UK: International Arbitration - The House Of Lord’s Golden Rule Relating To Arbitration Clauses

Last Updated: 18 October 2007
Article by Jeremy Glover

In our article headed "The New Liberal Approach Of The English Court Of Appeal" we highlighted the comments of Longmore LJ in the case of Fiona Trust & Holding Corporation & Ors v Privalov & Ors [2007 EWCA Civ 20] where he indicated 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 said this:

"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 & Others v Fili Shipping Company Ltd & Others [2007] UKHL 40 has now reached the House of Lords, who have unanimously endorsed the Court of Appeal decision and in particular the comments of Longmore LJ.

One of the issues in the Fiona Trust case, related to the dispute resolution clause, which referred first to disputes "arising under" the contract, and later to disputes which have "arisen out of" the contract. In particular the Court of Appeal had to consider arguments relating to the distinction, if any, between disputes arising "under" a contract and disputes arising "out of" a contract. Should "out of" should have a wider meaning than "under", and if so, given the wording of this particular clause, which of the two should prevail?

This lead the Court of Appeal firstly to review the authorities and then having done so to rule that the time had come to take a fresh approach. That approach was that the English Courts should not spend time considering the fine distinctions and minutiae of the wording of arbitration clauses. As the Court of Appeal said, if any business man wanted to exclude disputes about the validity of the contract it would be comparatively simple to say so.

This was a point taken up by the House of Lords. It was time to draw a line under what had gone before and to make a fresh start. 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."

This House of Lords decision, although it says little that is new, is important because of the firm judicial support they have given to the comments of the Court of Appeal. In their view, 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 which they have entered into would be decided by the same tribunal. Any dispute resolution clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from (in this case) the arbitrator's jurisdiction. The judgments of the 5 law lords make it clear that the questions at issue were carefully considered at the hearing. For example there is reference to the approaches of other jurisdictions notably those of the USA, Australia and Germany where Lord Hoffman noted that:

"There is every reason to presume that reasonable parties will wish to have the relationships created by their contract and the claims arising therefrom, irrespective of whether their contract is in effect not decided by the same Tribunal and not by two different Tribunals."1

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.

Lord Craig referred to the "simplicity of the wording" of the arbitration clause. Taken overall, the wording indicated that arbitration may be chosen as a one-stop method of adjudication for the determination of all disputes. The disputes were to be determined in accordance with the laws of England but not to be decided by the English courts.

In the view of the court it was important to remember that disputes about validity are no less appropriate for determination by an arbitrator than any other kind of dispute that may arise. The purpose of the arbitration clause in question was to provide for the determination of disputes of all kinds, whether or not they were foreseen at the time when the contract was entered into.

Lord Craig also noted that experience shows that as soon as a dispute of any kind arises from a contract, objections are very often immediately also raised against its validity. Entrusting the assessment of the facts of the case to different Tribunals according to the approach that is taken to the issues between them is unlikely to occur between the contracting parties. In particular, if the parties were operating in an international market, it is unlikely that they would intend that possible disputes arising from their transaction could be heard in two different places.

Conclusion

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 enter to be decided by the same Tribunal."

This resounding confirmation of the remarks of the Court of Appeal means that parties to international commercial contracts can be that much more certain that arbitration clauses will be upheld. It will accordingly follow that parties will know that, if arbitration is their chosen course, then it is the arbitrators who will decide all the disputes which may arise, which is why Lord Craig referred to the "one stop method" of dispute resolution in his judgment.

Thus, in a decision which can very much be seen as one in spirit with their decision in Lesotho Highland Development Authority v Impregilo Spa & Others [2005] UKHL 43, (where it was held that an error of law does not necessarily mean that the arbitrators had acted in excessive of their jurisdiction), the House of Lords has sent out another powerful message that can only serve to confirm the attractiveness of London and England as an arbitration centre. 

Footnote

1 Bundesgerichtshof’s decision of 27 February 1970 (1990) Arbitration International, Volume 6, No. 1, Page 79.

This article is based on an article from a forthcoming issue of the Fenwick Elliott Dispatch, a monthly newsletter which summarises recent key developments relating to contentious and non-contentious construction law issues. To see the current issue please visit www.fenwickelliott.co.uk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Jeremy Glover
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.