In Fiona Trust & Holding Corporation & 20 Ors v Yuri Privalov & 17 Ors – Lawtel 24.1.07 the question before the Court of Appeal was whether a claim by the respondent shipowners to rescind certain charterparties on grounds of bribery should be stayed for arbitration by virtue of the arbitration clause in the charters.
The shipowners claimed that the charters had been procured by bribery and contained terms highly favourable to the charterers. The shipowners claimed that the charterparties had been rescinded and that restitution of benefits should be made. The charterparties contained a "law and litigation" clause, which provided for any dispute under the charter to be decided in England and conferred on either party the right to elect to have any such dispute referred to arbitration in accordance with the rules of the LMAA. A further subclause referred to a dispute "arising out of" the charter.
The charterers appointed an arbitrator under the charters and the shipowners made an application under the Arbitration Act 1996 s.72 seeking to restrain the arbitration proceedings on the basis that they had rescinded both the charters and the arbitration agreements contained in them for bribery.
Section 72 of the Arbitration Act 1996 provides:
‘(1) A person alleged to be a party to arbitral proceedings but who takes no part in the proceedings may question—(a) whether there is a valid arbitration agreement … by proceedings in the court for a declaration or injunction or other appropriate relief.’
The Court of Appeal held that any jurisdiction or arbitration clause in an international commercial contract should be liberally construed. The words "arising out of" should cover every dispute except a dispute as to whether there was ever a contract at all. Although previously the words "arising under the contract" had sometimes been given a narrower meaning, that should no longer be so. The words "out of" and "under" should be widely construed. One of the reasons for a liberal interpretation of an arbitration clause was the presumption in favour of one-stop arbitration. The dispute as to whether the charters should be set aside or rescinded for alleged bribery did fall within the arbitration clause on its true interpretation.
It also held that the arbitration agreement was separable from the charterparty. An allegation of invalidity of a contract did not prevent the invalidity question being determined by an arbitration tribunal pursuant to the arbitration agreement. It was only if the arbitration agreement was itself directly impeached for some specific reason that the tribunal would be prevented from deciding the disputes that related to the main contract. The question was whether the assertion of invalidity went to the validity of the arbitration clause as opposed to the validity of the charterparties as a whole, of which the arbitration agreements were a part. It was not enough to say that the contract as a whole was impeachable. There had to be something more than that to impeach the arbitration clause. In the instant case, that extra element was not present. Section 7 of the Arbitration Act codified the principle that an allegation of invalidity of a contract did not prevent the invalidity question being determined by an arbitration tribunal pursuant to the separate arbitration agreement.
The judge had been wrong to hold that he would have restrained the arbitration proceedings under s.72, even if the arbitrator did have jurisdiction to decide the bribery issue, so that there could be a one-stop hearing of the issue. If there was a valid arbitration agreement proceedings could not be launched under s.72 at all. It was more consistent with the United Kingdom’s international obligations to consider the s 9 stay application first, rather than the s 72 application. It followed that in the instant case s 72 had no application.
The decision is obviously of general importance on the effect of standard arbitration clauses in charterparties.