The Commercial Court in Monde Petroleum SA v WesternZagros Ltd (2015) held that a dispute resolution ("DR") clause in a settlement agreement superseded an arbitration agreement in a previous agreement, and applied to disputes arising out of both agreements.  In doing so, the court applied the presumption of one-stop adjudication, and took into account the language of the DR clause and the surrounding circumstances, including when the conflicting clauses were agreed.

Background

The Applicant, WesternZagros Ltd ("WZL") was an upstream oil and gas firm, and, in April 2006, entered into a consultancy services agreement ("CSA") with Monde Petroleum S.A. ("Monde") in relation to oil and gas exploitation in Northern Iraq.  The CSA contained a London arbitration clause.  In early 2007, WZL stopped making payments under the CSA and purported to terminate it.

In April 2007, WZL and Monde entered into a settlement agreement (the "Termination Agreement"), amongst other things terminating the CSA and containing an exclusive jurisdiction clause in favour of the courts of England and Wales.  The confidentiality provisions of the CSA were to continue in force.

Monde subsequently disputed the validity of the Termination Agreement and claimed additional sums under the CSA.  Monde filed Commercial Court proceedings in 2013 pursuant to the Termination Agreement's dispute resolution clause, and also commenced an ICC arbitration under the CSA arbitration clause (this was a protective measure to prevent the claim being time-barred in the event that the Commercial Court declined jurisdiction – Monde sought an immediate stay of the arbitration).

WZL counterclaimed for various declarations, and for breach of confidentiality (WZL claimed that, by commencing Commercial Court proceedings, Monde had disclosed the existence of the dispute to the public).  WZL declined to agree to the stay of the arbitration, claiming that the arbitral tribunal had jurisdiction.  Monde subsequently dropped its own claims before the arbitral tribunal and defended WZL 's counterclaims, whilst maintaining that the arbitral tribunal had no jurisdiction.

The dispute, therefore, centred around whether the Commercial Court or the arbitral tribunal had jurisdiction.  Monde argued that the Commercial Court had jurisdiction, pursuant to the Termination Agreement (which is somewhat counterintuitive, given that Monde was also disputing the validity of the Termination Agreement), whereas WZL argued that the arbitral tribunal had jurisdiction, pursuant to the CSA (which it claimed had been validly terminated).

The arbitral tribunal noted that the Termination Agreement was binding on the parties (Monde accepted that the Court had not yet determined its claims that the CSA was not valid and, therefore, that the CSA remained in force for the time being) and the DR clause in the Termination Agreement was sufficiently broad that it covered all disputes under the CSA (except possibly those relating to confidentiality).  As a result, the arbitral tribunal found in favour of Monde, dismissing WZL's breach of confidentiality claim on its merits and accepting that it had no jurisdiction to make the declarations sought.  WZL subsequently challenged the tribunal's findings (aside from the confidentiality point) before the Commercial Court under section 67 of the Arbitration Act 1996.

Decision

Popplewell J upheld the arbitral tribunal's findings, holding that the Commercial Court had jurisdiction pursuant to the Termination Agreement exclusive jurisdiction clause.  This was because:

  • There is a presumption of one-stop adjudication – that rational businessmen will seek to have all disputes arising out of their legal relationship determined as swiftly as possible and in the same forum (applying Harbour Assurance Co (U.K.) Ltd v Kansa General International Assurance Co (1993)).  This is because fragmentation might cause inconsistent findings, and would likely cause increased expense and delay.
  • This presumption has particular potency in relation to settlement agreements pertaining to an underlying contract, as it is not uncommon for one party to impeach the settlement agreement and to advance a claim under the underlying contract.
  • In relation to which DR provision took precedence, this is a question of the language of the clauses and the surrounding circumstances.  Here, the Termination Agreement DR provision took precedence for the following reasons:

- the Termination Agreement came second in time and was entered into with the relevant dispute firmly in mind (DR clauses are not often heavily negotiated);

- the Termination Agreement DR clause was the only provision which could govern disputes arising from the Termination Agreement, and so was the only provision that could potentially govern disputes arising out of both agreements; and

- the wording of the Termination Agreement's DR provision was expressed to be "exclusive", and therefore excluded any other dispute resolution agreement between the parties.  When read in conjunction with the entire agreement clause in the Termination Agreement, this indicated that all disputes with respect to the subject matter of the Termination Agreement were to be governed by the Termination Agreement's DR provision.

Popplewell J also rejected WZL's arguments that the arbitration clause was severable from the CSA and, therefore, not within the scope of the Termination Agreement, primarily on the basis that this would cause fragmentation of the parties' dispute.  WZL also argued that an arbitration clause could only be overridden by clear and specific language to that effect (relying on DDT Trucks of North America Ltd v DDT Holdings Ltd (2007)).  Popplewell J distinguished the present case on the basis that DDT Trucks did not contain conflicting jurisdiction clauses, only termination of an agreement containing an arbitration clause, and could not be taken as authority that an arbitration clause could not be terminated other than by express wording.

Comment

This case highlights the importance of considering the appropriate forum for disputes when drafting settlement agreements.  As WZL argued, there did appear to have been a "strong rationale for the parties' choice of arbitration under the CSA, namely their mutual desire for confidentiality", and it is quite possible that confidentiality would be more important to the contracting parties at the time of entering into the Termination Agreement than the cost and convenience of handling any resulting dispute.

Popplewell J appears to have based his decision firmly on the usual principles of contractual interpretation, namely the commercially rational construction of the document against the matrix of facts.  As a result, whilst it appears that in the majority of cases a DR provision in a settlement agreement will override a conflicting provision in an underlying agreement (for the reasons above), each case will depend on its facts.