BLG Commercial Dispute Resolution Briefing, April 2009

Arbitration

Court's Role Is To Support, Not Supervise, The

Arbitration

John Forster Emmott v Michael Wilson & Partners Limited

(2009)

The High Court has clarified that its role is, wherever

possible, to support arbitrators' decisions, rather than to go

behind them and consider whether the relevant order should have

been made. In what appears to be the first reported case of this

kind, the applicant ("E") applied to the High Court under

section 42 of the Arbitration Act 1996 (the "Act") for an

order enforcing the arbitral tribunal's order. E's dispute

with the respondent ("M") arose out of an agreement

between them to establish an independent legal and business

consultancy in Kazakhstan and involved allegations that E was

entitled to a certain percentage of profit and shares in M. M

counterclaimed, alleging that it was entitled to a 27 per cent

shareholding in a separate company. The tribunal ordered that

M's 27 per cent shareholding be held to the order of the

chairman of the arbitral tribunal. M failed to comply and E applied

to the court for the order to be enforced as well as for a freezing

order against M.

The Court enforced the tribunal's order, emphasising that

the circumstances where it would refuse to do so were limited.

These were where the interests of justice required it, as a result

of a material change in circumstances for example, or where the

tribunal had acted unfairly or outside its powers. It would be

inconsistent with the general principle that the court should not

intervene in arbitrations to, in every case, review the decision

made by the tribunal and consider whether it ought to have been

made. The court could only review the arbitral process properly

under sections 67-69 of the Act, which permit challenges to the

tribunal's jurisdiction and challenges based on procedural

irregularity or error of law.

Two points of detail are worth noting. Firstly, the Court

clarified that shares were within the definition of

"property" in section (s.38(4)) of the Act under which

the tribunal had made its order. Secondly, and illustrating its

desire to support rather than interfere with arbitration, the Court

willingly granted the freezing order sought, but made it clear that

any application regarding it (for its variation or discharge, for

example) must be made directly to the arbitral tribunal rather than

the Court.

www.bailii.org/ew/cases/EWHC/Ch/2009/1.html

Allianz and Another v West Tankers (2009)

The European Court of Justice (the "ECJ") has

clarified that it is not appropriate, under European Council

Regulation No 44/2001 (the "Regulation"), for one EU

member state court to order the court of another member state to

halt proceedings issued there in alleged breach of an arbitration

agreement. This firmly puts an end to the previous practice of the

High Court issuing anti-suit injunctions in support of pending

English arbitration proceedings. The ECJ stressed that the

Regulation gives member state courts power to rule on their own

jurisdiction and the validity and applicability of the arbitration

agreement. Anti-suit injunctions obstructed the exercise of this

power.

See the BLG briefing note for more detail on this case,

available at

www.blg.co.uk/pdf/West%20tankers.pdf

Contract

Tele2 International Card Company SA and others v Post

Office Limited (2009)

A party's delay in reacting to a breach of contract may risk

him waiving his right to terminate the contract. In this case, some

of the claimants supplied phone card services to the Post Office

and were obliged under the contract to provide parent company

guarantee letters to the Post Office each year. During 2003, the

claimants in question failed to provide the letters, committing a

technical breach of contract, but the Post Office failed to react

and the parties continued to perform under the contract. Nearly a

year later, the Post Office purported to terminate the agreement by

written notice for failure to provide the letters. The High Court

agreed with the claimants' argument that the Post Office had

affirmed the contract by continuing to perform under it without any

protest concerning the breach or seeking to reserve its rights. As

a consequence, the court held that the Post Office had in fact

committed a repudiatory breach of contract by terminating the

contract and ceasing to perform its obligations. The claimants

were, however, not entitled to damages, as on the facts of this

case they had not suffered any loss.

http://www.bailii.org/ew/cases/EWCA/Civ/2009/9.html

Graeme Grant v Russell Bragg, Russell Bragg and Premier

Resorts Ltd v Graeme Grant (2009)

If parties intend to enter into a contract, a court will usually

find that a contract has not been concluded until both parties have

signed the necessary documents, but this case demonstrates that

this is not always the case, and the court may take a more flexible

approach.

In this dispute between two shareholders, "G" and

"B", both 50 per cent shareholders and directors in a

company, the issue was whether there was a concluded contract that

B would buy G's shares. A draft sale and purchase agreement

("SPA") had been drawn up but was not signed. However,

the High Court held that there was, nevertheless, a concluded

contract since the parties had exchanged e-mails agreeing to the

terms of the SPA and B had taken control of the company,

effectively taking the benefit of G's shares. The Court found

that it would be to deny commercial reality and the objective

intention of the parties to hold that they were not contractually

bound in the absence of an executed document.

In light of this ruling, parties are well advised (where they do

not wish to be contractually bound) to make it clear that their

negotiations are "subject to contract". Furthermore,

where parties are to perform the contract before the documentation

has been entered into, the parties should ensure that the basis on

which they do so is made clear.

www.bailii.org/ew/cases/EWHC/Ch/2009/74.html

RTS Flexible Systems Ltd v Molkerei Alois Müller

GmbH & Co KG (2009)

This Court of Appeal decision contrasts with the flexible

approach adopted by the High Court in Grant v

Bragg (above). In this case, the Court of Appeal

ruled that a contract had not come into existence because the

parties had failed to comply with a formality. The defendant,

Molkerei Alois Müller (a producer of dairy products)

contracted with the claimant for the design and supply of equipment

for one of its factories. The claimant started work on the basis of

a letter of intent issued by the defendant. The claimant continued

to work on the project despite the letter of intent having expired

and even though the parties had not reached agreement on the

wording of a draft contract. The Court of Appeal had to consider

whether there was in fact a contract between the parties or whether

(as alleged by the claimant) there was no contract and the claimant

ought simply to be paid for the work it had carried out.

The Court held that there was no contract because the draft

unsigned contract contained a counterparts clause stating that the

final contract would not be effective until each party had executed

a counterpart and exchanged it with the other, and that the parties

had clearly agreed to negotiate on this basis. In effect, the Court

held, there was a continuing stipulation that a contract would not

come into force until the documents were signed and exchanged.

Despite this decision, we would suggest it is still preferable

for parties to make it explicit whether or not negotiations are

"subject to contract".

www.bailii.org/ew/cases/EWCA/Civ/2009/26.html

Stocznia Gdynia SA v Gearbulk Holdings Ltd

(2009)

This Court of Appeal decision clarifies that if a party wishes

to prevent another party from asserting its common law rights upon

breach of contract, it must express this clearly in the wording of

the contract.

The appellant, Gearbulk, entered into contracts for the

construction of ships by the respondent. An article of the contract

allowed for the purchase price to be reduced for delays in delivery

and permitted Gearbulk to terminate for a major...