UK: English Court Holds That Arbitration Clauses In Individual Sales Contracts Govern The Disputes Arising From Corrupt Arrangement To Induce The Contracts When An "Umbrella Agent Agreement" Is Silent About Dispute Resolution

Last Updated: 22 May 2018
Article by Nicholas Peacock and Vanessa Naish

Co-authored by Noriaki Wakabayashi

In a decision dated 24 April 2018, the English Commercial Court (the "Court") dismissed challenges brought under s67 and s32 of the English Arbitration Act 1996 (the "Act") by Dreymoor Fertilisers Overseas PTE Ltd. ("Dreymoor").

The case concerned the construction and application of arbitration clauses to disputes arising out of a complicated business structure with multiple contracts between Eurochem Trading GMBH ("ECTG"), a fertiliser seller, and Dreymoor, an international trading company. Dreymoor sought to challenge the jurisdiction of tribunals constituted in two arbitrations (one LCIA and one ICC) commenced against it by ECTG, arguing (1) for a narrow interpretation of an LCIA arbitration clause to exclude non-contractual claims brought against it by ECTG; and (2) that there was no agreement to arbitrate between ECTG and Dreymoor in respect of the ICC arbitration.

The Court followed the liberal interpretation propounded in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40. The LCIA arbitration clause covered "any dispute or claim arising out of this Contract". Those words were wide enough to cover the non-contractual disputes which ECTG had referred to LCIA Arbitration and the s67 challenge was dismissed. In respect of the ICC arbitration, the Court again held that the terms of the arbitration clause were very wide and sufficient to cover the disputes referred under it against Dreymoor. The s32 action therefore also failed.

Background and Issues

ECTG and Dreymoor entered into two fertiliser distribution arrangements in respect of (1) Di-ammonium phosphate and Mono-ammonium phosphate (DAP/MAP); and (2) Urea. Dreymoor was to act as ECTG's sales agent in India and as ECTG's direct trading partner for the rest of the world. ECTG alleged that there were corrupt arrangements between Dreymoor and two former employees of ECTG which enabled Dreymoor to obtain more volume of high margin products deals and favourable appointment terms as an agent.

Each of the DAP/MAP and Urea arrangements involved (i) an Umbrella Agency Agreement (each an "Agency Agreement"); (ii) individual sales contracts between Dreymoor and customers outside India (the "Sales Contracts"); and (iii) sales contracts between ECTG and Indian companies, in which Dreymoor was acting as agent (the "Third Party Contracts"). There was no jurisdiction or dispute resolution clause in the DAP/MAP Agency Agreement, while the Urea Agency Agreement contained a short-form LCIA arbitration provision. Each of the Sales Contracts provided for LCIA Arbitration, while the Third Party Contracts each contained an ICC arbitration clause.

ECTG brought proceedings in respect of its corruption allegations against Dreymoor in two arbitration fora: (i) LCIA arbitration in relation to the Urea and DAP/MAP arrangements under the Sales Contracts; and (ii) ICC arbitration in relation to the Third Party Contracts where Dreymoor acted as agent.

Dreymoor challenged the jurisdiction of both arbitral tribunals, arguing in respect of the LCIA Tribunal:

  1. In terms of resolution of disputes over the alleged corrupt arrangements, the Agency Agreements, not the Sales Contracts, governed the dispute because the "centre of gravity" of the claims was alleged breach of the Agency Agreements and not the Sales Contracts. The DAP/MAP Agency Agreement did not contain a dispute resolution clause. The bribery complained of must have occurred before the Urea Agency Agreement and the short-form LCIA clause could not be construed as covering such claims. As a consequence, disputes should be referred to an "appropriate" forum, which Dreymoor contended to be Russia.
  2. As a matter of construction, the corruption allegations did not fall within the arbitration clauses of these contracts, even if any of those were applicable. The arbitration clauses referred to "disputes on this agreement" or "any dispute... arising out of this contract", but the corrupt arrangements alleged were not only non-contractual claims but also predated the contracts themselves, since they allegedly aimed to induce these contracts.

In respect of the ICC Tribunal, Dreymoor argued it was not a party to the Third Party Contracts, and therefore was not bound by the arbitration clauses in them. Consequently:

  1. there was no agreement to arbitrate between ECTG and Dreymoor.
  2. alternatively if there was, the claims brought by ECTG did not fall within it.

Construction of inconsistent arbitration arrangement in inter-related contracts

This was a complex set of contractual arrangements with inconsistent dispute resolution provisions. The Court therefore decided it needed to consider "what the parties, as reasonable business people, must be taken to have intended as to how and where disputes which might arise between them should be resolved". [56] Applying this "reasonable business people" test, the Court held that reasonable business people would not have intended that if there were to arise questions as to whether there had been bribery by Dreymoor which induced a number of different Sales Contracts, these were to be resolved only under the dispute resolution procedures of the Agency Agreements, rather than under the dispute resolution procedure specified in the individual Sales Contracts. [57]

In addition, the Court noted that the "centre of gravity" analysis referred by Dreymoor did not necessarily support Dreymoor's position. The "centre of gravity" approach, which was introduced in the decision in AmTrust Europe Ltd v Trust Risk Group SpA [2015] EWCA Civ 437, examines which of the inter-related contracts is the "centre of gravity" of the dispute, based on which the dispute resolution provisions of the "centre of gravity" contract will govern its resolution. The Court held that there was no reason to suggest that the "centre of gravity" of the bribery dispute was located in the Agency Agreements and held instead that the Sales Contracts were no more distant from the claim.[61]

Applying the "commercially rational construction" approach advanced by the Court of Appeal in Sebastian Holdings v Deutsche Bank [2011] 1 Lloyd's Rep 106 which held that the correct approach of construction was to "find ... the commercially-rational construction ... giving effect to clear agreements, even if this may result in a degree of fragmentation in the resolution of disputes between parties to a series of agreements", the Court confirmed that the same conclusion would be reached.

The scope of arbitration clauses

The Court said that in certain exceptional circumstances, an arbitration clause would be construed as excluding a tortious or other non-contractual claim if the parties would, at the time of conclusion of their contract, have considered that any possible non-contractual claim in the relevant area would have been outlandish or unarguable. [54]

However, no such exceptional circumstances applied in this case. Rather, the Court employed a "liberal or general interpretation" (as first espoused in the case of Fiona Trust) and held that the arbitration clauses as drafted would cover disputes which related to non-contractual claims, including for pre-contractual misrepresentation and antecedent bribery inducing the contract. [53]

Third party contracts

As regards jurisdiction under the ICC arbitration agreements contained in the Third Party Contracts, the Court held that Dreymoor was a party to the Third Party Contracts, not least because Dreymoor, as Agent, was referred to as one of the "Parties" in those contracts and assumed certain performance obligations. Dreymoor had argued that the arbitration clauses in the Third Party Contracts did not work with disputes between Dreymoor and other parties because the arbitration agreements provided that each of ECTG as Seller and the Buyer party (Indian company), but not Dreymoor as Agent, would choose one arbitrator. However, the Court rejected this obstacle holding that the mechanism for the appointment of the arbitrators did not change the intention of the contract that Dreymoor should be a party and that all disputes arising out of or relating to the contract should be subject to arbitration. [68] Where the dispute was one between ECTG and Dreymoor, then they would each appoint an arbitrator. Only if the dispute concerned the Seller, the Buyer, and the Agent, was Dreymoor denied a choice of arbitrator and must accept the appointments made by the Seller and the Buyer. [69]


It is not uncommon for complex contractual arrangements to contain jurisdiction/arbitration clauses which are not fully consistent with each other. Prior English authorities have established a variety of approaches to be applied to such disputes. However, such approaches only offer guidance when tackling such issues, and careful case-by-case analysis is required in each scenario. In this case, the Court did not opt to prefer a particular approach to the construction of these arbitration clauses. Rather, the Court considered several different methods of analysis on the basis that the same conclusion was reached no matter which approach was employed.

The case is perhaps most interesting in its analysis of the limited relevance and importance of the umbrella Agency Agreements in this contractual arrangement, and the conclusion that the dispute resolution provisions in the underlying Sales and Third Party contracts were wide enough to encompass disputes regarding the conduct of the Agent in concluding those agreements. However, it is difficult to draw too many conclusions from this particular decision. There is a clear sense in the judgment of a need to give effect to the parties' consistent choice of London arbitration to govern disputes under the various contracts (where an explicit choice was made), particularly when faced with Dreymoor's argument that the arbitration provisions should be ignored and jurisdiction given to the Russian courts.

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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