If your contract provides that disputes should be referred to arbitration then it is now unlikely you will persuade the court that you should litigate instead. In the past, much time and money was spent arguing about the exact meaning of the actual words used in arbitration clauses; or more precisely whether the particular words encompassed the dispute that had arisen. If they didn’t, then the dispute could be litigated. The decision of the Court of Appeal in Fiona Trust & Holding Corporation v Yuri Privalov [2007] closed the door on avoiding arbitration through linguistic niceties.

Linguistic niceties

In the past, the court considered the exact meaning of such phrases as “any dispute arising out of this contract shall be referred to arbitration” and “any dispute arising under this contract shall be referred to arbitration”. It found that they do not extend to certain types of dispute, such as whether a contract has been rescinded or whether there has been a breach of duty in tort. The result of this approach was that each case turned on the wording of the clause and how that wording had been treated in earlier cases. This led to lengthy clauses and an absence of consistency.

Court of Appeal jettisons the past

The Court of Appeal concluded that it was now impossible to reconcile all the old decisions. If the intention of the parties at the time the contract was entered into was to refer disputes to arbitration then neither party should be allowed to avoid that consequence through linguistic niceties. It said: “If business men go to the trouble of agreeing that their disputes be heard by a tribunal of their choice they do not expect that time and expense will be taken in lengthy argument about the nature of particular causes of action and whether any particular cause of action comes within the meaning of a particular phrase they have chosen in their arbitration clause”.

This led to the wider conclusion that any arbitration (or jurisdiction) clause in an international commercial contract should be liberally construed. The words “arising out of the contract” and “arising under the contract” should have the same meaning and should incorporate every dispute except those about whether there was ever a contract at all. There is no reason in principle why this approach should not also apply to domestic arbitrations.

Hints & tips to getting it right

  • Think carefully at the time of entering into a contract about the appropriate forum for resolving disputes. It is unlikely you will be allowed to change your mind.
  • Exclude by specific words, any particular cause of action or type of dispute that is not to be referred to the chosen forum (and if necessary make express provision for the forum for resolving the excluded disputes).
  • Take time with the wording of an arbitration clause. As there may now be less room for linguistic niceties about agreements to arbitrate it is essential you ensure the wording clearly reflects the intentions of the parties.
  • Remember that under a construction contract either party can refer a dispute to adjudication at any time and the right to adjudicate cannot be ousted even by agreement