FT and YP were parties to a number of contracts. An arbitration had been commenced and a sole arbitrator appointed. FT applied to the English court to restrain the arbitration proceedings alleging that the contracts and the arbitration clauses in them had been rescinded (that is, set aside from their inception) on the ground of bribery.

YP then applied to the court for a stay of the rescission claims in favour of arbitration under section 9 of the Arbitration Act 1996 (1996 Act) (see box “Section 9”).

The judge granted interlocutory injunctions restraining the arbitration proceedings pending the trial of the action. YP appealed. The Court of Appeal allowed the appeal and made landmark findings on three issues: scope of the arbitration clause, separability and procedure.

The Court of Appeal held that any jurisdiction or arbitration clause in an international commercial contract should be liberally construed.

In Fiona Trust the arbitration clause provided for “any dispute arising under this charter” to be referred to arbitration in London. The court held that the words “arising out of” should cover “every dispute except as to whether there was ever a contract at all”. Although the phrase “arising under” had, in the past, sometimes been given a narrower construction than “arising out of”, the court held that it should also be interpreted widely. The court concluded that a dispute as to whether the contract could be set aside or rescinded for bribery did fall within the arbitration clause in this case.

Under English law, the principle of “separability” means that the mere fact that a contract is invalid, non-existent or ineffective does not mean that an arbitration clause contained in it will also be struck down (section 7, 1996 Act). Rather, it is treated as a distinct agreement.

In the past the courts have held that arbitrators had jurisdiction to decide whether a contract was void for illegality. The question is whether the arbitration clause itself has been impeached. If it has not, it will survive the invalidity of the contract.

In this case, the court held that there was no reason why arbitrators should not have jurisdiction to decide whether the contract was procured by bribery. The fact that the bribery might have impeached the whole contract did not affect the arbitration clause, unless there was some extra element which meant that the arbitration clause itself was impeached. That was not the case here.

Under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) the courts are required (if requested to do so) to bow to the arbitration process if there is a valid arbitration agreement (see box “Section 9”). The 1996 Act also states that arbitrators are competent to decide on their own jurisdiction where there is a valid arbitration agreement, and on the scope of the arbitration agreement (section 30). Despite this, the judge at first instance said that even if (contrary to his judgment) the arbitrator had jurisdiction to decide the bribery issue, he would exercise his power to grant an injunction to restrain the arbitration. This would appear to fly in the face of the UK’s obligations under the New York Convention.

The Court of Appeal therefore gave guidance on the court’s role and the desirable procedure to be followed on the issue of arbitrators’ jurisdiction. The 1996 Act contemplated that it would in general be right for the arbitrators to be the first tribunal to decide whether they had jurisdiction. The use of section 72(1) of the 1996 Act, which allows parties who have not taken part in the arbitration proceedings to apply to the court to question whether there was a valid arbitration agreement, should be limited. Specifically, if there is a valid arbitration agreement, there can be no section 72(1) application at all.

If the party denying the existence of a valid arbitration agreement has commenced court proceedings (as in Fiona Trust) and the party relying on the arbitration clause has applied for a stay, the court should decide the stay issue first, to be consistent with the UK’s obligations under the New York Convention.

This decision will be welcomed by those involved in international arbitration for two reasons in particular: