London’s hopes of becoming the world’s pre-eminent centre for arbitration were boosted as the UK’s highest court officially embraced the alternative method of settling disputes.

In a closely-watched case involving Russian shipping agreements, the House of Lords ruled that if two parties choose to include a clause in their initial contract specifying that any future disputes will be settled through arbitration, one side should not be able to renege.

Steven Friel, a partner at Davies Arnold Cooper, said the decision, which reinforces an earlier Court of Appeal judgment, was a “big win for London arbitrators”.

He said: “The message from the House of Lords is clear: if you choose arbitration then you are bound to stick with it. The opportunities for changing your mind and subsequently going back to the courts will be extremely limited.”

Arbitration clauses, which are becoming increasingly common in commercial contracts, compel both sides to settle future disputes through arbitration without resorting to the courts.

Such clauses are popular because as well as being private, arbitrations are generally considered a quicker and less expensive method of resolving a dispute.

As traditional, court-based litigation continues to decline, a number of the UK’s litigation lawyers have been re-inventing themselves as arbitrators to profit from a continuing trend.

John Tackaberry, QC, head of the specialist Arbitration Chambers, said: “This is an excellent decision that the London legal community will welcome enthusiastically.”

Matthew Gearing, an arbitrator at Allen & Overy, said: “The decision reinforces respect for the arbitration process at the highest judicial levels.”

The case — Premium Nafta Products Limited v Fili Shipping Company, previously known as Fiona Trust v Privalov — tested the circumstances in which one side could agree to arbitrate but then refuse.

Premium Nafta claimed that the terms of a series of English contracts that it agreed with Fili Shipping and others, which contained arbitration clauses, were influenced by bribery.

Because of this, Premium Nafta argued, the entire contracts were null and void from the outset.

Fili Shipping argued that an allegation of bribery — which has yet to be proven — was not enough to override the arbitration clause. The House of Lords decided in Fili Shipping’s favour, ruling that if Premium Nafta wants to question its initial contracts, it must do so in arbitration as previously agreed.

Although the House of Lords stopped short of saying there are no circumstances in which a party can renege on an agreement to arbitrate, it has ruled that even a serious allegation, such as that the original contracts were compromised by bribery, is not enough to override arbitration.

Lawyers believe the law lords have set the barrier extremely high and courts will be reluctant to interfere where arbitration has been agreed.

Kate Knox from DLA Piper's International Arbitration Group added: “The judgment is a welcome further indication of the English courts' unwillingness to intervene where commercial parties have elected to resolve disputes between them in the neutral and private forum that arbitration proceedings allow for.”

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