The House of Lords decision in Fiona Trust

Yesterday the House of Lords upheld the Court of Appeals decision in Premium Nafta Products Limited and others v. Fili Shipping Company Limited and others (Fiona Trust).1 The Lords endorsed the Court of Appeals view that the time has come to draw a line under the authorities to date and make a fresh start in relation to the interpretation of arbitration clauses. They also confirmed the separability of an arbitration agreement from the broader agreement within which it is usually found, in accordance with Section 7 of the Arbitration Act 1996. The fresh start is to be that:

the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrators jurisdiction.

Facts

The case concerns the scope and effect of arbitration clauses in charterparties entered into by companies in the Sovcomflot group of companies as owners. They alleged that the charters were procured by bribery and purported to rescind the charters on this ground. The question arose as to whether it was for the Courts to decide if the owners were entitled to do so or if this question should be determined by arbitration. The owners commenced court proceedings for a declaration that the charters had been validly rescinded and the charterers applied for a stay under section 9 of the Arbitration Act 1996. Morison J originally refused a stay but the Court of Appeal (Tuckey, Arden and Longmore LJJ) reversed the first instance decision.

Decision

Lord Hoffmann, giving the leading Opinion, observed that the case raised two issues: first, the proper approach to the construction of arbitration agreements and, secondly, whether an allegation of bribery entitling a party to rescind a contract necessarily impugned an arbitration agreement set out within that contract.

The proper approach to construction

As to the first question, Lord Hoffmann was in no doubt as to the purpose of the arbitration agreement. That purpose is to refer all related disputes to a tribunal which the parties have chosen and not, unless clear wording showed otherwise, to refer some types of disputes to one tribunal and others to another. Lord Hope suggested that ordinary businessmen are unlikely to trouble themselves too much about [an arbitration agreements] precise language and endorsed Lord Hoffmanns Opinion, stating that [t]he proposition that any jurisdiction or arbitration clause in an international commercial contract should be liberally construed promotes legal certainty and that this approach is now firmly embedded as part of the law of international commerce.

Separability

Turning to the second issue, Lord Hoffmann once again endorsed the one-stop shop principle. Absent a direct attack on the arbitration agreement, for example if the respondents plea was that it had not entered into the arbitration agreement because its signature had been forged, or that entry into the arbitration agreement itself had been procured by bribery, whether or not the arbitration

1 [2007] UKHL 40

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agreement can be rescinded is a matter to be considered by the tribunal. As Lord Hope said, [t]he doctrine of separability requires direct impeachment of the arbitration agreement before it can be set aside.

ECHR

Lord Hoffmann also rejected the owners plea that the approach to construction and separability adopted by the Court of Appeal infringed their right of access to a court for the resolution of their civil disputes, contrary to Article 6 of the European Convention on Human Rights, confirming the Court of Appeals decision in Stretford v The Football Association2 earlier this year. Arbitration is based upon agreement and the parties can by agreement waive the right to have recourse to a court. Lord Hoffmann said that the ECHR was not intended to destroy arbitration.

A final thought

Lord Hoffmann acknowledged that his thoughts might constitute a great disappointment to the judges who explained so carefully the effects of the various linguistic nuances or fussy distinctions as Lord Hope, perhaps less kindly, labelled them. They will, however, hopefully lead to an end to disputes as to whether or not a particular issue arises out of, under, in relation to or in connection with a main contract. The decision thereby confirms that the Courts should consider arbitration to be the appropriate forum for a broader range of disputes than the purely contractual. Accordingly, if parties wish to carve out certain types of dispute from an arbitration agreement, they will need to make this very clear when drafting their arbitration agreement. Of course, it remains to be seen whether the non-interventionist principles articulated by the House of Lords will find favour with the lower courts when considering whether they should interfere in other issues arising out of contracts which incorporate arbitration agreements.

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