Too late to change your mind?

A recent High Court case in England has highlighted the importance of ensuring that the correct forum is chosen for a dispute where time limits apply.

In Expofrut SA v Melville Services Inc [2015] EWHC 1950 (Comm), Mr Justice Burton was asked to decide whether a claim which had been litigated in Belgium since February 2010 could proceed as an arbitration in 2014/2015 after the court had decided that arbitration was the proper forum.

Expofrut: no injustice

The difficulty in Expofrut was that, in the Belgian litigation, while the defendant had raised the issue of that court’s jurisdiction to hear the dispute, they did not do so until after the one year period in the Hague-Visby Rules for bringing an arbitration in such a dispute, if that had been the appropriate forum, had expired. As it turns out, the court case trundled on for another two years or so, before the Belgian court decided that arbitration was indeed the appropriate forum. The issue before Mr Justice Burton was therefore whether the claimant could now bring their arbitration even though the one year time limit for doing so had passed.

The claimant relied on s 12 of the Arbitration Act 1996, which provides that, where an arbitration agreement provides that a claim shall be time barred unless the claimant takes some step to commence the arbitration within a time period fixed by the agreement, the court may extend the time for taking that step but only if satisfied that the circumstances were outside the reasonable contemplation of the parties when they agreed the provision in question and that it would be just to extend the time, or that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question.

In Expofrut, Mr Justice Burton considered evidence taken from the Belgian lawyers involved in the litigation, and concluded that there had been no conduct on the part of the defendant which made it “unjust to hold the other party to” the strict time limit for bringing the arbitration. In particular, he was satisfied that the defendant had not been required by any rules of Belgian court procedure to bring the jurisdiction argument any sooner, and further that, even once it had been raised in 2012 (albeit still after the one year period), the claimant’s solicitors still did not seek at that point to bring a protective arbitration – he concluded that they had effectively periled their case on their “firm view” and their “deliberate decision” to try their luck with the Belgian court, and that they had held to that position until the court found against them on that point.

In the result, the claimant was prevented from bringing its arbitration because the English court refused to grant the s 12 application to extend the one year deadline.

The Scottish perspective

The Scottish provisions on varying time limits can be found at rules 43 and 44 of the Arbitration (Scotland) Act 2010. However, a couple of important points need to be highlighted.

First, rule 43, if it applies, allows the court to vary any time limit relating to the arbitration, which is imposed either in the arbitration agreement or by virtue of any other agreement between the parties. The application can be made by the arbitrator or by any party. However, this is not directly equivalent to s 12. The English provision relates to time limits regarding the commencement of the arbitration, and therefore deals with the question of whether the arbitration can be validly commenced. It might therefore be thought that the Scottish provisions fall short of equivalency of protection.

It is submitted, however, that the combined effect of s 4 of the 2010 Act (defining an “arbitration agreement” for the purposes of the 2010 Act as including “any agreement which provides for arbitration in accordance with arbitration provisions contained in a separate document”), the mandatory rule 19 (providing that an arbitrator has power to rule on whether there is a valid arbitration agreement and whether the tribunal is properly constituted), and rule 43 if it applies, is sufficient. In other words, where a separate document provides for arbitration only within a specified time limit (such as, in the case of Expofrut, the separate Hague-Visby Rules in relation to carriage of goods at sea), that separate document would be part of an “arbitration agreement” for the purposes of the 2010 Act, and further, as the arbitrator has power to decide his own jurisdiction, that would include the power to decide whether the time bar provisions in that “arbitration agreement” apply.

Secondly, rule 43 (which is the rule providing that the court may vary a time limit) is one of the discretionary rules, meaning that parties might opt to disapply it when entering into their arbitration agreement. Parties, when contracting, might therefore choose not to avail themselves of the equivalent “protection” to that offered in England.

Thirdly, if rule 43 applies, rule 44 then provides that, in such an application to the court, the court may vary the time limit only if satisfied that there is no arbitral process available for varying the time limit and that “someone would suffer a substantial injustice if no variation was made”. The court’s decision on the matter of whether to vary the time limit, and if so by how much, is final and therefore not subject to appeal.

“Substantial injustice”

There appears to be, as yet, no reported authority on how the Scottish court would consider an application brought under rule 43. The matter will no doubt turn on the question of what is “substantial injustice” within the meaning of rule 44. Professor Fraser Davidson considers this issue at para 14.09 of the second edition of his Arbitration textbook, and suggests that the court should be guided by Mr Justice Colman’s view in AOOT Kalmneft v Glencore International AG [2002] 1 All ER 76 that “the following considerations... are likely to be material”:

• the length of the delay;
• whether the party, in allowing the time limit to expire, was acting reasonably in all the circumstances;
• whether the other party, or for that matter the arbitrator, contributed to the delay;
• whether the other party would suffer irremediable prejudice if the arbitration were allowed to proceed;
• whether the arbitration has proceeded during the period of delay, and if so what impact (on the arbitration or the costs incurred to date) the decision on the application might have;
• the strength of the application itself;
• whether, in the broadest sense, it would be unfair to deny the party the opportunity of having the application determined.

In Expofrut itself (remembering that the s 12 test is merely that it would be “unjust”, rather than substantially so in terms of rule 43), Mr Justice Burton referred to earlier English authorities to the effect that “it is not open to the court to extend time now because the court concludes in general terms that it would be just to do so… such extensions nowadays will probably be very much the exception rather than the rule” (The Catherine Helen, 1998); and that mere silence by the other party as to the question of jurisdiction is not enough, as there must be conduct by the other party which is “in some way causative” of the failure to bring the arbitration in time.

It is submitted that, as the provisions in question are broadly equivalent with the English legislation, the outcome of such an application in Scotland may well be the same as in Expofrut. The original mischief against which s 12 and its predecessors was aimed was the furtive imposition, in small print, of unreasonably short time limits for bringing claims, and that mischief is still encountered today in Scottish contracts as much as English ones. However, the purpose of s 12 has always been to limit the circumstances in which such a time limit can be varied, remembering that an arbitration agreement is a consensual contractual document between the parties, so they must be held to have given consideration to the time limits which they themselves have set.

Choose wisely

In Expofrut, the claimant suffered twice – it lost the Belgian action because the court ultimately concluded it had no jurisdiction, and it lost the English arbitration because the court would not allow extension of the time period for raising it. However, both of these outcomes could have been avoided (hence, perhaps, the court’s conclusion that refusing to extend the deadline was not “unjust”).

The case therefore serves as a timely reminder to Scottish solicitors to ensure, when advising clients in relation to a dispute where there may be an arbitration backdrop, that the correct forum is chosen at the outset.