Case law: new arbitration advice for contract disputes

Businesses with contracts that state disputes will be settled by arbitration will welcome a House of Lords decision that arbitration clauses should be treated as applying to any dispute in the contract, unless the contract clearly states otherwise.

Until now, whether an arbitration clause applied depended on its wording, so business disputes were plagued by long, complex arguments over the precise scope of these clauses.

However, in their recent decision, the Lords were being asked to interpret a contract in such a way that some disputes under it would be dealt with by arbitration, and others by national courts. They concluded that "the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen (sic), are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal."

The courts may also apply similar reasoning for other types of contract clause, such as those setting out dispute resolution procedures, although lawyers will still wish to draft such clauses very tightly.

Operative date: Immediate