In a recent case of Dreymoor Fertilisers Overseas PTE Ltd. v. Eurochem Trading GMBH  EWHC 909 (Comm), the ‘substantive’ jurisdiction of ICC arbitral tribunal was challenged before English Commercial High Court under section 67 and 32 of the English Arbitration Act, 1996 (the Act) primarily on the ground of what matters arising out of dispute between the parties can be submitted to arbitration in accordance with the arbitration agreement. There was no dispute resolution clause in the underlying agency agreement however each individual sale contract arising out of this agency agreement had their own sets of arbitration clauses (the Long Form and Short form LCIA Clause). In the instant case, the issue was whether the tribunal have jurisdiction over a dispute arose because of alleged bribery committed while performing the underlying ‘umbrella’ agency agreement which had no arbitration clause and whether such dispute is a ‘dispute’ covered by the arbitration clauses under each individual sale contract arising out of an ‘umbrella’ agency agreement. The Court took the view of a ‘reasonable business people’ in arriving at the conclusion that disputes do fall within those arbitration clauses.
ECTG, a Swiss company, entered into a contract with Dreymoor, a Singaporean company entered in to two sets of commercial contracts. Under first agreement, Dreymoor was a principal and direct trading partner with ECTG when buying fertiliser under certain contracts in countries other than India (RoW Contracts). Under second agreements (an ‘umbrella’ agreements) Dreymoor acted as ECTG’s sales agent in respect of certain direct sales of Di-Ammonium Phosphate (DAP) and Mono-Ammonium Phosphate (MAP) from ECTG to end-users in India (DAP/MAP Agency Agreement) and also Dreymoor acted as ECTG’s agent to re-sell fertilisers it had bought from ECTG to third parties (DAP Third Party Sales Contract).
DAP/MAP Agency Agreement itself did not have an arbitration clause but the individual sales contracts each contained the Long Form LCIA Clause. ECTG also appointed Dreymoor as its agent in respect of Urea sales. The Urea Agency Agreements contained the Short Form LCIA Clause. Further, each of the individual Urea sales contracts contained the Long Form LCIA Clause. In the case of DAP Third Party Sales Contract, each individual DAP Third Party Sales Contract contained an ICC Clause for arbitration.
The Long Form LCIA Clause
The Long Form LCIA Clause contained in various Agreements as stated above is as follows:
“The Seller and the Buyer shall do their best to solve any dispute or claim arising out of this Contract by way of negotiation.
If the parties fail to reach settlement of their dispute, controversy or claim by means of negotiations, such dispute, controversy or claim shall be referred to arbitration under the rules (the Rules) of the London Court of International Arbitration. The Rules are deemed to be incorporated by reference into this section. Subject to the Rules, the tribunal will consist of a sole arbitrator agreed between the parties or, if no agreement is reached within 21 days of the contestant party notifying the other party that it intends to initiate arbitration proceedings by registered mail, a sole arbitrator will be appointed under the Rules. The place of any arbitration must be London and the language to be used in proceedings English.
The award of the Arbitration is made by majority of votes on the basis of the terms of the present contract. The applicable law in force hereto is English law.
The award of this arbitration is final and binding upon both parties”.
The Short Form LCIA Clause
Similarly, the Short Form LCIA Clause contained in the contracts as stated above is as follows:
“In case of any disagreement both the parties shall strive to discuss and settle the issues amicably. This agreement is governed exclusively by English law. Disputes on this agreements [sic] shall be settled by LCIA (London Court of International Arbitration)”.
The ICC Clause
The ICC Clause contained in the contracts as stated above is as follows:
“This contract shall be governed by law of England and Wales without reference to its conflict of laws rules. … Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or validity thereof, shall be referred to the arbitration of three persons in London, one to be appointed by Seller, one to be appointed by Buyer and the third by the two so chosen, who shall be chairman. The language of the arbitration shall be English.
Forum: Disputes which cannot be settled amicably within 10 days of their having arisen shall be submitted for decision by arbitration under the Arbitration Rules of the International Chamber of Commerce. Unless otherwise agreed between the parties, the arbitration shall take place in London”.
Dispute arouse amongst the parties and different set of proceedings initiated in different floras in the following manner:
The BVI Proceedings
ECTG brought proceedings in the British Virgin Islands against Dreymoor. In these proceedings ECTG claimed that these proceedings are related only to the RoW Contracts where Dreymoor acted as a principal, not to the contracts relating to India which are the subject of the LCIA and ICC Arbitrations (where Dreymoor acted as ECTG’s agent). Dreymoor challenged the BVI Court’s jurisdiction which was unsuccessful. Dreymoor then appealed to the Eastern Caribbean Court of Appeal which was pending decision.
ECTG requested for LCIA arbitration and Dreymoor challenged arbitrator’s jurisdiction which was dismissed by the arbitrator in a Partial Final Award.
ECTG’s wrote to Dreymoor’s inviting it to agree that “all disputes relating to both the LCIA Agreements and the ICC Agreements be heard before the LCIA Tribunal”. Dreymoor did not do so. ECTG filed request for ICC arbitration. It had the same causes of action, mutatis mutandis, as had been advanced in the LCIA Arbitration Statement of Case. Parties appointed their arbitrators and President for this Tribunal but Dreymoor informed ECTG that it would challenge the tribunal’s jurisdiction.
ECTG contended two former senior employees of ECTG received substantial bribes relating to Dreymoor’s role as its agent and in return for bribes they ensured that ECTG guaranteed certain volumes of high margin products to Dreymoor and arranged for Dreymoor to be appointed as agent for ECTG on sales to Indian buyers on much better terms than they would otherwise have been able to obtain. Further, it was contended that it would be possible to imply a term from DAP/MAP and Urea Sales Contracts into each of the Sales Contracts that it should not be induced by bribery. ECTG stated that DAP/MAP and Urea Sales Contracts were the ‘centre of gravity’ and it was only because of the existence of individual Sales Contracts resulting from the bribery that there were any breaches, or at least any actionable breaches, of the overarching agency arrangements. It was further contended that the rational business people are not to be taken to have intended that disputes were to be resolved by the ‘free for all’ of establishing jurisdiction in an unidentified court system rather than pursuant to the arbitration clauses which they had agreed and incorporated into the DAP/MAP Sales Contracts. In relation to the Urea Agency Agreements, it was contended that these claims were claims ‘on’ the Urea Agency Agreements because the bribery predated them. As to the contracts relevant to the ICC arbitration, ECTG argued that Dreymoor was stated to be, and signed as, a party to the DAP Third Party Sales Contracts, and had a role under the contractual terms of each. There was no basis for saying that a dispute which arose between ECTG and Dreymoor, if it fell within the wording of the arbitration clause in the DAP Third Party Sales Contracts as to subject matter, should not be subject to that arbitration clause.
Dreymoor’s position was that the arbitration agreement in each individual Sales Contract only embraces breaches of that contract of sale, and does not cover the bribery allegations which are the foundation of the claims ECTG makes, whether those claims are formulated in contract or tort. Dreymoor further contended that it was not a party to the DAP Third Party Sales Contracts or at least was not a party to the arbitration clauses contained in them. In relation to Urea, again, Dreymoor argued that the terms of the Long Form LCIA arbitration provision in the Urea Sales Contracts were inapplicable, because the dispute was one which arose in relation to the agency arrangements between the parties. In relation to the contracts relevant to the ICC Arbitration, Dreymoor contended that the disputes, again, arose from the agency arrangements relating to DAP/MAP and not from the DAP Third Party Sales Contracts.
In construing all of the above arbitration clauses, the Court applied the liberal or generous interpretation, avoiding narrow distinctions, which was propounded in Fiona Trust and Holding Corp v Privalov  EWCA Civ 20,  2 Lloyd’s Rep 267. Further, the Court noted that a clause which refers disputes “arising out of” the contract is apt to refer disputes which relate to non-contractual claims, including for pre-contractual misrepresentation and antecedent bribery inducing the contract, as was confirmed by the Court of Appeal in the UBS AG v HSH Nordbank AG  EWCA Civ 585. The Court noticed that the parties as reasonable business people would have contemplated that there might be plausible contractual claims under the individual Sales Contracts if it emerged that they were induced by bribery, and, in any event, would have contemplated that non-contractual claims relating to such bribery would be capable of being resolved under the arbitration clauses provided for in those contracts.
The Court held that that reasonable business people would not have considered that the uncertain jurisdictional position (since there was no jurisdiction or arbitration clause specified in the DAP/MAP Agency Agreement) should apply to a dispute such as the present as opposed to the specified dispute resolution mechanism in the individual contracts.
Similar view taken by Supreme Court of India
In a recent case of Ameet Lalchand Shah vs Rishabh Enterprises decided on 3 May, 2018 (Civil Appeal no. 4690 of 2018 (arising out of SLP(C) No.16789 of 2017)), the Supreme Court of India addressed the issue of whether reference of the dispute between the parties to arbitration is to be refused on the ground of allegations of fraud in the plaint or whether the agreements between the parties ought to be taken as commercial undertaking of the parties “with a sense of business efficacy”. After analyzing line of cases and recent amendment (2015 Amendment Act) in the Indian Arbitration and Conciliation Act, 1996 (the Act), the court held that it is only where serious questions of fraud are involved, the arbitration can be refused. It was further observed by the Court that it is the duty of the Court to impart the commercial understanding with a “sense of business efficacy” and not by the mere averments made in the plaint. Full case analysis available at Supreme Court of India: whether reference to arbitration can be refused on the ground of allegations of fraud or it should be granted treating contract between the parties as commercial undertaking “with a sense of business efficacy”
The Court held that the disputes do fall within those arbitration clauses. It was observed that each of the relevant contracts referred to LCIA Arbitration “any dispute or claim arising out of this Contract”. Those words are wide enough to cover the disputes which ECTG has referred to LCIA Arbitration. With regard to the Urea Sales Contracts, the Court held that parties intended such disputes to be resolved under the arbitration clauses in the individual Sales Contracts. The Court held that the disputes can and should be arbitrated under the LCIA Arbitration clauses in the individual Sales Contracts. In relation with ICC Arbitration, the Court held that the terms of the arbitration clause are very wide: “any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or validity thereof” is referred to arbitration. If a dispute falling within that category is one which involves the Agent, Dreymoor, which, in Court’s opinion, is a party to the contracts, then the Court considered that the arbitration clause applies to it.