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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Beijing Jianlong Heavy Industry Group v Golden Ocean Group Ltd & Ors [2013] EWHC 1063 (Comm) (01 May 2013) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2013/1063.html Cite as: [2013] BUS LR D58, [2013] Bus LR D58, [2013] 2 Lloyd's Rep 61, [2013] 1 CLC 906, [2013] 2 All ER (Comm) 436, [2013] EWHC 1063 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
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BEIJING JIANLONG HEAVY INDUSTRY GROUP |
Claimant |
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- and - |
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(1) GOLDEN OCEAN GROUP LIMITED (2) GOLDEN ZHEJIANG INC Defendants (Folio 1616) and (3) SHIP FINANCE INTERNATIONAL LIMITED (4) SFL BULK HOLDING LIMITED Defendants (Folio 1617) |
Defendant |
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Richard Gillis QC and Conall Patton (instructed by Clyde & Co) for the Defendant
Hearing date: 10 April 2013
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Crown Copyright ©
Judge Mackie QC :
The assumed facts
The issue between the parties
Legal matters which are common ground or not much in dispute.
"Nevertheless, the point does now come before this court for decision and, in my judgment, this court should decide it by ruling that the intended commission of prohibited acts within the territory of a friendly foreign country (whose laws prohibit those acts) is an essential and necessary ingredient of the principle in Foster v Driscoll."
"It amounts to saying that because the main agreement and the arbitration agreement were bound up with each other, the invalidity of the main agreement should result in the invalidity of the arbitration agreement. The one should fall with the other because they would never have been separately concluded. But section 7 in my opinion means that they must be treated as having been separately concluded and the arbitration agreement can be invalidated only on a ground which relates to the arbitration agreement and is not merely a consequence of the invalidity of the main agreement."
Lord Hope said (at para 45):
"The appellants' argument was not that there was no contract at all, but that they were entitled to rescind the contract including the arbitration agreement because the contract was induced by bribery. Allegations of that kind, if sound, may affect the validity of the main agreement. But they do not undermine the validity of the arbitration agreement as a distinct agreement. The doctrine of separability requires direct impeachment of the arbitration agreement before it can be set aside. This is an exacting test. The argument must be based on facts which are specific to the arbitration agreement. Allegations that are parasitical to a challenge to the validity to the main agreement will not do. That being the situation in this case, the agreement to go to arbitration must be given effect."
The requirement that the enforceability of the arbitration agreement is separable from that of the principal contract was explained and illustrated by the Court of Appeal in Harbour Assurance v Kansa General International Insurance [1993] 1 Lloyd's Rep 455. The Court held that the doctrine of separability could apply so as to preserve the arbitration agreement, even where the principal contract was alleged to be not merely voidable but void ab initio. Hoffmann LJ said (at 467, col. 2) that whether the arbitration agreement should be treated as forming part of the principal contract or as a separate agreement depended on the terms and purpose of the rule which made it necessary to ask the question. He continued (at 469, col. 1):
"In every case it seems to me that the logical question is not whether the issue goes to the validity of the contract but whether it goes to the validity of the arbitration clause. The one may entail the other but, as we have seen, it may not. When one comes to voidness for illegality, it is particularly necessary to have regard to the purpose and policy of the rule which invalidates the contract and to ask … whether the rule strikes down the arbitration clause as well. There may be cases in which the policy of the rule is such that it would be liable to be defeated by allowing the issue to be determined by a tribunal chosen by the parties. This may be especially true of contrats d'adhésion in which the arbitrator is in practice the choice of the dominant party. Thus, saying that arbitration clauses, because separable, are never affected by the illegality of the principal contract is as much a case of false logic as saying that they must be. As Ralph Gibson LJ has pointed out the same is true of allegations of fraud.
In deciding whether or not the rule of illegality also strikes down the arbitration clause, it is necessary to bear in mind the powerful commercial reasons for upholding arbitration clauses unless it is clear that this would offend the policy of the illegality rule. These are, first, the desirability of giving effect to the right of the parties to choose a tribunal to resolve their disputes and secondly, the practical advantages of one-stop adjudication, or in other words, the inconvenience of having one issue resolved by the court and then, contingently on the outcome of that decision, further issues decided by the arbitrator."
Foster-v-Driscoll-Claimant's submissions
Foster-v-Driscoll-Defendants' submissions
Impeachment
(1) "The inclusion of an agreement providing for arbitration in London substantially improves the chances of a full recovery by the Defendants under the Guarantees by:
i. Preventing the issue of the validity of the Guarantees coming before the Chinese courts (who would, applying the mandatory provisions of Chinese law, refuse to enforce the Guarantees).
ii. Permitting the Defendants to have the validity of the Guarantees determined instead by an English arbitral tribunal applying English law.
(2) On the assumed facts, the Arbitration Agreements therefore served an important purpose: they enabled the parties to circumvent the applicable provisions of Chinese law by preventing the validity of the Guarantee coming before the Chinese courts. This was the sole purpose for which they were entered into.
(3) The Arbitration Agreements are therefore directly impeached by the principle in Foster v. Driscoll: they were themselves entered into as a separate but at the same time integral part of a scheme the object or intention of which was to procure the carrying out of illegal acts in China."
Decision