- Inconsistent Dispute Resolution Clauses in Related Contracts
- August 18, 2011
- Law Firm: Norton Rose Canada LLP - Montreal Office
In PT Thiess Contractors Indonesia v PT Kaltim Prima Coal and another  EWHC 1842 (Comm), the English Commercial Court refused a stay of court proceedings in favour of arbitration, holding that where different but related agreements contained overlapping and inconsistent dispute resolution clauses, the court would be required to identify the contract under which the substance of the dispute arose, rather than the formal nature of the proceedings, in order to determine which dispute resolution clause would apply.
This case serves as a reminder for parties to think through and tailor the various dispute resolution provisions in multi-contract transactions properly in order to avoid having multiple legal proceedings in different forums address closely related issues.
PT Thiess Contractors Indonesia (the Claimant) and PT Kaltim Prima Coal (the Defendant) entered into a mining services operating agreement (the Operating Agreement), pursuant to which the Defendant engaged the Claimant as its main sub-contractor to perform mining services at a coal mine in Indonesia. The Operating Agreement was governed by the laws of the state of Queensland, Australia and provided for disputes (including any difference or dispute between the parties arising under or in connection with the Operating Agreement) to be referred to expert determination and then, ultimately, to arbitration in Singapore. Among other things, the Operating Agreement contained provisions determining the payments due to the Claimant in return for its services.
In connection with the mining project, the Defendant also entered into a cash distribution agreement (the CDA) with various parties. The Claimant was not a party to the CDA, but was treated as entitled to enforce the terms of the CDA which were for its benefit. The CDA was governed by English law and provided for an English court non-exclusive jurisdiction clause. The CDA governed the mechanism for the distribution of the cash proceeds of sale of coal.
Disputes arose between the parties as to payments under the Operating Agreement and were referred to expert determination (which was also disputed) and then arbitration, for determination of a preliminary issue by way of an interim final award in relation to such disputes.
Pending the arbitral tribunal’s ruling on the preliminary issue, the Claimant sought to operate the payment distribution mechanism under the CDA and commenced court proceedings in England with a view to seeking to enforce the terms of the CDA and certain declaratory and injunctive relief.
The Defendant applied for a stay of the English court proceedings on the basis that the Claimant’s claim depended on whether it was entitled to receive payment for services under the Operating Agreement, which was to be referred to arbitration under the Operating Agreement, given the wide terms of its arbitration clause.
Blair J considered that the issue turned on the construction of the dispute resolution provisions in the Operating Agreement and the CDA, and refused to grant a stay of proceedings under section 9 of the Arbitration Act 1996 or its inherent jurisdiction for the following reasons:
- where different but related agreements contained overlapping and inconsistent dispute resolution clauses, the court should consider the nature of the claim and the particular agreement out of which the claim arose. Where a claim arose out of, or was more closely connected with one agreement than another, the claim ought to be subject to the dispute resolution regime contained in the former agreement, even if the latter was, on a literal reading, wide enough to cover the claim; and
- although it was arguable that the issues that would arise in the English court proceedings would, on their face, fall within the scope of the arbitration clause contained in the Operating Agreement, the court was required to identify the contract under which the substance of the controversy arose, rather than the formal nature of the proceedings. In this case, the substance of the controversy arose was concerned with a procedure whereby the sums in dispute were to be set aside until the dispute was determined, i.e. under the CDA, which contained the English jurisdiction clause. It raised a discrete claim, related to, but distinct from, the underlying dispute arising under the Operating Agreement which was the subject of the arbitration. The fact that there might be a degree of overlap with the Operating Agreement did not mean that a stay in favour of arbitration should be imposed.
This case highlights the risk of multiple proceedings (which may in turn give rise to inconsistent findings by different judges/tribunals) arising from multi-contract transactions which provide for different and inconsistent dispute resolution clauses. Although Blair J noted in his judgment that there was nothing unusual about submitting a contractual dispute to arbitration whilst referring matters relating to security to the jurisdiction of one or more courts, this may not necessarily be desired by parties. To minimise this risk, parties should think through and tailor the various dispute resolution clauses in related contracts in international transactions- for example, by providing for a contractual right/obligation to stay litigation in favour of arbitration, or vice versa, when the same or closely related issues become the subject of different proceedings.