The judgment by the Court of Appeal in Fiona Trust and Holding Corporation v Yuri Privalov (2007) is being hailed as a decision that will help maintain London's reputation as one of the leading centres for international commercial arbitration.
In many disputes, one party is keen to achieve a decision on its claims while the opponent wishes to delay and frustrate the dispute resolution process. Companies increasingly provide for disputes to be settled by arbitration when they make international agreements because of the relative ease of enforcing arbitration awards throughout the world and the possibility of agreeing to hold arbitrations in a neutral venue. However, when a dispute does arise, they may still try to resort to delaying tactics, including challenges to the arbitration process itself.
In the case under review, the claimants consisted of eight one-ship companies in the Russian Sovcomflot Group. The contract contained lengthy dispute resolution provisions which referred disputes 'arising out of and under' the contract to arbitration in England. The defendant began arbitration proceedings and the claimants responded by applying to the High Court to restrain these proceedings on the basis that the contract had been obtained by bribery. The defendant insisted that the arbitration should proceed and should decide all the disputes between the parties. At first instance, the court granted an injunction restraining the arbitration proceedings, pending trial of the bribery claim.
On appeal, the Court of Appeal ruled that:
- a dispute as to whether a contract has been induced by
bribery comes within an agreement to submit to arbitration
any dispute 'arising under' or
'arising out of' the contract;
- such an agreement is severable from the underlying
contract; and
- the bribery issue should be determined in the first
instance by the Arbitral Tribunal and not by the court.
The arbitration agreement
The precise wording of the Court of Appeal's judgment is important. 'Arising out of' should cover every dispute except a dispute as to whether there was a contract at all. The court justified this construction by stating there is a presumption in favour of the arbitration dealing with all issues.
It is only if the arbitration agreement in itself is challenged for some specific reason that the tribunal will be prevented from deciding such disputes. This reinforces the principle of the parties being allowed to contract for one-stop dispute resolution procedures by agreeing to an arbitration clause.
This case is being described as a landmark decision and demonstrates the Court of Appeal's strong support for international arbitration. It shows that the English courts will not tolerate collateral attacks on agreements to arbitrate disputes. The lower courts have been given strong guidance that such tactics should be discouraged.
English arbitration was reformed by the Arbitration Act 1996 in large part because it was considered that there had been too much court involvement in arbitrations in England, causing delay and increasing costs. The Act gives the Arbitral Tribunal extensive powers in relation to its own jurisdiction. Section 30 expressly provides that unless otherwise agreed by the parties, the Arbitral Tribunal may rule on its own jurisdiction as to:
- whether there is a valid arbitration agreement;
- whether the tribunal is properly constituted; and
- what matters have been submitted to arbitration in
accordance with the arbitration agreement.
The basis of the court's judgment is that the parties to a contract are entitled to enter into an agreement to arbitrate. It reflects the court's recognition that parties have often chosen this path to avoid or limit as far as possible the involvement of the court. The court therefore has, by its broad interpretation of arbitration agreements and upholding the principle of severability, shown that the English courts will leave broader scope for arbitrations to operate free of court interference.
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