Fiona Trust & Holding Corporation & Ors v Yuri Privalov & Ors

In an international commercial contract, an arbitration or jurisdiction clause should be construed liberally. Absent clear language to the contrary, it covers disputes concerning rescission or avoidance of the contract, including alleged bribery, but not a dispute as to whether any contract was ever concluded.

Under section 7 of the Arbitration Act 1996, the arbitration agreement is distinct from the main contract. An allegation impeaching the main contract does not impeach the arbitration agreement unless it is directed specifically at that agreement. Where a valid arbitration agreement covers the dispute, section 9 requires a stay of court proceedings and section 72 provides no basis to restrain the arbitration.

The shipowners alleged that eight charterparties had been procured by bribery of their employees and had been rescinded. The charterers elected arbitration under the charterparties’ Law and Litigation clauses and appointed an arbitrator.

The owners applied under section 72 of the Arbitration Act 1996 to restrain the arbitrations. The charterers sought a stay under section 9. In the Commercial Court, Morison J refused the stay and granted injunctions restraining the arbitrations: [2006] EWHC 2583 (Comm).

The Court of Appeal considered whether alleged bribery and rescission fell within the arbitration clauses, whether those clauses were separable from the charterparties, and the procedural relationship between sections 9 and 72.

1. Appeal allowed. The claims for rescission of the charterparties were to be stayed under section 9(4) of the Arbitration Act 1996, and the owners’ section 72 applications were dismissed.

2. The clauses, which referred to disputes arising both “under” and “out of” the charterparties, covered the alleged bribery and rescission dispute. In international commercial contracts, arbitration and jurisdiction clauses should be liberally construed. The parties ordinarily intend a one-stop method of resolving disputes. A dispute as to whether a concluded contract can be set aside is distinct from a dispute as to whether any contract was ever made.

3. Section 7 treated each arbitration clause as a separate agreement. The allegation that bribery invalidated the charterparties did not directly impeach the arbitration clauses. A general allegation of fraud, misrepresentation, illegality or bribery affecting the containing contract is insufficient. There must be a specific ground which attacks the arbitration agreement itself, such as a denial that any agreement was concluded or a plea of non est factum.

4. Sections 9, 30 to 32 and 72 should be read consistently with the statutory policy of arbitral autonomy. Where court proceedings have been commenced and a stay is sought, the stay application is the primary issue. Since there was a valid and applicable arbitration agreement, section 9(4) required a stay. Section 72 did not permit the court to restrain an arbitration which the parties had validly agreed should determine the dispute.

5. The court set aside the injunctions restraining arbitration. The arbitral tribunal could determine whether bribery had occurred and the consequences for any claims under the charterparties.

1. Court of Appeal (Civil Division) Allowed the charterers’ appeal in [2007] EWCA Civ 20 . It ordered a stay of the rescission claims and dismissed the owners’ section 72 applications.

2. High Court, Commercial Court Morison J had refused a stay and granted interlocutory injunctions restraining the arbitrations: [2006] EWHC 2583 (Comm) .