Содержание
Scott v Avery clause prohibits commencing litigation or seeking interim measures (such as arrest of property) before a final arbitration award. This article explains how this clause works.
Background
The case Scott v Avery was tried in 1856. By that time, arbitration had long existed in England. Although contracts contained arbitration clauses, the parties often broke them and sued in court. Courts had no obligation to stay litigation if there was an arbitration clause. Judges believed that the parties could not exclude the jurisdiction of the court.
In Scott v Avery [1856] 7 WLUK 53 (HL), George Avery took out a ship’s insurance policy with Alexander Scott. Under the insurance policy, disputes between the parties should have been settled by arbitration. This was a “condition precedent” for a claim in court. Avery claimed damages under the policy, but a dispute arose over the insurance payout amount. Avery sued in court instead of arbitration.
The court of the first instance and the appeal ruled in Avery’s favour. Scott appealed to the House of Lords, the highest court in those years.
Avery argued that the arbitration clause was illegal. He argued the parties could not exclude the court’s jurisdiction to hear cases and make such decisions as the court saw fit.
The House of Lords ruled in Scott’s favour. Lord Cranworth concluded that the arbitration clause did not exclude the court’s jurisdiction. It only established that the parties could not go to court before the arbitral award.
In the judgment, Lord Campbell also criticised previous judicial decisions for ignoring arbitration clauses. In his view, the judges had sheltered themselves under the doctrine of judicial jurisdiction. The real reason was that judges’ salaries depended on the number of cases being heard. Judges were therefore jealous of arbitrations and unwilling to share the “spoil”. This paragraph is omitted in some reports of the judgment.
Scott v Avery in FOSFA Contracts Before 1 April 2024
In 2024, FOSFA updated its proforma contracts and made significant changes to the arbitration clause. It was structured into subclauses, and subclause (c) was added:
Neither party hereto, nor any persons claiming under either of them, shall bring any action or other legal proceedings against the other of them in respect of any such dispute until such dispute shall first have been heard and determined by the arbitrators, umpire or Board of Appeal (as the case may be), in accordance with the Rules of Arbitration and Appeal of the Federation, and it is hereby expressly agreed and declared that the obtaining of an Award from the arbitrators, umpire or Board of Appeal (as the case may be), shall be a condition precedent to the right of either party hereto or any person claiming under either of them to bring any action or other legal proceedings against the other of them in respect of any such dispute.
The clause prohibits initiating any court proceedings outside of arbitration until the final decision of the FOSFA arbitration is rendered.
Why is that bad?
On the one hand, the Scott v Avery clause helps when one party is “multiplying” similar legal processes in several countries. This tactic is used to obtain a favourable decision in one country or to exhaust an opponent.
On the other hand, the clause prohibits seeking interim (provisional) measures: arresting accounts, property, etc.
A bank account is the only asset most traders have. Arbitration lasts 6-7 months and funds may be withdrawn within hours. Sometimes, it is possible to arrest an account in support of arbitration. However, Scott v Avery prohibits arrest of property.
The English court upheld this in B v S [2011] EWHC 691 (Comm). The dispute arose from a contract for selling sunflower seeds under FOSFA 54. “B” commenced arbitration and obtained a Worldwide Freezing Order without notice to “S”. The defendant challenged the order on the return date hearing because FOSFA 54 contained a Scott v Avery clause.
What can be done about it?
The parties can amend or delete the Scott v Avery clause when concluding a contract. It is possible to leave the prohibition on suing in courts but allow interim measures to be sought in support of arbitration.
There also appears to be an exception to the Scott v Avery clause. In ETC Export Trading SA and another v APLA Importer and another [2020] EWHC 3229 (QB), the judge held that the parties could not contract out the court’s jurisdiction to restrain a possible fraud. The clause also does not extend to cases where an innocent party applies to the English courts for defence for a breach of the clause.
Scott v Avery in FOSFA Contracts After 1 April 2024
In 2024, FOSFA updated its proforma contracts and made significant changes to the arbitration clause. It was structured into subclauses, and subclause (c) was added:
(c) Nothing contained under this Arbitration Clause shall prevent the parties from seeking to obtain security in respect of their claim or counterclaim via legal proceedings in any jurisdiction, provided such legal proceedings shall be limited to applying for and/or obtaining security for a claim or counterclaim, it being understood and agreed that the substantive merits of any dispute or claim shall be determined solely by arbitration in accordance with the FOSFA Rules of Arbitration and Appeal.
This new version of the proformas allows obtaining security in any court, provided that the substantive dispute will be heard in FOSFA arbitration. This is undoubtedly a positive change that allows parties to better protect their interests.
Scott v Avery in Gafta contracts
Gafta contracts have long included a clause that allows seeking interim measures in court:
(b) Neither party hereto, nor any persons claiming under either of them shall bring any action or other legal proceedings against the other in respect of any such dispute, or claim until such dispute or claim shall first have been heard and determined by the arbitrator(s) or a board of appeal, as the case may be, in accordance with the Arbitration Rules and it is expressly agreed and declared that the obtaining of an award from the arbitrator(s) or board of appeal, as the case may be, shall be a condition precedent to the right of either party hereto or of any persons claiming under either of them to bring any action or other legal proceedings against the other of them in respect of any such dispute or claim.
(c) Nothing contained under this Arbitration Clause shall prevent the parties from seeking to obtain security in respect of their claim or counterclaim via legal proceedings in any jurisdiction, provided such legal proceedings shall be limited to applying for and/or obtaining security for a claim or counterclaim, it being understood and agreed that the substantive merits of any dispute or claim shall be determined solely by arbitration in accordance with the GAFTA Arbitration Rules, No 125.
The main principle remains the same: the proformas allow for seeking security for a claim in the courts, but the substantive dispute is handled only by Gafta arbitration.
What happens for breaking the clause?
In such a case, the party in breach pays damages to the other party. If the claim is brought to an English court instead of arbitration, the court may stay the proceedings. The innocent party may also apply to the English court for an anti-suit injunction. The injunction restrains the breaching party from participating in ongoing court proceedings or commencing new proceedings. Violation of the order is contempt of court. This is punishable by up to two years imprisonment, a fine, or other punishment.
If you need assistance or consultation regarding issues related to the Scott v Avery arbitration clause, contact me via email, Telegram, or WhatsApp. I provide legal assistance and support in resolving any issues related to international trade and arbitration.
