Agora: Thoughts on Fiona Trust: Jurisdiction: the Validity and Width of Arbitration Agreements, and the House of Lords Decision in Premium Nafta Products Ltd v. Fili Shipping Co. Ltd

Abstract

At a recent balloon debate organised by the Amercian Bar Association in London, the preferred method of dispute resolution was arbitration. Arbitration might be cheaper and quicker, or less formal, or parties prefer to select their own arbitrator. Whatever the reasons, arbitration has become viewed increasingly as the forum of choice, for which the courts provide an essential, but only supportive, role, and the merits are left to the arbitrators. This is an area in which the law should, so far as possible, give effect to the expectations of commercial parties. To achieve this there must be two legal principles. First an arbitration agreement must be given a broad interpretation. Secondly, because contractual disputes often include issues about the validity of the contract, the arbitration agreement must be given a legal validity which is not susceptible to attack depending on the outcome of arguments about the underlying merits. The expectations should ground policy, shaping the legal rules. For example it is common to have contractual disputes and allegations about misrepresentation inducing the transaction. If the merits issues are to be decided by arbitrators alone, there must be a reluctance to interpret the scope of the arbitration agreement as excluding misrepresentation, and a rule which entrenches the validity of the arbitration clause so as to leave it unscathed by the raising of the misrepresentation allegations. Unless this is so the misrepresentation issues may have to be decided in court, and the parties may then consider that it would be quicker and cheaper to agree to the other issues going to court as well. Premium Nafta Products Ltd v. Fili Shipping Co. Ltd 1 is the decision of the House of Lords dismissing an appeal from Fiona Trust and Holding Corp. v. Privalov .2 The case concerned claims that eight charterparties …