It is not uncommon in complex transactions to find a number of related agreements each containing competing jurisdiction clauses. Two recent cases, one in England and one in Hong Kong, highlight the difficulties faced by the courts in construing competing jurisdiction clauses. The English case provides a helpful summary of the principles that the court will apply when construing competing jurisdiction clauses. The Hong Kong case provides an example of how the court’s case management powers may be used to avoid parallel proceedings.
Construing competing jurisdiction clauses
In C v D1 and others , the English Commercial Court reviewed the principles that apply when construing competing jurisdiction clauses. The case involved a dispute between the owner of two offshore oil blocks and the Nigerian contractor hired to operate the blocks. The disputes concerned multiple agreements, including a 2005 contract which contained an ad hoc arbitration clause and a 2011 contract which contained an LCIA arbitration clause.
The court reviewed the authorities on the construction of competing jurisdiction clauses and derived the following principles:
- The exercise of determining whether a dispute falls within an arbitration clause requires a careful and commercially-minded construction. It is a question of determining objectively the intention of the parties as revealed by the agreement.
- In construing an arbitration clause, a broad purposive construction should be followed.
- In general, parties to an arbitration agreement do not intend that disputes under that agreement to be determined by different tribunals (the “Fiona Trust presumption”). Fragmentation of disputes may occur, but only if the clear wording and inherent scheme of the transaction leads to that conclusion.
- The Fiona Trust presumption may not apply where there are two or more agreements with separate and distinct arbitration clauses addressing different aspects of the parties’ relationship.
- Where an agreement is entered into for the purpose of terminating the commercial relationship created by an earlier agreement, the Fiona Trust presumption may apply with particular potency.
Applying these principles, the court ruled that the claims fell within the scope of the LCIA arbitration clause.
A case management solution to avoid parallel proceedings
In CPC Construction Hong Kong Ltd v Harvest Engineering (HK) Ltd and another (HCA 2096/2013), the Hong Kong court was also required to construe competing jurisdiction clauses. The case involved a sub-contract, which provided for disputes to be resolved by arbitration, and loan agreements, which provided for disputes to be resolved by the courts of Hong Kong. An issue arose as to whether the failure to repay the loans as requested was a dispute which came within the ambit of the arbitration clause in the sub-contract.
The court accepted the Fiona Trust presumption. However, the court held that the wording of the arbitration agreement in the sub-contract (which referred to “all disputes arising from” the agreement) was not sufficiently broad to encompass claims arising under the loan agreements. The court also held that the parties to the loan agreements had clearly indicated an intention that disputes under the loan agreements should not be dealt with by arbitration by including clauses providing for dispute resolution in the non-exclusive jurisdiction of the Hong Kong courts.
The court held that the failure to repay the loans did not fall within the scope of the arbitration agreement in the sub-contract and was not persuaded that the claim in the Hong Kong court for the unpaid loan sums should be stayed in favour of arbitration.
The court reached this decision with some reluctance, because it left open the possibility of parallel court-based litigation and arbitration in circumstances where there was bound to be a considerable overlap in the issues and evidence canvassed in each forum. The court invited the claimant to consider whether it might be appropriate to order a stay of the claim pending the arbitration. The court emphasised that that would not be the same as staying the claim in favour of arbitration, rather it would be a case management decision, to avoid duplication of time and resources, and the possibility of inconsistent results.
The judge also reserved his position on costs, noting that should all matters be dealt with via arbitration he might order that the costs of the application be costs in the arbitration– possibly a hint to the claimant that its claim should be continued in arbitration.
It is clear from modern authorities that the courts favour the Fiona Trust presumption and will endeavour to construe contracts in a way that avoids the “forensic nightmare” of parallel proceedings. It is generally accepted that the Fiona Trust presumption will not apply in cases where the parties have clearly intended that different disputes should be resolved by different tribunals or courts. The CPC Construction case is an interesting example of the Hong Kong courts using their case management powers to try to avoid related arbitration and litigation proceedings running in parallel. It will be interesting to see if courts in other jurisdictions start to take a similarly proactive approach on this issue to encourage parties to submit their disputes to a single forum wherever possible.