In last years Review we welcomed the new liberal approach of the Court of Appeal and highlighted the comments of Longmore LJ in the Fiona Trust case. The Judge said that a new approach needed to be taken by the English courts when considering questions relating to the jurisdiction of arbitration clauses in international commercial contracts. Longmore LJ indicated that:

“It seems to us any jurisdiction or arbitration clause in an international commercial contract should be liberally construed.”

The case, albeit with a new name, Premium NAFTA Products Ltd & Ors v Fili Shipping Co. Ltd & Ors1 has now reached the House of Lords, who unanimously approved Longmore LJ’s comments. The key issue related to the lengthy dispute resolution clause, which referred first to disputes “arising under” the contract, and later to disputes which have “arisen out of” the contract. The Court of Appeal was asked to consider lengthy arguments about whether or not there was any difference in meaning between the two. Should “out of” have a wider meaning than “under”, and if so, given the wording of this particular clause, which of the two should prevail? After reviewing the authorities, the Court of Appeal said that the time had come to take a fresh approach. The English Courts should not spend time considering the fine distinctions and minutiae of the wording of arbitration clauses. If a businessman wanted to exclude disputes about the validity of the contract it would be comparatively simple to say so. The House of Lords agreed. In particular Lord Hope of Craighead, having expressly noted that the arbitration clause here was taken from a standard form, said this:

“The proposition that any jurisdiction or arbitration clause in an international commercial contract should be liberally construed promotes legal certainty. It serves to underline the golden rule that if the parties wish to have issues as to the validity of their contracts decided by one Tribunal and issues as to its meaning or performance decided by another, they must say so expressly. Otherwise they will be taken to have agreed on a single Tribunal for the resolution of all such disputes.”

Any dispute resolution clause should be construed in accordance with this presumption unless the language made it clear that certain questions were intended to be excluded from (in this case) the arbitrator’s jurisdiction. In the view of the Law Lords the attempt to draw out differences between the meanings of the words “arising under” and “arising out of” was inappropriate. The distinction was at best a “fussy” one. This is something which is not without interest to the construction industry given the wording of the HGCRA which says that “a party to a construction contract has the right to refer a dispute arising under the contract for adjudication”. The rationale behind this judgment was clearly expressed by Lord Hoffman who said this:

“In my opinion 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 to which they have entered or purported to have entered to be decided by the same Tribunal.”

By stressing that the English Courts should not become, bogged down in the detail of the wording of arbitration clauses, the House of Lords have sent a clear message to parties to international commercial contracts that they can be much more certain that arbitration clauses will be upheld and that, if arbitration is their chosen course, then it is the arbitrators who will be left to decide any dispute which may arise. Thus taken with their decision in the Lesotho Highland Development Authority v Impregilo case, where it was held that an error of law does not necessarily mean that the arbitrators had exceeded their powers, it seems clear that this judgment of the House of Lords 1 [2007] UKHL 40 can only serve to confirm the attractiveness of London as an arbitration centre.

Jurisdiction

There have been two contrasting cases which asked the question as to which court had jurisdiction to deal with challenges made to an arbitral award.

C v D3

C and D entered into a Bermuda form of insurance contract which was governed by New York law but which provided that any arbitration proceedings should take place in London. C obtained an award in its favour against D for unpaid monies. D said that it was going to apply to a US federal court to challenge the award. C therefore sought an anti-suit injunction to prevent D from challenging the award in New York. At first instance, Mr Justice Cooke agreed with C and held that by agreeing to London being the scene of the arbitration, the parties had agreed that any challenge to an award must be made only in the courts of the place where the seat of the arbitration was. Thus, this dispute was about the question of whether English law was the “curial law” of the arbitration. In other words, were only remedies normally available under English law available to D as the party seeking to challenge the arbitration tribunal decision. The Court of Appeal agreed. Longmore LJ said:

“If there is no express law of the arbitration agreement, the law of which that agreement has its closest and most real connection is the law of underlying contract or the law of the seat of arbitration. It seems to me that … the answer is more likely to be the law of the seat of the arbitration than the law of the underlying contract”.

Braes of Doune Wind Farm (Scotland) Ltd v Alfred McAlpine Business Services Ltd4

The parties entered into an EPC contract in connection with the provision of 36 wind turbine generators in Stirling. Proceedings were brought to challenge an arbitrator’s decision about LAD’s. Braes said that the seat of the arbitration was Scotland which would mean that the English courts had no jurisdiction to entertain the application. There was a difference between the approach of the two courts. The Scottish courts’ powers of intervention was said to be limited to extreme cases such as the dishonest procurement of an award. The contract was governed by laws of England and Wales and gave the English courts exclusive jurisdiction to settle disputes arising out of the contract subject to arbitration conducted in accordance with the CIMAR rules. The arbitration agreement was said to be subject to English law and the seat of the arbitration was to be at Glasgow. Whilst Mr Justice Akenhead noted the case of C v D, he decided that here the court did have jurisdiction for the following reasons:

  1. the need to consider what, in substance, the parties agreed was the law of the country which judicially controlled the arbitration - here it was the English courts. The 1996 Arbitration Act permits and requires the court to entertain applications for leave to appeal against arbitration awards. Thus the parties were agreeing that the dispute resolution process was arbitration but that the English courts retained such jurisdiction as necessary to address any disputes that may arise; and 
  1. the express agreement that the seat of the arbitration was to be Glasgow related solely to the place where the hearing was to take place. All the other references to the law which governed the arbitral proceedings were to that of England and Wales.

To succeed under s69, the decision of the tribunal had to be obviously wrong or the question had to be one of general public importance with the decision being open to serious doubt. The clause here was very much a one off, so the question of law was not one of general importance. Further just because a Judge has come to a view that a decision was wrong, that does not mean that it is necessarily “obviously wrong”. The Judge’s view may be one that is reached “on balance”. In fact, here, the Judge thought the arbitrator’s decision was ultimately right. The Judge also said that the fact that the arbitrator was a “highly experienced and well known construction law QC” was a relevant factor to take into account under section 69 of the Arbitration Act.