March 4, 2016

Arbitration - National Iranian Oil v Crescent Petroleum (High Court)

Whether English law governed the issue of separability of an arbitration agreement and the meaning of "obtaining" consent

An agreement between the parties provided that it was governed by Iranian law and also provided for arbitration. A further clause provided that neither party could assign the contract without first "obtaining the prior written consent of the other". Several issues fell to be decided and Burton J has held as follows:

(1) Section 7 of the Arbitration Act 1996 provides that, unless otherwise agreed by the parties, an invalid arbitration agreement is to be treated as a distinct agreement, separable from the contract in which it is found. The Act applies where the seat of the arbitration is in England and Wales (which was the case here). Section 2(5) of the Act provides that section 7 applies where the law of the arbitration is the law of England and Wales (even if the seat is outside England and Wales). The judge rejected an argument that separability is a matter of substantive, not procedural, law, which in this case was Iranian law. He held that section 2(5) only applies if the seat is outside this jurisdiction, which was not the case here. Nor was there an agreement to disapply section 7 just because the proper law of the contract was Iranian law.

(2) The arbitration agreement had provided that the arbitration "will survive termination or suspension" of the contract. That did not mean that it would not survive if the contract was found to be invalid.

(3) The phrase "obtaining" consent did not mean that that consent had to be received by, or delivered to, the other side. Here, consent had been given by the claimant's board but had never been sent to the defendant. That did not mean that the defendant had not "obtained" the consent.