English High Court considers the proper construction of an arbitration clause to determine whether the ICC has jurisdiction to arbitrate the dispute

In Hashwani v OMV Maurice Energy Ltd [2015] EWHC 1811 (Comm), the English High Court (the Court) dismissed an application by reference to section 72 of the English Arbitration Act 1996 (the Act) challenging the jurisdiction of the International Chamber of Commerce (ICC) to arbitrate the dispute.

The Court considered two arbitration provisions contained within two transaction documents, the Joint Operating Agreement and the Farmout Agreement (both defined further below). The Joint Operating Agreement, on its face, appeared to only apply to two of the parties to the arbitration that was the subject of the reference. The Court held that the ICC arbitration provision in this Agreement was valid and binding on two of the parties and that, in spite of an inconsistent arbitration provision contained in the Farmout Agreement which was subsequently entered into between all three parties to the dispute providing for domestic arbitration, such provision did not oust the former nor render it invalid. The Court then proceeded to take a purposive approach to the arbitration provision in the Joint Operating Agreement, looking at the intention of the parties. The Court expressed the view that the Joint Operating Agreement clearly contemplated that there would be further parties to the Agreement in future and, as such, the arbitration provision should be construed to allow the resolution of disputes between all such future parties. If such an approach were followed, the third party to the dispute would therefore also have been bound by that provision.

However, the Court did not reach a ruling on this point, stating that when a court cannot be sure of jurisdiction but there would in any event be an arbitration between closely-related parties as to the same matters in issue, the sensible course would be to leave the question of jurisdiction in relation to the claim to be finally decided by the arbitrators in question.

Facts

The parties to the proceedings were Ocean Pakistan Limited (OPL) and Zaver Petroleum Corporation Limited (ZPCL) on the one side and OMV Maurice Energy Limited (OMV) on the other side. The proceedings arose out of oil and gas exploration in Pakistan.

In 1999, OPL was granted an oil exploration licence by the President of Pakistan. It then entered into a series of agreements with ZPCL and OMV including (i) the Petroleum Concession Agreement dated 29 December 1999 (the Concession Agreement); (ii) a Joint Operating Agreement dated 29 December 1999 (the Joint Operating Agreement); and (iii) the Farmout Agreement dated 30 March 2000 (the Farmout Agreement). In 2011, OMV issued proceedings in the Pakistan courts claiming that OPL and ZPCL had failed to pay calls under the Joint Operating Agreement, which if correct, would lead to draconian consequences under the Farmout Agreement. In 2014, OMV made a Request for arbitration to the ICC. This Request was made pursuant to Article 28 of the Concession Agreement (Article 28) which contained an arbitration provision. Such provision was incorporated into the Joint Operating Agreement by virtue of Article 17 of the same, which provided that any dispute arising out of the Joint Operating Agreement would be dealt with 'mutatis mutandis' in accordance with Article 28. The key question for the Court to determine was therefore whether Article 28 constituted a valid arbitration agreement that governed the present dispute between the parties.

Article 28 only applied to disputes between foreign working interest owners (FWIO) and did not apply to disputes between a FWIO and a Pakistani working interest owner (PWIO). In this case, OPL and OMV were FWIOs whereas ZPCL was a PWIO.

Article 7 of the Farmout Agreement (to which all three of OPL, ZPCL and OMV were parties) contained a further arbitration provision which provided for domestic arbitration in Pakistan in the event of any dispute between the parties.

There were two applications before the Court in this proceeding:

1. An application by OPL and ZPCL by reference to section 72 of the Act challenging the jurisdiction of the ICC and seeking injunctions; and
2. An application by OMV for a stay of the present proceedings on the basis that the ICC tribunal should determine the question of jurisdiction, or in the alternative, an application for a stay under section 9 of the Act on the basis that there was a valid arbitration agreement.

The key issues before the Court were therefore:

1. Given that OMV was pursuing claims against both a FWIO and a PWIO, whether this constituted a hybrid claim against OPL and therefore fell outside the scope of Article 28 (Issue 1); and
2. Whether Article 28 applied to OPL's claims against ZPCL, as a PWIO (Issue 2).

Judgment

Issue 1

Burton J held that the claim by OMV against OPL plainly fell within Article 28, irrespective of whether there was also a claim against ZPCL. The arbitration provision at Article 28 was valid and the dispute as to whether OPL was in breach of the Joint Operating Agreement fell within it. The provisions of the Joint Operating Agreement had not been overtaken nor superseded by those in the Farmout Agreement, and even if the dispute fell within both provisions, this did not oust the former nor render it invalid. Burton J was therefore satisfied that the claim by OMV clearly fell within the jurisdiction of the ICC.

Issue 2

Burton J expressed his preference for ZPCL's submission that the claim against it also fell within the jurisdiction of the ICC, despite the fact that the wording of Article 28 limited the ICC's jurisdiction to disputes between FWIOs.

ZPCL's submission was as follows. The Concession Agreement initially had only three parties – the President of Pakistan, Government Holdings (a PWIO) and OPL (a FWIO). It would be plainly contemplated that there would be more parties with a working interest in future. The Joint Operating Agreement at the outset had only two parties – Government Holdings and OPL. ZPCL and OMV only became parties to the above agreements some months later and, when they did, Article 17 of the Joint Operating Agreement applied to them. Therefore, the provision had to be read so as to reflect the express agreement of the parties, thus including OMV and ZPCL, that Article 28 would apply mutatis mutandis. Mutatis mutandis therefore had to operate so as to provide that any dispute between a FWIO and a PWIO should be subject to ICC arbitration rather than domestic arbitration, which was limited to disputes between Pakistani parties. Therefore, when ZPCL became a party to the Joint Operating Agreement, it became subject to the rights and obligations of Article 28 mutatis mutandis, i.e. to the ICC arbitration clause.

However, Burton J held that when a court cannot be sure of jurisdiction but there would in any event be an arbitration between closely-related parties as to the same matters in issue, it was the sensible course to leave the question of jurisdiction in relation to the claim (i.e. the claim by OMV against ZPCL) to be finally decided by the ICC tribunal.

Comment

This is a good example of the purposive approach taken by the English Court to the interpretation of arbitration clauses. The court shied away from a ruling on the question of whether ZPCL was bound by the arbitration clause in the Joint Operating Agreement. However, the "preference" expressed by Burton J was clear. The Court analysed the background to the oil exploration project and its planned future development, adopting a highly commercial construction of the arbitration clause which went beyond the wording of the contract to allow it to continue to function as further contracting parties became involved in the project.

The case also serves to show the Court's high regard for the principle of Competence-Competence by stepping back from a ruling on this point, leaving the ultimate determination of jurisdiction to the ICC tribunal appointed. That said, the "preference" expressed by the Court is likely to colour the approach taken by the arbitrators in question.

However, the case also serves as a reminder that inconsistent arbitration provisions within a series of agreements between the same parties relating to the same subject matter can cause difficulties. Wherever possible, where changes are anticipated to the parties to an agreement, the dispute resolution provisions should be drafted to accommodate those future changes. It is also important to consider carefully whether related disputes can arise under different documents in a transaction. If so, drafting complementary and consistent dispute resolution provisions in such agreements will ensure that those disputes can be resolved together in a single arbitration.

For further information, please contact Craig Tevendale, Partner, Madhu Krishnan, Associate or your usual Herbert Smith Freehills contact.