On 17 October 2007, The House of Lords in Premium Nafta Products Limited & ors v Fili Shipping Company Limited & ors delivered an important ruling, strongly supportive of the arbitration process. In determining the appeal from the Court of Appeal's ruling in Fiona Trust & Holiding Corp & ors v Privalov & ors, the Lords endorsed the Court of Appeal's liberal approach to the construction of arbitration agreements in international commercial contracts. They also strongly supported the view that an arbitration agreement is "separable" – that apart from in a few limited circumstances, it can only be voided on grounds which relate directly to the arbitration agreement rather than to the contract as a whole.

The case concerned various charter contracts made between companies in the Russian Sovcomflot group. These contained an arbitration clause referring primarily to disputes "arising under" the contract. The Owners of the relevant vessels had purported to rescind the contracts on the basis that they were allegedly procured by bribery. They argued that the arbitration clause was not applicable to this dispute because:

  • the question of whether the contracts were procured by bribery was not a dispute "arising under" the contract; and
  • the arbitration clause had been rescinded and was therefore no longer in force.
  • The House of Lords dismissed the Owner's arguments on both grounds.


Lord Hoffman, delivering the leading judgment, held that, as a matter of construction, the question of whether the contracts were procured by bribery or not fell within the arbitration clause. He observed that in some previous authorities a distinction had been drawn between disputes "arising under" a contract (which had been interpreted narrowly to refer only to disputes regarding the rights and obligations created by the contract) and disputes "arising out of", "in relation to" or "in connection with" a contract (which had been interpreted to refer to a wider class of disputes). Lord Hoffman suggested that many draftsmen regard these phrases as mutually interchangeable and applauded the Court of Appeal's opinion that "the time has come to draw a line under the authorities to date and to make a fresh start". It was held that the courts must seek to give effect to the reasonable commercial expectations of the parties, the starting point being a strong presumption that the parties intend all their disputes to be resolved in the same forum


The House of Lords also held that the allegation that the contracts had been procured by bribery did not mean that the Owners could rescind the whole contract, including the arbitration clause. Lord Hoffman emphasised the principle of separability of the arbitration clause as enshrined in section 7 of the Arbitration Act 1996 as a basis for arguing that an arbitration agreement can be invalidated only on a ground which relates to the arbitration agreement directly.

This common sense approach to the construction of arbitration agreements will be welcomed by parties to arbitration agreements, as lengthy (and often costly) proceedings focussing closely on the meaning of particular phrases are not in the best interest of the parties. The presumption that parties intend all their disputes to be resolved in the same forum is also to be welcomed. However, a party who wishes to exclude disputes about the validity of a contract from the arbitration agreement will need to ensure that this is expressed clearly. (Premium Nafta Products Limited (20th Defendant) and others v Fili Shipping Company Limited (14th Claimant) and others, [2007] UKHL 40.)