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Dispute resolution clauses – lessons to be learnt from recent case law

Dispute resolution clauses – lessons to be learnt from recent case law

Texan

Texan proceedings.Generally English courts are amenable to granting an anti-suit injunction inrelation to foreign proceedings (as long as they are not commenced in anotherEU Member State court) where these proceedings can be characterised as being“vexatious and oppressive”. The Commercial Court judge in this matter took theview that where there is a non-exclusive jurisdiction clause, a party will ordinarilyact vexatiously and oppressively in pursuing proceedings in an unnamedjurisdiction, unless there are exceptional reasons to commence proceedings inanother jurisdiction which were not foreseeable at the time when the nonexclusivejurisdiction of the named court was agreed. The Court of Appealdisagreed and pointed out that this approach elevated a non-exclusivejurisdiction clause to something very close to an exclusive jurisdiction clause. Infact, by choosing the non-exclusive clause the parties must have contemplated atleast some possibility of parallel proceedings.Other case law relating to the meaning of non-exclusive clausesDepending upon the drafting of the clause there is case law which suggests thata non-exclusive jurisdiction clause may crystallise into an exclusive clause assoon as a party starts proceedings in the chosen jurisdiction (Breams TrusteesLtd v Upstream Downstream Simulation Services Ltd [2004] EWHC 211 (Ch)); orthat proceedings brought in an unnamed court would breach the non-exclusiveclause if the aim was to prevent the other party from bringing proceedings in thenamed court (Sabah Shipyard (Pakistan) Ltd v Government of Pakistan [2002]EWCA Civ 1643).Similar considerations apply in relation to one-way clauses allowing only oneparty a choice. An example of this can be found in Three Shipping LTD vHarebell Shipping Ltd [2004] All ER (D) 152 which related to a dispute resolutionclause which gave one party (Harebell) a unilateral option to arbitrate. ThreeShipping “jumped the gun” by starting court proceedings in the chosen court inan attempt to deprive Harebell of its ability to exercise its arbitration option. Thecourt stayed the proceedings and allowed Harebell to exercise its option butstated that it would have been preferable if the parties had spelt out more clearlyhow the option was to be exercised; ie that it was to be available regardless ofwhether proceedings had already been started in the chosen jurisdiction.3. The efficacy of dispute resolution clauses and "torpedo" actionsAs a result of the lis pendens rule in Article 27 Brussels Regulation and ECJ caselaw (Erich Gasser GmbH v MISAT srl Case C-116/02 [2003] and Turner v GrovitCase C-159/02 [2004]) it is possible for a party to undermine the efficacy of anexclusive jurisdiction clause in favour of the courts of one member state (egEngland) by bringing proceedings in another member state (eg Italy). The secondseised court must stay its proceedings even if it is the named court until the firstseised court has determined its jurisdiction, which may take a very long timedepending on local procedure. Also, the named court may not grant anti-suitinjunctions to protect its jurisdiction. The key points to remember are:• Ensure that your dispute resolution clause is drafted clearly making itabsolutely clear that the clause has been consented to by any otherparties, that it is properly incorporated into the relevant agreement andthat it covers the relevant disputes. This should make it easier for anycourts seised in breach of the clause to decline jurisdiction allowing thenamed tribunal to proceed.• Consider drafting a dispute resolution clause which provides for exclusivejurisdiction with a unilateral right to refer the dispute to arbitration if yourcounter party brings court proceedings in breach of the jurisdictionclause. Although the ECJ's decision in West Tankers also prohibits antisuitinjunctions in support of arbitration, there is a perception that courtsseised in breach of a clearly drafted arbitration clause may be morewilling to stay proceedings by way of a quick preliminary decision tocomply with the New York Convention 1958.• Consider including additional language in your dispute resolution clausewhich provides for (a) an undertaking not to commence proceedings inany unnamed court and (b) an indemnity in the case of proceedings beingbrought in breach of the dispute resolution clause. Although it is notentirely clear whether these would find favour with the ECJ if it were todecide upon whether they ran counter to the principles of mutual trust,

there are indications that the English courts would accept them and theymay provide a further deterrent to any party considering bringingproceedings in breach of the dispute resolution clause.• Where there is a fear that the counter party may bring proceedings inbreach of the dispute resolution clause consider bringing proceedingsfirst.Allianz SpA v West Tankers Inc Case C-185/07 [2009]This ECJ decision related to a case where there was an arbitration clauseproviding for arbitration in London and in which Allianz brought proceedingsagainst West Tankers in the Italian courts in breach of the arbitration clause.West Tankers obtained an anti-suit injunction from the English courts which tookthe view that the restrictions of the Brussels Regulation and the ECJjurisprudence relating to "torpedo" actions did not apply as the matter fell withinthe arbitration exclusion provided for in Article 1(2)(d) Brussels Regulation.However, the ECJ disagreed and stated that the same principle of mutual trustapplied and that the English courts could not grant an anti-suit injunction inrelation to proceedings brought before another member state court even if thiswas in support of an arbitration agreement.A full bulletin on this decision can be found here.National Navigation Co v Endesa Generacion SA [2009] EWCA Civ 1397This matter also related to an agreement containing a London arbitrationagreement. However, Endesa brought court proceedings in Spain, claiming (asan incidental issue) that the arbitration clause had not been properly incorporatedinto the agreement. Endesa obtained a judgment from the Spanish courts to thateffect. National Navigation brought arbitration proceedings under CPR 62(Arbitration Claims) for a declaration that the arbitration clause had been properlyincorporated. The court at first instance took the view that the BrusselsRegulation did not require it to recognise the Spanish judgment in so far as itruled upon the application of the arbitration clause, as the English proceedingswere covered by the arbitration exception and therefore fell outside the scope ofthe Brussels Regulation. The judge declared that the arbitration agreement didapply to the dispute. The thinking behind this was that such a judgment mightassist National Navigation in challenging future attempts to enforce a Spanishjudgment in England. The Court of Appeal overturned the decision and held thateven where English courts are engaged in arbitration proceedings, Article 33Brussels Regulation requires them to recognise other EU court judgments whichrule on the applicability or validity of an arbitration agreement by way of apreliminary issue.A full bulletin on this decision can be found here.West Tankers Inc v Allianz SpA and anor [2011] EWHC 829 (Comm) andAfrican Fertilizers and Chemicals NIG v BD Shipsnavo GmbH & CoReederei KG [2011] EWHC 2452 (Comm)In both of these cases the Commercial Court considered applications undersection 66 Arbitration Act 1996 to enter judgment in the terms of a declaratoryarbitral award. In West Tankers the claimant had obtained an award declaringthat it was not liable and in African Fertilizers the claimant had obtained an awarddeclaring that the arbitral tribunal had jurisdiction over certain disputes. In bothcases the defendant had commenced court proceedings in breach of thearbitration agreement in Italy (West Tankers) or Romania (African Fertilizers)which were still pending at the time. The claimants feared that the defendantsmight obtain judgments in the foreign EU jurisdictions which they would try toenforce against the claimants in England.The Commercial Court decided in both cases that it was open to the victoriousparty in the arbitration to obtain a judgment in terms of the award even if theaward was "only" of declaratory nature. The reason given was that by goingdown this route there was a "real prospect of establishing the primacy of theaward over an inconsistent judgment“. In support of this view reference wasmade to Article 34(3) Brussels Regulation which provides that a judgment fromanother member state court shall not be recognised or enforced where it is"irreconcilable with a judgment given in a dispute between the same parties in

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