Habas and VSC: Lex arbitri, the bootstrap principle and the irrelevance of ultra vires /excess of authority..

Postscript 1 March 2016 for a similar exercise in Greece, see here.

In abas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Company Ltd [2013] EWHC 4071 (Comm) the Commercial Court applied the Sulamerica route (subsequently applied in Arsanovia) to determine the lex arbitri: the law applicable to the arbitration agreement. Chosen seat of arbitration proved a strong argument to identify the closest and most real connection, in spite of the argument raised that agents for the Claimant had exceeded their authority in agreeing to the arbitration agreement.

The dispute between the Claimant (“Habas”) a company incorporated in Turkey, and the Defendant (“VSC”), a company incorporated in Hong Kong, arose out an alleged contract for the sale by Habas and purchase by VSC of Reinforcing Bars (Steel) for shipment from Turkey to Hong Kong.  Following a contested hearing, the Tribunal, issued an Award dated 10 July 2012. Habas challenges the Tribunal’s jurisdiction and its Award on the grounds that the Tribunal erred in finding that there was a binding arbitration agreement made between the parties because:

(1) Steel Park and/or Charter Alpha did not have actual or ostensible authority to conclude the London arbitration agreement on behalf of Habas; and

(2) there was no binding consensus on the terms of the London arbitration agreement.

The Court’s decision is crucial in further illustrating the matrix which English courts will follow in determining lex arbitri. In dismissing relevance of the alleged lack of authority, it also highlights the impact of the ‘bootstrap’ principle: Hamblen J at 109: validity is determined by the putative proper law of the contract. Determining closest connection involves a consideration of the terms of the contract as made, rather than the authority with which it was made. EU conflict of laws, too, follows this principle (in the Rome I Regulation and the recast Brussels I Regulation; with one or two corrections).

Key therefore: the bootstrap principle; as well as the usual suspect: better expressis verbis agree lex arbitri.

Geert.