Conflicting dispute resolution clauses: which forum?

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The purpose of a dispute resolution clause is to provide for a process through which disputes can be resolved. However problems can arise where the parties enter into multiple agreements with conflicting dispute resolution clauses. For example, if one agreement provides for resolution of disputes in the English courts, but another agreement between the same parties in connection with the same subject matter provides for resolution of disputes by ICC arbitration in Italy, where should the parties litigate?

In Fiona Trust & Holding Corp v Privalov [2007] UKHL 40, the court held that when construing an arbitration clause, it can be assumed that the parties are likely to have intended any dispute arising out of their relationship to be decided by the same tribunal. This "one-stop" presumption applies unless the language of the provisions makes it clear that certain disputes are to be resolved in one forum, and other disputes to be resolved in another.

The courts have applied this presumption of construction in a number of cases subsequently. This article looks at the most recent cases of Amtrust Europe Limited v Trust Risk Group S.p.A. [2014] EWHC 4169 and Monde Petroleum SA v Westernzagros Limited [2015] EWHC 67 (Comm). In the Amtrust case, the court found that different disputes between the parties should be dealt with in different fora, whereas in the Monde case the court found no reason to depart from the "one-stop" presumption.

Amtrust

This concerned a dispute between an insurance firm and an insurance broker relating to medical malpractice insurance. The parties entered into a terms of business agreement in 2010 (the "TOBA") which was subject to English law and contained a jurisdiction clause in favour of the English courts. In 2011, the parties entered into a framework agreement pursuant to which the broker received exclusivity in respect of medical malpractice insurance in Italy. The framework agreement included an Italian arbitration clause.

The relationship between the parties broke down following a dispute as to whether or not insurance premiums should be held in a trust account; the insurance firm was of the view that under the TOBA premiums were to be kept in the trust account, whereas the broker insisted that he was entitled to withdraw monies from the trust account to satisfy his commission.

The insurance firm purported to terminate the TOBA. The broker commenced arbitration proceedings in Italy pursuant to the framework agreement. The insurance firm then discovered that the broker had withdrawn monies from the trust account and applied for an injunction in the English court requiring the insurance broker to return monies to the trust account.

The broker contended that the court should not grant the injunction on four grounds, the first being that the parties' relationship was governed by the later framework agreement so that disputes should be settled by arbitration in Milan.

The English court acknowledged that the Fiona Trust "one-stop" presumption carried considerable weight but concluded that the parties' disputes were to be decided in different fora. The TOBA continued as an agreement after the framework agreement was entered into and the two agreements were dealing with different subject matters. The TOBA was dealing with aspects of the relationship between the parties including the insurance premiums, whereas the framework agreement was dealing with exclusivity. In those circumstances different jurisdiction clauses were rational. A key point in distinguishing this case from the facts in Fiona Trust was that the agreements were entered into at different times.

The injunction ordering repayment of the monies into the trust account by the broker was therefore granted.

Monde Petroleum

This case concerned a consultancy agreement pursuant to which Monde was to provide consultancy services to Westernzagros ("WZL") for the exploitation of oil in Kurdistan. The consultancy agreement contained an arbitration agreement providing for arbitration in London under the ICC Rules.

A dispute arose between the parties and they entered into a settlement agreement which purported to terminate the consultancy agreement. The settlement agreement contained an exclusive jurisdiction clause in favour of the English courts.

Monde then alleged that it was induced to enter into the settlement agreement by misrepresentation and/or duress. It brought proceedings in the Commercial Court in London claiming damages (by reference to the sums it said it should have earned under the consultancy agreement on the basis that the consultancy agreement had not been validly terminated). It also commenced protective arbitration proceedings against WZL claiming damages for wrongful termination of the consultancy agreement.

WZL counterclaimed in the arbitration seeking a declaration that Monde had no further entitlement under the consultancy agreement, however the arbitral tribunal determined that it had no jurisdiction in relation to the declaratory relief sought by WZL.

WZL brought applications in the Commercial Court including an appeal of the arbitral tribunal's decision on jurisdiction. WZL argued that the dispute resolution clause in the settlement agreement did not terminate the arbitration agreement in the consultancy agreement (hence the arbitral tribunal did have jurisdiction) because the principle of separability (of the consultancy agreement from the arbitration agreement) required express agreement between the parties to terminate the arbitration agreement.

On the other hand Monde argued that the dispute resolution clause in the settlement agreement was intended to supersede the arbitration agreement in the consultancy agreement. The court agreed with Monde, holding that the "one-stop" presumption is particularly strong where an agreement is entered into for the purpose of terminating an earlier agreement or settling disputes which have arisen under such earlier agreement. Where a settlement agreement contains a dispute resolution clause which is different from, and incompatible with, a dispute resolution clause in the earlier agreement, the parties are likely to have intended that the dispute resolution clause in the settlement agreement clause is to supersede the clause in the earlier agreement.

The clause in the settlement agreement came second and had been agreed in light of the circumstances and disputes at the time giving rise to the later agreement. Further the dispute resolution clause in the settlement agreement was the only clause governing issues concerning the validity or effect of that agreement and therefore the only clause capable of applying to disputes which arise out of or in relation to it. To conclude otherwise would risk inconsistent findings; the tribunal addressing the validity of the settlement agreement would likely have to look at the rights of the parties under the earlier contract and how the dispute arose, but would have no jurisdiction to decide disputes arising out the the earlier contract (as such disputes would have to be determined in a different forum).

The court therefore refused WZL's appeal and held that the arbitral tribunal was right in deciding that it had no jurisdiction.

Practical points

It is not uncommon for the relationship between parties to be governed by a number of, and often successive, agreements. It is clear from the Amtrust and Monde cases that the "one-stop" presumption in the Fiona Trust case continues to be adopted by the courts, but that its application will yield differing results depending on the particular circumstances of the case.

Clearly care needs to be taken in ensuring uniformity of jurisdiction clauses. This can be difficult when such clauses are often included as an afterthought at the end of a commercial transaction.

Those drafting settlement agreements should in particular bear in mind the potential effect of an exclusive jurisdiction clause in the settlement agreement on dispute resolution provisions in prior agreements.