English court refuses stay of proceedings for clause requiring parties to "endeavour" to arbitrate

Despite the English court's benevolent approach to the construction of arbitration clauses, the recent case of Christian Kruppa v Alessandro Benedetti and Bertrand des Pallieres [2014] EWHC 1887 (Comm) gives a clear warning as to the limits of the court's willingness to reconcile conflicting provisions in jurisdiction clauses.

In this case the parties had agreed to a governing law and jurisdiction clause that stated:

"Laws of England and Wales. In the event of any dispute between the parties pursuant to this Agreement, the parties will endeavour to first resolve the matter through Swiss arbitration. Should a resolution not be forthcoming the courts of England shall have non-exclusive jurisdiction"

The defendants sought a stay of proceedings under section 9 of the Arbitration Act 1996, arguing that the clause required the parties to arbitrate their dispute. The defendant argued that, given the court's policy in favour of arbitration, the clause should be construed so that substantive issues would be resolved by arbitration while the English court retained supervisory jurisdiction.

Mr Justice Cooke disagreed. First, the parties had not, in fact, agreed to refer any dispute to arbitration. Rather, they had agreed to "endeavour" to resolve the matter through Swiss arbitration. The parties had not agreed on a number of arbitrators or on a Swiss cantonal seat to appoint arbitrators in the absence of party agreement. In short, the parties would need to reach further agreement on these matters before any arbitration could take place.

Second, the clause was, on its face, a two tier dispute resolution clause, providing for a "Swiss arbitration" process and then a right to refer the matter to the English court, "should a resolution not be forthcoming". Logically, it was not possible for a multi-tier clause to be effective that consisted of a binding first tier (arbitration), followed by another binding tier (litigation). The court therefore decided that the parties had agreed to attempt to agree on a form of arbitration between them in Switzerland. If they failed to reach that agreement, the English court would have non-exclusive jurisdiction.

Mr Justice Cooke held that "there was no binding agreement to arbitrate, but merely an agreement to attempt to resolve the matter by a process of arbitration". The court therefore refused to grant a stay of proceedings under section 9 of the Arbitration Act 1996.

Comment

The defendant in this case sought to benefit from a long line of case law emphasising the English court's "pro-arbitration" stance when construing arbitration clauses. While the English courts do (and will no doubt continue to) seek to reconcile conflicting provisions in favour of arbitration, this case shows the limits of that approach.

While we cannot say whether the parties to this contract did, indeed, intend to arbitrate their dispute, the uncertainty in the clause has resulted in their dispute being embroiled in jurisdictional wrangling with accompanying cost and delay. The case therefore underlines the importance of a tightly drafted dispute resolution clause. If the parties wish to arbitrate, the submission to arbitration should be clear and unequivocal. Language which suggests that the parties need to reach further agreement on outstanding issues or, as in this instance, "endeavour" to reach agreement should be avoided at all cost.

For further information, please contact Nick Peacock, Partner, Vanessa Naish, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.