Mr Justice Burton:
1.This has been the hearing of an appeal by the Claimant ("CMA") under
s69 of the Arbitration Act 1996 on two questions of law arising out
of Awards by an Arbitral Tribunal composed of Messrs Mark Hamsher
(Chairman), Ian Kinnell QC and Stephen Males QC ("the Arbitrators") on
13 March 2008, with accompanying Reasons. Permission to appeal was
granted by Tomlinson J on 4 July 2008.
2.The Awards arise out of four identical arbitrations, heard together
by the Arbitrators, commenced by the Defendant ("HMD") against
CMA in relation to four container vessels built by HMD pursuant to four
Shipbuilding Contracts entered into with subsidiaries of ER Schiffahrt
GmbH (which I shall collectively refer to as "ERS"), dated 26 February
2004. The material clauses of these four contracts, which are in materially
the same terms, are Articles XIII and XIV, and I shall so refer to them,
the material parts of which read as follows:
"Article XIII: ARBITRATION
1. APPOINTMENT OF THE ARBITRATOR
If any dispute should arise in connection with the interpretation and
[fulfilment] of this CONTRACT, same shall be decided by arbitration in the
City of London and shall be referred to a single Arbitrator to be appointed
by the parties hereto …
ARTICLE XIV: SUCCESSORS AND ASSIGNS
Neither party shall be entitled to transfer any or all of his rights and
obligations under this CONTRACT to a third party without the prior written
consent of either party, such consent not to be unreasonably withheld or
delayed."
3.The short background history is that CMA wanted to take over the
Shipbuilding Contracts from ERS, and in April 2004 ERS requested HMD's
consent to a novation to CMA of the four then existing contracts. HMD
refused, its reason being that it did not want to have to account to CMA's
supervision during the shipbuilding period. After initially threatening,
by letter of 30 June 2004, to "go to court or arbitration in London
against [HMD] for irresponsible behaviour and no respect of contractual
conditions", and making various other commercial threats, CMA, as a
third party (ERS had taken no steps), issued a claim in the Marseilles
Commercial Court on 2 March 2005 ("the French proceedings") by way
of a tortious claim for substantial damages, brought under Article 1382
of the French Civil Code, which provides for a fault-based liability in tort.
CMA alleged that HMD had unreasonably withheld its consent to a transfer
of ERS's rights under the Shipbuilding Contracts, that this was a breach of
those contracts which constituted fault under Article 1382, and that CMA
was thus able to recover damages for the losses which it had suffered
(largely as a result of an agreement of 13 May 2004, which it had entered
into with ERS).
4.These proceedings were still extant when the parties carried out
negotiations to attempt to resolve the issue of the novation. CMA and
HMD were unable to meet face to face, but all negotiations took place
indirectly, between HMD and ERS and ERS and CMA. The Arbitrators, in
paragraph 70 of their Reasons, describe this situation:
"… there had been and remained considerable annoyance and resentment
between HMD and CMA. CMA was affronted by what it regarded as
HMD's unreasonable refusal to accept it as a contract partner for the
four vessels, which it regarded as insulting and completely without
justification. HMD in turn was offended by what it regarded as CMA's
aggressive tactics in pursuing the novation, and was outraged at being
sued in what it regarded as thoroughly unmeritorious proceedings in
France. As a result, HMD insisted in dealing only with ERS and refused
to negotiate terms … directly with CMA. Thus the negotiations were not
merely at arms' length – the atmosphere was positively hostile."
5.The outcome was a series of four Novation Agreements, entered into
on 12 September 2005, 27 January 2006, 7 April 2006 and 20 June
2006, each for a separate vessel. The terms of the Novation Agreements
involved that in each case the novation only took effect after construction
work on the vessel had been completed, at a Transfer Date, meaning
(by reference to clause 1 of each Agreement, the Definitions section) the
"date and time of actual delivery of the Vessel by the Builder [HMD] and
acceptance by the New Buyer [CMA] under the terms of the Shipbuilding
Contract." The relevant clauses of each novation agreement, upon which
attention was concentrated in the Arbitrations, are as follows:
"4. NOVATION
1. The Original Buyer [ERS], the New Buyer and the Builder hereby agree
that on and with effect from the Transfer date the New Buyer shall be
substituted in place of the Original Buyer as a party to the Shipbuilding
Contract and the Shipbuilding Contract shall thenceforth be construed
and treated in all respects as if the New Buyer was named [therein – it
is agreed there was a misprint in the Agreement] instead of the Original
Buyer. Save for the substitution of the New Buyer as the Buyer under the
Shipbuilding Contract pursuant to this Clause, the Shipbuilding Contract
shall remain in full force and effect.
2. The New Buyer hereby agrees with the Builder that, as and with effect
from the Transfer Date, the New Buyer shall duly and punctually perform
and discharge all liabilities and obligations whatsoever from time to
time to be performed or discharged by it or by virtue of the Shipbuilding
Contract in all respects as if the New Buyer was named therein instead of
the Original Buyer.
3. Provided that the delivery instalment has been duly paid by the Original
Buyer in accordance with clause 3.1 above, the Builder hereby agrees
with the New Buyer that, as and with effect from the Transfer Date, the
Builder shall be bound by the Shipbuilding Contract in all respects as if the
New Buyer was named therein instead of the Original Buyer.
4. Provided that the above delivery instalment has been duly paid by
the Original Buyer in accordance with clause 3.1 above and except as
provided otherwise herein, the Builder and the Original Buyer hereby, as
and with effect from the Transfer Date, mutually release and discharge
each other from all liabilities, obligations, claims and demands whatsoever
touching or concerning the Shipbuilding contract and, in respect of
anything done or omitted to be done under or in connection therewith,
the Builder hereby accepts the liability of the New Buyer in respect of any
such liabilities, obligations, claims and demands in place of the liability of
the Original Buyer.
5. The mutual release contained at Clause 4.4 above shall not apply
in relation to the claim of the New Buyer against the Builder currently
pending before the commercial court in Marseilles.
…
5. REPRESENTATIONS AND WARRANTIES
1. The Original Buyer represents and warrants to the other Parties to this
Agreement that at the date of this Agreement:
…
d. The Shipbuilding Contract is valid and subsisting and without prejudice
to clause 4.5 above the Original Buyer is not aware of any facts or
circumstances which would entitle the Original Buyer of the Builder to
terminate, rescind, cancel or claim damages under or for breach of the
Shipbuilding Contract.
2. The Builder represents and warrants to the other Parties of this
Agreement:
…
d. The Shipbuilding Contract is valid and subsisting and without prejudice
to clause 4.5 above the Builder is not aware of any facts or circumstances
which would entitle the Builder or the Original Buyer to terminate,
rescind, cancel or claim damages under or for breach of the Shipbuilding
Contract.
7. MISCELLANEOUS
The New Buyer confirms to the Builder that there are no further claims
arising from the New Buyer against Builder between the date of signing
this Agreement and the Transfer Date."
6.As can be seen there was no express provision as to what should occur
in relation to the French proceedings. The Arbitrators noted in paragraph
69 of their Reasons:
"… all parties were aware of the existence and nature of the French
proceedings. That much is obvious from the terms of the Novation
Agreement itself."
7.CMA continued with those proceedings, in which HMD entered an
appearance under protest (it is common ground that they did not thereby
submit to the jurisdiction and that no issue estoppel is created by the
judgment which eventuated).
8.The Marseilles Commercial Court delivered its judgment on 30
September 2006, concluding that it had jurisdiction to hear CMA's claim,
that the applicable law for considering CMA's claim in tort was French law
but that English law was to be applied to the issue as to whether HMD had
unreasonably refused its consent to a novation, and held, as described by
the Arbitrators in paragraph 62 of their Reasons, that:
"(d) … HMD had unreasonably refused to consent to a novation, in breach
of Article XIV of the Shipbuilding Contract.
(e) This breach constituted "fault" within the meaning of Article 1382 of
the French Civil Code.
(f) CMA was entitled to its full damages of US$ 3,646,125, without any
deduction whatsoever, together with € 10,000 by way of damages for
the slur cast on CMA's image to other shipbuilders and legal costs of €
30,000."
9.HMD has appealed that judgment to the Cour de Cassation in Aix-
en-Provence, which appeal is still pending, although I am told that
the hearing is fixed for next month. HMD paid (inclusive of interest) a
total of US$ 3,682,407.55 plus € 10,099.48 to CMA on 2 March 2007 in
satisfaction of the judgment, although the legal costs remain outstanding.
10.The Arbitrations related to HMD's claim to recover those sums
(to be allocated as to one quarter to each Shipbuilding Contract, and
hence to each Arbitration) on the basis that CMA was in breach of the
Arbitration Clauses, Article XIII in each of the Shipbuilding Contracts,
by bringing, pursuing and continuing the French proceedings. Although
the Arbitrators found that there was no breach by CMA in respect of
its having originally brought the French proceedings in March 2005
(and HMD reserves the right effectively to cross-appeal in respect of
that conclusion, though does not pursue it if it succeeds in upholding
the Awards otherwise) the Arbitrators concluded that, by continuing to
pursue, and not discontinuing, the French proceedings after the respective
transfer dates, by reference to each of the Novation Agreements, CMA
was in breach of Article XIII in each of the Shipbuilding Agreements as
novated. They concluded that:
i) consequently HMD was entitled to recover damages for breach of the
Arbitration Clauses, provided it could establish that it had suffered loss;
ii) they were not bound by the judgment of the Marseilles Court, and were
entitled to, and did, hear evidence and reach conclusions themselves as
to whether there had been a breach of Article XIV by HMD in respect of
unreasonable refusal to consent;
iii) HMD was not in breach of Article XIV, as a result of which:
a) HMD's loss and damage was the sum which it was ordered to pay, and
did pay, in the French proceedings to CMA, coupled with compensation in
respect of lost management time and their own French legal costs, and
interest.
b) they made a declaration that HMD did not unreasonably withhold or
delay its consent to the transfer of the Shipbuilding Contracts to CMA.
11.The two questions of law arising on the appeal are summarised by
CMA as follows:
i) Whether the Arbitration Clause in the novated Shipbuilding Contracts
applied to the pre-existing dispute between CMA and HMD which had
already been referred to the French court, and was pending before it at
the time of novation.
ii) If so, whether the Arbitrators were bound by the French court's
determination of the same issues between the same parties in a judgment
which the English courts would be bound to recognise pursuant to the
Council Regulation (EC) No 44/2001of jurisdiction and the recognition
and the enforcement of judgments in civil and commercial matters ("the
Judgments Regulation").
12.A further application, the nature of which has not been made known
to me, but related to the fact that the French judgment was in any event
in the wrong amount, made by HMD, has been adjourned by consent,
pending the determination of this appeal.
The first ground of law
13.There are some unusual features about the facts of this case:
i) The dispute arose between the parties at a time when they were
not contracting parties, nor in a contractual relationship governed by
an Arbitration Clause, and the question is whether they are obliged to
arbitrate, or are free to litigate that dispute, once they become parties to
a contract with an Arbitration Clause which antedated that dispute, if it
otherwise falls within the definition of the Arbitration Clause.
ii) The French proceedings had already been launched prior to the
entering into of the Novation Agreements, so that, if the obligation
to arbitrate and not litigate binds, there would be the necessary
consequence that the French proceedings would have to be discontinued.
Mr Hamblen QC for CMA accepted, when I put it to him, that the existence
of the proceedings per se would make no difference. The issue is whether
the underlying dispute is one which must be arbitrated. If not, then one or
other or both of them would be free to issue proceedings even if they had
not done so already. If they had already issued proceedings and now had
to arbitrate, then the existence of proceedings could not be determinative
and they would simply have to be discontinued.
iii) There are four Novation Agreements, as set out above, and, contrary
to Mr Hamblen's suggestion that this makes a difference and somehow
involves an "absurd consequence", I cannot accept that that is so. If
each of them has an Arbitration Clause by which, upon becoming a party,
CMA is bound, then to that extent he is then prevented from litigating a
dispute which falls within the Arbitration Clause. If technically that would
have meant a sequence of partial withdrawals of issues from the French
proceedings, then that is its consequence, but this cannot possibly have
any impact upon the construction issue which was before the Arbitrators.
14.There are two aspects to this first point of law:
i) What is the contractual significance of Article XIV once it applies to CMA
by virtue of the Novation Agreement, i.e. upon CMA becoming a party to
the Shipbuilding Agreement as novated?
ii) Do the various other provisions of the Novation Agreement, clauses
4(5), 5 and 7, set out above, impact upon the argument or the
construction? I shall deal with this second question first.
15.It is in my judgment quite clear, as it was to the Arbitrators, that
these other provisions of the Novation Agreements have no impact upon
the decision. It is wholly apparent to me that, in the absence of any
express agreement, indeed in the impossibility, because of the hostility
between them, of any express agreement, as to the effect of or on the
French proceedings, the two parties, negotiating as they did through an
intermediary, simply left the matter to be resolved as a matter of law:
i) There was a mutual release and discharge between HMD and ERS in
clause 4.4 in respect of all matters other than (clause 4.5) any liability
that might arise out of the French proceedings. If the French proceedings
continued, and there were any consequential claim arising out of them
as between HMD and ERS, that would be left open. That did not in my
judgment amount to any licence or consent for those proceedings, nor to
any agreement that CMA was free to continue with them.
ii) ERS and HMD each warranted to all the other parties, severally in
clauses 5.1(d) and 5.2(d) that it was not aware of any fact or matters
which would entitle HMD or ERS to bring any claims, except, once again,
that any potential claim as between HMD and ERS which might arise as a
consequence of the French proceedings was preserved.
iii) Clause 7, to which Mr Hamblen QC drew attention, does not in my
judgment add anything. It constituted a warranty by CMA to HMD that
there were no further claims arising in what Mr Christopher Butcher QC,
for HMD, described as the scintilla temporis between the signing of the
agreement and the transfer date, which were effectively one and the
same. All parties knew of CMA's existing French proceedings, as the
Arbitrators found.
16.The Arbitrators persuasively found in paragraph 70 of their Reasons
that:
"Neither party would reasonably have thought that CMA would willingly
give up whatever ability it had to pursue its claim in the French
proceedings. Conversely, both parties would have recognised that HMD
would do whatever it could to stop those proceedings."
17.The Arbitrators further convincingly conclude in paragraph 71 of the
Reasons that it "is obvious from the terms of the Agreements themselves"
that:
"HMD was reserving the right to claim against ERS in the event it was
found liable in the French proceedings. This was the reason for the
inclusion of Clause 4.5. It involved the recognition of the possibility (but,
we think, no more than the possibility) that those proceedings might
continue to what would be, for HMD, an adverse judgment."
18.Mr Hamblen QC submits as follows:
i) As the consequence of the Arbitrators' construction is that, as Tomlinson
J put it in granting permission, CMA would thus be "obliged to terminate
proceedings which it had been no breach of contract to bring and
moreover to prosecute for some months", then this would be what Mr
Hamblen calls a "surprising and uncommercial consequence". Mr Hamblen
describes the Tribunal's construction as involving "CMA sleep-walking into
a bargain which it would never knowingly have made". But the fallacy
in Mr Hamblen's argument can be seen in paragraph 20 of his skeleton,
where he submits:
"The result of the bargain which the Tribunal held to be made was that
CMA was freely entering into an agreement which both parties knew CMA
was immediately going to breach."
This misunderstands the real position, as was clearly found to be the case
by the Arbitrators. Both sides thought they were in the right. Both sides
no doubt knew that CMA was going to go on with the proceedings, but
CMA certainly did not know that that was going to render it in breach,
indeed it believed the contrary, and that it was entitled to pursue the
proceedings. The Arbitrators have found, rightly in my judgment, that
on a proper construction of the contract, to which I shall turn, CMA was
not so entitled. It is clear that both sides' positions were preserved and
reserved.
ii) Mr Hamblen further submits that such a construction is inconsistent
with the terms of the Novation Agreements, which I have set out above.
Mr Hamblen notes that the Arbitrators acknowledge that clauses 4.4 and
4.5 contemplated "the possibility" that the French proceedings might
continue, and submits that the Arbitrators erred in overlooking the fact
that the continuation of the Marseilles proceedings was what Mr Hamblen
calls a "contractual possibility", which itself demonstrated that the parties
did not intend that those proceedings were required to be discontinued.
This would not be the first time, and it will not be the last, in which a
court (or in this case the Arbitrators) having carefully assessed the factual
matrix conclude that objectively a contract must be construed in a way
which does not accord with one or other or indeed both of the two parties'
subjective intentions. In paragraph 83 of the Reasons, the Arbitrators
found as follows in relation to clauses 4.4 and 4.5:
"As is evident from these clauses, and as is confirmed by reference to the
background to the Novation Agreement, HMD considered that it would
or might have a remedy over against ERS in the event that it was held
liable to CMA in Marseilles. The purpose of Clause 4.5, referred to in
argument as a "carve-out" from the mutual releases in Clause 4.4, was
to preserve whatever claim HMD might have against ERS. It is therefore
true that these clauses do contemplate the possibility that CMA's French
proceedings may continue, and may result in a judgment against HMD.
But it does not follow, in our opinion, that HMD was accepting that they
would continue, let alone that they would do so legitimately; or that these
provisions, which operate only as between HMD and ERS, displace the
obligation to arbitrate this claim which CMA had undertaken by virtue of
Clauses 4.1 and 4.2."
I agree, and would only add that the Arbitrators were entitled to find that
what was also obviously the case, namely CMA's intention to continue
with the proceedings, had no effect upon the proper construction of the
Agreement.
19.I return therefore to the effect of the novation on the Arbitration
Clause. Mr Hamblen understandably emphasises that the novation only
takes effect in each case at the Transfer Date of the relevant vessel, but
the provisions are that:
i) by Clause 4.1 CMA is to be substituted on and with effect from the
Transfer Date in place of the ERS "as a party to the Shipbuilding Contract
and … the Shipbuilding Contract shall thenceforth be construed and
treated in all respects as if [CMA] was named in the Shipbuilding Contract
instead of [ERS]"
ii) by Clause 4.2, on and with effect from the Transfer Date CMA "shall
duly and punctually perform and discharge all liabilities and obligations
whatsoever from time to time to be performed or discharged by it or by
virtue of the Shipbuilding Contract in all respects as if [CMA] was named
in the Shipbuilding Contract instead of [ERS]".
20.The obligation which CMA thereby undertook as a party to the original
Shipbuilding Contracts, which it only became as at the transfer date, was
to submit to arbitration "any dispute [which] should arise in connection
with the interpretation and fulfilment" of that contract. Mr Hamblen
points out that there is slightly different wording in clause 4.3, because
in relation to the consequence of the Novation Agreement in respect of
HMD, it is agreed that HMD "shall be bound by the Shipbuilding Contract
in all respects as if [CMA] was and had at all times been named therein
instead of the original buyer". I agree with Mr Butcher, however, that this
has no materiality. So far as HMD is concerned, HMD had been a party to
the Shipbuilding Contracts from the beginning and had owed continuing
obligations throughout, which it now retrospectively owed to CMA. For
the purpose of the appeal being pursued before me, namely whether
CMA was, as the Arbitrators found, in breach of its obligations after the
transfer date in continuing the French proceedings, such retrospectivity
is irrelevant and the only question is whether the obligations imposed as
at the transfer date, resulting from CMA's being named as a party to the
original Shipbuilding Contract, are then breached.
21.There are two contentions made by Mr Hamblen QC, the second
of which is characterised by Mr Butcher QC as a 'new' argument, Mr
Hamblen not having been instructed below; but Mr Butcher does not
object to the argument, being one of law, being run. They both relate
to the central question of the construction of Article XIII, once the
Shipbuilding Contracts are novated. I do not accept Mr Hamblen's
submission that, on the Tribunal's construction, it was or became an
ad hoc Arbitration Agreement, thereby creating what he calls a unique
hybrid clause. If it were an ad hoc agreement, then Mr Hamblen would
be entitled to rely upon Mustill and Boyd's characterisation of such
agreements as always being the result of a "deliberate decision by both
parties to the dispute to create or define the Arbitrator's jurisdiction and
powers to deal with the dispute" (Commercial Arbitration (2nd Ed) 1989
p132). But that does not arise, in my judgment, and the whole question
falls within the confines of the wording of Article XIII.
1. "If any dispute should arise":
22.The Arbitrators set out CMA's contention and rejected it in paragraphs
79 to 81 of their Reasons:
"CMA, however, contends that the clause refers only to disputes arising in
the future ("if any dispute should arise") and that as between HMD and
CMA that means any dispute arising after the Transfer Date. Accordingly,
says CMA, the arbitration clause does not apply to the existing dispute
between HMD and CMA which had already arisen prior to the Transfer
Date.
80. We reject this argument. It is true that the words "if any dispute
should arise" refer to something that may happen in the future, but
they are contained in a contract dated 26 February 2004 and refer to
disputes arising after that date – which the dispute in question here
did. The meaning and effect of the Arbitration Clause was not altered
by the Novation Agreement. Before and after the coming into force of
the Novation Agreement it referred to disputes in connection with the
interpretation and fulfilment of the Shipbuilding Contracts arising after the
date of those contracts.
81. CMA's case on this point means that a dispute arising between the
parties one day after the Transfer Date, albeit a dispute about events
occurring before the Transfer Date, would be subject to an obligation to
arbitrate, while precisely the same dispute, arising one day before the
Transfer Date, would not. To our minds this is a result which makes little
commercial sense, and which rational businessmen are not likely to have
intended. Following the approach commended in the Fiona Trust [this is a
reference to Fiona Trust & Holding Corporation v Privalove [2007] 4 All ER
951 ], the clause should be construed so as not to produce this surprising
result, unless the language of the contract clearly requires a different
conclusion."
23.Mr Hamblen QC submits that the ordinary legal effect of a novation is
to "extinguish the original contract and replace it by another" (referring
to Chitty on Contracts 29th Ed 2004 Vol I 19-087), such that there should
now be deemed to be novated Shipbuilding Contracts, the first of which
would thus be dated 12 September 2005. This seems to me to ignore
the express provisions of clauses 4.1 and 4.2, set out and analysed
above. In any event, quite apart form the express position so made
clear, namely that the parties are placed into the original agreements,
Mr Butcher QC draws comfort from Mustill & Boyd at 137 and the cases
there referred to (such as Freshwater v Western Australian Assurance Co
Ltd [1933] 1 KB 315, Dennehy v Bellamy [1938] 60 Ll. L. Rep 269, Smith
v Pearl Assurance Co Ltd [1939] 63 Ll. L. Rep 1 and Oakland Metal Co
Ltd v Denaim & Co Ltd [1953] 2 Lloyd's Rep 192, all to similar effect).
The Novation Agreements are not self-standing, they simply repeople
the original contracts, leaving their provisions (including their dates)
unchanged.
24.Mr Hamblen refers to paragraph 75 of the Reasons, where the
Arbitrators reject what was then HMD's first case (not actively pursued
before me) that CMA must be treated as having always been in breach of
the Shipbuilding Contracts as novated, not just as and from the Transfer
Date, with the conclusion that "conduct by CMA prior to the Transfer Date,
committed at a time when CMA was not in any contractual relationship
with HMD, is not retrospectively turned into a breach of contract by
virtue of the Novation Agreement". Mr Hamblen submits that that logic
ought to have led them to conclude that CMA was also not in breach
after the Transfer Date. I have already referred to this in paragraph 20
above. I disagree, and agree with the Arbitrators. This is not a question
of retrospective breach. Once CMA becomes party to the Shipbuilding
Contracts, and must "duly and punctually perform and discharge all
liabilities and obligations … by virtue of the Shipbuilding Contract in all
respects" then it must arbitrate a dispute that has arisen after the date
of the Shipbuilding Contracts, albeit that it does not come under that
obligation until after the Transfer Date.
25.I have already dealt with Mr Hamblen's "surprising and uncommercial
consequence" point in paragraph 18(1) above. Whatever CMA may
have hoped, expected or even intended, on a proper construction of the
Shipbuilding Contracts as novated it came under an obligation to arbitrate
an arbitrable dispute, once it owed obligations under those Contracts, i.e.
on and after the Transfer Date: and thereafter was obliged to arbitrate
such dispute not litigate it, refraining from any fresh, and terminating any
existing, proceedings.
26.I regard the logic of the Arbitrators of the first sentence of paragraph
81, set out above, as powerful. It may be that it is that logic which has
driven Mr Hamblen QC to commit most of his efforts in oral submissions
to his "new" argument, dealt with below. Such logic does not require
support from the Fiona Trust case, to which I shall refer below, in
addressing that new argument.
2. The new argument: not an arbitrable claim
27.In the absence of such argument being before them, the Arbitrators
concluded, at paragraph 79, as follows:
"The dispute about HMD's allegedly unreasonable refusal to consent to
a novation in breach of Article XIV, which had given rise to CMA's claim
before the French court, was undoubtedly a dispute "in connection with
the interpretation and fulfilment" of the Shipbuilding Contracts. The
dispute therefore fell within the terms of Article XIII of those Contracts."
28.Mr Hamblen's submission is that this is a claim, albeit one which can
be said to be "in connection with the interpretation and fulfilment" of
the Shipbuilding Contracts, which is outside the ambit of Article XIII. He
accepts, indeed emphasises, that the point arises irrespective of the fact
that the French proceedings were brought, and would apply as much to
a situation in which there had simply been the dispute in existence as
from April 2004, still unresolved at the time of the Novation Agreement,
without any proceedings yet having been commenced. His case is that the
French proceedings could have been commenced after the Transfer Date,
after CMA became a party to the novated Shipbuilding Contracts, and yet
CMA would not have been under an obligation to submit it to arbitration.
29.The claim in the French proceedings was:
i) a tortious claim
ii) by a non-party to the Shipbuilding Contracts
iii) claiming damages for having been prevented from becoming a party to
the contracts by the unreasonable refusal.
This, Mr Hamblen submits, was not arbitrable. Quite apart from the fact
that the tort itself upon which the claim is based is not a familiar one to
us, being founded in French law, it is certainly an unusual form of claim
to fall within the Arbitration Clause of a contract, and plainly would not
have done so at the time when CMA was not a party to the contract. Mr
Hamblen submits that Article XIII should be read as "if any dispute should
arise between the parties", and it did not. Once by happenstance (or in
this case, as a result of a subsequent agreement) party C who has such
a claim subsequently becomes a party to a contract with party A which
contains an arbitration clause, that dispute does not become arbitrable,
just as would not any other claim which party C might earlier have had
against party A prior to their becoming parties to such a contract. Fiona
Trust, relied upon by the Arbitrators and by HMD, he submits not to be
apt. Although this was a decision which concluded that it was time for a
"fresh start to be made to the construction of arbitration clauses", and
by which restrictive interpretation of the width of arbitration clauses was
deprecated, he submitted that the words of Lord Hoffmann in that case,
upon which reliance is so often, and was in this case, placed are not here
applicable:
"6. In approaching the question of construction, it is therefore necessary
to inquire into the purpose of the arbitration clause. As to this, I think
there can be no doubt. The parties have entered into a relationship, an
agreement or what is alleged to be an agreement or what appears to be
on its face an agreement, which may give rise to disputes. They want
those disputes decided by a Tribunal which they have chosen, commonly
on the grounds of such matters as its neutrality, expertise and privacy …
13. In my opinion the construction of an arbitration clause should start
from the assumption that the parties, as rational businessmen, are likely
to have intended any dispute arising out of the relationship into which
they have entered, or purported to enter, to be decided by the same
Tribunal."
That, Mr Hamblen submits, is not relevant in this case, where the issue
is as to a subsequent novation, and HMD and CMA did not negotiate the
clause.
30.Mr Hamblen's submissions are attractive but, in my judgment, they
do not take proper account of the nature and breadth of Article XIII. It
is quite plain that if party C has some claim against party A and then
subsequently happens to enter into an agreement with party A, which
happens to have an arbitration clause, it is unlikely that such earlier
unconnected dispute would even be argued to fall within the arbitration
clause. Mr Hamblen refers to a passage in Arbitration Law by Robert
Merkin 2008 at 5.39, where the author sets out a number of different
possible formulations for an arbitration clause and continues:
"It will be noted that some of these formulations refer to disputes flowing
from a "contract", while others simply refer to disputes. The reluctance
of the English courts to recognise retroactivity means that in the latter
situation the clauses are unlikely to be taken as referring to disputes
which arise between the parties out of some earlier agreement."
31.It is not in issue between the parties that a tortious claim can fall
within an arbitration clause (see e.g. E T Plus SA v Welter [2006] 1
Lloyd's Law Rep 251), and Mr Hamblen seeks to differentiate the case of
Re Polemis & Furness, Withy & Co Ltd [1921] 3 KB 560, a case in which
the arbitration clause covered "all disputes", and the claim in tort arose
directly from the contractual relationship between the parties.
32.Tortious claims arising prior to contract, such as claims for
misrepresentation inducing it, are arbitrable, such as in Ashville
Investments Ltd v Elmer Construction Ltd [1989] QB 488. Just like a
dispute about misrepresentation prior to contract, so a dispute about
whether licence to assign or novate a contract was unreasonably refused
is a dispute "in connection with the interpretation and fulfilment of" the
Shipbuilding Contract. I have no doubt therefore that once CMA became
party to the novated Shipbuilding Contract, and the question fell to be
asked whether a dispute had arisen between the two parties to that
novated contract, which fell within the Arbitration Clause, the answer
could only be in the affirmative.
33.Whether therefore by virtue of the arguments which were before
the Arbitrators or by reference to the new argument which was not, the
Arbitrators came to what was in my judgment the correct decision, and
in any event there was no error of law. I do not need to deal with an
alternative argument as to the meaning of arise, which Mr Butcher trailed,
but in my judgment rightly did not pursue.
The second point of law
34.In the light of their findings, which I have upheld, the Arbitrators
concluded that CMA was in breach of the Arbitration Clause in pursuing
the French proceedings. The parties before them had agreed that in that
case, the issue as to whether the Arbitrators were bound by, in the sense
of having to recognise, the judgment in the French proceedings arose. As
to this:
i) HMD contended that the Arbitration Tribunal was not required to
recognise the French judgment by the Judgments Regulation, and that it
should not do so.
ii) Alternatively HMD submitted that, if the Judgments Regulation applied,
then the Arbitrators should conclude that the circumstances fell within the
"public policy exception", by reference to Article 34, which provides:
"A judgment shall not be recognised:
1. if such recognition is manifestly contrary to public policy in the Member
State in which recognition is sought."
HMD submitted that it would be manifestly contrary to UK public policy to
enforce a judgment in proceedings which had been issued, by the party
relying on that judgment, in breach of an Arbitration Agreement.
35.In the event, the Arbitrators concluded that the Judgments Regulation
did not apply so as to render them bound to recognise the French
judgment. As to the public policy issue, the Arbitrators referred to the
most significant judgment in this area, that of Waller J in Phillip Alexander
Securities v Bamberger [1997] I.L.Pr 730, where, at para 114, Waller J
suggested that a judgment obtained in breach of an arbitration agreement
"may well not be recognisable", and that recognition might depend
on whether the foreign proceedings were "in blatant disregard" of the
arbitration clause or there was a bona fide argument about the scope of
the clause. The Arbitrators decided, at paragraph 116 of their Reasons,
that they did not need to determine this question and would not do so.
They held that the point only arose if they were wrong about the impact
of the Judgments Regulation. What they did do was to conclude that if the
test was whether there had been a "blatant disregard" of the arbitration
clause by CMA, they found that there was not.
36.CMA appeals the Arbitrator's conclusion that the Judgments Regulation
does not apply. HMD appeals the failure to find that enforcement of the
French judgment would be manifestly contrary to UK public policy, and,
so far as necessary, the finding that there was not blatant disregard,
although they do not pursue such appeal if they otherwise succeed in
upholding the Arbitrators' decision in the case, namely that they were not
bound by the French judgment and were entitled to proceed, as they did,
to reach their own conclusion that HMD was, contrary to the view of the
French court, not in breach of Article XIV, and did not unreasonably refuse
its consent to the novation.
37.However, there is a prior question, which the Arbitrators discussed
but did not resolve, in circumstances described in paragraph 94 of their
Reasons. In paragraph 93, they set out that "the parties agree that the
question arises whether we are bound by the Judgments Regulation to
recognise the French judgment, and therefore bound as a matter of law
to conclude that a notional [arbitration] tribunal would have reached
the same conclusion as the French court" – and they indicated that they
would therefore go on to deal with the two questions summarised by
me above, as they did. But the Arbitrators continued in paragraph 94 as
follows:
"94. However, we confess to some doubts about why any question of
recognising the French judgment arises at all. If the working hypothesis
is that instead of proceeding in Marseilles, CMA had brought its claim in
a London arbitration, and we are required to decide what conclusion a
notional arbitral tribunal would have reached, there would be no French
judgment and no question of recognition could arise. The one thing
that the London tribunal could not have done would be to recognise a
French judgment, since there would be no such judgment to recognise.
Nevertheless, the case was argued before us on the premise that the
question does arise whether we are, or a notional tribunal would have
been, bound by the Regulation to recognise the French judgment, and
that an affirmative answer to that question would be conclusive in CMA's
favour. Thus, if the French judgment is entitled to recognition under the
Regulation, it was common ground that CMA's claim should be treated as
if it would have succeeded, and therefore that (subject perhaps to issues
about costs) HMD has suffered no loss."
38.HMD sought on its application for leave to support that proposition,
and to rely upon it on the appeal in order to justify the Arbitrators'
decision on an additional ground. Tomlinson J left it to me to decide
whether such new arguments could be run. In the event, there has
not been a material contest to the right of HMD to pursue that case on
appeal. Although it is not usual for new points to be raised on appeal
which were not fully or at all canvassed below, this argument, in my
judgment, on any view satisfies any necessary test:
i) Although it was only raised by the arbitral tribunal itself in its Reasons,
it did at least to that extent feature at first instance. The Arbitrators did
not in the event rest their conclusion on it. It is quite plain that if the
Arbitrators would otherwise have rested their conclusion on it, they would
have reopened the hearing and given both sides the opportunity to make
submissions. In the event, there is no prejudice, and Mr Hamblen QC did
not assert any, because the opportunity which was thus not given below,
has been made available on this appeal.
ii) The point is entirely a matter of law and argument, and does not, as Mr
Hamblen QC accepted, involve the need for any further evidence, so can
as well be resolved on appeal as it could have been at first instance.
I therefore resolved that I would allow the point to be run.
39.It is a very simple one. There is no question here of needing to
consider what a notional tribunal would have concluded. Before these
Arbitrators was a claim for damages for breach of contract, namely breach
of the Arbitration Agreement, and the injured party is submitting that
the contract breaker should not be entitled to benefit from its own wrong
(see for example New Zealand Shipping Co Ltd v Société Des Ateliers et
Chantiers de France [1919] AC 1 at 8), so that the Court is entitled to ask
what would have happened if the contract had not been breached. Had it
not been breached, then the parties would have both complied with their
obligations to have the matter resolved by arbitration, and there would be
no French judgment: and the Arbitrators have in fact resolved the issue in
HMD's favour, paying no regard to the French judgment. The logic is clear,
and Mr Hamblen QC was in the event unable to put up any resistance to
it. One matter was mentioned by the Arbitrators themselves in expanding
their reasons why, apart from the fact that they were pursuing the course
which the parties had agreed that they should take, and that they were in
the event making the decision that they would have made anyway, they
did not reach a conclusion in this regard. They referred to The Angelic
Grace [1995] 1 Lloyd's Rep 87, in which, in considering the possible risk
if an injunction to restrain proceedings in a foreign court in breach of an
arbitration agreement were not issued, Leggatt LJ stated (at 95):
"If the Charterers are not restrained from pursuing the Italian proceedings
and the Italian court exercised jurisdiction, then the question would
arise … whether a judgment by the Italian court would be recognised or
enforced in England."
40.I cannot see why, and Mr Hamblen QC did not suggest that, this
should be a reason not to follow the obvious course in this case. All that
was being said in The Angelic Grace was that the grant of an injunction
would prevent any such argument. We are now having just such an
argument, and I conclude that the answer is clear. The Arbitrators
expressed the concern in paragraph 94 that, if the French judgment were
entitled to recognition under the Judgments Regulation, it might be that
following the obvious course "would be regarded as an unacceptable
circumvention of the principles underlying the Regulation", which
encouraged them not to resolve the point, particularly as they did not
need to, and in the absence of argument. I conclude that this is no
more of a circumvention of the Judgments Regulation than would be an
injunction to restrain the continuation of proceedings in a foreign court by
injunction prior to its reaching a judgment. This is not a question of not
recognising a judgment, but concluding that, as the parties were obliged
to go to arbitration, it is only the outcome of arbitration which is of any
relevance.
41.Resolution of this point in HMD's favour means that CMA's appeal fails
in any event. The issue of the Judgments Regulation was argued before
me. On further consideration, as this appeal is now resolved in favour of
HMD, I shall do no more than indicate that I am not persuaded that the
Arbitrators were wrong in relation to the issue of the inapplicability of the
Judgments Regulation.
42.They rested their conclusion upon Article 1, which in material part
reads as follow:
"1(1) This Regulation shall apply in civil and commercial matters whatever
the nature of the court or tribunal. It shall not extend, in particular, to
revenue, customs or administrative matters.
2. The Regulation shall not apply to: …
(d) arbitration."
43.The Arbitrators referred to a number of authorities, and in particular
The Atlantic Emperor [1992] 1 Lloyd's Rep 342 and The Front Comor
[2007] 1 Lloyd's Rep 391, to emphasise that this provision means not
only that UK courts are not required to recognise arbitration awards
(there being of course other international conventions for that specific
purpose) but also proceedings ancillary to arbitration: and the conclusion
by the Arbitrators was that this was, on a true and proper construction
of the Regulation, intended to be reciprocal, i.e. not only were UK courts
not required to recognise foreign arbitral awards, but UK arbitrators were
not required to recognise foreign judgments, the Convention thus not
"apply(ing) to arbitration" at all.
44.In support of that proposition, the Arbitrators, and in his submission
Mr Butcher, referred also to Articles 32 and 33 of the Regulation, which
are both at the outset of Chapter III, the specific chapter relating to
Recognition and Enforcement:
"32. For the purposes of this Regulation, "judgment" means any judgment
given by a court or tribunal of a Member State, whatever the judgment
may be called, including a degree, order, decision or writ of execution, as
well as the determination of costs or expenses by an officer of the court.
33. A judgment given in a Member State shall be recognised in the other
Member States without any special procedure being required."
45.The argument runs as follows. It is plain that in Article 32 the
reference to a tribunal is to a "tribunal of a Member State", not a tribunal
in a Member State, i.e. not an arbitration tribunal: this construction is
confirmed by the view of the authors of Layton and Mercer European Civil
Practice (2nd Ed) at Vol I para 25.006. Thus, it is submitted, if tribunal
in Article 32 does not include an arbitration tribunal for the purpose
of recognition by a UK court, so the word tribunal in Article 1.1 is also
not a reference to an arbitration tribunal, such that for that reason also
the Regulation does not apply to arbitration tribunals, who are thus not
obliged to recognise foreign judgments.
46.It is plainly right that, if the Judgments Regulation does not apply
to an arbitration tribunal, then arbitration tribunals are not obliged to
recognise foreign judgments, even if UK courts are so obliged, and to that
extent the Arbitrators were right not to be persuaded by the beguiling
argument that arbitrators are applying English law, and if English law
requires recognition of a foreign judgment then the arbitrators must
recognise the foreign judgment. This argument does not differentiate
between substantive and procedural law. Of course arbitrators will
apply English law, but they would not then be bound by the procedural
requirement, if it be imposed only on a court, to recognise a foreign
judgment, estopping it from considering the facts underlying that
judgment.
47.I have concluded, as adumbrated above, that, as there is no need for
me to disturb the conclusion by the Arbitrators in this regard, and reach
any conclusion myself, given that I have dismissed the appeal on other
grounds, I should not do so. As to the "public policy" question, I am not
invited by HMD to resolve it if it has otherwise succeeded on the appeal,
as it has. It remains only to point out that the obvious route in a future
case will be the New Zealand Shipping route set out above, which in most
cases will render the interesting question as to whether Article 34(i) would
apply academic.
Although there was no separate ground of appeal, permitted or otherwise,
in respect of the declaration which the Tribunal made, referred to in
paragraph 10(iii)(b) above, Mr Hamblen QC submitted that, if he were
otherwise successful in the appeal, the declaration would fall away,
while Mr Butcher QC submitted that that aspect of the Arbitrators'
Awards was entirely self-standing, and indeed resulted from a contested
argument before them as to whether to make that declaration in any
event, whatever other decision they might come to: Mr Butcher obviously
wished, once the Arbitrators had heard the evidence, to have a finding
in his favour, if he could obtain one, as to the issue of reasonable refusal
of consent, with an eye on the appeal in the French proceedings. I am
satisfied that, as there is no separate appeal in this regard, it would have
been appropriate to have left that declaration in place whatever else
might have been the outcome of this appeal. In the event however, CMA
have failed on its appeal, and so the Arbitrators' Awards stand unchanged.