PREMIUM NAFTA PRODUCTS LTD V FILI SHIPPING CO

[2007] UKHL 40, Lord Hoffmann, Lord Hope, Lord Scott, Lord Walker and Lord Brown, 17 October 2007

Arbitration – Scope of arbitration clause – Separability – Arbitration clause extending to “any dispute arising under this charter” – Whether covering allegation that contract voidable for bribery – Severability of arbitration clause from main contract – Arbitration Act 1996, section 7

Shipowners entered into eight charterparties with various charterers. All were on Shelltime 4 form and contained an arbitration clause stating: “Any dispute arising under this charter shall be decided by the English courts to whose jurisdiction the parties hereby agree.”  The owners asserted that their own employee, N, had been bribed to enter into the contracts and that they could be set aside for bribery. The owners commenced judicial proceedings for declaratory relief. The charterers sought a stay of the proceedings so that the dispute as to avoidance could be referred to arbitration and the owners contended that a dispute as to bribery fell outside the scope of the arbitration clause. The House of Lords held that the proceedings should be stayed. (1) It was no longer appropriate to draw fine distinctions between the wordings of arbitration clauses: an arbitration clause should be construed as extending to disputes both under the agreement and also as to its validity unless there was a very clear statement to the contrary. (2) The challenge in the present case was not to the arbitration clause but to the charterparties. In those circumstances the principle of severability in section 7 of the Arbitration Act 1996 was operative, and in the absence of an independent challenge to the validity of the arbitration clause the matter could be resolved by the arbitrators.