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The
House of Lords upheld the Court of Appeal decision in respect of the
applicability of an arbitration clause where it was claimed that the
contracts containing the clause should be rescinded on the grounds that
they had been induced by bribery. The decision concerns the construction
of the arbitration clause, comparing disputes arising 'under' and arising
'out of' the contract; the severability of arbitration clauses; and
the applicability of Sections 9 and 72 of the Arbitration Act 1996.
It was alleged by ship owners that charterparties had been procured
by bribery and contained terms highly favourable to the charterers.
The ship owners claimed that the charterparties had been rescinded.
The charterers initiated arbitration proceedings on the basis of an
arbitration clause which occurred in all the charterparties. The ship
owners applied pursuant to Section 72 of the Arbitration Act 1996 ("the
1996 Act") to restrain the arbitration proceedings on the basis
that the arbitration agreements were rescinded along with the charterparties,
so there could be no arbitration. Charterers sought a stay of the judicial
proceedings for the rescission claims, on the grounds, under Section
9 of the 1996 Act, that they were initiated in breach of an arbitration
agreement. At first instance injunctions were granted to restrain the
arbitration proceedings. Charterers appealed.
The arbitration clause contained the expression 'any dispute arising
under this charter' and the expression 'a dispute has arisen out of
this charter'. Ship owners argued that the expressions had a narrow
meaning and that the clause did not apply to a dispute about rescission
for bribery. The Court of Appeal decided that 'any jurisdiction or arbitration
clause in an international commercial contract should be liberally construed'.
The words 'arising out of' should cover every dispute except a dispute
as to whether there was a contract at all (non est factum). Although
in the past the words 'arising under the contract' had sometimes been
given a narrower meaning, this should no longer continue to be so. The
presumption in favour of one-stop arbitration was a powerful reason
for a liberal construction and there was support that the phrases 'under'
and 'out of' should be widely construed so that a dispute as to whether
the contract could be set aside or rescinded for alleged bribery fell
within the arbitration clause on its true construction.
The next question was on the severability of the arbitration agreement
and whether the assertion of invalidity went to the arbitration clause
as opposed to the validity of the charterparties as a whole, of which
the arbitration agreements were a part. Ship owners asserted that they
would not have made any contract at all with the charterers if they
had been aware of the alleged bribery and that whatever impeached the
main agreement also impeached the arbitration clause. The Court of Appeal
turned to Section 7 of the 1996 Act and its principle that an allegation
of invalidity of a contract does not prevent the invalidity question
being determined by an Arbitration Tribunal pursuant to the (separate)
arbitration agreement. On this basis, it was decided that in the absence
of any special reason for saying that the bribery impeached the arbitration
clause in particular, there was no reason why the arbitrators should
not decide whether a contract had been procured by bribery.
Once the severability of the arbitration agreement had been established,
the Court of Appeal went on to hold that Section 72 of the 1996 Act
was not applicable since there was a valid arbitration agreement and
therefore Section 9 of the 1996 Act governed the position. The claim
for rescission in the court proceedings was stayed, pursuant to Section
9 of the 1996 Act, and the application under Section 72 of the 1996
Act dismissed. The appeal was allowed.
The House of Lords granted permission to appeal. Lord Hoffman applauded
the Court of Appeal's stance that it was time to draw a line under the
authorities to date and make a fresh start. This was justified by the
adoption of the principle of severability by Parliament in section 7
of the 1996 Act. The arbitration clause should be construed in accordance
with the presumption that the parties, as rational business men were
likely to have intended that any dispute arising out of the relationship
be decided by the same tribunal, unless there was clear language indicating
that certain questions were intended to be excluded from the arbitrator's
jurisdiction. There was no such language. On the question of severability
the House of Lords again agreed with the Court of Appeal and said the
arbitration agreement had to be treated as a distinct agreement and
could be void or voidable only on grounds which related directly to
it. Section 7 of the 1996 Act meant that the two agreements, the charterparty
and the arbitration agreement, had to be treated as having been separately
concluded. The appeal was dismissed.
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