Mason on Premium Nafta Products Limited v. Fili Shipping Company Limited

Mason on Premium Nafta Products Limited v. Fili Shipping Company Limited

Premium Nafta Products Ltd. v. Fili Shipping Co. Ltd. is a seminal decision by the United Kingdom's highest court, the House of Lords, that seeks to widen the straits that had narrowed the role of arbitrators and independence of arbitration clauses. This Expert Commentary, written by international arbitrator and business lawyer Paul E. Mason, shows how this decision is evident of the House of Lords’ support of the intent and ability of the parties to arbitrate disputes as provided by the underlying contract, including disputes as to whether the contract itself is valid or invalid.
 
Mr. Mason writes:  In arbitral jurisprudence, a central question is whether courts or arbitration panels have the responsibility to rule on certain claims. This is the same overall issue posed in this author’s commentary on Hall St. Assocs., L.L.C. v. Mattel, Inc., 127 S. Ct. 2875 (U.S. 2007), a case currently before the U.S. Supreme Court dealing with arbitration clauses. In Hall Street, the question involved whether arbitration clauses which call for expanded judicial review of awards based on factual or legal errors, are enforceable. In Premium Nafta, the House of Lords sought to resolve the issue of whether, where a contract includes an arbitration clause, questions regarding the validity of the contract itself (in this case, that it was allegedly procured by bribery), should be resolved by the court or an arbitral panel.
 
In rendering its decision in Premium Nafta, the House of Lords upheld an appellate court decision confirming the severability of arbitration clauses from the main contract. This changes prior U.K. law on arbitration clause interpretation, which had depended to a highly technical degree upon the exact wording of the arbitration clause to determine if it could be separated from the underlying contract. This matters because in many cases, respondents in arbitration proceedings try to claim the underlying contract is invalid for various reasons, and under prior practice, allowing these claims would have swept away the arbitration provisions under which they would be decided as well - unless the precise "magic words" (set forth below) were used in the  arbitration clause. The new decision upholds the broad concept of intent of the parties to arbitrate their disputes, even without including the "magic words" in their arbitration clause.
 
In the United States, the twin issues of severability and arbitral jurisdiction to rule on contractual validity were decided in a similar manner by the U.S. Supreme Court in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006). In that case, the plaintiffs claimed their loan contract, containing an arbitration clause, was void on its face because it contained usurious loan rates in violation of state law. The Florida Supreme Court had ruled that the validity of such a contract must be decided in the courts and not by an arbitral tribunal because the contract allegedly violated state public policy.
 
However, the U.S. Supreme Court reversed, holding: (1) that arbitration clauses are severable from their underlying agreements without specific evidence that the arbitration clause itself has invalid properties; (2) that the question of validity of the underlying contract must be decided by the arbitrator in the first instance; and (3) this holding applies to both U.S. state and federal courts. In its decision, the Court followed its prior reasoning in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. 1967) and Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984).