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18 August 2020
How are contradictory dispute resolution clauses resolved where the agreements are entered into at different times? Intention and purpose are key, as set out in the test in BNP Paribas v Trattamento.(1) In Albion Energy Limited v Energy Investments Global BRL ( EWHC 301 (Comm)), the parties intended two agreements to perform separate roles as part of one transaction (even though the second was not contemplated at the time of the first) and the court found that the Trattamento guide is to be followed.
On 31 January 2018 Albion agreed to sell a 20% interest in an oil firm to Energy Investments Global BRL (EIGL) under a share purchase agreement (SPA) for $100 million. EIGL paid the first two instalments but then notified Albion that it intended to withhold the outstanding amount payable. Subsequently, EIGL agreed to pay $20 million of the outstanding amount unconditionally, with the remaining $13.3 million (escrow amount) to be held in escrow per an agreement dated 22 January 2019 (escrow agreement).
The SPA contained a clause requiring the parties to submit to the exclusive jurisdiction of the courts of England and Wales. However, the escrow agreement contained a jurisdiction clause stipulating that disputes must be settled by arbitration (arbitration agreement).
In the present claim, Albion issued proceedings in England for the escrow amount (the outstanding purchase price). EIGL applied for a stay under Section 9 of the Arbitration Act 1996,(2) stating that the dispute over the escrow amount had arisen out of the escrow agreement, which contained the arbitration agreement. If EIGL's application succeeded, Albion's claim would be а matter for arbitration. Albion countered that the dispute had arisen out of its entitlement to be paid under the SPA and that the court therefore had jurisdiction.
The court has previously considered competing jurisdictional clauses in agreements entered into simultaneously (but to give effect to one overall transaction) in BNP Paribas v Trattamento (for further details please see "Court of Appeal upholds decision on importance of industry standard documents in conflicting jurisdiction clauses"), ruling that:
The present case involved competing clauses agreed in two separate contracts, spaced one year apart. The court acknowledged that it would be possible to show that the second contract superseded the first, such that the parties intended it to displace the original for all purposes. In that case, bar some clear wording, it seems likely that the second contract's jurisdictional clause would take precedence over the first.(9)
However, the parties clearly contemplated that both agreements would subsist together and for different purposes, albeit that the escrow agreement had been entered into one year following the SPA and was not anticipated at the time of the SPA. Therefore, the court considered that the approach identified in Trattamento remains a helpful guide and, applying this, it held that Albion's claim did not fall within the arbitration agreement. Thus, the application for a stay under Section 9 by EIGL failed because of the following reasons:
This decision highlights that care must, as ever, be taken in the drafting of jurisdictional clauses. In particular, parties must bear in mind that the court will not adopt a blanket approach to jurisdiction but will, where appropriate, carve out disputes arising out of separate agreements into their respective jurisdictions. The court will look behind the intention of a later agreement and will determine whether the dispute is truly in relation to the second or the first, applying the appropriate jurisdiction, bearing in mind the guide in Trattamento. This is of particular importance where a party believes that a later arbitration agreement will supersede a prior agreement such that a dispute would be confidential: the present decision shows that this is not necessarily the case.
For further information on this topic please contact James Taylor or Parham Kouchikali at RPC by telephone (+44 20 3060 6000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
(2) Section 9 allows a party to apply to stay proceedings in favour of arbitration and the court must grant the stay unless "satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed".
(9) However, contrast this with the position in Satyam Computer Services Ltd v Upaid ( EWCA Civ 487), in which the court held that claims under an underlying agreement that was preserved by a later settlement agreement did not "relate" to the settlement agreement and must therefore be subject to the underlying agreement's jurisdictional clause.
(10) In particular, its reference to "any dispute or difference… arising out of or in connection with this letter (including any question regarding its existence, validity, interpretation, performance or termination)".
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