Suppose our supply agreement contains a clause stating that “any dispute arising out of or in connection with the present contract shall be settled by arbitration”. Under this agreement you provide me with goods, which I pay for using a cheque. But before you deposit the cheque I find that something is wrong with the goods. I instruct my bank to stop payment. Eventually, you discover that the cheque has bounced, whereupon you sue me on it. I protest and, pointing to the existence of the arbitration clause, apply for a stay of proceedings under the Arbitration Act 1996, s.9.

The tension here is palpable. Most arbitration clauses are phrased so widely (“any or all disputes arising out of or in relation to the contract”) as to include on its face a claim on a bill of exchange drawn or accepted pursuant to the performance of the underlying agreement. On the other hand, bills are viewed as good as cash, so that one should be entitled to judgment on them without the claim being affected by disputes in the underlying agreement. This uneasiness has given rise to two opposing views. According to the first, a stay should not be granted—a claim on a bill of exchange constitutes a cause of action separate from and independent of the underlying agreement, which cause of action simply falls outside the scope of an arbitration clause. The second view is that, where bills are used as a way of payment under an agreement containing an arbitration clause, and a dispute arises as to (for example) the fitness of the goods supplied, that dispute, involving the condition of the goods and payment for them, should be dealt with via the contractually stipulated arbitration mechanism—meaning that any suit on the bills themselves ought to be stayed.1

The issue is not new. Indeed, the scenario in the opening paragraph even seems familiar. Substitute the cheque for a bill of exchange and add in a sprinkle of minor details, and one gets essentially the facts in Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH.2 In that case, of course, the House of Lords famously rejected an application for a stay. It held, by a majority, that under German law (the proper law of the agreement between the parties) claims on a bill of exchange fell outside the scope of the arbitration clause there. Now that decision naturally cannot stand as the position in English law so far as the construction of arbitration clauses is concerned. But Lord Salmon and Lord Russell of Killowen both appeared to express their views on this. The latter said that, whilst theoretically an arbitration clause could embrace claims under a bill of exchange, the clause in Nova did not clearly state so and there was no ground in English law for attributing such potency to the clause.3 Lord Salmon, however, thought that Germany was no different from England in that business partners in both countries who had agreed expressly to refer all disputes to