English High Court recognises arbitral tribunal's jurisdiction over settlement agreement in absence of express arbitration clause

In the recent decision of Sonact Group Limited v. Premuda SPA [2018] EWHC 3820 (Comm), the English High Court confirmed its pro-arbitration approach to the interpretation of arbitration agreements. The Court held that an arbitration agreement contained in a charterparty contract could apply in relation to disputes arising out of a subsequent settlement agreement contained in correspondence between the parties relating to the sum allegedly due under the charterparty. The Court concluded the parties could be taken to have intended that the arbitral tribunal under the principal agreement would also have jurisdiction over disputes arising out of a settlement agreement between the same parties, despite the absence of an express arbitration clause in the settlement agreement.

Background

The defendant owned the "Four Island" tanker, which it chartered to the claimant. The charterparty included an arbitration clause and the parties elected London as the seat of arbitration.

The owner claimed demurrage of US $718,948.08 and heating costs of US $190,200 from the charterer under the charterparty. That claim was settled by means of an exchange of emails in which the charterer agreed to pay US $600,000. However, the charterer failed to make the payment.

The owner served a notice of arbitration on the charterer claiming payment of demurrage and heating costs, but ultimately pursued a claim for payment of the agreed sum of US$600,000, which the Tribunal in due course awarded. The charterer challenged the jurisdiction of the arbitral tribunal to decide a claim arising under the settlement agreement on the basis that the settlement agreement did not include an arbitration clause.

The tribunal concluded that it had jurisdiction as the nature of the negotiations and the manner in which they had been carried out suggested the parties intended, although they did not say so expressly, that the settlement agreement should be governed by the same provision for dispute resolution as the original charterparty.          

Application under section 67 of the Arbitration Act

The charterer sought to challenge the arbitral award under section 67 of the Arbitration Act 1996. The charterer argued that the tribunal did not have jurisdiction to issue its award.

The Court re-affirmed that a challenge under section 67 of the Arbitration Act requires the question of jurisdiction to be analysed de novo by the Court (as per the Supreme Court's decision in Dallah Real Estate & Tourism Holding Company v Ministry of Religious Affairs of the Government of Pakistan [2010] UK SC 46). As a consequence, the Court did not consider itself bound by the decision of the tribunal and although the tribunal's decision could inform and be of interest to the Court, it was not to be given any particular status or weight.

The decision

The charterer presented two arguments on jurisdiction. First, the owner's claim was a claim under the settlement agreement and that agreement did not contain an arbitration clause. Second, pursuant to the notice of arbitration sent by the owner, the tribunal was appointed to hear disputes under the charterparty and not under the settlement agreement.

The Court concluded that the parties intended for the arbitration clause contained in the charterparty to continue to apply in the event that the sum agreed to settle claims under that agreement was not paid. The wording of the arbitration clause was broad enough to encompass such a claim, even though the settlement agreement to pay US $600,000 represented a new cause of action under a new and binding agreement. The Court considered it inconceivable that the parties could be taken to have agreed that if the agreed sum was not paid, the owner would be unable to pursue its claim in arbitration and, instead, would be required to commence court proceedings. Further, the Court concluded that although the settlement agreement did not contain a choice of law provision, the parties intended that the choice of English law contained in the charterparty would continue to apply. The Court considered that it would be very odd to assume that the settlement agreement, which said nothing about choice of law, was to be governed by any law other than the law that governed the charterparty.

The Court also held that – although the notice of arbitration did not refer to the settlement sum and, instead, referred to "a claim for demurrage and heating costs as well as other possible claims" – the claim for the agreed sum could properly be regarded by commercial parties as a claim for demurrage and heating costs. Thus, the Court concluded that the notice of arbitration was effective. The arbitration clause allowed the parties to submit further disputes to arbitration after proceedings had commenced, as long as such disputes arose under the charterparty. Thus, the Court concluded that, even if the notice of arbitration as submitted had not encompassed a claim for the US $600,000, the owner could, in any event, have submitted such claim at a later stage in the arbitration as long as it was a claim under the charterparty. On that hypothesis, the Court found that this is what it did.

Conclusion

This case provides a reminder of the complexities that can arise (leading to delays and increased costs) if settlement agreements or contractual amendments do not expressly state the applicable governing law and dispute resolution mechanism.

In this instance, the English Court took a commercially pragmatic, pro-arbitration approach and held that the arbitration clause in one agreement could effectively be implied into a subsequent agreement seeking to settle a claim under the former. The outcome of this case turned on its particular facts, including the commercial context of maritime practice, and parties should not assume that the dispute resolution mechanism and governing law that is set out in an underlying agreement will necessarily apply to every agreement seeking to settle a claim arising under the original agreement. Parties are recommended to always document the settlement they have reached in express terms, including a governing law and dispute resolution clause.

For further information please contact Nicholas Peacock, Partner, Charlie Morgan, Associate, or your usual Herbert Smith Freehills contact.