Notices of arbitration: getting off on the right foot

Introduction

More than simply a procedural step, the notice of arbitration serves a vital due process function: to apprise the respondent that arbitral proceedings have been initiated, thus giving it the opportunity to participate and to defend itself. Given its importance, a major deficiency in the notice could later spur challenges that might derail the arbitral proceeding or even the enforcement of a resulting award.

What should be done to ensure that the arbitration gets off on the right foot? In this article, we highlight points for drafting and delivering notices of arbitration that pass muster.

Where to find applicable requirements

When a claimant decides to arbitrate, it must usually communicate a written notice of arbitration (also known as a ‘demand’ or ‘request for arbitration’ under certain institutional rules). To minimize the chances of the respondent alleging a deficiency in the notice, a claimant should ensure it has complied with all relevant requirements, of which there are at least three potential sources:

• The arbitration agreement: Because arbitration is a contractual dispute resolution mechanism, the parties may specify in their arbitration agreement how any proceedings should be commenced.
• Institutional rules: should the parties have chosen in the arbitration agreement itself any applicable institutional rules, the chosen rules in turn prescribe requirements for the contents and delivery of the notice.
• Applicable procedural law: this is usually that of the seat of arbitration, which oftentimes mandates requirements for delivery of notices of arbitration and, somewhat less commonly, their contents.

Claimants initiating arbitration usually have their bases covered if they have checked off all of these items.

Requirements frequently found in institutional rules

Most arbitration agreements specify a particular institution’s arbitration rules which, in turn, provide detailed requirements for the notice of arbitration. A number of common requirements exist, for example:

• Method of Delivery: Many institutional rules dictate where, and by what method, claimants should deliver a notice of arbitration. Such rules are generally aimed at ensuring that the respondent receives proper notification and is given a fair chance to respond. In an appropriate case, the claimant may be well advised to use, in addition to the delivery method prescribed by the rules, another delivery method that shows proof of actual receipt by the respondent. This proof will rebut any later claim by the respondent that he has missed the notice.
• Specifying the Seat and Number of Arbitrators: Many institutional rules require that a notice of arbitration contain any agreed details as to arbitral procedure, such as the arbitral seat and number of arbitrators. When such details have not yet been agreed, a party is sometimes required to put forward its proposal. Many arbitral rules also require that a party provide details of its nominated arbitrator in its notice. Requiring the claimant to specify or propose these types of details can reduce delays in ascertaining the seat and panel composition, thereby ensuring that the arbitral process commences in a prompt and efficient manner.
• Description of the Claim and Factual Background: Institutional rules usually require that any party filing a notice of arbitration provide some description of its claims and relief sought. This may include an estimated monetary amount. It is also customary to require factual details in relation to the transaction, contract or legal instrument that is the subject of the dispute. Of course, the claimant’s disclosure of information about its claims enables the respondent to understand them and to decide how to respond. In addition, specifying the claim amount may allow the administering institution, if any, to determine the proper filing fee, whether any specialized procedures should be applied, and the number of arbitrators to be appointed (if not already agreed).
• Commencement Date: The rules usually specify the event on which the arbitration is deemed to have commenced. For instance, some arbitral rules, including the LCIA rules, provide that an arbitration does not commence until after receipt of not only the notice of arbitration, but also the mandatory filing fee. Establishing the commencement date of the arbitration can be important for calculating subsequent deadlines. In certain jurisdictions, it is also important for ascertaining the date on which an applicable statutory or contractual time bar has been interrupted.

Possible consequences of deficient notices of arbitration

If a claimant has not adhered to all requirements, it may be left open to arguments that there was some deficiency with the notice of arbitration, the consequences of which can be costly. Some of the most severe consequences are considered below.

• Jurisdictional challenges: The law of the arbitral seat regulates notices of arbitration, and it may provide a basis for a jurisdictional challenge to an arbitral award in the case of a deficient notice. For instance, consider a case in which a claimant issues one composite notice of arbitration in a multi-contract dispute, i.e., a single notice asserting multiple contract claims pursuant to separate arbitration agreements. Can a respondent challenge the resulting award by alleging that the composite notice was deficient?
  
  The recent English case of LLC Agronefteprodukt v Ameropa AG [2021] EWHC 3437 dealt with such a jurisdictional challenge. The English court looked at the substance of the relevant notice of arbitration, as opposed to its singular form and determined that, when read as a whole, the language used in the notice sufficiently apprised the respondent that separate arbitrations were commenced. The flexible, less formalistic approach taken by the English court saved the award in that case, but this approach may not be mirrored in all jurisdictions.
• Limitation periods lapsing: As mentioned, the commencement of arbitration may interrupt a statutory or contractual time bar in various jurisdictions. Conversely, a failure by the claimant to follow all requisite procedural steps to formally commence arbitral proceedings may result in the loss of its claim once a statutory or contractual time bar has lapsed.
• Inability to recognise or enforce an arbitral award abroad: In this area, international law has a key role in regulating notices of arbitration. The New York Convention and Inter-American Convention both provide that recognition and enforcement of a foreign award may be refused when a party was not given proper notice of the arbitration.
  
  The U.S. case of CEEG (Shanghai) Solar Science & Technology Co., Ltd v. Lumos, LLC, 829 F.3d 1201 (2d Cir. 2016) exemplifies how improper notice might undermine international enforcement of an award. In that case, a Chinese company had an English-language contract with a U.S. company, and all of their pre-arbitration interactions had been in English. Yet the Chinese company delivered a notice of arbitration written entirely in Chinese, which the U.S. company had to have translated to understand. By the time the translation was completed, the U.S. company had missed the opportunity to participate in selecting arbitrators. The U.S. courts ultimately refused to enforce the foreign award based on the New York Convention’s improper-notice exception.

   

Conclusion

In all cases, parties are advised to check the arbitration agreement, the applicable arbitration rules, and the law of the seat to make sure their notice of arbitration is compliant in all respects. As always, an ounce of prevention is worth a pound of cure.

For a summary of the mandatory formalities for notices of arbitration under the key institutional rules, please see our table.

With thanks to Jake Burke.