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What system of law governs the issue of whether Swift Ltd is obliged to supply radio transmitters of reasonable quality and the meaning and effect of the No Reliance Clause?

Swift Ltd supply radio transmitters. Taylor Ltd approach Swift Ltd seeing to buy 10 radio transmitters for their radio station which broadcasts non-stop Taylor Swift hits in the UK. Swift Ltd says that their radio transmitters work very well with the UK radio network.  As a result, Taylor Ltd agree to buy 10 radio transmitters from Swift Ltd under a contract dated 1 February 2024 (“the Sale Contract”) which provides as follows:

1. Swift Ltd will sell 10 radio transmitters for £200,000 each.

2. The transmitters will be delivered to Taylor Ltd in London by 1 December 2024.

3. Each transmitter will comply with the written specification provided by Swift Ltd to Taylor Ltd number IEA7729. Save as aforesaid, Swift Ltd assumes no obligations in relation to the radio transmitters.

4. Taylor Ltd accepts that it has not relied upon any pre-contract statement in entering into the Sale Contract (“the No Reliance Clause”)

5. In the event of any disputes arising under this contract, the parties shall first try and resolve them by amicable discussion involving the CEOs of Taylor Ltd and Swift Ltd. Any disputes arising under this contract  which are not resolved by such amicable discussions will be determined by arbitration in London, by a single arbitrator to be appointed by both parties jointly, and the arbitrator is to have 5 years’ experience in the radio transmission industry.

6. This contract and all its terms and any claim arising under or relating to the Sale Contract shall be governed by the law of the Czech Republic.

On 1 May 2024, Taylor Ltd agrees to pay Swift Ltd £50,000 per transmitter to install the transmitters by connecting them to the UK radio relay network. The contract for installation services (“the Installation Contract”) is stated to be governed by Czech law, but is silent as to dispute resolution.

The radio signal is weak and distorted. When Taylor Ltd ask the UK radio authority what the problem is, Taylor Ltd claims that it was told that Swift Ltd’s radio transmitters have never been compatible with the UK radio network, and that Swift Ltd have known this for years.

Taylor Ltd start court proceedings against Swift Ltd  in the High Court in London claiming damages for deceit because it was misled into entering into the Sale Contract, alternatively damages for breach of the obligation to supply goods of reasonable quality under the English Sale of Goods Act 1979 and further claims damages on the basis that Swift Ltd installed the radio transmitters negligently and that this was a breach of the Installation Contract. Taylor Ltd argues that:

(i) It has rescinded the Sale Contract for fraud with the result that the arbitration agreement is not binding.

(ii) In any event, under Czech law, an agreement to arbitrate disputes “under” a contract does not extend to disputes under a different contract or to claims for fraud.

Swift Ltd says that under Czech law, there is no obligation to supply goods of merchantable quality and that under Czech law, the effect of the No Reliance Clause is that there is no liability for pre-contractual statements, even if they are alleged to have been made fraudulently. It argues that all the claims should be brought in arbitration. Swift Ltd says that the only arbitrator willing to take on the appointment who has 5 years’ experience in the radio transmission industry is Robert Allan. Mr Allan has 25 years’ experience in the radio transmission industry, but he used to work for Swift Ltd in the first 10 years of his career and still has shares in Swift Ltd which form 25% of Mr Allan’s pension pot. Swift Ltd says it is also willing to appoint Dame Olivia Rodrigo, a retired High Court judge, who as a judge of the Technology and Construction Court.

Taylor Ltd refuses to conduct amicable discussions and refuses to co-operate in the appointment of an arbitrator.

Swift Ltd makes it clear that when an arbitrator is appointed, it intends to ask the arbitrator to order Taylor Ltd to disclose its correspondence with the UK radio network. Taylor Ltd says it will resist any such order, because under Czech arbitration law, parties can choose what documents they provide to the other side, and they could not be ordered to produce documents against their will in any arbitration.

Please advise on the following points:

1. What system of law governs the issue of whether Swift Ltd is obliged to supply radio transmitters of reasonable quality and the meaning and effect of the No Reliance Clause?
2. Does Taylor Ltd’s claim that it has rescinded the  Sale Contract for fraud prevent Swift Ltd from relying upon the arbitration agreement?
3. What system of law governs the issue of whether the arbitration agreement in the Sale Contract extends to Taylor Ltd’s claim for breach of the Installation Contract?
4. Would your answer to question 4 be different if s.1 of the Arbitration Bill 2024 is in force? What determines whether s.1 will apply?
5. If English law governed the arbitration agreement in the Sale Contract, what principles of law would determine whether the arbitration agreement extended to the dispute about the performance of the Installation Contract, and what would the court decide?
6. What should Swift Ltd ask the English court to do about the English court proceedings, and what options does the English court have?
7. If the English court does not decide whether a particular claim falls within the arbitration agreement, can the arbitral tribunal decide such a question, and what is the effect of its determination?
8. To the extent that the court proceeding are stayed, what can Swift Ltd do about Taylor Ltd.’s refusal to co-operate in appointing an arbitrator and what factors will the court take into account in deciding who to appoint?
9. What system of law governs the issue of whether any arbitral tribunal has power to order Taylor Ltd to produce documents?

Your answers should seek to develop the legal issues raised, citing relevant case law and statute, rather than being simply summary responses. The maximum length of your answer should be 2500 words including footnotes, but you should aim to produce an answer which is in the range 2000-2500 words.

Sample Answer

1. Governing Law for the Obligation to Supply Reasonable Quality and the No Reliance Clause

The Sale Contract explicitly states that Czech law governs all claims arising under or related to the contract. Therefore, Czech law determines whether Swift Ltd was obliged to supply transmitters of reasonable quality and the meaning of the No Reliance Clause.

Under English law, particularly the Sale of Goods Act 1979 (SGA 1979), there is an implied term that goods sold in the course of business must be of satisfactory quality (s.14(2)) and fit for their intended purpose (s.14(3)). If English law applied, Taylor Ltd might have a strong claim. However, Swift Ltd argues that Czech law does not impose such a duty.

Additionally, the No Reliance Clause attempts to exclude liability for pre-contractual misrepresentations. Under English law, such a clause would be scrutinised under the Misrepresentation Act 1967, which prevents a party from avoiding liability for fraudulent misrepresentation via an exclusion clause (Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573). However, under Czech law, it may be enforceable even against fraudulent misrepresentations, depending on Czech contract principles.

Thus, Czech law governs both the quality obligation and the No Reliance Clause, but it remains to be determined how Czech courts interpret these aspects.

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2. Does Rescission for Fraud Prevent Enforcement of the Arbitration Agreement?

Taylor Ltd argues that it rescinded the contract for fraud, thereby invalidating the arbitration agreement. Under English law, arbitration clauses are considered separate from the main contract due to the doctrine of separability (Fiona Trust & Holding Corp v Privalov [2007] UKHL 40). This means that even if the Sale Contract is voidable for fraud, the arbitration clause remains valid unless it is specifically impugned.

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