Commercial Court holds that endorsement of contract means guarantor is bound by arbitration agreement

The Commercial Court has dismissed an application under section 67 of the Arbitration Act 1996 challenging an arbitration award on the basis that the tribunal lacked substantive jurisdiction because no arbitration agreement had been entered into between the parties.

Hamblen J agreed with the tribunal that (subject to authority issues which were yet to be determined) the claimant (Stellar) had entered into a contract of guarantee with the defendant (Hudson) and guaranteed the obligations of its subsidiary under an alleged charterparty or Contract of Affreightment (COA) between Hudson and the subsidiary. The contract of guarantee involved Stellar's endorsement of the terms of the COA. By endorsing the COA, Stellar was endorsing and signing up to each of its terms. Its endorsement of the arbitration clause in the COA could only have meaningful effect if it involved Stellar's own agreement to arbitration in respect of any dispute concerning its obligations arising out of the guarantee.

The judge considered that to be both the natural and commercially sensible construction of Stellar's endorsement as guarantor of the COA arbitration clause. It was commercially sensible because the parties were entering into a tri-partite relationship enshrined in a single contractual document and would reasonably be expected to intend that all disputes arising out of that relationship should be dealt with in a "like manner". In reaching his decision, the judge applied, by analogy, similar considerations to the broad approach to the construction of an arbitration clause adopted in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40. Given the close connection between the COA and the guarantee, and between the parties involved, one would expect them, as rational businessmen, to agree a common method of dispute resolution.

Although there were two contractual relationships entered into, this was more akin to a "single contract" case, rather than a "two contract" case. Therefore, the restrictive approach to the incorporation of arbitration clauses in two contract cases did not apply or, in any event, did not have force in the present context. The judge commented that, in the "modern pro-arbitration climate", he could not accept that the fact that the court's jurisdiction was being ousted (by the arbitration agreement) remained a consideration of weight. On the other hand, although the court application was a rehearing, the views of the commercial arbitrators should be accorded considerable weight.

Case: Stellar Shipping Co LLC v Hudson Shipping Lines [2010] EWHC 2985 (Comm) (18 November 2010).