A recent decision of the English Commercial Court (Shagang South -Asia (Hong KongTrading Co Ltd v Daewoo Logistics [2015] EWHC 194 (Comm)) addresses a potential ambiguity in poorly drafted dispute resolution clauses. In Shagang, the parties were somewhat fortunate in that the ambiguity in the dispute resolution clause gave the court the possibility of deciding that the seat of the arbitration was either London or Hong Kong, two well established pro-arbitration jurisdictions. The choice, fortunately, did not rest between a pro-arbitration jurisdiction and a seat known for judicial interference in the arbitral process.

The dispute related to a charterparty and an alleged non-discharge of cargo. Under the terms of a Fixture Note, Daewoo agreed to charter a vessel to Shagang. The Fixture Note contained an arbitration clause (Clause 23) providing:

Arbitration: Arbitration to be held in Hong Kong. English law to be applied.”

The other terms of the charterparty were based on the standard form shipping agreement the Gencon 1994 Charterparty (Gencon), which contains a series of tick-box dispute resolution options. In this case, none of the boxes were ticked and therefore clause 19(a) of the charterparty (Clause 19a) became the default option:

“This Charter Party shall be governed by and construed in accordance with English law and any dispute arising out of this Charter Party shall be referred to arbitration in London in accordance with the Arbitration Acts 1950 and 1979 or any statutory modification or re-enactment thereof for the time being in force. Unless the parties agree upon a sole arbitrator, one arbitrator shall be appointed by each party and the arbitrators so appointed shall appoint a third arbitrator; the decision of the three-man tribunal thus constituted or any two of them shall be final…”

Daewoo commenced arbitration proceedings in London. Shagang challenged the arbitrator’s jurisdiction, arguing that the arbitration ought to be seated in Hong Kong and should be subject to Hong Kong procedural law. After the arbitrator found in favor of Daewoo, Shagang applied to have the award set aside for lack of jurisdiction under s.67 of the Arbitration Act 1996.

The court agreed with Shagang that, on a proper construction of the dispute resolution clauses in the charterparty documents, the arbitration was subject to Hong Kong rather than English procedural law. Dealing first with Clause 23, the court considered that the phrase “[a]rbitration to be held in Hong Kong” demonstrated the parties’ intent that all aspects of the arbitration should be held in Hong Kong and that the arbitration would be subject to the procedural law and supervisory jurisdiction of the Hong Kong courts. The court reviewed previous authorities such as Shashoua v Sharma [2009] EWHC 957 (Comm) and the more recent cases of U & M Mining Zambia Ltd v Konkola[2013] EWHC 260 (Comm) and Enercon GmbH v Enercon (India) Ltd [2012] EWHC 689 and held that there were no meaningful differences between these cases where the term “venue” or “place” had been used in the arbitration clause and the phrase “to be held.” All these terms were clear indications of the choice of seat as opposed to a geographical location for hearings.

Daewoo argued that the second element of the clause “English law to be applied” referred to the procedural law of the arbitration as opposed to the substantive law of the charterparty, and therefore suggested that the true seat of the arbitration was London. However, the court rejected this submission noting that it is very common in international arbitration for there to be a bifurcation between the procedural law of the arbitration (the law of the seat) and the substantive law of the parties’ agreement which would be applied by the arbitrator in ruling on the dispute (the law of the contract). The court noted that for arbitration agreements to specify a procedural law different from that of the seat of the arbitration is highly unsual. This would in fact create a very difficult and possibly unworkable situation whereby under the terms of the arbitration agreement the tribunal would be bound to apply law X as the procedural law of the arbitration, but the courts of the seat might be bound by their national arbitration law to apply law Y. The court noted that the only reported case where the procedural law of the arbitration differed from the law of the seat was Braes of Doune Wind Farm (Scotland) Ltd v Alfred McAlpine Business Services Ltd [2008] EWHC 426 (TCC), which was distinguished in both Shashousa and Enercon.

In order to displace the presumption in Clause 23 that the arbitration should be seated in Hong Kong and English law applied to the merits of the dispute, Daewoo needed to demonstrate clear wording to the contrary or significant contrary indicia. Daewoo sought to rely on Clause 19a, which provided for English procedural law and English law as the substantive law of the contract. However, the court held that this clause could not be reconciled with Clause 23 of the Fixture Note. The parties had agreed to specific terms in the Fixture Note which did not fit with the options of Clause 19 of the Gencon standard terms and consequently there could not be any contrary indicia to Clause 23.

This case re-emphasizes the position that, under English law, the procedural law is synonymous with the law of the seat of the arbitration and that in the absence of contrary indicia, the English courts will construe arbitration clauses that provide for a “venue” or “place” for the arbitration “to be held” as evidence of the parties’ choice of seat.