In the recent case of Albion Energy Ltd v Energy Investments Global BRL  EWHC 301 (Comm) (available here) the English High Court refused to stay court proceedings under section 9 of the Arbitration Act 1996 in a case involving competing jurisdiction and arbitration clauses.
The case concerned a claim for summary judgment in the English High Court brought by the seller of shares against the buyer for an outstanding payment due under a sale and purchase agreement (“SPA”). The SPA contained an exclusive English court jurisdiction clause. However, after the SPA had been executed (and before the court claim commenced), the parties had agreed to hold the disputed payment in escrow, in order to attempt to resolve the dispute. The escrow agreement contained an arbitration clause providing for London-seated ICC arbitration.
The relevant question before the court was whether the arbitration agreement in the escrow agreement operated to supplant the jurisdiction clause in the SPA. If it did, the seller’s summary judgment claim would have been commenced in breach of the arbitration agreement and would be stayed by the court under section 9 of the Arbitration Act 1996 (the “Act”).
The court determined, after analysing the contractual documents, that the arbitration agreement in the escrow agreement did not supplant the jurisdiction clause in the SPA in respect of the summary judgment claim. It therefore refused to stay the court proceedings under the Act. In reaching this decision, the court provided useful guidance in resolving conflicts between competing jurisdiction and arbitration clauses across different agreements.
The dispute arose from an SPA for the sale of shares between Albion Energy Ltd (“Albion”) as seller and Energy Investments Global BRL (“EIGL”) as buyer. The SPA provided that EIGL would pay for the shares in instalments. In addition to Albion and EIGL, there were four other parties to the SPA including the owner of Albion, a Mr Buckingham. The SPA contained an exclusive court jurisdiction clause which provided as follows:
“The Parties submit to the exclusive jurisdiction of the courts of England and Wales as regards any claim, dispute or matter (whether contractual or non-contractual) arising out of or in connection with this agreement (including its formation).”
EIGL paid the first two instalments under the SPA but refused to pay the third instalment of US$33.3 million. It argued that it had legal claims against Mr Buckingham and Albion which entitled it to withhold payment under the SPA.
Following solicitors’ correspondence, Albion and EIGL agreed that US$20 million would be paid unconditionally by EIGL to Albion and that the remaining US$13.3 million would be held in escrow pursuant to an Escrow Agreement. The parties to the Escrow Agreement were Albion, EIGL and Mr Buckingham (but not the other three parties to the SPA). The Escrow Agreement provided that the parties would exchange information, would attempt to resolve the dispute, and would not commence proceedings before a specified date. The Escrow Agreement expressly provided that payment into escrow was without prejudice to the parties’ legal rights under the SPA.
The dispute resolution clause in the Escrow Agreement provided that:
“Any dispute or difference (whether contractual or non-contractual) arising out of or in connection with this letter (including any question regarding its existence, validity, interpretation performance or termination) shall be referred to and finally settled by arbitration [in London under the ICC Rules].”
Commencement of proceedings and applications to the court
Albion commenced proceedings against EIGL and brought an application for summary judgment in respect of the outstanding US$13.3 million held in escrow.
EIGL applied to stay the court proceedings under section 9 of the Act, which provides:
“Stay of legal proceedings.
(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.
(4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.”
EIGL’s position was that the arbitration agreement in the Escrow Agreement varied or supplanted the exclusive jurisdiction clause in the SPA in respect of the claim for US$13.3 million. Alternatively, it argued that summary judgment should not be granted because it had a realistic prospect of defending the claim for payment on the merits.
The court observed that:
- Before ordering a stay under section 9 of the Act, the court must be satisfied both that there is an arbitration clause and that the subject matter of the claim falls within that clause.
- There are occasions when the court is willing to stay proceedings under its case management jurisdiction, in order to allow the arbitration tribunal to consider these matters under its kompetenz kompetenz
- However, in this case neither party (in the judge’s view, correctly) suggested that this was the appropriate course or that the court should not finally determine the question.
The court considered the guidance provided by Hamblen LJ in BNP Paribas v Trattamento Rifiuti Metropolitani SpA  EWCA Civ 768 in interpreting competing dispute resolution provisions across different contracts which are part of a single transaction. These guidelines include the following:
- Where the parties’ overall contractual arrangements contain two competing jurisdiction clauses, the starting point is that a jurisdiction clause in one contract was probably not intended to capture disputes more naturally seen as arising under a related contract.
- A broad, purposive and commercially-minded approach is to be followed.
- Where the jurisdiction clauses are part of a series of agreements they should be interpreted in the light of the transaction as a whole, taking into account the overall scheme of the agreements and reading sentences and phrases in the context of that overall scheme.
- It is recognised that sensible business people are unlikely to intend that similar claims should be the subject of inconsistent jurisdiction clauses.
- The starting presumption will therefore be that competing jurisdiction clauses are to be interpreted on the basis that each deals exclusively with its own subject-matter and they are not overlapping, provided the language and surrounding circumstances so allow.
- The language and surrounding circumstances may, however, make it clear that a dispute falls within the ambit of both clauses. In that event the result may be that either clause can apply rather than one clause to the exclusion of the other.
The court noted, however, that this guidance may apply with less force where (as in the present case) the parties had entered a second agreement after the first agreement, rather than multiple agreements at the same time.
The court also observed that in situations where there is a principal agreement and a security agreement, it is not unusual for the parties to agree to submit disputes under the principal agreement to one form of dispute resolution (often arbitration) and disputes concerning security to another (often court).
In the court’s view, the claim brought by Albion concerned its entitlement to be paid the purchase price under the SPA, rather than the operation of the Escrow Agreement so as to realise the benefits of the security. As a consequence, the claim fell outside the scope of the arbitration agreement in the Escrow Account and the application for a stay under section 9 was refused. The reasons for this conclusion included:
- It was inherently more likely that the arbitration agreement was intended to address the security and other ancillary obligations under the Escrow Agreement, rather than to displace the jurisdiction clause under the SPA for determining EIGL’s liability to Albion.
- The reference in the arbitration agreement to disputes arising in relation to “this letter” suggested that the focus of the clause was on obligations under the letter (i.e. the Escrow Agreement) rather than obligations under the SPA.
- The express recognition in the Escrow Agreement that it was without prejudice to the parties’ rights under the SPA suggests that the arbitration agreement was not intended to take away the right conferred under the jurisdiction clause in the SPA to commence court proceedings.
- The Escrow Agreement only involved three of the six parties to the SPA. This suggested that it was intended only to have a localised effect, in order to avoid the commercially unattractive position where claims between some of the parties to the SPA are subject to court jurisdiction, while other related claims under the SPA are subject to arbitration.
After dismissing EIGL’s application for a stay, the court decided to grant Albion’s application for summary judgment.
The case provides a useful illustration of the interpretation exercise that will be carried out by the English court in determining which of two competing dispute resolution clauses ought to apply to a claim. In particular, it reinforces that:
- Some of the guidelines which generally apply where multiple contracts are entered at the same time may apply with less force where the parties have entered successive agreements at different times.
- The court may consider that there is nothing unusual about the parties choosing to resolve disputes relating to security in a different forum from disputes relating to the parties’ principal obligations.
The case also serves as a reminder that care must be taken when drafting dispute resolution clauses across multiple contracts. Had the arbitration clause in the Escrow Agreement expressly addressed its relationship with the jurisdiction clause in the SPA, the case – and the associated expenditure of time and money – might have been avoided.
For more information, please contact Nicholas Peacock, Partner, Aaron McDonald, Senior Associate, or your usual Herbert Smith Freehills Contact.