Originially from: World Arbitration and Mediation Review (WAMR)

CHALLENGE TO CLAUSE IN ENGLISH COURT
MAY GIVE COURT WIDER JURISDICTION
By Julian Holloway, Partner, McKenna &. Co., London
The recent case of Metal Scrap Trade Corporation Ltd. v. Kate Shipping
Company Ltd. v. The Gladys, [1990] 1 All E.R. 397, raises very interesting
points, both on the jurisdiction of English courts as it concerns foreign
corporations and on the potential pitfalls for foreign corporations seeking
to stop arbitrations by alleging in the English courts that there was no
valid arbitration clause.
In the latter case, the foreign corporation runs the risk of conferring a
jurisdiction on the English courts to hear the substantive dispute—a
jurisdiction which otherwise they would not have enjoyed.
Dispute Over Arbitration Clause
Negotiations took place in India for the sale of a ship (The Gladys) by
Kate Shipping, a Maltese corporation, to Metal Scrap, an Indian
corporation, and a dispute arose as to whether these negotiations resulted
in a contract. Kate Shipping contended that there was a contract and that it
also contained an English arbitration clause. Metal Scrap, however,
contended that there was no contract, or alternatively, that if one had been
concluded it did not contain the arbitration clause.
Kate Shipping commenced an arbitration in England and both parties
appointed arbitrators, with Metal Scrap reserving its right to challenge the
validity of the proceedings. Metal Scrap then brought an action in the
English courts seeking declarations that the arbitrators had no jurisdiction
to hear the dispute.
At this stage, Kate Shipping changed its tactics, indicating that it was
happy for the courts to settle the matter, and promptly entered a
counterclaim in the court proceedings substantially identical to its claim in
the arbitration.
Metal Scrap was thus forced to seek the striking of the counterclaim, as
otherwise Kate Shipping could litigate the substantive dispute in a court
which technically had no jurisdiction over the matter.