International Trade – which jurisdiction applies?

In particular, where the parties do more than one type of business and have more than one contract it is vital, if the parties are to avoid costly and debilitating satellite litigation, to ensure that the respective DR mechanisms do not conflict.

Where conflicting provisions do arise, recent case law provides guidance both on the approach adopted by the court, plus unfortunately the rich pickings for lawyers that can flow from such a conflict.

In 2007 the House of Lords in Fiona Trust and Holding Corporation v Privalov decided that in construing a DR clause providing for arbitration, the starting point should be to assume that the parties, as rational people, will have intended that all disputes arising between them be referred to the chosen Arbitral Tribunal – a “one-shop” assumption.

In the absence therefore of clear language stating that different types of dispute are to be dealt with in different forums, the court should construe the arbitration clause as covering all disputes arising out of the contract.

In Amtrust Europe Limited v Trust Risk Group SpA 2015, a standard London market broking agreement (“SBA”) was entered into between a UK insurer and an Italian broker.

The DR clause in the SBA provided for English law and English jurisdiction. One year later, the parties entered into a further Framework Agreement providing for an exclusive relationship to develop medical malpractice insurance in Italy.

The second agreement had the SBA scheduled to it, but notably contained a DR clause that provided for Italian law and arbitration in Milan.

The relationship broke down and Amtrust terminated the SBA. The broker commenced arbitration in Milan.

Amtrust then undertook an audit and claimed the broker had removed circa €32m from an account in Italy used for premiums. Amtrust then issued proceedings in England and sought an injunction requiring the broker to return what it claimed were misappropriated Trust monies.

The broker disputed jurisdiction on the basis that the SBA had been made part of and amended by the Framework Agreement, and pursuant to the DR clause was subject to arbitration in Italy only.

The Court of Appeal affirmed the decision of the High Court in favour of Amtrust (but on slightly different terms).

The Court of Appeal decided that where the overall contract arrangements contained two different choices of jurisdiction and/or law clauses, although the one-shop presumption had considerable weight, the court should not begin with a presumption. Rather it should undertake a careful, commercially minded, review of the construction of the agreements in deciding which DR clause applied to the dispute.

The SBA in this case dealt with the placement of business by the broker for which it was paid commission.

The Framework Agreement, in contrast, granted exclusivity to the broker for which it paid Amtrust. The agreements were also entered into at different times. On this basis, the Court of Appeal decided that Amtrust had better arguments that the DR provision in the original SBA applied to the dispute about the premiums, providing that English law and jurisdiction apply.

In a second case however – Monde Petroleum SAv WestenZagros Limited 2015 – the court applied the one-shop presumption.

In this case the parties entered into a contract whereby M was to provide consultancy services to WZL in connection with exploiting oil in Iraq.

The agreement provided for M to receive monthly fees, enhanced payments, and granted an option in certain circumstances to share in any success. Disputes were to be dealt with by arbitration in London according to ICC rules.

WZL stopped paying the monthly fee and purported to terminate the contract. A dispute therefore arose that was settled on terms, which provided for termination of the consultancy agreement and a DR clause providing for English law and the jurisdiction of the English court.

M later alleged that it had been induced to enter into the settlement contract by misrepresentation and duress. This included M claiming that WZL had told M that in entering into the settlement agreement it would be granted new exploration rights.

M issued proceedings in London seeking damages, but to protect itself also commenced arbitration claiming wrongful termination of the agreement and damages.

WZL counterclaimed, including seeking a declaration in the arbitration that M had no further entitlement under the consultancy agreement and suffered no loss by entering into the settlement agreement.

The Arbitral Tribunal decided it had no jurisdiction to deal with WZL’s counterclaim and ordered WZL to pay M’s costs.

WZL then made several applications to the English court including challenging the Tribunal’s decision that it did not have jurisdiction.

On the wording of the DR clause in the settlement agreement, it argued that the DR clause in the first agreement was not terminated and that there could be overlapping DR clauses even if this resulted in some fragmentation of disputes. M argued the DR clause in the settlement agreement replaced the DR clause in the first agreement.

The Appeal Court refused WZL’s appeal and ruled in favour of M’s argument that the DR clause in the settlement agreement was to replace the DR clause in the consultancy contract.

Applying the one-stop shop presumption, the Court of Appeal found that:

• The clause in the settlement agreement had been agreed at a later date and in specific circumstances
• When considering the scope of the settlement agreement the court will have to consider the surrounding circumstances, including the earlier contract. To limit that DR clause in the settlement contract so it was not possible to deal with disputes arising from the earlier contract ran the risk of disputes being dealt with in different forums and inconsistent findings. The parties therefore were likely to have decided that the DR clause in the last settlement agreement was to supersede the original agreement.

The above decisions on their respective facts are perhaps not surprising.

As relationships between trading partners in different countries increase, however, and differing agreements are put in place, these cases highlight the need to give careful thought to the DR clauses, including the status of any earlier agreements.

Most of all they highlight the benefit of adopting a consistent approach to DR, one which if changed needs careful and unambiguous drafting.

For more advice on this issue please contact Tim Toomey.

Tim Toomey
Partner, Commercial Litigation
August 2015