The House of Lords decision in Fiona Trust

Yesterday the House of Lords upheld the Court of Appeals decision in Premium Nafta Products
Limited and others v. Fili Shipping Company Limited and others (Fiona Trust). 1 The Lords
endorsed the Court of Appeals view that the time has come to draw a line under the authorities to
date and make a fresh start in relation to the interpretation of arbitration clauses. They also
confirmed the separability of an arbitration agreement from the broader agreement within which it
is usually found, in accordance with Section 7 of the Arbitration Act 1996. The fresh start is to be
that:
the construction of an arbitration clause should start from the assumption that the parties,
as rational businessmen, are likely to have intended any dispute arising out of the
relationship into which they have entered or purported to enter to be decided by the same
tribunal. The clause should be construed in accordance with this presumption unless the
language makes it clear that certain questions were intended to be excluded from the
arbitrators jurisdiction.
Facts
The case concerns the scope and effect of arbitration clauses in charterparties entered into by
companies in the Sovcomflot group of companies as owners. They alleged that the charters were
procured by bribery and purported to rescind the charters on this ground. The question arose as to
whether it was for the Courts to decide if the owners were entitled to do so or if this question
should be determined by arbitration. The owners commenced court proceedings for a declaration
that the charters had been validly rescinded and the charterers applied for a stay under section 9
of the Arbitration Act 1996. Morison J originally refused a stay but the Court of Appeal (Tuckey,
Arden and Longmore LJJ) reversed the first instance decision.
Decision
Lord Hoffmann, giving the leading Opinion, observed that the case raised two issues: first, the
proper approach to the construction of arbitration agreements and, secondly, whether an allegation
of bribery entitling a party to rescind a contract necessarily impugned an arbitration agreement set
out within that contract.
The proper approach to construction
As to the first question, Lord Hoffmann was in no doubt as to the purpose of the arbitration
agreement. That purpose is to refer all related disputes to a tribunal which the parties have chosen
and not, unless clear wording showed otherwise, to refer some types of disputes to one tribunal
and others to another. Lord Hope suggested that ordinary businessmen are unlikely to trouble
themselves too much about [an arbitration agreements] precise language and endorsed Lord
Hoffmanns Opinion, stating that [t]he proposition that any jurisdiction or arbitration clause in an
international commercial contract should be liberally construed promotes legal certainty and that
this approach is now firmly embedded as part of the law of international commerce.
Separability
Turning to the second issue, Lord Hoffmann once again endorsed the one-stop shop principle.
Absent a direct attack on the arbitration agreement, for example if the respondents plea was that it
had not entered into the arbitration agreement because its signature had been forged, or that entry
into the arbitration agreement itself had been procured by bribery, whether or not the arbitration
1

[2007] UKHL 40

October 2007

agreement can be rescinded is a matter to be considered by the tribunal. As Lord Hope said, [t]he
doctrine of separability requires direct impeachment of the arbitration agreement before it can be
set aside.
ECHR
Lord Hoffmann also rejected the owners plea that the approach to construction and separability
adopted by the Court of Appeal infringed their right of access to a court for the resolution of their
civil disputes, contrary to Article 6 of the European Convention on Human Rights, confirming the
Court of Appeals decision in Stretford v The Football Association 2 earlier this year. Arbitration is
based upon agreement and the parties can by agreement waive the right to have recourse to a
court. Lord Hoffmann said that the ECHR was not intended to destroy arbitration.
A final thought
Lord Hoffmann acknowledged that his thoughts might constitute a great disappointment to the
judges who explained so carefully the effects of the various linguistic nuances or fussy
distinctions as Lord Hope, perhaps less kindly, labelled them. They will, however, hopefully lead to
an end to disputes as to whether or not a particular issue arises out of, under, in relation to or
in connection with a main contract. The decision thereby confirms that the Courts should
consider arbitration to be the appropriate forum for a broader range of disputes than the purely
contractual. Accordingly, if parties wish to carve out certain types of dispute from an arbitration
agreement, they will need to make this very clear when drafting their arbitration agreement. Of
course, it remains to be seen whether the non-interventionist principles articulated by the House of
Lords will find favour with the lower courts when considering whether they should interfere in other
issues arising out of contracts which incorporate arbitration agreements.

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[2007] EWCA Civ 238

October 2007