04 February 2014

Many commercial contracts divert certain disputes about their interpretation or performance to arbitration rather than the Court. The exact scope of disputes referred to arbitration will depend upon the drafting of the clause itself. A question of the scope of an arbitration agreement came up in Interprods v De La Rue in January 2014. 

As a contractual term the scope of an arbitration agreement is principally a matter for interpretation. i.e. which disputes are ‘in’ and which are ‘out’ is a matter of contract. Looking at the arbitration clause itself is therefore important – e.g. does it cover tortious claims or only contractual ones? Does it only deal with performance of the contract or does it also deal with misrepresentations etc leading to the formation of the contract?

It is also worth noting that certain things can be deemed not to have ‘arbitrability’ i.e. the capacity to be arbitrated – one example would be whether a crime had been committed.

Interprods v De La Rue involved an claim by De La Rue for a declaration that it could terminate a contract due to the proposed criminal activity of Interprods (an alleged intention to use commission under the contract for bribes in Nigeria). The arbitration clause was fairly standard:

“Any dispute arising out of in connection with this contract, including any question regarding its existence, validity or termination, shall in the first instance be referred to mediation. Should mediation fail, the matter will be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause.”

Interprod said this did not extend to the termination of the contract for alleged criminal activity. De La Rue said it did. (As it is not a question of determining a criminal sanction here, only a civil claim which depends upon the intention to act in a criminal way there is no question of arbitrability.)

The Court found that the clause extended to cover such a claim. The claim was  a question of termination and related to a dispute arising out of or in connection with the contract:

“It is now well established that arbitration clauses such as [the clause] in this case should be construed upon the assumption that the parties, as rational business men, were likely to have intended that any dispute arising out of the relationship into which they had entered was to be decided by the same tribunal unless the language of the clause made it clear that certain questions were intended to be excluded from the tribunal’s jurisdiction.”

The point to take is that an arbitration clause is likely to be considered to cover every claim associated with the contract unless there is reason to say otherwise.

Key contact

David Hall

David Hall Partner

  • Dispute Resolution
  • Banking Disputes
  • Business Crime and Regulatory Investigations

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