Arbitration Law Monthly

In proceedings brought in the English courts in which the claimant is seeking a sum of money from the defendant, it is open to the defendant to seek to set off against that claim any sum which is allegedly owing by the claimant to him. English law for this purpose distinguishes between ‘transaction’ set-off and ‘independent’ set-off. The former arises where the sums claimed made by the parties arise out of ‘the same transaction or one so closely related that it operates in law or in equity as a complete or partial defeasance of the … claim’. By contrast, in the case of independent set-off, the defendant is in effect seeking an abatement of damages for an entirely unconnected reason, and the plea is open to him only if the sum allegedly due by the claimant can easily be calculated.

Entire agreement clauses are designed to restrict the rights and obligations of the parties to those set out in the document itself, and to preclude reliance on any earlier provisional agreements or statements made by the parties during the negotiations for the contract in question. In Ravennavi SpA v New Century Shipbuilding Company Ltd [2006] EWHC 733 (Comm) the question which arose – although which ultimately did not need to be answered – was whether an arbitration clause in a contract containing an entire agreement clause superseded dispute resolution provisions in an earlier agreement between the parties.

As seen above, transactional set-off is available only where the arbitration clause so allows. Transactional set-off nevertheless raises a conundrum where there is an attempt to invoke it in judicial proceedings in respect of a counterclaim under a contract containing an arbitration clause, as the effect is to deprive the defendant of his right to go to arbitration. This point was made by Tomlinson J in Prekons Insaat Sanayi AS v Rowlands Castle Contracting Group Ltd [2006] EWHC 1367 (Comm).

It is settled law that the English courts have the jurisdiction to grant an anti-suit injunction to prevent a party to an arbitration clause from commencing judicial proceedings in contravention of the clause. Indeed, the leading cases go further and make it clear that an injunction is normally to be granted unless it can be shown that the applicant has submitted to the jurisdiction of the foreign court or has otherwise delayed his application and has thereby allowed the foreign proceedings to reach an advanced stage. The decision of Morison J in Goshawk Dedicated Ltd v ROP Inc [2006] EWHC 1730 (Comm) is a further illustration of the operation of the jurisdiction to grant anti-suit relief in support arbitration clauses.

For the second time in recent months it has been necessary for a court to decide whether an arbitration commenced, by oversight, in the name of the wrong claimant – the named claimant having transferred his rights to a third party – is to be treated as valid subject to the substitution on the documents of the name of the third party. In Harper Versicherungs AG v River Thames Insurance Co Ltd [2006] EWHC 1500 (Comm) it has been confirmed that this type of error is procedural only, and does not affect the validity of the proceedings.

Where the parties have agreed to go to arbitration but have restricted the remedies which may be granted by the arbitrator, it might be thought that the proper construction of the agreement would be that the parties are required to go to arbitration but subject to a restriction in remedies: the court is not to be involved. However, in Vertex Data Science Ltd v Powergen Retail Ltd [2006] EWHC 1340 (Comm) there was a specific reservation of a right to go to court where a dispute was not capable of resolution under the arbitration clause. Tomlinson J, with some reluctance, concluded that the effect was to preserve the right of the parties to go to court if the remedy sought was not one open to the arbitrator.

The Arbitration Act 1996 is for the most part confined in its operation to arbitrations with their seats in England, Wales or Northern Ireland. One exception is s9 of the Act, under which judicial proceedings brought in contravention of an arbitration agreement are to be stayed. This principle is applicable irrespective of the seat of the arbitration and of the law governing the arbitration clause. If the existence or scope of the arbitration clause is in issue, and the clause is governed by some other law, it will be necessary for the English court to receive evidence as to the content of that other law so that the proper construction of the clause can be determined. Abu Dhabi Investment Co and others v H Clarkson & Co Ltd and others [2006] EWHC 1252 (Comm), a decision of Morison J, was such a case.