Absence of a bilateral or multilateral treaty for enforcement of judgments between UK and Lebanon leads to English Court issuing anti-suit injunction in favour of arbitration

In the case of Perkins Engines Company Limited v Mohammed Samih Hussein Ghaddar & Ghaddar Machinery Co. S.A.L [2018] EWHC 1500 (Comm) the English Court was asked to issue an anti-suit injunction against court proceedings brought in Lebanon. The relevant dispute resolution clause between the parties provided for English court jurisdiction to the extent that “reciprocal enforcement procedures” exist between the United Kingdom and Lebanon, failing which, disputes were to be submitted to arbitration. The Court found that the ordinary and natural meaning of the words required the existence of a multilateral/ bilateral treaty facilitating reciprocal enforcement of judgments in the United Kingdom and Lebanon. Since no such treaty existed, an anti-suit injunction should be granted against the Respondents in respect of proceedings they had brought in Lebanon.

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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

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.

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The English High Court extends an anti-suit injunction against proceedings brought in breach of an arbitration agreement

In the latest chapter of a long-running dispute (John Forster Emmott v Michael Wilson & Partners [2016] EWHC 3010 (Comm)), different aspects of which have been considered by various jurisdictions around the world for over ten years, the English High Court has continued an anti-suit injunction preventing proceedings in New South Wales on the basis that such proceedings were brought in breach of an arbitration agreement.

This is a welcome reminder that the English courts will take active steps to uphold party agreements to submit their disputes to arbitration and prevent parties from seeking to either side-step arbitration agreements or to re-litigate issues which have already been decided in a different forum.

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Fiona Trust v Privalov in the High Court

The Fiona Trust case is one of the best known decisions in English arbitration case law, setting out a “fresh start” in English jurisprudence with the strong presumption that commercial parties intend all disputes to be determined in a single forum.

That decision did not, however, prevent related litigation in the English courts. The most recent application to the English courts in Fiona Trust v Privalov [2015] EWHC 527 (Comm) has highlighted the difficult path to be followed for the English court in reaching decisions in concurrent litigation proceedings which could impact upon or be seen to prejudge issues in on-going arbitration. Smith J in this case granted an application to clarify the meaning of an order as it would prevent litigation hampering the arbitral process.

Background

The background to the 2007 House of Lords decision in Fiona Trust involved O, the owners of Russian ships which were chartered to C. O claimed to have rescinded the charterparties (including the arbitration clauses within them) on the grounds they had been induced by bribery.

C sought to refer the matter to arbitration and appointed an arbitrator. O applied to court seeking to restrain the arbitration on the basis that the charterparties (including the arbitration clause) had been rescinded for bribery. In response, C applied to stay the court proceedings in favour of arbitration under s 9 of the Arbitration Act 1996. The Court of Appeal ordered the stay (the “CofA Order“), ruling that the scope of the arbitration clause was wide enough to encompass a fraud claim. This was subsequently upheld by the House of Lords (now the Supreme Court). Following this decision, the parties appointed an arbitral tribunal.

In 2009, O brought fresh proceedings in the English courts. In these proceedings O pleaded that, by causing or permitting the charterparties, certain defendants had acted in breach of fiduciary or other duties owed to O. As part of these pleadings, O continued to plead that the charterparties and their arbitration provisions had been rescinded. The relief sought divided broadly into two types: (1) various heads of damage which were not dependent on the rescission of the charterparties; and (2) monetary claims relating to, or consequential on, rescission of the charterparties.

In 2010, Smith J in the High Court dismissed the claims as they were based on dishonesty and a finding there had been no dishonesty had been made. Counsel was asked to assist in the drafting of an order to that effect (the “2010 Order“).

2015 proceedings

The application in these proceedings came before Smith J again in the High Court. The application was made on the basis that the 2010 Order did not prevent O from bringing monetary claims consequential on rescission of the charterparties in the courts, as it was only the claim for a declaration that the charterparties had been validly rescinded which had been stayed by the CofA Order. The parties sought clarification under the Court’s discretionary powers as to the meaning of the 2010 Order.

Smith J was not persuaded to exercise any discretionary power to enable O to pursue claims for consequential monetary relief. If the claims were stayed under the CofA Order, they could not be pursued as no application had been made to lift the stay. The claims which had not been stayed had come to trial before Smith J in the 2009 proceedings (resulting in the 2010 Order) and no order had been made to allow O to try consequential monetary relief claims separately. It was not open to a party to decide, without reference to the Court, not to argue all their points at trial and then try to bring a separate claim at a later date.

Smith J continued that the only other reason to exercise the discretion sought to clarify the 2010 Order would be if it would assist the arbitration proceedings. Smith J refused to use CPR 3.1 to grant any of the applications to clarify. Neither would he use CPR 40.12 to “correct” the 2010 Order, as there was no accidental ‘slip or omission’ in the drafting of the order. Smith J said that the 2010 Order had not dealt with the specific possibility of consequential monetary claims as it had not occurred to him that the parties believed that those claims had not been stayed by the CofA Order – if he had realised this, he would have included wording to the effect that, in so far as not covered by the stay, such claims were dismissed. Smith J, using the inherent power referred to in CPR 40 BPD4.5, and after concluding that use of the power would not trespass on the arbitrators’ territory because it actually would prevent the litigation hampering the arbitral process, asked counsel to assist in drafting an order to this effect.

Comment

Throughout this judgment, Smith J appears conscious of a tension that he should endeavour not to express a view on questions which might rest within the jurisdiction of the Tribunal or on which the Tribunal might wish to reach its own conclusion. In particular, he did not wish to create a res judicata on the scope of the 2010 Order which might compromise the efficacy of the arbitration agreements. However, while Smith J was conscious of not stepping on the toes of the Tribunal, he accepted that in order to deal properly with the application, he would have to take a view on some matters which had been referred to arbitration.

The case demonstrates the difficulties caused by related claims in different fora. Concurrent disputes such as this one on similar and related issues will provoke difficult questions for both a court and tribunal as to which has the ultimate jurisdiction to determine any particular issue. While such tensions will continue to arise, the Court’s efforts here to continue to support the parties’ choice of arbitration – and to allow space for that arbitration to reach its own conclusions – is extremely welcome.

For further information, please contact Nicholas Peacock, Partner, or your usual Herbert Smith Freehills contact.

Nicholas Peacock
Nicholas Peacock
Partner
+44 20 7466 2803

 

Commercial Court provides guidance on “serious irregularity” and confirms arbitral tribunal has jurisdiction to determine contractual rights and obligations in light of criminal conduct

In the recent decision of Interprods Ltd v De La Rue International Ltd [2014] EWHC 68 (Comm), the English Commercial Court dismissed the challenges under sections 67 and 68 of the Arbitration Act 1996 (the Act) against an arbitral award. In this case, the arbitrator held that the defendant (De La Rue) had been entitled to terminate agency agreements with the claimant (Interprods) and was not obliged to pay outstanding commission to it in circumstances where a representative of Interprods had allegedly stated that such commission would be used to pay bribes.

Interprods challenged the award under: (i) section 67 of the Act on the basis that the arbitrator had lacked jurisdiction to make the award in question; and (ii) section 68 of the Act on the basis that there had been serious irregularities in the making of the award.

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English High Court upholds two challenges to jurisdiction

The English High Court has recently set aside two arbitration awards under section 67 of the Arbitration Act 1996 (1996 Act) on the grounds of lack of substantive jurisdiction. A tribunal will lack substantive jurisdiction if, inter alia, there is no valid arbitration agreement.

In Hyundai Merchant Marine Company Limited v Americas Bulk Transport Limited [2013] EWHC 470 (Comm) a contract for a time charter and an alleged arbitration agreement were contained in the same document. Eder J found that if there was no consensus between the parties as to the charter, there could be no binding arbitration agreement. On the facts, there was no evidence that the parties intended the alleged arbitration agreement to have effect independently of the existence of the main agreement. In the circumstances, the court found that the questions of whether there was a binding main contract and/or binding arbitration agreement stood or fell together.

In Lisnave Estaleiros Navais SA v Chemikalien Seetransport GmbH [2013] EWHC 338 (Comm) the court found that an arbitration clause in a shipyard’s General Conditions applicable to individual ship repair contracts was not incorporated by way of a prior course of dealing into a Ship Repair Fleet Agreement (the Fleet Agreement) between the shipyard and the agent of the ship owners.

The test for incorporating terms into a contract by way of a prior course of dealing is whether the parties must have intended the relevant term to form part of their contract. The court found that it was impossible to conclude that it was obvious that the parties intended the arbitration clause to apply. The judge urged caution in relying in cases such as this on Lord Hoffmann’s comments in Fiona Trust v Privalov [2008] 1 Lloyd’s Rep 254 to the effect that it should be assumed that parties, as rational businessmen, are likely to have intended any dispute arising from their relationship to be decided by the same tribunal. Lord Hoffmann’s comments were made in the context of construction of arbitration agreements to which the parties have expressly agreed. It was an entirely different matter to apply this line of reasoning to the incorporation of arbitration clauses to which the parties have not expressly agreed.

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