London Commercial Court dismisses challenge to €1 million LCIA arbitration award

By Dean Ehrlich, 1 December 2022

On Friday 25 November 2022, the Commercial Court in London dismissed proceedings to challenge a €1 million LCIA arbitration award for the repayment of debts allegedly due by an individual under a private aircraft services agreement.

The challenge was brought in terms of sections 67 and 68 of the Arbitration Act, 1996.

In the underlying dispute, the individual, Mr Buheiry, and an Austrian company VistaJet Luftfarhtunternehmen GmbH (VJLU) concluded a private aircraft services agreement in April 2014. Not long after the agreement was concluded, however, complaints arose concerning the quality of VJLU’s services.

Those complaints were seemingly resolved as, following negotiations, both Mr Buheiry and VJLU – together with VistaJet, the holding company of VJLU’s holding company – concluded a new agreement in August 2015.

The 2015 Agreement, however, never came into effect (as certain payment conditions were not fulfilled). But – unlike the 2014 Agreement – the 2015 Agreement contained an arbitration clause providing for the submission of disputes and claims to arbitration before the London Court of International Arbitration (LCIA) in terms of the LCIA rules applicable at the date of such submission.

Meanwhile, in July 2020, VJLU assigned its rights under the 2014 Agreement to VistaJet, allegedly due to VJLU's impending liquidation. Notice of this assignment was allegedly sent to Mr Buheiry later in July 2020.

In October 2020, VistaJet commenced arbitration proceedings against Mr Buheiry before the LCIA claiming payment of instalments allegedly due under the 2014 Agreement. However, in order to do so, it relied on the arbitration agreement contained in the 2015 Agreement, by applying the separability principle.

Almost immediately, however, Mr Buheiry, via his legal representative, took issue with the sufficiency of the process by which arbitration was commenced, complaining that:

"There is no contractual basis between […] [VistaJet] and [Mr Buheiry] which stipulates that notice of any form of dispute and communications arising between them may be given by electronic means. On the contrary, the [2014] Agreement… refers to notice to be given by fax or registered mail to be sent to the address specified on the first page of the [2014] Agreement. Email or other electronic means is not an agreed method of notification. Accordingly, my client is not served or otherwise notified or advised in terms of law by the contents of the email dated 28th October 2020 sent by […] Clyde & Co on behalf of [VistaJet] and referred to as Request in your letter of the same date. My client's rights are reserved in full."

Mr Buheiry’s argument was that the parties had agreed a notice provision in the 2014 Agreement – one which he sought to characterise as a strict "service" provision that did not allow service by electronic means. This provision, he alleged, must prevail over any other service provisions imported into the 2014 Agreement, such as those in the LCIA Rules.

VistaJet, on the other hand, contended that that the Request had been validly served on Mr Buheiry by e-mail in accordance with the LCIA Rules. The effectiveness of the service was later confirmed by the LCIA Registrar who, in due course, informed the parties and the tribunal that “[Vistajet] has provided documentary proof of actual delivery [of the Request] in accordance with Article 4 of the Rules.”

Following the tribunal’s appointment, Mr Buheiry requested that the tribunal make a preliminary award on jurisdiction and the validity of service of process, prior to any engagement with the substance of the dispute. However, after a procedural hearing held by Zoom, and the passage of a short period of time during which the tribunal reserved judgment, the tribunal denied Mr Buheiry's request for bifurcation.

In response, Mr Buheiry requested the tribunal to recuse itself on grounds of bias/procedural unfairness – however, this request was also refused. The tribunal then refused Mr Buheiry's second request for bifurcation.

As a result, Mr Buheiry refused to participate in the arbitration. The arbitration proceeded, with the tribunal circulating written questions for response by both parties. While VistaJet provided answers, Mr Buheiry did not – until June 2021, when Mr Buheiry suddenly raised two issues.

The first related to the validity of VJLU’s assignment of its rights under the 2014 Agreement to VistaJet. The second alleged a delay in commencement of proceedings.

In response, the tribunal gave directions relating to the two issues. The parties submitted evidence and submissions, and the tribunal invited further comments in reply. Only VistaJet submitted further comments in reply.

The tribunal eventually published its award on 9 September 2021.

Mr Buheiry then proceeded to challenge the award before the London Commercial Court. In doing so, Mr Buheiry sought to relitigate the two issues he raised before the tribunal: (1) that VJLU’s assignment of its rights under the 2014 Agreement to VistaJet was not effective, and (2) that VistaJet had given inappropriate notice in respect of the arbitration proceedings’ commencement.

The Court handled the notice issue first and, with reference to Article 4.3 of the LCIA Rules, it noted that it was common ground that the parties had not made any agreement or designation, concerning the provision of documents by e-mail.

However, with reference to Article 4.3’s provision for delivery using electronic means which the parties have “regularly used in [their] previous dealings," the Court accepted that there was evidence as to prior regular use of email in the dealings between the parties.

As Mr Buheiry had not raised any issues with the appropriateness of the particular email addresses VistaJet had used to notify him of the arbitration’s commencement, he was forced to concede that the LCIA Rules, standing alone, provided for service by e-mail.

Instead, Mr Buheiry, could only repeat his argument that the strict "service" provision in the 2014 Agreement must prevail over those in the LCIA Rules.

The Court, however, saw no conflict between the 2014 Agreement and the LCIA Rules at all. According to the Court, the so-called “service” provision in the 2014 Agreement was simply a “notices” provision – one that could only “sensibly be applied to the various provisions of the 2014 Agreement.”

And as the 2014 Agreement contained no arbitration clause, and was “not directed towards the arbitration process at all,” the Court held that the parties could not have had LCIA arbitration in mind when the 2014 Agreement was concluded and so there could be no conflict with the LCIA Rules.

Because the parties’ arbitration agreement was concluded after the 2014 Agreement, the Court treated it as separate and distinct from the 2014 Agreement. In that arbitration agreement, the parties “agreed to all of the rules of the LCIA at the date of the submission of a dispute to arbitration. The arbitration agreement, and the rules thereby incorporated, should therefore be regarded as a complete code concerning the arbitration, including its commencement and conduct.”

The Court therefore concluded that it was “clear that the arbitration was properly commenced, and the arbitrators properly appointed, in accordance with the LCIA Rules” and dismissed the challenge based on the notice given to commence the arbitration proceedings.

As for the assignment issue, the Court reiterated that “a challenge under s 67 must be a challenge to a tribunal's ‘substantive jurisdiction.’” And as there was clearly (a) a valid arbitration agreement between Mr Buheiry and VistaJet, (b) no issue with the tribunal’s constitution, and (c) no issue raised concerning the scope of the arbitration agreement, the Court concluded the challenge must necessarily fail.

In that regard, the Court observed that “Mr Buheiry had [had] a full opportunity to argue the assignment point, and [make] submissions directed towards the assignment issue” before the tribunal. The assignment issue could therefore not rise to the level of a "serious irregularity" – as defined in Section 68 of the Arbitration Act, 1996.

Perhaps, opined the Court, the assignment issue ought to have been raised as an error of law on the part of the tribunal – which would have rendered it susceptible to challenge under Section 69 of the Arbitration Act, 1996. Unfortunately, however, the Court noted that Mr Buheiry had failed to comply with the procedural requirements to bring a challenge under Section 69 of the Arbitration Act, 1996, so the Court was unable to entertain it.

However, for the sake of completeness, the Court explained that even if Mr Buheiry had brought a challenge under Section 69 of the Arbitration Act, 1996, it would have found that VJLU’s assignment of its rights under the 2014 Agreement to VistaJet was effective.

This was because even though “the corporate structure of the overall group, of which VJLU and VistaJet form part, [was] undoubtedly complex,” the relationship between the two companies was relatively simple. “In family terms,” explained the Court, “they do not share an immediate parent, but their grandparent is the same.”

Therefore, in the Court’s opinion, where the 2014 Agreement provided that “VistaJet may novate, assign, sub-contract and transfer this Agreement and all or any of its rights and obligations under it to (a) its holding company, (b) any subsidiary of its holding company, and (c) any company purchasing the business and undertaking of VistaJet,” (with reference to the meanings of "holding company" and "subsidiary" in S1159 of the Companies Act 2006), an assignment to a grandparent-holding company was well within the contemplation of the 2014 Agreement.

In the court proceedings:

  • Edwin Coe LLP represented Mr Buheiry
  • Clyde & Co LLP represented VistaJet

 

 

URL: https://taobserver.com/news/300/london-commercial-court-dismisses-challenge-to-1-million-lcia-arbitration-award

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