English Commercial High Court: Does an arbitration clause in the underlying contract provide jurisdiction to an arbitral tribunal to address claims under the bill of exchange? Whether ‘Ruling on Jurisdiction’ of an arbitrator is an ‘award’ for the purposes of challenging an award on substantive jurisdiction

Sally Roberts court case

 

In the recent case of Uttam Galva Steels Led v Gunvor Singapore Pte Ltd [2018] EWHC 1098 (Comm) (10 May 2018), the English Commercial High Court addressed the issue of whether or not an arbitration clause covers a claim on the Bills of exchange, as against one on the underlying contract of sale and whether ‘Ruling on Jurisdiction’ of an arbitrator is an ‘award’ for the purposes of challenging an award on substantive jurisdiction. The Court answered both issues in affirmative. A brief case analysis is as follows:

Factual Matrix

Uttam Galva Steels Ltd. (Uttam), an Indian steel manufacturing company entered into a contract with a Singaporean company Uttam and Gunvor Singapore Pte Ltd (Gunvor) for sale and purchase of metals. The dispute arose between the parties regarding Gunvor’s delivery of certain quantities of nickel to Uttam and the non-payment by Uttam for that nickel.

The parties signed two contracts – the Master Sales Contracts of 2014 and Master Sales Contract of 2015 which contained General Terms and Conditions for Sale and Purchase of Base Metals. The dispute resolution clause of these Master Sales Contracts (MSG’s) was as follows:

“12.1 Each Contract and these Terms shall be governed by and construed in accordance with the laws of England and Wales.

12.2 All disputes arising out of or in connection with each Contract and/or these Terms shall be finally settled by arbitration in London under the Arbitration Regulations of the LME (the ‘Regulations’), which Regulations shall be incorporated by reference into each Contract and these Terms, by a sole arbitrator appointed in accordance with the Regulations (the ‘Arbitrator’) (the ‘Arbitration’). The final award rendered by the Arbitrator shall be subject to appeal only on questions of law and not of fact, and such appeal if any shall be submitted to the High Court of Justice in London, the UK. This Clause 12.2 shall be governed by and construed in accordance with the laws of England and Wales.”

Before I proceed I would like to mention two important cases which mark importance for analyzing the present case:

Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza Spa [2016] SGCA 53) (Singapore Court of Appeal)

In this case, the Singapore Court of Appeal decided that an arbitration clause in a supply agreement which provided for payment by means of promissory notes did not apply to claims made under those promissory notes. Specifically, under the supply agreement Oltremare sold to Rals certain equipment for the processing of cashew nuts. Oltremare indorsed the promissory notes to a third party. When the third party commenced proceedings to enforce the promissory notes against Rals, Rals applied for a stay in favour of arbitration. Rals argued that the claim under the promissory notes was subject to the arbitration clause in the supply agreement.

Nova (Jersey) Knit v Kammgarn Spinnerei [1977] 1 WLR 713 (House of Lords, England)

In 1972 the English company sold certain machinery to the German company receiving in return 24 bills of exchange payable on different dates between March 1973 and December 1975. After six of them had been honoured, the German company refused further payments, alleging that the bills had been obtained by fraud. The partnership and the German company commenced arbitration proceedings in Germany. In 1974 the English company commenced an action in England claiming payment of the bills. The German company having applied to have the action stayed. Bristow J refused a stay but the Court of Appeal reversed his decision. The House of Lords allowed the English company’s appeal on the basis that the evidence relating to German law, the law governing the arbitration agreement, was to the effect that the arbitration agreement did not extend to the claims on the bills of exchange.

Parties Contentions

Gunvor made its claims under the Bills of Exchange rather than the MSC’s. Reference was made to the General Terms and Conditions contained in MSC’s which contained a London arbitration clause. Uttam expressly recognised this claim of Gunvor was under the Bills of Exchange rather than under the MSC’s.

Gunvor contened that Uttam and Gunvor, as the parties to the MSC’s should be taken as having agreed, through their agreement of arbitration in arbitration clause of MSC’s, to have any disputes between them concerning the MSC’s and so including any claims under the Bills of Exchange, be resolved in one forum, namely arbitration.

Uttam contended that whilst it is accepted that the Arbitrator has jurisdiction under the MSC’s, he has no jurisdiction over Gunvor’s claims under the Bills of Exchange since the Bills of Exchange do not themselves contain any arbitration clause.

Uttam further objected the jurisdiction of the arbitrator arguing that an arbitrator does not have right to give orders pursuant to the Bills of Exchange. This was on the basis that they represent separate contracts and are not governed by the arbitration provision in the main underlying contracts.

The ‘Ruling’ of the Arbitrator

The arbitrator held that in this case the Bills of Exchange are incorporated as an integral part of the underlying contracts, including the provision of arbitration and that the tribunal has jurisdiction. The arbitration clause is wide enough to cover the present disputes. The tribunal held that it does at least have jurisdiction to enforce the payment obligations under the Bills, as well as under the contracts.

Applicable Legal Principle

The application was made under Section 67 of the English Arbitration Act, 1996 (the Act) which is reproduced below:

“67 Challenging the award: substantive jurisdiction.

(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court—

(a) challenging any award of the arbitral tribunal as to its substantive jurisdiction; or

(b) for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction.

A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).

(2) The arbitral tribunal may continue the arbitral proceedings and make a further award while an application to the court under this section is pending in relation to an award as to jurisdiction.

(3) On an application under this section challenging an award of the arbitral tribunal as to its substantive jurisdiction, the court may by order—

(a) confirm the award,

(b) vary the award, or

(c) set aside the award in whole or in part.

(4) The leave of the court is required for any appeal from a decision of the court under this section.”

Analysis

The Court observed that if the Ruling can amount to an award for these purposes 67(1)(a) of the Act where an application can only be made in respect of an “award of the arbitral tribunal as to its substantive jurisdiction” then it should amount to award for all purposes. The Court cited Michael Wilson Partners Ltd v Emmott [2009] 1 Lloyd’s Rep 162, wherein Teare J decided that the relevant decision of the tribunal was not an award for the purposes of section 67(1)(a) but a ruling concerned with procedural matters only. Distinguishing the present case with Michael Wilson Partners (Supra), the Court noted that in the instant case a jurisdictional challenge was made and this resulted in a ruling which was formal in its language in a way which is to be expected of a final and binding decision.

With regard to the jurisdiction, the Court analyzed the landmark judgment of Fiona Trust & Holding Corp. & Others v Privalov & Others [2007] UKHL 40, where Lord Hoffmann observed as follows:

“In my opinion 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 arbitrator’s jurisdiction. As Longmore LJ remarked, at para 17: ‘if any businessman did want to exclude disputes about the validity of a contract, it would be comparatively easy to say so.”

The Court observed that it is very unlikely that Uttam and Gunvor, as commercial parties, would agree to arbitration yet be content to have claims brought under the Bills of Exchange resolved other than in arbitration. It was underlined by the breadth of the wording contained in clause 12.2. “All disputes arising out of or in connection with each Contract and/or these Terms …”  which represents wide wording.  The Court also pointed out that the MSC’s expressly contemplated the issue of bills of exchange, with the “Delivery Documentation” provision requiring “Faxed or scanned copies” of, amongst other things, “(c) A Bill of Exchange in the form of Appendix IV”.

Conclusion

The Court held as under:

  • That the Ruling of an arbitrator does amounts to an award for the purposes of section 67(1)(a).
  • That by agreeing to arbitrate “[a]ll disputes arising out of or in connection with each Contract and/or these Terms …” parties have agreed to bring claims under the Bills of Exchange to be resolved by arbitration.
  • The Court held that the Singapore Court of Appeal’s reasoning in Rals (Supra) is flawed, having been overly influenced by the fact that the claimants in the Rals (Supra) case were (third party) indorsees of the relevant promissory notes. The Court distinguished present case with Rals (Supra) stating that it was not a third party case.
  • The Court further noted that Nova (Jersey) Knit (Supra) is not authority which is directly concerned with any relevant English law principle. The decision was concerned with German law rather than English law. Nova (Jersey) Knit (Supra) substantially pre-dates the Fiona Trust  (Supra) and so what might be described as the more modern approach to arbitration agreements and specifically to how rational businessmen are nowadays to be treated as regarding arbitration agreements into which they have entered.

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