Fili Shipping Company Ltd v Premium Nafta Products Ltd; Fiona Trust & Holding Corporation v Privalov

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Longmore
Judgment Date24 January 2007
Neutral Citation[2007] EWCA Civ 20
Docket NumberCase No: 2006 2353 A3 QBCMF
Date24 January 2007

[2007] EWCA Civ 20

[2006] EWHC 2583 (Comm)

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION (COMMERCIAL COURT)

Hon Mr Justice Morison

Before

Lord Justice Tuckey

Lady Justice Arden and

Lord Justice Longmore

Case No: 2006 2353 A3 QBCMF

Between
Fiona Trust & Holding Corporation & Ors
Respondents/Claimants
and
Yuri Privalov & Ors
Appellants/Defendants

NICHOLAS HAMBLEN Esq QC and VERNON FLYNN Esq (instructed by Lawrence Graham Llp) for the Appellants/Defendants

CHRISTOPHER BUTCHER Esq QC and PHILIP JONES Esq QC (instructed by Ince & Co) for the Respondent/Claimants

Lord Justice Longmore
1

This is the judgment of the court.

2

Introduction

This appeal raises, apparently for the first time, the question whether, if there is a plausible argument that contracts have been induced by bribery and have been rescinded on discovery of the bribery, that constitutes a dispute which can (and should be) determined by arbitration in the context of a common form of arbitration clause.

3

The relevant contracts are eight charterparties made by eight one-ship companies in the Russian Sovcomflot group of companies as owners, with three separate chartering companies between February 2001 and September 2003 on the Shelltime 4 Form. It is, however, important to appreciate that these eight charter disputes form a small part only of an overall dispute between Sovcomflot and its numerous subsidiaries or sub-subsidiaries on the one hand and a Mr Nikitin who is alleged to have successfully bribed one or more directors or employees of Sovcomflot and their associated companies. It is said that the charterparties with which this appeal is concerned and numerous other contracts were procured by this bribery and contained terms highly favourable to the charterers. But it is also said, inter alia, that (1) vast sums were paid by way of commission to companies nominated by Mr Nikitin, on ship purchases and both new and existing ship building business, (2) Sovcomflot interests were deceived into making an enormous payment to acquire a debt owed to a Russian bank, (3) uncommercial sale and leaseback transactions were made for the benefit of Mr Nikitin's companies, (4) shipbuilding options and shares in Sovcomflot companies were traded at a gross undervalue and (5) a fictitious service contract was entered into designed to injure owners' financial and commercial interests.

4

An intricate and complex action has therefore been instituted in England by a large number of claimants seeking damages for the tort of conspiracy and making claims by way of damages or restitution as a result of the payment of bribes and a claim for compensation or an account of profits in respect of what is said to be a breach of fiduciary duty by those who have entered into the charterparties. There is also a claim that the eight charterparties which are the subject-matter of these proceedings have been validly rescinded and that restitution of benefits should be made.

5

Each of the charterparties contains what is called a “Law and Litigation” clause which provides for any dispute under the charter to be decided in England and confers on either party the right to elect to have any such dispute referred to arbitration in accordance with rules of the London Maritime Arbitrators' Association. That clause is in the following terms:—

“41. (a) This charter shall be construed and the relations between the parties determined in accordance with the laws of England.

(b) Any dispute arising under this charter shall be decided by the English Courts to whose jurisdiction the parties hereby agree.

(c) Notwithstanding the foregoing, but without prejudice to any party's right to arrest or maintain the arrest of any maritime property, either party may, by giving written notice of election to the other party, elect to have any such dispute referred ….to arbitration in London, one arbitrator to be nominated by Owners and the other by Charterers, and in case the arbitrators shall not agree to the decision of an umpire, whose decision shall be final and binding upon both parties. Arbitration shall take place in London in accordance with the London Maritime association of arbitrators in accordance with the provisions of the Arbitration Act 1950, or any statutory modification or re-enactment thereof for the time being in force.

(i) A party shall lose its right to make such an election only if:

(a) it receives from the other party a written notice of dispute which –

(1) states expressly that a dispute has arisen out of this charter;

(2) specifies the nature of the dispute; and

(3) refers expressly to this clause 41(c)

And

(b) it fails to give notice of election to have the dispute referred to arbitration not later than 30 days from the date of receipt of such notice of dispute ……”

6

The charterers named in each of the 8 charterparties have sought to enforce their rights in arbitration and have appointed Mr Mark Hamsher as sole arbitrator. On 12th June 2006, owners made an arbitration application pursuant to section 72 of the Arbitration Act 1996 (“the 1996 Act”) seeking to restrain the arbitration proceedings on the basis that they (the owners) have rescinded both the charterparties and the arbitration agreements contained in them for bribery and that there can be no arbitration. The charterers responded on 12th July 2006 by seeking a stay from the court under section 9 of the Act of the owners' rescission claims, as well as of any further time charter claims by the owners as explained in paragraphs 5(3) and (4) of the judgment.

7

Morison J has declined to stay the claims for rescission and has granted interlocutory injunctions to restrain the arbitration proceedings pending the trial of the action. That trial has as yet no fixed date and it is not easy to predict when it may be concluded.

8

The submissions of the parties can be most conveniently grouped under the following headings:—

(1) Construction of the arbitration clause or (in other words) does a claim that the charters have been rescinded for bribery come within the arbitration clause?

(2) Separability of the arbitration clause

(3) Procedural matters viz the relationship (if any) between sections 9 and 72 of the 1996 Act.

9

Construction

For the charterers Mr Hamblen QC addressed us first on the question of the separability of the arbitration clause from the rest of the agreement. Mr Butcher QC for the shipowners said that logically one must first decide what disputes are governed by the arbitration clause before considering the extent to which the arbitration agreement (whatever it meant) was separable from the main charter agreement. To that extent we agree with Mr Butcher. Counsel agreed that, since the clause referred both to the expression “any dispute arising under this charter” and (in sub-clause c(i)(a)(1) for the purpose of describing the requirements of a notice of dispute which may lead to the consequence that a party has lost his right to arbitrate) to the expression “a dispute has arisen out of this charter”, the parties drew no distinction between disputes arising “under” and “out of” the charterparty. That was the limit of their agreement. Mr Hamblen submitted that “out of” was a wider phrase than “under” and that the parties therefore intended a wide meaning to be given to the clause. Mr Butcher submitted that “under” had a narrow meaning, was the primary word in the clause and that “out of”, since it appeared only second and in a sub-sub-clause, must take its meaning from the meaning of “under”. In any event he said that “out of” itself had a narrow meaning. We were referred to numerous authorities which Mr Butcher said supported his submission that the arbitration clause did not apply to a dispute about rescission for bribery.

10

The appellate authorities to which we were referred on this point were Heyman v Darwins Ltd [1942] AC 356, Mackender v Feldia [1967] 2QB 590, The Evje [1975] AC 797, The Playa Larga [1983] 2 Lloyds Rep 171, Antonis P Lemos [1985] AC 711, Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488, Fillite (Runcorn) v Aqua-Lift (1989) 26 Const LR 66, Harbour Assurance Co (UK) Ltd v Kansa General International Insurance [1993] QB 701 and The Angelic Grace [1995] 1 Lloyds Rep 87. In Heyman v Darwins both Lord Wright (page 385) and Lord Porter (page 399) said that “arising out of” had a wider meaning than “arising under”. In The Evje both Viscount Dilhorne (page 814H) and Lord Salmon (page 817A) said they could not discern any difference in the meaning in the two phrases. As to this difference of view Lord Brandon of Oakwood in the Antonis P Lemos at page 728B said:—

“… I do not doubt that, in some contexts, such as an arbitration clause in a commercial contract, it would be right to treat the first of these two expressions as the equivalent of the second.”

He continued that it would not be right to do so in the context of domestic statutes intended to give effect to an international convention “which require ….a broad and liberal construction”. Mr Butcher laid considerable emphasis on this passage but did not explain why on the facts of this particular case, words in a well-known form of agreement likely to be made between two parties of different nations should be construed less broadly and less liberally than a statute giving effect to international obligations.

11

In the Playa Larga the Court of Appeal decided, in relation to the words “arising out of” that, where a claim in tort was closely knitted together with a contractual claim on the facts, an...

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