1.1 ARBITRATION AGREEMENT
In Film Finance Inc v Royal Bank of Scotland – Lawtel 21.2.07 the Commercial Court considered the correct interpretation of an arbitration clause under a completion guarantee which provided for arbitration "in the event of a dispute relating to delivery hereunder..." but that any dispute other than one relating to delivery should be determined by the court.
The court was prepared to modify the guarantee, so as to interpret the arbitration clause as applying to some disputes arising between the parties to it. It referred to the well-established principle of interpretation that provisions might be read subject to necessary modifications, disregarding what was inapplicable or insensible. The court could not accept that the parties had intended to make an arbitration agreement that would fragment the resolution of their disputes to the extent suggested. It therefore held that the dispute between the parties was a dispute relating to delivery within the meaning of the arbitration agreement and the arbitrator had jurisdiction to determine it.
1.2 BREACH OF ARBITRATION AGREEMENT – STAY OF PROCEEDINGS – COSTS
In A v B & Ors – Lawtel 23.2.07 the applicants applied for costs against the respondent on an indemnity basis following successful applications to stay the proceedings against one of them and to set aside service on the others out of the jurisdiction. The parties had signed an arbitration agreement providing for the seat of the arbitration to be in Switzerland and for disputes to be governed by Swiss law. The respondent subsequently issued proceedings in England claiming a declaration that the arbitration agreement and all orders or awards made by the arbitrator were void and unenforceable.
The Commercial Court held that provided that it could be established by a successful application for a stay or an anti-suit injunction as a remedy for breach of an arbitration or jurisdiction clause that the breach had caused the innocent party reasonably to incur legal costs, those costs should normally be recoverable on an indemnity basis. The conduct of a party who deliberately ignored an arbitration or jurisdiction clause so as to derive from its own breach of contract an unjustifiable procedural advantage was sufficiently abnormal to warrant an indemnity costs order. In this case the conduct of the applicants was not such as to justify depriving them of indemnity costs orders.
In Elektrim SA v (1) Vivendi Universal SA (2) Vivendi Telecom International SA (3) Elektrim Telekomunikacja Sp Zoo (4) Carcom Warszawa Sp Zoo – Lawtel 7.2.07 the Commercial Court considered the meaning of the phrase "obtained by fraud" in s.68(2)(g)of the Arbitration Act 1996.
It held it had to refer to an award being obtained by the fraud of a party to the arbitration, or by the fraud of another to which a party to the arbitration was privy. It could not refer to the fraud of anybody involved in the arbitral proceedings irrespective of whether or not the fraud was committed with the knowledge of the relevant party to the arbitration.
The same strict construction had to be applied in relation to the disclosure of documents. If a party to the arbitration was ordered to produce a document and chose deliberately to conceal it with the intention of inducing the arbitrators and the other side into a belief that the document did not exist, then that had to be a fraud for the purposes of s.68(2)(g). However, where fraud was asserted, the accuser had to demonstrate his case to a high standard of proof and had to prove a causative link between the deliberate concealment of the document and the decision in the award in favour of the other party.
It also held that the obligations placed on the parties by s.40 of the Act did not constitute an implied term of the arbitration agreement.
1.4 SERIOUS IRREGULARITY
In Sumukan Ltd v Commonwealth Secretariat – Lawtel 20.2.07 the agreement in dispute contained a clause referring disputes to the Commonwealth Secretariat Arbitral Tribunal. The applicant began arbitration proceedings against the secretariat in the tribunal. The dispute involved an issue about ownership of a website created by the applicant. The reference was heard and determined by a tribunal of three, including its president. By its award the tribunal held that the website was owned by the secretariat. The applicant challenged the award under the Arbitration Act 1996 s.67 on the ground that the tribunal lacked substantive jurisdiction and under s.68 on the ground that there had been a serious irregularity, namely apparent bias.
The Commercial Court held that on the true construction of the internal statute of the secretariat and the rules of the tribunal the president did have jurisdiction to act as an arbitrator at the relevant time. Serious irregularity causing substantial injustice was not established merely by the tribunal's lack of institutional independence under the applicable statute of the secretariat. Taking all relevant matters into account, a fair-minded observer would not have reached the conclusion that there was a real possibility or real risk of the president being biased towards the secretariat notwithstanding procedural irregularities regarding the appointment of the president of the tribunal. It followed that there was no lack of jurisdiction or real possibility of bias. By participating in the arbitration without raising an objection to the fairness of the procedure on grounds based on the structure of the applicable statute, the applicant forfeited the right to raise such an objection later, but it did not also forfeit the right to make a later complaint based on matters of a different kind beyond its previous knowledge or belief merely on the basis that it would have discovered the latter by pursuing the former.
In Intermet FZCO and others v Ansol Ltd and others – Butterworths Law Direct 20.2.07 the claimants had loaned the first defendant a total of $US113,649,358.90, primarily in connection with the purchase by the first defendant of bauxite. There was no single loan document, but a number of contracts. Some repayments were made, but the first defendant defaulted owing more than $US50m. In order to postpone repayment, the first defendant offered security by way of transferring to the claimants, or their nominee, the sole share in a company called G Ltd, but this security was found to be worthless. The claimants obtained a signed judgment in default against three of the defendants, including the Gibraltarian G Ltd, the fifth defendant and the 10th Defendant. Pursuant to the arbitration clause in one of the contracts (the general agreement), the first claimant and its nominee began arbitration proceedings in Zurich in January 2006 against the first defendant, seeking damages, or alternatively the balance of the debt. In June 2006, the claimants began the instant proceedings in the Commercial Court in London, seeking tortious damages on the grounds of conspiracy, deceit and/or inducement of breach of contract, the balance of the loan monies, damages for breach of trust/dishonest breach thereof, and rectification of the agreement so as to transfer the shares in the Gibraltarian G Ltd to the claimants.
The defendants challenged the arbitrators’ jurisdiction. The tribunal dismissed the challenge in September 2006. Later the same month, the defendants applied to stay the arbitration, which was also rejected by the tribunal by a decision of 16 October. On 13 November, the first defendants applied for an anti-suit injunction in respect of the arbitration. Undertakings were given by the claimants not to pursue allegations of fraud in the arbitration agreement.
The defendants contended that the first claimant and its nominee had, in effect, commenced two sets of concurrent proceedings against the first defendant, which had a significant degree of overlap; they were, in effect, seeking ‘two bites at the cherry’.
The Commercial Court dismissed the application, holding, on the facts, that it had been made too late. The defendants had only made the application after the jurisdictional challenge had failed. They had had sufficient time to familiarise themselves with the arbitration proceedings. Moreover, given the undertakings of the claimants not to pursue claims based on fraud in the arbitration, there was no reason why they should be prevented from exercising their undoubted contractual rights to pursue their contractual claims in the arbitration agreement. The Commercial Court action would determine the fraud issues whilst the arbitration action would determine the contractual issues. There was no risk of inconsistent findings since, in the event of any overlap, issue estoppel would prevent the claimants from re-litigating issues in the Commercial Court that had already been decided in the arbitration.