Reinsurance E-Alert

1 February 2008 

Unfair Terms in Consumer Contracts Regulations 1999 and the incorporation of arbitration clauses

Heifer International Inc v (1) Helge Christiansen (2) Christiansen Akitekter KS MAA PAR (3) Haslev-Hanson VVS (4) Stevens El-Service A/S (5) Listed El-Teknik APS [2007] EWHC 3015 (TCC)

The Claimant, Heifer International Inc ("Heifer"), purchased a substantial English property which required renovation. Heifer decided that "the quality of Danish workmen was superior to those in the United Kingdom" and, to this effect, the Defendants, all of whom are resident in Denmark, were retained in connection with the refurbishment of the property. The First Defendant, an individual, and his firm (the Second Defendant) oversaw the project.

Heifer commenced proceedings in the English Courts claiming that the works carried out were defective and incomplete. The Defendants successfully applied for a stay of the English proceedings pursuant to the Arbitration Act 1996 so that the matter could be put before an Arbitrator in Denmark.

In response to the application, Heifer submitted that the arbitration clauses relied on by the Defendants were not incorporated into the relevant contracts. In the alternative it was argued that if the arbitration clauses were incorporated they were unfair terms and were not binding on Heifer pursuant to the Unfair Terms in Consumer Contracts Regulations 1999 (UTCC Regulations) (Regulation 8(1) of which provides "An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer").

The issues before the Court included (1) whether a company could be a consumer for the purposes of the UTCC Regulations and (2) whether an Arbitration clause was an unfair term.

First and Second Defendants 

The Court held that as a matter of fact, the Agreement was between the Heifer and the Second Defendant and not the First Defendant personally. An arbitration clause was contained in a draft Agreement which was largely agreed but was intended to be replaced by a final agreement, but never was. The Court held that the parties had "conducted themselves on the basis that they continued to be bound by the contractual terms set out in the draft agreement". On this basis the terms of the draft Agreement, including the arbitration clause, applied and satisfied the requirements in section 5 of the Arbitration Act 1996.

Third Defendant

The Third Defendant is a specialist in plumbing, heating and ventilation. It made an offer to complete the relevant section of the works for just under DKK 1 million. This offer was accepted on behalf of Heifer. The offer stated that it was subject to AB 92 (General Conditions for the provisions of Works and Supplies within Building and Engineering). These conditions conferred jurisdiction on the Danish Arbitration Court. 

Fourth and Fifth Defendants 

The Fourth Defendant was contracted to provide electrical services. The contract was approved by the Heifer's Danish lawyers and it also included a stipulation that AB 92 should apply. The Fifth Defendant replaced the Forth Defendant after a dispute about the quality of the Fourth Defendant's work. The Fifth Defendant was shown the Fourth Defendant's contract and agreed to be bound by its terms.

On the evidence, in relation to the Third, Fourth and even the Fifth Defendant the Court found that "in each case there was an agreement in writing within the definition of Section 5 of the Arbitration Act 1996". In respect of all the Defendants the Court held that arbitration clauses had been properly incorporated into the respective contracts.

Further the Court also looked at the provisions of UTCC Regulations and held that in all the contracts the arbitration clauses were not unfair. This was based on the fact that although Heifer was able to establish that it was a consumer for the purposes of the Regulations and that the arbitration clause was not individually negotiated, Heifer had failed to satisfy the remaining requirement, namely that it had been unable to influence the substance of the clause or that the insertion of the clause was contrary to good faith or inherently unfair.

The continuing trend of judicial support for arbitration therefore rolls on. This case emphasises in particular the need for contracting parties to be careful in commencing the provision of work and services before having finalised contracts or agreeing terms which include reference to other documents without proper investigation and without being prepared to be bound by them.

London v New York: where to challenge an arbitration award?

C v D [2007] EWCA Civ 1282

The Court of Appeal was recently asked to consider where an arbitral award can be challenged when the seat of the arbitration and so procedural law governing the arbitration differs from the substantive law governing the contact.

The Court of Appeal had to consider whether the choice of London as the seat of arbitration in a Bermuda Form Insurance contract operates to grant the English courts exclusive jurisdiction on the validity of arbitration awards, even though the Bermuda Form is governed by the laws of New York.

Background

The Claimant was a New Jersey Company which obtained liability insurance from the Defendant, a US insurer, on the basis of a policy written on the Bermuda Form (the "Policy"). A number of claims were made to the Claimant who had to pay a substantial amount of damages. The Claimant made demands for indemnification under the Policy for the full policy limit of US$100 million.

The Defendant declined to pay, and in May 2005 the Claimant initiated arbitration proceedings in London. The tribunal granted an award in favour of the Claimant, following which the Defendant threatened to apply to a New York court to challenge the award on the ground that the tribunal's findings constituted a "manifest disregard of New York law". The Claimant sought and obtained an anti-suit injunction from the English court, which gave rise to the first instance decision in this matter (to see our E-Alert concerning this first decision, click on the following link: http://www.addleshawgoddard.com/asset_store/document/reinsurance_e-alert_-_curial_law_will_reign_152023.pdf)

The Decision

The Court of Appeal endorsed the decision of Cooke J at first instance agreeing that the choice of London as the seat of arbitration was determinative of the matter in that by choosing the seat, the parties had expressly or impliedly agreed that proceedings seeking to challenge the arbitration award would only be those permitted by English law.

The choice of seat meant the Defendant could not argue that English judicial remedies to challenge the award were not permitted (notably because the relevant clause referred to the framework of the English Arbitration Act 1996), and therefore they had to argue instead that New York judicial remedies were also permitted. The Court of Appeal would not accept that parties could chose which law would apply to challenge an arbitration award as this would lead to more uncertainty and more litigation and concluded that a choice of seat for the arbitration is, in effect, analogous to an exclusive jurisdiction clause.

Also rejected was the argument put forward by the Defendant that the choice of the law of New York as the substantive law of the Policy could operate to import a method of challenge to the arbitration award not permitted under English law.

Finally, the Court of Appeal also commented on arguments on the law of the arbitration agreement, although strictly speaking, those points did not need to be decided upon (and so the comments are "obiter dicta"). The Court of Appeal agreed there may be circumstances where the law of the arbitration agreement, which can be distinct from the law of the substantive agreement, may also be distinct from the law of the seat of the arbitration (lex fori). This happens rarely, but when it does, the law to be applied is that with which the arbitration agreement has its closest and most real connection. The Court of Appeal said this was more likely to be the law of the seat of the arbitration. This is because the agreement to arbitrate will usually have a closer and more real connection to the place where the parties have chosen to arbitrate if they have deliberately chosen to arbitrate in one place disputes that have arisen under a contract governed by the law of another place. In any case, the Court of Appeal found that in this particular case there were "strong pointers" to the arbitration agreement being governed by English law, not least the provision that the award from the London tribunal should be final and binding.

Conclusion

This is another decision from the English judiciary which is strongly supportive of arbitration and which indicates clearly that jurisdiction clauses will usually be enforced by the English courts. In this context, it is interesting to note that the Court of Appeal considered whether it should establish a precedent for costs to be ordered on an indemnity basis as against a party that has acted in breach of a jurisdiction, arbitration or anti-suit clause. The Court of Appeal felt it was not suitable to make such an order in this case, partly because the Defendant had indicated they would not issue proceedings in the US if they were restrained from doing so, meaning they would not, in fact, breach the arbitration clause. The possibility of such a ruling being made in a different context was however, left open.

The Court of Appeal Intervenes…

Albon v Naza Trading SDN BHD [2007] EWCA Civ 1124

This case is an interesting divergence from the current surfeit of cases in which the English High Court was refused to intervene in arbitral proceedings, as, instead, the Court of Appeal bares it teeth and grants an anti-suit injunction.

A dispute arose regarding the sale and distribution of cars. Mr Albon claimed that he had an agreement with Naza, a Malaysian company and that the agreement was an oral agreement made in England and governed by English law. Naza, maintained that there was a written contract, which was governed by Malaysian law and provided for arbitration in Malaysia. Mr Albon claimed his signature on that contract was a forgery.

Mr Albon commenced proceedings in England. Naza responded by, amongst other things, issuing a notice to commence arbitration proceedings in Malaysia and applying for a stay of the English proceedings under section 9 of the Arbitration Act 1996. The judge at first instance held that the issue as to the validity of the written contract should be determined by the English courts and granted an injunction restraining the Malaysian proceedings. He found that the English courts and not the arbitral tribunal must consider the validity of the written contract as this was central to the issue of whether the English proceedings should be stayed to allow the arbitration to proceed. 

Naza appealed against the grant of the injunction. Prior to the appeal hearing Naza agreed the issue as to the validity of the written contract should be determined by the English courts and that it would not invite the arbitral tribunal to consider the issue, essentially removing the issue from the tribunal's jurisdiction.

The Court of Appeal upheld the first instance judge's decision to grant the injunction. It found that Mr Albon had a good arguable case that the written agreement was a forgery, and than that the written agreement had been brought into existence after the English proceedings had been commenced in order to bring those proceedings to a stop. Allowing the Malaysian arbitral proceedings to continue whilst the English courts determined the validity of written agreement would be unconscionable and oppressive, leading to an unnecessary duplication of expense and effort, pleadings and evidence in the two forums.

Conclusion

This case demonstrates that the despite the current judicial reticence to interfere in arbitral proceedings, following the Fiona Trust decision, the anti-suit injunction is not dead, and the court will still intervene in some limited circumstances, particularly where there is compelling evidence of fraud.