Fiona Trust & Holding Corp & Ors v Privalov & Ors

An arbitration clause using the expression any dispute arising under the charter was construed generously, as equivalent in this clause to disputes arising out of the charter. It nevertheless did not extend to a bribery allegation impeaching whether the owners ever agreed to the charterparties. That issue was for the court, not the arbitrator.

On the interlocutory evidence, rescission for bribery remained fully arguable even where some charters had been performed and literal restitution was impossible. Delay did not necessarily defeat rescission while the owners investigated the facts and obtained expert advice. The court therefore preferred one court determination, refused stays, restrained the arbitration, and granted the proposed amendments, joinder and service out.

The claimants, companies in the Sovcomflot group, alleged that charterparties had been procured by bribery and sought to amend their claims, join additional parties and serve proceedings out of the jurisdiction. The defendants sought stays under section 9 of the Arbitration Act 1996 and a stay pending an arbitration concerning eight vessels.

The claimants also sought to restrain the arbitration. The central questions were whether the arbitration clause covered disputes about bribery and the validity of the charterparties, whether rescission remained available despite performance and delay, and whether the related proceedings should be allowed to proceed in court.

1. Arbitration clause. The words “any such dispute” in clause 41(c) referred to “any dispute arising under this charter” in clause 41(b). In context, “under” was equivalent to “arising out of”, reflecting the parties’ intention to avoid fragmented dispute resolution. The clause was sufficiently broad to cover disputes closely connected with contractual issues.
2. The principal bribery issue was different. The claim was that the owners’ apparent consent had been suborned and that they never truly entered into the particular charterparties or arbitration agreements. That issue did not arise out of, or under, the contracts. It impeached the existence of the agreement itself and therefore fell to be decided by the court. The case was distinguished from Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd, where the illegality did not impeach the arbitration clause itself.
3. Although sections 7 and 30 of the Arbitration Act 1996 recognise separability and competence-competence, they did not require this dispute to be determined first by the arbitrator. The court retained the ultimate power to determine substantive jurisdiction. Under sections 72(1)(a) and 67, a court determination was available, but a detailed arbitration followed by a rehearing would waste resources. Applying the approach in Ahmed Al-Naimi v Islamic Press Agency Inc, this was a case for one court determination rather than a reference where the arbitration agreement was virtually certain to exist.
4. Rescission. The claimants had shown a fully arguable case that bribery entitled them to rescind. Literal restitutio in integrum was not required at this stage: restitution of hire and other accounting adjustments could potentially achieve practical justice, even though the charters had been performed and third-party rights might be involved. The right to rescind had probably not been lost by delay or affirmation. The owners were entitled to investigate the allegations and obtain expert advice before electing to rescind.
5. The applications for stays under section 9 and for a case-management stay pending arbitration were refused. The arbitration was restrained because the issues of jurisdiction, bribery and fraud were best determined once in court, including through interlocutory disclosure which might involve non-parties. The applications to amend, join parties and serve out were granted. The court also held that there was a credible, though circumstantial, case against Mr Skarga and that the allegations were sufficiently arguable at this stage.