The Commercial Court has held that disputes under bills of exchange were disputes arising in connection with the underlying sales contracts pursuant to which the bills were issued. They therefore fell within the arbitration clauses contained in the contracts.

Background

In Uttam Galva Steels Ltd v Gunvor Singapore Pte Ltd [2018] 1098 (Comm), Gunvor had supplied nickel to Uttam under two master contracts. Both contracts required payment to be made against first presentation of a bill of exchange accompanied by specified supporting documentation. Both also provided that “all disputes arising out of or in connection with each Contract and/or these Terms shall be finally settled by arbitration.”

Uttar failed to pay, alleging misrepresentation and breach of contract by Gunvor. The latter therefore brought an arbitration seeking payment under the bills of exchange, or in the alternative, pursuant to the master contracts. Gunvor challenged the jurisdiction of the arbitrator on the basis that the bills of exchange were separate and autonomous contracts to which the arbitration clauses did not apply. After the arbitrator ruled that he did have jurisdiction, Gunvor applied to the Commercial Court to set the ruling aside under s.67 Arbitration Act 1996.

The decision

Picken J held that the wording of the arbitration clause was wide enough to include disputes under the bills of exchange. The parties to the underlying contracts remained the same as those under the bills of exchange. There was no rule of English law preventing an arbitration clause from applying to disputes under bills of exchange in these circumstances. As rational businesspeople, the parties were unlikely to have intended that disputes under bills of exchange which were expressly required by the contracts would be resolved in a different forum than disputes under the contracts themselves.

Perhaps surprisingly, this appears to be only the second case in which the English courts have considered whether or not an arbitration clause can encompass claims under bills of exchange. The earlier case, Nova (Jersey) Knit v Kammgarn Spinnerei [1977] 1 WLR, was governed by German law, but Lord Russell commented as an aside that he found it difficult to imagine circumstances in which English law would find that an arbitration clause applied to a bill of exchange. Although he recognised that it was possible in theory, he thought that in general the courts would assume that businesspeople intended bills of exchange to be entirely separate from the underlying contract. Picken J commented that arbitration law had moved on since the 1970s and that rational businesspeople today could be expected to take a more modern approach. He also noted that the facts in Nova Jersey were different, as the underlying contract in that case did not specify that payment would be by bills of exchange.

The decision leaves open the possibility that the outcome could have been different if the master contracts had not expressly specified the use of bills of exchange, or if the party claiming under the bills of exchange had been an endorsee rather than one of the parties to the master contracts. These points will have to be clarified in future cases. Meanwhile, this is a common-sense decision that will be welcomed by parties who regularly use bills of exchange as part of their contractual arrangements.