Jurisdiction & Arbitration Clauses
A talk by
John A. Kimbell of Quadrant Chambers
Given at the British-German Jurists’ Association
Conference in Leipzig
12 October 2014
Contents
• Overview – the general approach of English law
views choice of court and arbitration clauses
• Incorporation (The Channel Ranger)
• Enforcement
The general approach of English Law
“The freedom of the parties to make agreements on
jurisdiction is very broad, limited only by marginal
considerations which embody rules of jurisdictional public
policy. An English court will accept jurisdiction where the
parties have agreed to it because they have agreed it and
because the jurisdictional rules are wide enough to
accommodate this without effort, and will decline to exercise
it where the parties have made agreement that it should not
be exercised.”
Briggs Agreements on Jurisdiction and Choice of Law (2008)
No room for chauvinism
The text continues:
“The English Court takes precisely the same view where the
nominated court is English as where it is foreign: it admits
no distinction of principle.
There is no room for chauvinism… Contracts are made to be
performed, and the fact that they may be contracts about
the jurisdiction of courts is nothing to the point.”
Are there any limits on what parties can agree?
(1) Jurisdiction Clauses
Parties are excluded from agreeing jurisdiction in
relation to certain subject matters.
At common law, the two main exclusions are:
(1) Disputes about title to foreign land
(2) The validity of foreign intellectual property rights
Limitations to jurisdiction clauses under
the Brussels Regulation
(1) Proceedings which have as their object rights in
rem in immovable property or tenancies of immovable
property
(2) Proceedings which have as their object the validity
of the constitution, the nullity or the dissolution of
companies or other legal persons or associations of
natural or legal persons, or of the validity of the
decisions of their organs
Limitations under the Brussels Regulation (contd.)
(3) Proceedings which have as their object the validity
of entries in public registers;
(4) Proceedings concerned with the registration or
validity of patents, trademarks, designs, or other
similar rights required to be deposited or registered.
In the above cases, it will not be open to the parties to
agree a choice of jurisdiction under Article 23. The
exclusive jurisdiction provided for in Article 22 will
prevail.
Arbitration
There are virtually no limits under English law as to the
types of disputes which can be referred to arbitration.
Certain remedies are not available to an arbitrator in
England – criminal sentences, a divorce decree, a
company winding-up petition but that does not prevent
parties referring the underlying issue to arbitration if
they wish – see Mustill & Boyd on Arbitration (1989)
chap 10.
Formalities
• At common law, there are no formalities for
jurisdiction clauses or arbitration clauses beyond
those which apply to contracts generally.
• For jurisdiction clauses, Article 23 of the Brussels
Regulation requires they be:
• (a) in writing or evidenced in writing; or
• (b) in a form which accords with practices which the
parties have established between themselves; or
Formalities under Article 23 of the
Brussels Regulation (contd.)
(c) in international trade or commerce, in a form which
accords with a usage of which the parties are or ought to
have been aware and which in such trade or commerce is
widely known to, and regularly observed by, parties to
contracts of the type involved in the particular trade or
commerce concerned.”
These requirements have given rise to a great deal of
European case law.
Formalities under the Arbitration Act 1996
Section 5(1) of the Arbitration Act 1996 provides
• “The provisions of this Part apply only where the
arbitration agreement is in writing, and any
other agreement between the parties as to any
matter is effective for the purposes of this Part
only if in writing.”
But “in writing” here includes “evidenced in writing” and
that in turn is defined as being “recorded by any
means”
Common law contractual validity
At common law, the following contract law
requirements must be satisfied by all jurisdiction
clauses and arbitration clauses:
(1) There must in fact be an agreement between the
parties (consensus ad idem)
(2) That agreement must validly incorporate the
arbitration or jurisdiction clause concerned.
Common law – contractual validity (contd.)
(3) The clause must be apt to cover the dispute
which has arisen
(4) The clause will be subject to the usual
factors which may vitiate a contract, e.g.:
frustration, mistake, duress, undue influence.
Mistakes can happen
Consider this clause agreed between a Swiss company
and an Indonesian company in a contract for the
carriage by sea of a bulk cargo:
“IN CASE OF ANY DISAGREEMENT BETWEEN
OWNERS/MANAGERS AND CHARTERERS SUCH TO BE
SETTLED AMICABLY OTHERWISE SUEZ COURT
GRADES TO BE INVOLVED AND HONG KONG LAW TO
APPLY”
Incorporation: The Channel Ranger
The Facts – see [2014] 1 Lloyds Rep 337
The CHANNEL RANGER is owned by a company based
in the Marshall Islands (Caresse).
In March 2011, the vessel was time chartered to a
Danish Company called U-Sea A/S.
U-Sea had a sub (voyage) charter agreement with the
Swiss trading company, Glencore, for the carriage of a
cargo of coal from Rotterdam to Morocco.
Channel Ranger - facts (contd.)
Caresse (as shipowners) issued a bill of lading to
naming Glencore as the shipper of the coal and the
Moroccan state electricity company (ONDE) as
consignee.
The coal overheated and was doused with sea water on
the orders of the master. This made the coal unusable
for electricity generation.
ONDE sued Caresse in Morrocco for damages.
Caresse issued proceedings in London against ONDE
The clause in the Caresse bill of lading
The B/L contained the following clause:
“All terms and conditions, liberties and exceptions of
the Charterparty dated as overleaf including the Law
and Arbitration Clause are herewith incorporated”
The “Charterparty overleaf” was specified as being the
voyage charter between U-Sea and Glencore.
“…including the law and arbitration clause”
Why are these words used?
Answer: Because under English law, general words of
incorporation however wide or general will not be
effective to incorporate a jurisdiction clause or an
arbitration clause.
So “all terms whatsoever” or even “all terms whatever
their subject matter” will not suffice. An express and
specific reference to the arbitration / jurisdiction clause
intended to be incorporated is required
Background and scope of the rule
The rule requiring express reference is well established
and goes back to a decision of the House of Lords in
The Portsmouth [1912] AC 1.
It is not a substantive rule of English but rather it is a
rule of contractual interpretation.
It applies equally to jurisdiction clauses and arbitration
clauses – The Varenna [1983] 3 All ER 645 (CA).
It is not confined to sea carriage but applies in other
contexts too – e.g. building contracts and insurance.
Note the much stricter rule under German
carriage of goods by sea law
HGB Book V §522 (as amended in 2013):
“Eine Vereinbarung auf die im Konnossement lediglich
verwiesen wird, ist nicht inhalt des Konnossement”
In English:
“An agreement to which the bill of lading merely makes
reference is not incorporated into the bill of lading”
The underlying principle: severability
The underlying principle in English law is severablity.
Jurisdiction and arbitration clauses are regarded as
separate and severable from the rest of the contract.
This is a strength and a weakness.
It means that jurisdiction and arbitration clauses have
the strength to survive recisssion of the contract – see
Fiona Trust [2007] UKHL 2007.
But it also means that they are harder to incorporate
from one agreement to another.
Back to the Channel Ranger
The clause in the Voyage C/P which the shipowners,
Caresse, relied upon to give the English Commercial
Court jurisdiction to hear their claim was as follows:
“This charterparty shall be governed by English law and
any dispute arising out of or in connection with this
charter shall be submitted to the exclusive
jurisdiction of the High Court of Justice of
England and Wales”
The issue for the Court
The issue for the Judge (Males J.) was therefore
whether the words in the bill of lading “All terms and
conditions of the Charterparty dated as overleaf
including the Law and Arbitration Clause are
herewith incorporated”
Were apt to incorporate clause 5 from the Voyage
Charter so as to give the English High Court jurisdiction
to hear the Caresse’s claim for a declaration of nonliability against ONDE.
The rival contentions
Caresse submitted that the words in the Bill of Lading
should be interpreted as meaning ‘any dispute
resolution clause’ in the charterparty is to be
incorporated not just an arbitration clause
ONDE submitted that the English rule requiring clear
and express reference to an arbitration clause or
jurisdiction clause for incorporation to be successful
meant that only an arbitration clause could be
incorporated and the c/p did not contain one of those.
The decision of the Court
Males J accepted Caresse’s submission and held that
the English High Court did have jurisdiction.
The decision is controversial. Proceedings in a public
court and private arbitration are usually considered to
be quite distinct. By agreeing to one you are not
normally taken to be agreeing to the other. Here the
shipper signed up to arbitration and got the English
High Court. Would it have worked the other way round?
The caveat: chauvinism by the back door?
Males J. was concerned about the position of a consignee
who receives a bill of lading and finds himself bound by a
clause which he will not usually have seen.
Males J. said the protection the consignee had was that only
a jurisdiction clause which was “usual in the trade” should
be capable of incorporation by reference.
However, the court heard no evidence about what clauses
are usual in the trade. Males J. simply asserts in para 48 of
the judgement that the clause relied upon by Caresse was
“usual in the trade”.
Enforcing arbitration and jurisdiction clauses
Where proceedings are brought in breach of a
jurisdiction or arbitration clause in a country outside
the EU, it is possible to apply to an English Court for
an anti-suit injunction.
Inside the EU, the CJEU has ruled that: (i) Anti-suit
injunctions are prohibited by the principle of mutual
trust between courts within the EU (Turner v Grovit) (ii)
this applies even to injunctions sought in support of
arbitration clauses (West Tankers) (iii) The court first
seized which decides the jurisdictional issue (Gasser).
The problem: The Italian Torpedo
This trio of CJEU decisions has amounted to licence for
parties in the EU to the use what is usually called the
Italian Torpedo.
The name is not entirely fair because the civil procedure
rules of virtually all the EU Member States (expect the
UK and Ireland) require Defendants to plead to the
merits of a claim at the same time as raising any
jurisdictional objection.
2015: a partial disarming of the Torpedo
With effect from 10 January 2015, jurisdiction clauses
will be given enhanced protection within the EU.
Under the new Brussels Regulation (1251/2012) It will
be for the court designated in the jurisdiction clause
rather than the first court seised (as at present) which
will decide whether or not it has jurisdiction over the
dispute. Any other court seised must stay the
proceedings until the jurisdiction issue is decided by the
designated court.
But the Torpedo lives on for arbitration
The new Brussels Regulation does not, however,
provide any enhanced protection to parties seeking to
enforce an arbitration agreement.
In English s. 9 of the Arbitration Act provides a quick,
summary cheap remedy.
Within the EU what is needed is a Regulation providing
that proceedings are stayed pending the designated
tribunal ruling on its jurisdiction (Kompetenz
Kompetenz) or the courts of the seat of the arbitration
ruling on the issue.
Finally: The backstop role of Public Policy
Proceedings brought in a non-EU court in breach of an
English arbitration clause may lead to a judgment which
is not enforceable in England – see AKC Investments v
Kyrgyz Mobil Tel [2011] UKPC 7 §121.
This has never been applied in the case of a judgment
issued by a court in an EU Member State in
‘contravention’ of an arbitration clause. Article 34(1) of
Brussels Regulation (ordre public exception) might be
thought to open the door to this argument but the
principle of mutual trust stands in it way.
John.Kimbell@quadrantchambers.com
Quadrant Chambers
10 Fleet Street
London EC4Y 1AU
020 7583 4444
www.quadrantchambers.com