UK: Survival Of The Arbitration Clause – Fraud, Forgery And Bribery

Last Updated: 14 August 2008

Fiona Trust & Others v. Privalov & Others

This is reported at [2007] EWHC 1217 (Comm). This claim concerned how allegations of bribery affected an arbitration clause contained in charterparties. The arbitration clause referred to; "Any disputes arising under this charter". Court proceedings were commenced alleging the charterparties had been validly rescinded for reasons of fraud and bribery. An arbitrator under each of the charterparties was appointed by the charterers.

Owners applied under s.72 of the 1996 Act restraining the proceedings alleging the charterparties and arbitration agreements were rescinded by reason of the bribery. The charterers applied under s.9 to stay the owners' court proceedings pertaining to the charterparties in favour of arbitration.

The following issues arose.

Were the words; "Any dispute arising under this charter" wide enough to cover claims for rescission for bribery?

Yes. The court reviewed various authorities distinguishing between "arising under " and "arising out of". Historically, the former were narrower than the latter, but the court said this should no longer apply. A liberal and wide construction should be given to an arbitration clause as it was presumed that commercial men favoured one-stop arbitration.

Does the alleged invalidity of each charterparty go to the validity of the arbitration clause?

Not in this case. Under s.7 of the 1996 Act an allegation of a contract's invalidity does not prevent the invalidity being determined under the (separate) arbitration agreement. Owners argued they would not have made any contract had they been aware of the bribes. The court said this did not impeach the arbitration clause and that; "... there must be something more than that to impeach the arbitration clause ...". The court of first instance said that even if the tribunal did have jurisdiction (it said it did not) the court would exercise its powers under s.72 to grant an injunction restraining the arbitration, however the court would not grant a stay under s.9. The Court of Appeal disagreed.

The relationship between s.9 and s.72 of the 1996 Act The Court of Appeal made the following points:-

  • The 1996 Act contemplated that the tribunal would be the first to consider whether they have jurisdiction to determine the dispute. Bearing in mind the strict limitations placed on court intervention (s.1(c)) the court should be very cautious about using s.72. Here, s.72 had no application, but might apply where the existence of the agreement is denied by a party who did not commence English proceedings and had no wish to do so.

  • S.9 is the primary remedy and for it to apply there must be an arbitration agreement. If its existence is disputed this issue will be decided under s.9. The court endorsed the guidelines of the four possible approaches to deciding whether an agreement exists to which s.9 applies and set out in Birse Construction Limited v. St. David Limited [1999] BLR p.194; (1) determine if an agreement exists on the evidence before the court. If it exists the stay is mandatory, (2) stay the proceedings to allow the jurisdiction to be decided by the tribunal (under s.30 of the 1996 Act if an English tribunal), (3) do not decide but make directions for the issue to be tried, and (4) determine that no agreement exists.

Albon v. Naza Motor Trading Sdn Bhd

This is reported at [2007] All ER (D) 495 (Jul). Proceedings were commenced by A against N (a Malaysian company) alleging breach of an oral agreement subject to English law. N sought a stay alleging the parties agreed a Joint Venture Agreement ("JVA") providing for arbitration in Malaysia to be governed by Malaysian law. A alleged the JVA was a forgery and refused to participate in the arbitration. The court considered a number of issues:-

What are the requirements of s.9 of the 1996 Act and did N satisfy them?

The court said there were two requirements to ordering a stay. First, a concluded arbitration agreement. Second, the issue falls within the scope of the arbitration clause.

How did the court respond to the guidelines laid down in Birse Construction?

The court should try to decide whether an arbitration agreement was concluded subject to one qualification. This concerned the third guideline. Where the issue cannot be resolved by the available evidence the court can stay the proceedings for the foreign tribunal to decide the matter by reference to its inherent jurisdiction: see Al-Naimi v. Islamic Press Agency Inc. This was the approach in A v. B. Before the court there were unresolved issues of fact as to whether the JVA and arbitration agreements were concluded.

Should the court exercise its inherent jurisdiction to grant a stay and remit the issue of whether a JVA was concluded to the arbitration proceedings?

In exercising its inherent jurisdiction the court had to take into account the following:-

  • Did the court proceedings precede the arbitration proceedings? In this case, yes.

  • Is a decision of the arbitrators on this issue subject to review by a court? The evidence before the court was that in Malaysia there is no statutory jurisdiction equivalent to s.30(2), 67 and 72 to interfere with a tribunal's decision as to the arbitration agreement's existence and conclusion and they had no inherent jurisdiction to do so.

The court decided not to exercise its inherent jurisdiction to order a stay, but to give directions for the expedited trial by the court on the authenticity of the JVA.

This decision provides an interesting contrast to A v. B as to how the court exercised its inherent jurisdiction. In A v. B proceedings were stayed and the issue of whether the tribunal had jurisdiction was decided by the foreign tribunal.

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.

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