a way as to render unenforceable the resulting award from the sole arbitrator because the constitution of a single man tribunal had been objected to by one party. There may also be similar problems with enforcement of such an award from a single man tribunal in states that do not adhere to the New York Convention.

*Minermet SpA Milan v Luckyfield Shipping Corpn SA - QBD (Com Ct) (Cooke J) - 31 March 2004