In the recent case of Fimbank PLC v KCH Shipping Co Ltd  EWHC 1765 (Comm), the High Court (the “Court”) refused to grant an extension of time under either s12(3)(a) or s12(3)(b) Arbitration Act 1996 (the “Act”) for FIMbank PLC (“Fimbank”) to pursue a claim in arbitration against KCH Shipping Co Ltd (“KCH”).
Tag: Nicholas Peacock
In the recent case of Daiichi Chuo Kisen Kaisha v Chubb Seguros Brasil  EWHC 1223 (Comm) (available here) the English High Court granted an anti-suit injunction to compel a claimant to discontinue Brazilian court proceedings which it had pursued in breach of an undertaking not to pursue the relevant contractual claim otherwise than through arbitration in England.
The global financial markets are currently preparing for the phasing out of the London Inter-bank Offered Rate (or LIBOR) and other Inter-bank Offered Rates (or IBORs). LIBOR is the most widely used benchmark interest rate globally, employed in an estimated US$350 trillion worth of financial contracts worldwide. LIBOR may also be used in commercial contracts – for example, in price adjustment mechanisms in share purchase agreements, price escalation clauses or as a reference rate for contractual interest on late payments. LIBOR may also be specified in arbitration clauses as a benchmark rate for interest on the award.
The clock is now ticking towards the deadline of the end of 2021 for the market to be ready but there is concern that many contracts will not be amended voluntarily by that time. Recognising the impact on existing contracts of the transition, the Tough Legacy Taskforce, part of the industry-led Working Group on Sterling Risk-Free Reference Rates, was set up to provide market input regarding the ‘tough legacy’ of products that may prove unable to be converted or amended to include robust fallbacks to address the end of LIBOR. Last month the Tough Legacy Taskforce published its report (the Tough Legacy Paper). As discussed in detail in our blog post here, the Tough Legacy Paper serves to highlight the difficulties in amendment of contracts, and particularly the complex relationship between contracts in different asset classes in many transactions.
Many financial instruments affected by the discontinuation of LIBOR will include arbitration clauses. As discussed below, whilst the substantive disputes arising from the end of LIBOR will be the same whether they are resolved in a court or by an arbitral tribunal, there are some additional considerations particular to the arbitration process which are relevant in the context of LIBOR discontinuation disputes. Further, even when determining a dispute which does not arise from the end of LIBOR, arbitral tribunals may have to grapple with how to award interest where an arbitration clause uses LIBOR as a reference point. Read more in the E-bulletin here.
In Times Trading Corporation v National Bank of Fujairah (Dubai Branch)  EWHC 1078 (Comm) the English High Court (the “Court”) granted an anti-suit injunction, restraining National Bank of Fujairah (Dubai Branch) (“NBF”) from continuing its claims in the Singapore High Court in breach of an arbitration clause, despite the fact that the existence of the underlying contract containing the arbitration agreement was disputed.
In Petrochemical Logistics Limited, Mr Axel Krueger v PSB Alpha AG, Mr Konstantinos Ghertsos  EWHC 975 (Comm) the English High Court considered whether it would be “just and convenient” to maintain two freezing injunctions against the Defendants in support of a London-seated LCIA arbitration. The court declined to continue either injunction, finding insufficient connection with England and Wales in relation to the first injunction (over the bearer shares of a Swiss company), and insufficient risk of dissipation in relation to the second (over shares and assets in a Dutch company). In considering the individual circumstances of the case, the court provided helpful analysis on the exercise of the court’s jurisdiction in support of English and foreign seated arbitral proceedings.
Herbert Smith Freehills has issued the latest edition of its India arbitration e-bulletin.
In this issue we consider various court decisions, which cover issues such as the constitutional validity of s87 of the Arbitration Act, setting aside an award on the grounds of bias, and the time limits surrounding enforcement of awards. In other news, we consider the latest developments regarding COVID-19, the UAE becoming a reciprocating territory for the enforcement of judgments, as well as India-related bilateral investment treaty news and other developments. Continue reading
The Russian Supreme Court (the “SC”) has seemingly put an end to the enforcement battle in Atlantic Hermes Shipping Limited v OOO Strakhovaya Kompaniya Soglasie (Limited Liability Company Insurance Company Soglasie) (Case No. A40-153265/2019). In its decision dated 27 February 2020, the SC confirmed that the removal of a party-appointed arbitrator from the list of recommended arbitrators published by an arbitral institution administering the arbitration (the “List”) did not, in itself, enable the other party to challenge the arbitral award. The SC also confirmed that parties are not prohibited from instructing, as their legal representative in the arbitration, a person who was also a recommended arbitrator on the List.
In June 2019, an arbitral tribunal administered by the Maritime Arbitration Commission at the Russian Chamber of Commerce and Industry (the “MAC”) issued an award (the “Award”) in favour of the claimant, Atlantic Hermes Shipping Limited (“Atlantic”). The defendant in the arbitration, Limited Liability Company Insurance Company Soglasie (“Soglasie”) refused to honour the Award voluntarily.
Russian court proceedings: first instance court decision
Atlantic sought to enforce the Award in the Russian courts. Soglasie resisted enforcement and applied to set aside the Award, arguing that it violated Russia’s public policy for two reasons:
- During the arbitration proceedings, the arbitrator appointed by Atlantic was removed from the List recommended by the MAC. However this removal was not communicated to Soglasie. As a result, Soglasie was allegedly precluded from challenging the arbitrator on this basis.
- Atlantic’s legal representative in the arbitration was listed as a recommended arbitrator on the MAC List. Soglasie argued that this was contrary to the MAC Arbitration Rules, which provided, in the relevant section, that arbitrators had to be impartial and independent, and could not act as counsel in the same arbitration in which they sat as an arbitrator.
In September 2019, having joined the parties’ applications in the same proceedings, the first instance court sided with Soglasie, dismissing Atlantic’s enforcement application and setting aside the Award (the “Set Aside Decision”). The court held that the Award was issued in breach of Russia’s public policy, as the arbitrators blatantly violated the well-established principles of administration of justice and principles of Russian law.
Set Aside Decision overturned
Russian court proceedings: Cassation Court Decision
In November 2019, the Moscow District Court (the “MDC”) overturned the Set Aside Decision and sent the case back to the court of first instance for re-consideration (the “Cassation Court Decision”).
The MDC noted that the parties were not under an obligation to appoint arbitrators from the MAC List (there was no such requirement either under Russian law, or in accordance with the MAC Arbitration Rules, or indeed in the parties’ agreement). It was therefore open to Atlantic to appoint an arbitrator who was not listed on the MAC List. Although the removal of the arbitrator appointed by Atlantic was a matter of public knowledge, Soglasie failed to raise its objections during the arbitration, and had therefore waived its right to do so.
Further, according to the evidence provided by the parties, while the arbitration was still on-going, five months after the Atlantic-appointed arbitrator was removed from the MAC List, the parties entered into a written agreement confirming that they agreed to the composition of the tribunal and there were no grounds for challenge of the arbitrators; it was therefore not open to Soglasie to renege on its agreement in this respect. The MDC determined that Soglasie’s failure to raise the objections during the arbitration constituted a clear waiver of its right to raise the same objections during Russian court proceedings.
On Soglasie’s second argument, the MDC held that Atlantic’s legal representative acted solely in his capacity as counsel and he was not appointed to act as an arbitrator in this case. Therefore, he was not under a duty to act impartially, or to act as an independent and neutral party, in this arbitration.
Finally, the MDC reiterated that the notion of “public policy” (which we discussed in more detail in one of our previous blog posts) was to be construed as comprising only highly imperative and universal fundamental principles, which had particular social and public importance, and formed the basis of the Russian economic, political and legal system. It concluded that the factual circumstances referred to by Soglasie were not related to public policy.
Russian court proceedings: re-consideration by the first instance court
In December 2019, the first instance court followed the directions given by the MDC in the Cassation Court Decision, issuing an execution writ long-sought by Atlantic (the “Re-consideration Decision”). Soglasie attempted to challenge the Cassation Court Decision in the SC and the Re-consideration Decision in the MDC. Both appeal attempts were unsuccessful. We discuss the SC decision in more detail below.
Russian court proceedings: Supreme Court decision
The SC carried out a limited review of the case, deciding that there were no circumstances that would merit a full review. The SC agreed with the conclusions in the Cassation Court Decision. It has therefore confirmed that, as a matter of Russian law, a removal of a party-appointed arbitrator from a list of recommended arbitrators published by the administering arbitral institution does not, in itself, enable the other party to challenge the arbitral award. It has also determined that parties are not prohibited to instruct, as their legal representative, a person who is also a recommended arbitrator on such a list.
The SC decision in this case follows its previous guidelines, which attempted to narrow down the scope of “public policy” and suggested that Russian courts should refuse recognition or enforcement of an arbitral award on public policy grounds only in exceptional circumstances. Although, strictly speaking, the SC decision is not binding on the lower courts, it may also prove to be a helpful point of reference for parties seeking to enforce arbitral awards in Russia.
For more information, please contact Nicholas Peacock, Partner, Alexei Panich, Partner, Alexander Gridasov, Associate, Olga Dementyeva, Associate, or your usual Herbert Smith Freehills contact.
In Seniority Shipping v City Seed Crushing Industries, “Joker”,  EWHC 3541 (Comm), the English Commercial Court granted an anti-suit injunction restraining proceedings brought by City Seed before a Bangladeshi court in breach of an arbitration agreement incorporated by reference in the bills of lading under which the dispute arose (the “Bills of Lading”). The Court first found that the arbitration agreement had been effectively incorporated from the relevant voyage charter and considered the law applicable to this issue of incorporation. The Court then concluded that, despite some steps taken by Seniority Shipping in the foreign proceedings, there was no good reason not to grant the anti-suit injunction.
Seniority Shipping Corporation (“Seniority Shipping”) were owners of the m.v. Joker, a ship which collided with a tanker within Bangladesh waters, causing damage to cargo. City Seed Crushing Industries (“City Seed”) – as holder of the Bills of Lading and the intended recipient of the cargo – then filed a suit in Bangladesh (the “Cargo Claim”). The Bangladeshi court ordered the arrest of the ship.
Seniority Shipping subsequently issued proceedings in the English Commercial Court and filed an application for an anti-suit injunction in respect of the Cargo Claim on the basis that any claims arising under or relating to the Bills of Lading should have been referred to arbitration. Seniority Shipping argued that:
- the Joker was operating under a time charter between Seniority Shipping and DHL Project & Chartering Ltd (“DHL”) and a voyage charger between DHL and COFCO (the “Voyage Charter”).
- Clause 6 of the Voyage Charter, entitled “Law & Arbitration Clause” provided that: (a) the Voyage Charter was governed by English law; and (b) disputes which have not been settled shall be referred to arbitration in London in accordance with the small claims procedure of the LMAA.
- The Bills of Lading incorporated this arbitration agreement by reference. Based on the Congenbill 1994 form (a standard form designed to be used with charter-parties), the Bills of Lading provided that “all terms and conditions… of the Charter Party [i.e. the Voyage Charter], dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated” (emphasis added).
The Commercial Court granted an interim injunction restraining City Seed from continuing or further prosecuting the Cargo Claim. While Seniority Shipping participated in the Cargo Claim before the Bangladeshi court (discussed below), City Seed did not participate in the action before the Commercial Court.
The Court’s decision
In its decision on the question of a final anti-suit injunction, the Court considered two issues: (a) was the incorporation of the arbitration agreement in the Bills of Lading effective; and (b) if so, should the Court grant an anti-suit injunction restraining the Cargo Claim in breach of the arbitration agreement?
Was the incorporation of the arbitration agreement effective?
The Court began its analysis by determining the law applicable to the issue of incorporation. Applying English conflict of laws rules, the Court noted that the question of whether the Bills of Lading incorporated the express choice of English law from the Voyage Charter would typically be governed by English law by virtue of Article 10(1) of the Rome I Regulation. This Article 10(1) provides that “the existence and validity of a contract, or of any term of a contract, shall be determined by the law which would govern it under this Regulation if the contract or the term were valid” (emphasis added). However, Article 10(1) is subject to Article 10(2) of the Rome Regulation (addressed below).
If the choice of English law was incorporated from the Voyage Charter, the question whether the arbitration clause from the Voyage Charter was incorporated in the Bills of Lading would also be governed by English law (based on conflict of law rules under English common law as the Rome I Regulation does not apply to arbitration agreements.)
The Court found that if the issue of incorporation was governed by English law, it could “straightforwardly” conclude that the arbitration clause from the Voyage Charter had been incorporated in the Bills of Lading: the Bills of Lading expressly incorporated the “Law and Arbitration Clause” from the Voyage Charter and that was sufficient as a matter of English law.
Therefore, the only question was whether Article 10(2) of the Rome I Regulation precluded the application of English law to the issue of incorporation. In essence, pursuant to Article 10(2), the effectiveness of the incorporation of the choice of English law from the Voyage Charter would be determined by reference to the law of Bangladesh (i.e. the law of the country in which City Seed has habitual residence) if it was unreasonable to apply English law to that question.
The Court found that it was “eminently reasonable and in accordance with the ordinary expectations of international trade” to determine the effectiveness of the incorporation by reference to English law. The Court explained that City Seed, as a buyer who wished to leave to its seller responsibility for arranging carriage, had full freedom to contract and specify the terms on which the seller should cause it to become party to the Bills of Lading with Seniority Shipping. In the absence of evidence to the contrary, the Court considered that the Bills of Lading, which were in a very well-known, widely used form, may be taken to have conformed with City Seed’s contractual requirements. If City Seed did not wish to refer disputes to London-seated arbitration or agree to any other terms of the Bills of Lading or the Voyage Charter whose terms were incorporated in the Bills of Lading, it was free to choose to contract on that basis.
In conclusion, the Court held that the incorporation of the arbitration agreement in the Bills of Lading was effective and City Seed was therefore bound to refer any disputes relating to the Bills of Lading (in this case, concerning the damage to the cargo) to London-seated arbitration. It also followed that the Cargo Claim – the proceedings before the Bangladeshi court – was in breach of this arbitration agreement.
Should the Court issue an anti-suit injunction restraining the Cargo Claim?
It is well settled that, where foreign proceedings are brought in breach of a London arbitration agreement, the Court would enforce the negative aspect of that arbitration agreement (i.e. the obligation on the parties not to bring such foreign proceedings) by granting an anti-suit injunction unless there are good reasons not to restrain the foreign proceedings (including if they are covered by the intra-EU Brussels Regulation). Referring to The Angelic Grace,  1 Lloyd’s Rep 87, the Court considered that it would be right to restrain the Cargo Claim unless (a) Seniority Shipping had allowed the Cargo Claim to proceed so far and/or had participated in it to such an extent that it would now be inappropriate to interfere, or (b) there was some other good reason why City Seed should not be restrained.
As to (b), the Court held that the burden of establishing good reason lay upon City Seed. By choosing not to participate in the injunction proceedings, City Seed had chosen not to seek to discharge the burden. Nevertheless, the Court did briefly consider whether the possibility that City Seed would not comply with the anti-suit injunction was a good reason not to grant it (on the basis that equity would be acting in vain). The Court concluded that this should not affect its analysis because: (i) the fact that City Seed would not comply with the anti-suit injunction could not be inferred simply from its refusal to participate in the proceedings and/or other facts; and (ii) the Court should not lightly hold that it would be acting in vain if it granted the anti-suit injunction – the prospect of contempt proceedings against City Seed, its directors and/or insurers should not be assumed to be without value.
As to (a), the Court considered why, and the extent to which, Seniority Shipping had participated in the Cargo Claim before the Bangladesh Court. The Court found that while there was not complete inactivity on Seniority Shipping’s part before the Bangladeshi Court, Seniority Shipping’s participation did not advance the Cargo Claim to such an extent as to make it now inappropriate to interfere. In particular, the Court noted:
- Seniority Shipping issued proceedings in the English court and applied for an anti-suit injunction “perfectly promptly” (as the Cargo Claim was filed on 14 May 2019 and the English court proceedings were issued on 3 June 2019).
- Seniority Shipping had neither done nor allowed anything to be done to advance the proceedings before the Bangladesh Court. Its participation was restricted to steps which were reasonably required to free the Joker from arrest, which arrest was a result of a breach of contract by City Seed.
- The steps taken by Seniority Shipping could not be regarded as voluntary submission to the jurisdiction of the Bangladeshi Court.
- Those steps were taken by Seniority Shipping alongside “clear and repeated protest” that City Seed was obliged to refer the matter to arbitration.
- Seniority Shipping’s three appearances before the Bangladesh Court to obtain extensions of time to file a Written Statement of Defence should not have been necessary and “were capable in principle, and if judged in isolation, of amounting to a voluntary submission … to the jurisdiction of the Bangladesh court”. However, in the context of the other steps Seniority Shipping had taken (the bullet points above), the Court did not view Seniority Shipping’s appearances as amounting to voluntary submission.
In conclusion, the Court found that there was no good reason not to restrain the foreign proceedings and granted a final anti-suit injunction.
The decision in Joker is a helpful reminder that where foreign proceedings are brought in breach of a London arbitration agreement, the English courts may be prepared to grant an anti-suit injunction. More significantly, the decision provides useful guidance for applicants faced with foreign proceedings and seeking anti-suit injunctions:
- An application for an anti-suit injunction should be made promptly. We have previously covered cases (see, for example, here and here) where English courts have denied delayed applications for anti-suit injunctions.
- Careful consideration should be given to whether any steps taken in the foreign proceedings may amount to voluntary submission to the jurisdiction of the foreign court.
As we have previously noted, if the claimant in the foreign proceedings does not voluntarily comply with the English court’s anti-suit injunction, and the applicant is unsuccessful in challenging jurisdiction in the foreign court, the applicant may wish to consider commencing arbitration proceedings (including, potentially for breach of the arbitration agreement) in order to obtain an award. This may be appropriate where the claimant in the foreign proceedings has assets in the UK or in another New York Convention country other than that in which the vexatious claims are brought.
For further information, please contact Nicholas Peacock, Partner, Divyanshu Agrawal, Associate, or your usual Herbert Smith Freehills contact.
In the recent case of Albion Energy Ltd v Energy Investments Global BRL  EWHC 301 (Comm) (available here) the English High Court refused to stay court proceedings under section 9 of the Arbitration Act 1996 in a case involving competing jurisdiction and arbitration clauses.
The case concerned a claim for summary judgment in the English High Court brought by the seller of shares against the buyer for an outstanding payment due under a sale and purchase agreement (“SPA”). The SPA contained an exclusive English court jurisdiction clause. However, after the SPA had been executed (and before the court claim commenced), the parties had agreed to hold the disputed payment in escrow, in order to attempt to resolve the dispute. The escrow agreement contained an arbitration clause providing for London-seated ICC arbitration.
The relevant question before the court was whether the arbitration agreement in the escrow agreement operated to supplant the jurisdiction clause in the SPA. If it did, the seller’s summary judgment claim would have been commenced in breach of the arbitration agreement and would be stayed by the court under section 9 of the Arbitration Act 1996 (the “Act”).
The court determined, after analysing the contractual documents, that the arbitration agreement in the escrow agreement did not supplant the jurisdiction clause in the SPA in respect of the summary judgment claim. It therefore refused to stay the court proceedings under the Act. In reaching this decision, the court provided useful guidance in resolving conflicts between competing jurisdiction and arbitration clauses across different agreements.
The dispute arose from an SPA for the sale of shares between Albion Energy Ltd (“Albion”) as seller and Energy Investments Global BRL (“EIGL”) as buyer. The SPA provided that EIGL would pay for the shares in instalments. In addition to Albion and EIGL, there were four other parties to the SPA including the owner of Albion, a Mr Buckingham. The SPA contained an exclusive court jurisdiction clause which provided as follows:
“The Parties submit to the exclusive jurisdiction of the courts of England and Wales as regards any claim, dispute or matter (whether contractual or non-contractual) arising out of or in connection with this agreement (including its formation).”
EIGL paid the first two instalments under the SPA but refused to pay the third instalment of US$33.3 million. It argued that it had legal claims against Mr Buckingham and Albion which entitled it to withhold payment under the SPA.
Following solicitors’ correspondence, Albion and EIGL agreed that US$20 million would be paid unconditionally by EIGL to Albion and that the remaining US$13.3 million would be held in escrow pursuant to an Escrow Agreement. The parties to the Escrow Agreement were Albion, EIGL and Mr Buckingham (but not the other three parties to the SPA). The Escrow Agreement provided that the parties would exchange information, would attempt to resolve the dispute, and would not commence proceedings before a specified date. The Escrow Agreement expressly provided that payment into escrow was without prejudice to the parties’ legal rights under the SPA.
The dispute resolution clause in the Escrow Agreement provided that:
“Any dispute or difference (whether contractual or non-contractual) arising out of or in connection with this letter (including any question regarding its existence, validity, interpretation performance or termination) shall be referred to and finally settled by arbitration [in London under the ICC Rules].”
Commencement of proceedings and applications to the court
Albion commenced proceedings against EIGL and brought an application for summary judgment in respect of the outstanding US$13.3 million held in escrow.
EIGL applied to stay the court proceedings under section 9 of the Act, which provides:
“Stay of legal proceedings.
(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.
(4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.”
EIGL’s position was that the arbitration agreement in the Escrow Agreement varied or supplanted the exclusive jurisdiction clause in the SPA in respect of the claim for US$13.3 million. Alternatively, it argued that summary judgment should not be granted because it had a realistic prospect of defending the claim for payment on the merits.
The court observed that:
- Before ordering a stay under section 9 of the Act, the court must be satisfied both that there is an arbitration clause and that the subject matter of the claim falls within that clause.
- There are occasions when the court is willing to stay proceedings under its case management jurisdiction, in order to allow the arbitration tribunal to consider these matters under its kompetenz kompetenz
- However, in this case neither party (in the judge’s view, correctly) suggested that this was the appropriate course or that the court should not finally determine the question.
The court considered the guidance provided by Hamblen LJ in BNP Paribas v Trattamento Rifiuti Metropolitani SpA  EWCA Civ 768 in interpreting competing dispute resolution provisions across different contracts which are part of a single transaction. These guidelines include the following:
- Where the parties’ overall contractual arrangements contain two competing jurisdiction clauses, the starting point is that a jurisdiction clause in one contract was probably not intended to capture disputes more naturally seen as arising under a related contract.
- A broad, purposive and commercially-minded approach is to be followed.
- Where the jurisdiction clauses are part of a series of agreements they should be interpreted in the light of the transaction as a whole, taking into account the overall scheme of the agreements and reading sentences and phrases in the context of that overall scheme.
- It is recognised that sensible business people are unlikely to intend that similar claims should be the subject of inconsistent jurisdiction clauses.
- The starting presumption will therefore be that competing jurisdiction clauses are to be interpreted on the basis that each deals exclusively with its own subject-matter and they are not overlapping, provided the language and surrounding circumstances so allow.
- The language and surrounding circumstances may, however, make it clear that a dispute falls within the ambit of both clauses. In that event the result may be that either clause can apply rather than one clause to the exclusion of the other.
The court noted, however, that this guidance may apply with less force where (as in the present case) the parties had entered a second agreement after the first agreement, rather than multiple agreements at the same time.
The court also observed that in situations where there is a principal agreement and a security agreement, it is not unusual for the parties to agree to submit disputes under the principal agreement to one form of dispute resolution (often arbitration) and disputes concerning security to another (often court).
In the court’s view, the claim brought by Albion concerned its entitlement to be paid the purchase price under the SPA, rather than the operation of the Escrow Agreement so as to realise the benefits of the security. As a consequence, the claim fell outside the scope of the arbitration agreement in the Escrow Account and the application for a stay under section 9 was refused. The reasons for this conclusion included:
- It was inherently more likely that the arbitration agreement was intended to address the security and other ancillary obligations under the Escrow Agreement, rather than to displace the jurisdiction clause under the SPA for determining EIGL’s liability to Albion.
- The reference in the arbitration agreement to disputes arising in relation to “this letter” suggested that the focus of the clause was on obligations under the letter (i.e. the Escrow Agreement) rather than obligations under the SPA.
- The express recognition in the Escrow Agreement that it was without prejudice to the parties’ rights under the SPA suggests that the arbitration agreement was not intended to take away the right conferred under the jurisdiction clause in the SPA to commence court proceedings.
- The Escrow Agreement only involved three of the six parties to the SPA. This suggested that it was intended only to have a localised effect, in order to avoid the commercially unattractive position where claims between some of the parties to the SPA are subject to court jurisdiction, while other related claims under the SPA are subject to arbitration.
After dismissing EIGL’s application for a stay, the court decided to grant Albion’s application for summary judgment.
The case provides a useful illustration of the interpretation exercise that will be carried out by the English court in determining which of two competing dispute resolution clauses ought to apply to a claim. In particular, it reinforces that:
- Some of the guidelines which generally apply where multiple contracts are entered at the same time may apply with less force where the parties have entered successive agreements at different times.
- The court may consider that there is nothing unusual about the parties choosing to resolve disputes relating to security in a different forum from disputes relating to the parties’ principal obligations.
The case also serves as a reminder that care must be taken when drafting dispute resolution clauses across multiple contracts. Had the arbitration clause in the Escrow Agreement expressly addressed its relationship with the jurisdiction clause in the SPA, the case – and the associated expenditure of time and money – might have been avoided.
For more information, please contact Nicholas Peacock, Partner, Aaron McDonald, Senior Associate, or your usual Herbert Smith Freehills Contact.
In Filatona Trading v Navigator Equities  EWCA Civ 109, the English Court of Appeal upheld a judgment of the High Court (which we discussed here) relating to an LCIA arbitration concerning ownership of a Russian textile company. The main issue in the appeal was whether a party who did not sign an agreement was entitled to enforce rights under it (including the right to arbitrate), on the basis that an agent had entered into the agreement on the non-signing party’s behalf.
The Court found, in the circumstances of this case, that the principal was able to enforce the agreement and so the LCIA arbitration initiated by the principal was validly commenced. The judgment offers important guidance on when a person who is not a signatory to a contract can enforce its terms, including the arbitration clause.
We discussed the background to this case in more detail in our previous post here. Briefly, Ms Danilina and Mr Deripaska were signatories to a shareholders agreement (“SHA”) relating to the ownership of shares in a Russian textile company. Mr Chernukhin was not a signatory to the agreement, nor was he named in the SHA. However, he argued that Ms Danilina entered into the agreement on his behalf and Mr Deripaska knew this. Mr Chernukhin was thus, he claimed, a party to the SHA as a disclosed principal, with Ms Danilina as his agent.
A dispute arose under the SHA and Mr Chernukhin commenced an LCIA arbitration. The tribunal issued an award, finding that Mr Chernukhin was a party to the SHA and that the tribunal had jurisdiction over the claim. Ms Danilina and Mr Deripaska challenged the award under s67 of the Arbitration Act 1996 (“the Act”), arguing that the tribunal had no jurisdiction over the claims by Mr Chernukhin as he was not a party to the SHA. Mr Deripaska also challenged the award under s68 of the Act on the basis that there was a serious irregularity affecting the award.
Commercial Court decision
The Commercial Court dismissed the claims of Ms Danilina and Mr Deripaska, finding that Ms Danilina had, in fact, entered into the SHA as an agent for Mr Chernukhin and that there was nothing in the SHA that prevented Mr Chernukhin from enforcing its terms. The Commercial Court judgment addressed other issues, including whether the tribunal had the power to order a buy-out of shares pursuant to Cypriot company law, but this and other issues were not the subject of the appeal.
Court of Appeal decision
The permission to appeal was granted on a limited basis and the Commercial Court’s finding of fact that Mr Chernukhin was a party to the SHA by virtue of the principal-agent relationship could not be challenged. The appeal instead focussed on whether “the terms and surrounding circumstances of the contract, either expressly or by necessary implication, excluded Mr Chernukhin from exercising contractual rights (including the right to arbitrate)”.
The Court of Appeal judgment noted that English law makes a “beneficial assumption” in commercial cases that an undisclosed principal is generally entitled to enforce the contract in their own name. It was stated that the same approach should apply where the person is a disclosed principal. The relevant question was whether there were “clear and unambiguous words or indications of an intent to exclude the known and identified principal”. There was a “heavy burden of persuasion” on the party who argues that an identified principal should be excluded from a contract.
Having regard to the contract in question and the surrounding circumstances, it was then considered (i) why Mr Chernukhin was not named as a party to the SHA and (ii) whether, in light of this circumstance, the SHA was to be construed as excluding him from the contract. It was likely that all parties knew that Mr Chernukhin was a party to the SHA, even though he was not named in the SHA, which was mainly related to his position in a Russian financial institution. There was nothing in the wording of the SHA that demonstrated a clear intention to prevent Mr Chernukhin from exercising rights under the SHA.
This case is a relatively rare instance of a s67 application reaching the Court of Appeal. The failure of the challenge in Filatona is a further example of the English courts’ reluctance to overturn arbitral awards and the courts’ non-interventionist approach.
For further information, please contact Nicholas Peacock, Partner, Rebecca Warder, Professional Support Lawyer, Nihal Joseph, Associate, or your usual Herbert Smith Freehills contact.