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 ([2020] 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 ? 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.
Approach to competing jurisdictional clauses
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:
- a jurisdiction clause in one contract was probably not intended to capture disputes more naturally seen as arising under a related contract;(3)
- a broad, purposive and commercially minded approach is to be followed;(4)
- the competing clauses should be interpreted in light of the transaction as a whole;(5)
- sensible businesspeople are unlikely to intend that similar claims should be the subject of inconsistent jurisdiction clauses;(6)
- competing clauses are to be interpreted on the basis that each deals with its own subject matter and they are not overlapping, provided that the language and surrounding circumstances allow;(7) and
- the language and surrounding circumstances may, however, make it clear that a dispute falls within both clauses (and the result may be that either clause can apply rather than one clause to the exclusion of the other).(8)
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:
- There is nothing particularly surprising in parties stipulating different dispute resolution provisions in principal and security agreements, given the different purposes of these agreements. It was more likely that the arbitration agreement in question was intended to address the security and other ancillary obligations created by that agreement, rather than to displace (at least so far as the outstanding payment was concerned) the choice of jurisdiction under the SPA.
- The drafting of the arbitration agreement(10) suggested that it was for obligations created by the escrow agreement ("this letter") rather than disputes as to the interpretation or performance of the SPA. Moreover, payment into the escrow agreement was "without prejudice to… any other rights which Albion… may have under the SPA".
- The escrow agreement concerned only three of the six parties to the SPA. The parties (as sensible businesspeople) had likely intended the arbitration agreement to have a localised effect to avoid the position where claims between some of the parties to the SPA were subject to High Court jurisdiction and other related claims under the SPA were subject to arbitration.
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.
Endnotes
(1) BNP Paribas v Trattamento Rifiuti Metropolitani SpA ([2019] EWCA Civ 768).
(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".
(3) Trust Risk Group at [48]; Dicey, Morris and Collins at § 12-110.
(4) Trust Risk Group at [48]; Sebastian Holdings at [39] and [50].
(5) UBS v Nordbank [2009] at [83]; Trust Risk Group at [47]; Sebastian Holdings at [40].
(6) UBS v Nordbank at [84] and [95]; Sebastian Holdings at [40]; Savona at [1].
(7) Monde Petroleum at [35] and [36]; Savona at [1].
(9) However, contrast this with the position in Satyam Computer Services Ltd v Upaid ([2008] 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)".
