English High Court Upholds the Primacy of an Exclusive Jurisdiction Clause in a Subsequent Settlement Agreement

The English High Court in Destin Trading v Saipem SA refused the defendant’s application for a stay of proceedings under Section 9 of the Arbitration Act 1996 on the basis that an exclusive dispute resolution clause in favour of the English Courts contained in a subsequent settlement agreement superseded the arbitration clause in an earlier contract.

This decision[1] highlights the need for clear drafting in commercial agreements and for parties to carefully consider the impact of having inconsistent dispute resolution clauses across different agreements.

Factual Background

The claimant, Destin, is a Panama incorporated company which offers management and logistical services in the shipping industry. The defendant, Saipem, a subsidiary of the Italian-listed Saipem Group, focuses on project management, infrastructure and plant services in the offshore oil and gas industry in Africa. The parties signed a number of agreements throughout 2011 and 2012, including a series of frame agreements which all included a dispute resolution clause in favour of ICC arbitration seated in London.

In 2013, a dispute arose between the parties concerning an alleged shortfall in payments made by Saipem to Destin in connection with a frame agreement for a project on the Congo River. The parties settled the dispute in November 2013 and signed a settlement agreement which included a mutual release of claims, terminated all of the frame agreements and, crucially, included an exclusive governing law clause in favour of the English Courts in respect of “any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement)”.

Pursuant to the exclusive jurisdiction clause in the settlement agreement, Destin subsequently brought a claim in the English Court alleging that it had been induced to enter into the settlement agreement as a result of fraudulent or negligent misrepresentations made by Saipem and that it was therefore entitled to rescind the settlement agreement and claim payment of the amounts owed to it under the original frame agreement (the Monetary Claims).

In response, Saipem applied for a stay of proceedings under section 9 of the Arbitration Act 1996, arguing that Destin’s Monetary Claims arose out of or in connection with the original frame agreement, which required that disputes between the parties be settled by way of arbitration and that accordingly Destin’s claims should never have been brought before the English Courts.

Decision

The English Court referred to and relied upon the leading case of Monde Petroleum SA v Westernzagros Ltd [2015], in which the jurisdiction clause in a termination agreement was held to supersede an arbitration clause in a prior consultancy agreement, and upon C v D1, D2, D3 [2015], in which it was determined that the “centre of gravity of the relationship” between the parties had shifted from the original commercial agreement to a new one based on the terms of a settlement agreement.

Accordingly, the English Court determined that, whilst it will always be a matter of contractual analysis, there is the general assumption that where parties have agreed upon a different dispute resolution in a settlement agreement, they intended for that new dispute resolution provision to take precedence over previous jurisdiction clauses; this is on the basis that parties have recentred their relationship around the settlement agreement.

Having established that the dispute resolution clause in the settlement agreement superseded that contained in the frame agreement, the English Court concluded that the Monetary Claims also fell within the scope of the clause. This was on the basis that the wording of the clause in the settlement agreement made it clear that it was to be construed as widely as possible in order to settle “any dispute”, thereby covering disputes about any extant rights contained in the frame agreement following its termination.

This was supported by the fact that the settlement agreement expressly “terminate[d]” the frame agreement and considered it “null and void” such that the parties could not have intended for the dispute resolution clause contained in the frame agreement to survive. Accordingly, the Monetary Claims were properly brought within the scope of the dispute resolution clause contained in the settlement agreement and Saipem’s application for a stay was dismissed.

Key Takeaways

As with all contractual claims, each case must be considered carefully on its facts and parties should not rely on a general assumption that (for example) the terms of a settlement agreement necessarily take precedence over the terms of an underlying or previous agreement. That said, when drafting settlement agreements, parties ought to be particularly careful of how dispute resolution clauses are worded such that they are clear in their scope and adequately deal with dispute resolution clauses contained in any underlying documents.

Trainee Solicitor Andrew Kinsella contributed to this LawFlash.