EWHC 288 (Comm)
Under s14 (4) of the 1996 Arbitration Act, parties are free to agree the method of commencing arbitration but in the absence of agreement, where the arbitrator or arbitrators are to be appointed by the parties, arbitration is commenced when:
" one party serves on the other notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter …".
Here, solicitors for B&M wrote to VOC stating that:
"...there remains an outstanding sum of [$162k] due to our clients...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."
As VOC did not pay or agree to appoint a sole arbitrator, the solicitors sent a second letter noting that:
" 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 ...."
The arbitration tribunal ruled that the first letter was a demand for payment and only in default of that demand were the solicitors instructed to commence arbitration proceedings. This meant that it was not a valid notice and, more seriously, that the claim was time-barred. However, on appeal to the Commercial Court, HHJ Mackie took a different view. He said that s14 should be interpreted in a "broad and flexible way". What was important was not whether a notice contained a particular form of words but whether it made it clear that the arbitration agreement was being invoked and that a party was required to take steps accordingly. Here the first letter actually made it clear that it was invoking the arbitration agreement. For example, it required VOC to agree to appoint an arbitrator. The Judge did not think that the second letter changed this, as the commencement of arbitration proceedings was to be distinguished from taking steps to constitute the tribunal.