An arbitration agreement is understood in most, but not all, jurisdictions to be a separable or distinct agreement from the contract or agreement of which it forms part. This is confirmed in s7 of the English Arbitration Act 1996 (the Act).
In National Iranian Oil Company (NIOC) v Crescent Petroleum Company International Ltd (CP) & Crescent Gas Corporation Ltd (CG), the English Court rejected NIOC's challenge to an award issued in a London seated arbitration on grounds of jurisdiction and public policy.
NIOC argued that the contract – which was governed by Iranian law – was procured by corruption and therefore invalid. It also argued that this meant that the arbitration agreement was also invalid (such that the tribunal had no jurisdiction) because: (i) Iranian law applied to the question of whether the arbitration agreement was separable; and (ii) Iranian law did not recognise the separability of the arbitration.
The Court rejected this argument. As the arbitration was seated in London, s7 of the Act applied unless it was disapplied by the parties by "agreement to the contrary". While s7 is not a mandatory provision, the Court commented that an "agreement to the contrary" in relation to the specific provision is required to disapply it. The choice of Iranian law as the proper law of the contract was not an agreement to the contrary in relation to separability. Furthermore, the parties' arbitration agreement made clear that the issue of validity of the contract was to be determined by the tribunal. The challenge to the award under s67 was rejected.
The Court also struck out NIOC's challenge based on public policy (which it brought under s68(2)(g) of the Act). NIOC argued that, whilst the tribunal found that the contract was not procured by corruption, the Court, considering English public policy, might take a different view. NIOC was found to have no reasonable prospect of succeeding in its challenge because: (i) the arbitrators had made "a very careful analysis" of the issue in question "after full consideration and evidence"; (ii) NIOC had provided no "fresh evidence"; and (iii) this was not a case of "very exceptional circumstances" that would justify the Court intervening with the arbitrators' decision.
This is a robust, pro-arbitration decision from the English court. In practical terms, it serves as a useful reminder for parties to analyse at the transactional stage the interplay between the different laws that might apply to their disputes and the impact that any conflicting provisions of those laws might have on the procedure for quickly and effectively resolving those dispute. Where potential issues are identified, they should be addressed in the drafting of the dispute resolution provisions. The case further highlights the need to disapply non-mandatory provisions of the Act in clear and specific terms.