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||Neutral Citation Number:  EWHC 67 (Comm)
||2013 Folio 308,
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
||Royal Courts of Justice
7 Rolls Building, Fetter Lane
London, EC4A 1NL
B e f o r e :
THE HON. MR JUSTICE POPPLEWELL
||MONDE PETROLEUM SA
||Claimant in 2013 Folio 308 & 2014 Folio 1060,
||Defendant in 2014 Folio 975
||Defendant in 2013 Folio 308
||& 2014 Folio 1060,
||Claimant in 2014 Folio 975
Eleanor Campbell (instructed by Candey LLP) for Monde Petroleum SA
Stuart Isaacs QC & Ruth M D Byrne (instructed by King & Spalding International LLP) for WesternZagros Ltd
Hearing date: 14 January 2015
HTML VERSION OF JUDGMENT
Crown Copyright ©
The Hon. Mr Justice Popplewell :
- WesternZagros Ltd ("WZL") is a company incorporated in Cyprus with its head office in Calgary, Canada. It carries on business exploring for, developing and producing crude oil and natural gas. In 2006 it was engaged in negotiations with the Kurdistan Regional Government in Iraq ("KRG") for the exploitation of oil in the South Sulaymaniyah region of Kurdistan.
- Monde Petroleum S.A. ("Monde") is a company incorporated in the British Virgin Islands. It is wholly owned or controlled by Mr Yassir Al-Fekaiki, whose late father, Mr Hani Al-Fekaiki, was a leading figure in the Iraqi opposition to Saddam Hussein.
- The dispute between the parties originates from an agreement for consultancy services dated 23 April 2006 ("the CSA"), by which WZL engaged the services of Monde, acting through Mr Al-Fekaiki, to assist WZL in concluding and maintaining the exploration and production sharing agreement ("EPSA") which WZL was negotiating with the KRG, and in relation to business opportunities in the region more generally. It provided for Monde to receive monthly fees, enhanced payments upon the achievement of certain milestones, and an option in certain circumstances to share in the benefit of a successful EPSA by acquiring a 3% interest. The CSA contained a London arbitration clause.
- In January 2007 WZL stopped paying the monthly fee invoiced by Monde, and on 16 March 2007 WZL purported to terminate the CSA pursuant to a contractual termination provision. WZL disputed that the unpaid amounts invoiced by Monde, which included a milestone payment, were due.
- On 18 April 2007 the parties entered into a settlement agreement ("the Termination Agreement"), under which WZL was to pay Monde's disputed invoices in full and there was a mutual release and waiver of all claims by each party against the other in respect of the CSA. The Termination Agreement contained a clause conferring exclusive jurisdiction on the courts of England and Wales.
- Monde has commenced proceedings in 2013 Folio 308 ("the Commercial Court proceedings") by which it alleges that the Termination Agreement was induced by misrepresentation and/or duress. It claims damages for misrepresentation and/or duress in an amount which it alleges it would have earned under the CSA, including what it would have earned pursuant to the 3% option. The quantification of such damages claim necessarily involves the assumption that the CSA was not validly terminated, a matter disputed by WZL. The relief claimed by Monde in the Commercial Court proceedings also includes "further or alternatively" a claim for rescission of the Termination Agreement by reason of the alleged misrepresentation and/or duress.
- Monde also commenced arbitration proceedings against WZL as a protective measure, notwithstanding that its primary case was that the Commercial Court had jurisdiction in relation to its claims. WZL made counterclaims for declaratory relief in the arbitration, including seeking declarations that Monde had no further entitlement under the CSA and so had not lost any benefit by entering into the Termination Agreement. Monde disputed that these questions fell within the tribunal's jurisdiction. By an award dated 16 July 2014 ("the Award"), the tribunal determined that it had no jurisdiction in the relation to the declaratory relief counterclaimed by WZL in the arbitration. It ordered WZL to pay Monde's costs of the arbitration proceedings.
- There are four applications by WZL before the Court. The principal application is an appeal under s.67 of the Arbitration Act 1996 ("the s.67 appeal") by which WZL seeks to overturn the decision in the Award that the tribunal did not have jurisdiction over WZL's counterclaims for declaratory relief. The second application is to set aside an order of Flaux J dated 6 October 2014, made ex parte, granting Monde permission to enforce the Award in respect of the order for costs. The third application is a challenge to the Court's jurisdiction in respect of part of the claim made by Monde in the Commercial Court proceedings. It is common ground that the outcome of the second and third applications will be determined by the outcome of the s.67 appeal. The fourth application by WZL is for security for the costs of defending the Commercial Court proceedings in the event that it is unsuccessful on the other applications.
- Under the CSA, the services to be provided by Monde through Mr Al-Fekaiki were set out in Schedule A. Mr Al-Fekaiki's principal function was to advise and assist WZL in "concluding and maintaining a fully operational and enforceable Exploration and Production Sharing Agreement between Kurdistan Regional Government – Iraq and [WZL]... (the "EPSA")". In return, Monde was to be paid monthly fees for an initial period, together with success fees on the achievement of certain milestones relating to the conclusion and performance of any EPSA between WZL and the KRG (Schedule B). By Schedule C Monde was granted an option to acquire a 3% working interest in any EPSA, exercisable on the declaration of commercial discovery under the EPSA, or 24 months from the commencement of the seismic programme, provided that the three events triggering payment of the various milestone fees under Schedule B had all occurred.
- Clause 10 made provision for the term of the CSA and contractual rights of termination. Clause 5 contained detailed confidentiality obligations which would continue to bind the parties for a period of 5 years after termination of the CSA. Clause 12 provided that the CSA was governed by English law. Clause 13 provided:
"13.1 If any dispute, controversy or claim arises between the Parties in relation to, or in connection with this Agreement, or in connection with the interpretation, performance or non-performance hereof, including any questions regarding the payment of fees, (the "Dispute"), the Parties shall promptly meet to discuss the Dispute in an attempt to resolve such dispute amicably through negotiation.
13.2 If the dispute has not been resolved within sixty (60) days..., then either Party may, by notice in writing to the other, refer the dispute to arbitration to be fully settled."
Clause 13 went on to provide that the arbitration was to be held in London under the ICC Rules.
- In the eleven months which followed, two of the three milestones in Schedule B to the CSA were achieved. In January 2007 WZL stopped paying the monthly fee of $50,000 invoiced by Monde. By letter dated 16 March 2007, WZL purported to terminate the CSA pursuant to clause 10.2 which provided an entitlement to do so if no EPSA became "fully operational and enforceable within six months" of the date of the CSA. Of the amounts invoiced by Monde, $700,000 remained unpaid by WZL, which disputed that such amount was due.
- There is now a dispute between the parties whether WZL was entitled to terminate the CSA on this ground as a matter of construction, or as a matter of fact. There is also now a dispute between the parties as to whether Monde properly performed the services under the CSA during this period, and as to whether WZL ever complained about the performance of the services by Monde. There is also a dispute as to whether in the month or so prior to entering into the Termination Agreement any of these disputes were raised. In a 2013 witness statement, Mr Al-Fekaiki alleges that he had discussions with representatives of Monde in which he expressed concerns about signing the Termination Agreement because it would involve giving up the 3% option to which Monde remained entitled under the CSA. This suggests that he did at the time treat the termination as invalid. It is disputed by WZL that he did so. It is, however, common ground that a dispute had crystallised at the time as to whether Monde's outstanding invoices totalling $700,000 should be paid by WZL.
- On 18 April 2007 WZL and Monde entered into the Termination Agreement. By Article 2.1 they agreed to terminate the CSA in consideration for the payment by WZL of Monde's outstanding invoices. Article 2.1 went on to make detailed and comprehensive provision for the surrender by Monde of any and all rights it might otherwise have had in or arising from the CSA, including any claims "with respect to [the CSA] or any other matter relating in any way thereto". By Article 2.2 WZL released Monde in similarly comprehensive terms from any claims by WZL.
- Clause 3.2 of the Termination Agreement provided that:
"Notwithstanding the termination of the [CSA], the provisions of Section 5 thereof (Confidentiality) shall continue to apply."
- Clause 3.3 of the Termination Agreement provided:
"This Agreement shall be governed by and construed in accordance with the laws of England and Wales. The parties herein irrevocably attorn to the exclusive jurisdiction of the courts of England and Wales."
- Clause 3.5 of the Termination Agreement provided:
"This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and all prior negotiations and understandings."
The procedural background
- On 4 March 2013 Monde issued the Claim Form in the Commercial Court proceedings against WZL and two of its directors. It did not serve the Claim Form at that stage, but instead served a Letter before Claim dated 31 May 2013. The parties engaged in pre-action correspondence, and the time for service of the Claim Form was extended by agreement. It was served in amended form on 25 October 2013 (the directors having been removed as defendants), and the Particulars of Claim were served on 23 December 2013.
- In the Commercial Court proceedings Monde alleges that it was induced to enter into the Termination Agreement by the misrepresentation and/or duress of WZL. In summary, Monde alleges that a Mr Bafel Talabani, acting on behalf of WZL, told Mr Al-Fekaiki that if Monde signed the Termination Agreement, Monde would be granted new rights in any EPSA pursuant to a new agreement. Monde alleges that it agreed to execute the Termination Agreement in reliance on this, and certain other misrepresentations made on WZL's behalf by Mr Talabani. It also alleges that WZL unlawfully threatened to withhold Monde's fees unless it concluded the Termination Agreement. Monde denies that WZL was entitled to terminate the CSA when it purported to do so. Monde claims damages for misrepresentation (in tort and under the Misrepresentation Act 1967) and/or damages for duress, and damages for wrongful termination or repudiation of the CSA. Monde quantifies its alleged losses by the fees it would have been entitled to had the CSA remained in force, together with the value of its rights in relation to the option. The prayer also includes a claim "further or alternatively" for rescission of the Termination Agreement.
- Shortly after issuing the Claim Form in the Commercial Court proceedings, Monde also commenced an ICC arbitration by a Request for Arbitration dated 8 March 2013, in which it claimed damages for wrongful termination of the CSA. The arbitration claim did not include a claim in relation to the Termination Agreement. In its Request for Arbitration Monde explained that it was commencing the arbitration as a protective measure to prevent the claim being time barred in the event that, contrary to its primary case, the claim could not be pursued in the Commercial Court proceedings, and sought an immediate stay of the arbitration.
- On service of the Request for Arbitration WZL maintained that many of Monde's claims in both sets of proceedings were within the exclusive jurisdiction of the Tribunal by virtue of the arbitration clause in the CSA. It declined to agree to any stay of the arbitral proceedings, and counterclaimed for declaratory relief on those matters which it said only the Tribunal could decide (and which would, if decided in its favour, be dispositive of Monde's claims in both sets of proceedings), together with a claim for damages for an alleged breach of confidentiality by Monde of the arbitration proceedings. The declaratory relief sought was refined in due course in WZL's Submissions on Relief dated 16 October 2013 in the following terms:
"6. WZL accordingly seeks:
6.1 a declaration that the arbitration agreement in clause 13 of the CSA is severable and survives termination of that agreement;
6.2 a declaration that it validly terminated the CSA on written notice on 16 March 2007;
6.3 further or alternatively, a declaration that it could have terminated the CSA for cause in March or April 2007;
6.4 accordingly, a declaration that Monde has no further entitlement under the CSA, including with respect to the Alleged Lost Compensation;
6.5 further or alternatively, a declaration that Monde waived or is estopped from seeking to enforce any such rights;
6.6 further or in any event, a declaration that Monde, having withdrawn its claims in this arbitration, is time-barred from reviving any claim under the CSA, including with respect to the Alleged Lost Compensation;
6.7 in any event, a declaration that the Option did not and has never vested, is subject to third party approvals and further agreement and is unenforceable and/or of no value;"
- The relief identified in paragraph 6.6 reflects the fact that by letter dated 4 October 2013, Monde informed WZL and the Tribunal that it withdrew all its claims in the arbitration. WZL nevertheless maintained that the Tribunal should consider and determine its counterclaim for declaratory relief and its claim for damages for alleged breach of confidentiality. On 9 October 2013 the Tribunal fixed a timetable for the resolution of Monde's jurisdictional challenge and WZL's counterclaims. Monde defended WZL's claims in the arbitration, whilst maintaining its primary position that the Tribunal did not have jurisdiction to hear them. Memorials were exchanged, in addition to various other submissions on jurisdiction and relief. The parties disclosed documents upon which they relied, and served statements of witnesses of fact. A hearing took place before the Tribunal in London on 5, 6 and 7 February 2014, followed by a further day of closing submissions on 3 March 2014. In addition to hearing submissions on jurisdiction, the Tribunal heard evidence from two directors of WZL and Mr Al-Fekaiki for Monde (each of which were cross-examined), on the substantive issues arising on WZL's claims.
- In the meantime, on 10 December 2013 WZL had issued an application in the Commercial Court proceedings challenging the Court's jurisdiction under CPR Part 11, and seeking a stay of the Commercial Court proceedings in favour of the arbitration under s.9 of the Arbitration Act 1996 (the "Jurisdiction Challenge"). The hearing of WZL's Jurisdiction Challenge was listed for hearing on 19 May 2014 before Hamblen J, at which stage the award of the Tribunal was still awaited. Hamblen J dismissed those aspects of WZL's Jurisdiction Challenge which did not overlap with the jurisdictional issues to be decided by the Tribunal. He adjourned the balance of WZL's Jurisdiction Challenge, to be re-listed once the Award had been made.
- The Award was sent to the Parties on 25 July 2014. The Tribunal accepted that it had jurisdiction to determine the claim for breach of confidentiality on the grounds conceded by Monde, namely that the obligations of confidentiality attached to the arbitral process. It dismissed the claim for damages for breach of confidentiality on the merits. Neither party seeks to challenge those conclusions.
- In relation to WZL's claims for declaratory relief, the Tribunal determined that it had no jurisdiction to determine them. It ordered WZL to pay Monde's costs of the arbitration proceedings assessed in the sum of £381,486.50 and ordered that WZL bear US$ 470,000 of the Tribunal's costs of the arbitration, with Monde to bear the balance of US$ 50,000.
- WZL issued the s. 67 appeal on 13 August 2014, challenging the decision that the Tribunal lacked jurisdiction and consequently the costs order.
- By Arbitration Claim 2014 Folio 1060 issued on 4 September 2014, Monde sought an order under s.66 of Arbitration Act 1996, permitting it to enforce the Award (as to costs) as an English Court judgment. Such an order was made on the ex parte application by Flaux J on 6 October 2014. WZL issued an application to set aside such order on 17 October 2014. The main ground advanced is that which arises in the s. 67 appeal, namely that the Tribunal erred in deciding that it lacked jurisdiction. In addition, allegations of a failure to make full and frank disclosure were advanced (which are disputed by Monde), but WZL did not argue that these were such as to justify setting aside the enforcement order should the s. 67 appeal fail. Accordingly that application stands or falls with the s. 67 appeal.
- Section 67 of the Arbitration Act 1996 provides:
"67 Challenging the award: substantive jurisdiction.
(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court—
(a) challenging any award of the arbitral tribunal as to its substantive jurisdiction;
(3) On an application under this section challenging an award of the arbitral tribunal as to its substantive jurisdiction, the court may by order—
(a) confirm the award,
(b) vary the award, or
(c) set aside the award in whole or in part."
- Section 67(1)(a) applies both when a tribunal finds that it has jurisdiction and also, as in the present case, when it declines jurisdiction: LG Caltex v China National Petroleum  1 WLR 1892 at paragraph . Such challenges involve a full rehearing of the question of the arbitral tribunal's jurisdiction as opposed to a review of its decision; the Court's role is to decide whether or not the tribunal reached the correct decision and not simply to decide whether the tribunal was entitled to reach the decision it did: Azov Shipping Co v Baltic Shipping Co (No 1)  1 Lloyd's Rep 68; Peterson Farms Inc v C&M Farming Ltd  1 Lloyd's Rep 603.
- The reasoning of the Tribunal on the jurisdiction issue may be summarised as follows:
(1) The Tribunal noted that, as matters stand, the Termination Agreement is binding on the parties: Monde accepts that the Court has not yet determined its claims for misrepresentation/duress, and it is WZL's case that the Termination Agreement is valid and binding. The issue therefore falls to be addressed on the basis that the Termination Agreement remains in force and binding on the parties (paragraphs 84 - 87).
(2) The language of clause 3.2 of the Termination Agreement is not sufficiently clear to bring about the complete termination of the distinct arbitration agreement in clause 13 of the CSA (paragraph 93).
(3) Nevertheless the scope of the arbitration agreement was very significantly reduced by the Termination Agreement, in particular because given the width of clause 2.1 and 2.2 of the Termination Agreement, there is no possibility of any dispute falling within the scope of the arbitration clause in the CSA (subject to a possible exception in respect of disputes relating to alleged breaches of confidentiality under clause 5 of the CSA, which by clause 3.2 were excluded from the scope of the termination provisions in clauses 2.1 and 2.2). The net effect is that the arbitration agreement is "inoperative". In this respect the case is analogous to Shanghai Foreign Trade Corporation v Sigma Metallurgical Co Pty Limited (1996) 133 F.L.R (NSW). 417, a decision of the Supreme Court of New South Wales (paragraphs 88-95, especially at 88, 91).
(4) It is not necessary to decide the "interesting question" of what the position would be if and when the Termination Agreement were rescinded in the Commercial Court proceedings. If that occurred, the Tribunal could "see some force" in the argument that the restriction in the scope of the arbitration agreement brought about by the Termination Agreement no longer applies and that Monde's claim for damages for the alleged wrongful termination of the CSA was then covered by the arbitration agreement. However in such circumstances there would be no possibility of Monde now falling back on its claims in the arbitration, because they had been withdrawn, and any new claims in arbitration would be time-barred (paragraphs 96-101).
(5) The Tribunal rejected WZL's argument that Monde was precluded from contesting the Tribunal's jurisdiction by sections 31(1) and 73 of the Arbitration Act and/or an estoppel. There is no challenge to this aspect of the decision.
- WZL contends that the CSA contains a valid and binding arbitration agreement and WZL's counterclaims for declaratory relief raised in the arbitration fell squarely within the scope of that arbitration agreement. The jurisdiction clause in the Termination Agreement did not terminate, supersede or otherwise render the arbitration agreement in the CSA ineffective or inoperative. By reason of the principle of separability, enshrined in section 7 of the Arbitration Act 1996, clear and express agreement of the parties would be required to terminate, supersede or otherwise cut down the scope of the Arbitration Agreement. There is nothing in the Termination Agreement which has that effect. Where there are concurrent and potentially over-lapping dispute resolution clauses, the correct approach is for the court or tribunal to construe the dispute resolution agreements in issue, giving effect to clear language, even if this may result in a degree of fragmentation of disputes between the parties to those agreements. The arbitration agreement in the CSA and the jurisdiction clause in the Termination Agreement, on their proper construction, do not overlap in scope; alternatively the arbitration clause is the applicable one as being closer to the centre of gravity of WZL's counterclaims. There was a strong commercial rationale for the parties' choice of arbitration under the CSA, namely their mutual desire for confidentiality. The effect of the Tribunal's decision, based on an incorrect construction of the Termination Agreement and misplaced reliance on a single first-instance Australian authority, is that that choice is rendered nugatory by the Termination Agreement even though the Termination Agreement did not expressly purport to limit or terminate the parties' choice of arbitration as the appropriate means of dispute resolution.
- Monde contends that on the true construction of the jurisdiction clause in the Termination Agreement, it was intended to supersede the arbitration agreement in its entirety. Such a construction is dictated by (1) the presumption in favour of one stop adjudication; (2) the fragmentation which would otherwise arise between claims and issues which would be required to be brought in separate forums; (3) the language of the jurisdiction clause, in particular the verb "attorn"; and (4) the terms of the arbitration clause in the CSA which envisage that a dispute will not be arbitrable if it has arisen and been the subject of an amicably negotiated settlement within 60 days. Alternatively, even in the absence of the jurisdiction clause in the Termination Agreement, there was nothing for the arbitration clause to bite on by reason of clause 2 of the Termination Agreement so that the arbitration agreement was correctly held by the Tribunal to be inoperable.
- Both parties contended that the issue ultimately depended upon the construction of the jurisdiction clause in the Termination Agreement, but urged different approaches to such construction. Each contended that clear and express language would have been required for the clause to have the effect proposed by the other.
Analysis and conclusion
- The leading modern authority on the construction of dispute resolution clauses is the decision of the House of Lords in Fiona Trust & Holdings v Privalov & others  Bus LR 1917  1 Lloyd's Rep 254, in which it was held that arbitration clauses in a series of time charters governed claims for rescission of the charters on the ground of bribery. In the leading speech Lord Hoffmann emphasised that it is to be presumed that rational businessmen who are parties to a contract intend all questions arising out of their legal relationship to be determined in the same forum; and that the presumption is a strong one, and requires clear words to the contrary if it is to be displaced: see paragraphs - and . This is what, as Hoffmann LJ in Harbour Assurance Co (U.K.) Ltd v Kansa General International Assurance Co  QB 701 at p. 726B, he had characterised as the "presumption in favour of one-stop adjudication". Lord Hope observed at paragraph  that a dispute resolution clause is not one that parties tend to focus on during contractual negotiations, and so Courts will be wary of placing too much weight on particular forms of words, so as to exclude certain disputes from its scope.
- The presumption applies as much to a jurisdiction clause as to an arbitration clause: see Continental Bank N.A. v Aeakos Compania Naviera S.A.  1 WLR 588 at pp. 592F to 593G.
- Where there is more than one agreement between the same parties, and they contain conflicting dispute resolution provisions, the presumption of one stop adjudication dictates that the parties will not be taken to have intended that a particular kind of dispute will fall within the scope of each of two inconsistent jurisdiction agreements. They will fall to be construed on the basis that they are mutually exclusive in the scope of their application, rather than overlapping, if the language and surrounding circumstances so allow: see Deutsche Bank AG v Sebastian Holdings Inc (No 2)  2 All ER (Comm) 245 per Thomas LJ at paragraph  and UBS AG v HSH Nordbank  1 CLC 934 per Lord Collins at paragraph .
- Nevertheless the possibility of fragmentation may be inherent in the scheme of the parties' agreements and clear agreements must be given effect to even if this may result in a degree of fragmentation in the resolution of disputes between the parties. At paragraph  of his judgment in Deutsche Bank v Sebastian Holdings, Thomas LJ approved a passage from Dicey Morris & Collins on the Conflict of Laws which is in the following terms (omitting the citation of authorities).
'But the decision in Fiona Trust has limited application to the questions which arise where parties are bound by several contracts which contain jurisdiction agreements for different countries. There is no presumption that a jurisdiction (or arbitration) agreement in contract A, even if expressed in wide language, was intended to capture disputes under contract B; the question is entirely one of construction ... The same approach to the construction of potentially-overlapping agreements on jurisdiction (but there will, in this respect, be no difference between the construction of agreements on jurisdiction, arbitration agreements and service of suit clauses) was taken in [UBS]…
In the final analysis, the question simply requires the careful and commercially-minded construction of the various agreements providing for the resolution of disputes, the point of departure being that agreements which appear to have been deliberately and professionally drafted are to be given effect so far as it is possible and commercially rational to do so, even where this may result in a degree of fragmentation in the resolution of disputes. It may be necessary to enquire under which of a number of inter-related contractual agreements a dispute actually arises; this may be answered by seeking to locate its centre of gravity.
The same approach, namely to focus on the commercially-rational construction, governs the interpretation of agreements on jurisdiction as exclusive or nonexclusive, and of agreements which specifically provide that the parties will not take objection to the bringing of proceedings if proceedings are brought in more courts than one.'
- At paragraph  Thomas LJ summarised the approach as follows:
 I therefore turn to the construction of the agreements in issue focusing on finding the commercially rational construction and giving effect to clear agreements, even if this may result in a degree of fragmentation in the resolution of disputes between parties to the series of agreements."
- The presumption in favour of one-stop adjudication may have particular potency where there is an agreement which is entered into for the purpose of terminating an earlier agreement between the same parties or settling disputes which have arisen under such an agreement. Where parties to a contractual dispute enter into a settlement agreement, the disputes which it can be envisaged may subsequently arise will often give rise to issues which relate both to the settlement agreement itself and to the previous contract which gave rise to the dispute. It is not uncommon for one party to wish to impeach the settlement agreement and to advance a claim based on his rights under the previous contract. In such circumstances rational businessmen would intend that all aspects of such a dispute should be resolved in a single forum. Where the settlement/termination agreement contains a dispute resolution provision which is different from, and incompatible with, a dispute resolution clause in the earlier agreement, the parties are likely to have intended that it is the settlement/termination agreement clause which is to govern all aspects of outstanding disputes, and to supersede the clause in the earlier agreement, for a number of reasons. Firstly it comes second in time and has been agreed by the parties in the light of the specific circumstances which have given rise to the disputes which are being settled and/or the circumstances leading to the termination of the earlier agreement. Secondly it is the operative clause governing issues concerning the validity or effect of the termination/settlement agreement and therefore the only clause capable of applying to disputes which arise out of or relate to the termination/settlement agreement. Thirdly, in considering any dispute about the scope or efficacy of a settlement or termination agreement, the tribunal is likely to have to consider the background, of which an important element will often be the circumstances in which the dispute arose and the rights of the parties under the earlier contract. There will therefore often arise a risk of inconsistent findings if the tribunal addressing the validity or efficacy of the termination/settlement jurisdiction is not seised of disputes arising out of the earlier contract and the latter fall to be determined by a different tribunal.
- In such circumstances, therefore, the dispute resolution clause in the termination/settlement agreement should be construed on the basis that the parties are likely to have intended that it should supersede the clause in the earlier agreement and apply to all disputes arising out of both agreements. Whether it does so in any particular case will depend upon the language of the clause and other surrounding circumstances.
- The risk of fragmentation which is inherent in any other approach is well illustrated by the circumstances of this case. Mr Isaacs QC accepted that the only forum in which the issue of the validity of the Termination Agreement could be resolved was the Commercial Court proceedings. The claims for misrepresentation and duress include issues as to what rights Monde had under the CSA at the date of the Termination Agreement because they are an integral part of Monde's quantification of its loss. If WZL's argument were right, the liability issues would have to be determined in the Commercial Court and the loss issues in arbitration. Mr Isaacs suggested that the loss issues would have to be dealt with first because if there were no loss, the claims for misrepresentation and duress could not succeed. But the reverse is equally true: the claim would fail if Monde were right on the loss issues but could not validly impugn the Termination Agreement for misrepresentation or duress. There is no obvious reason why the liability issues to be determined in the Commercial Court should await resolution of the loss issues in an arbitration, and good reason why they should not: the parties are to be presumed to have wanted their disputes resolved by a single tribunal as swiftly as possible. Such fragmentation is productive of increased expense and delay. Moreover it gives rise to a risk of inconsistent findings because the Commercial Court will have to consider evidence from the same individuals about the operation of the CSA and the circumstances of its termination in order to resolve the liability issues of misrepresentation and duress as would have to be considered by an arbitration tribunal in determining the status of the parties' rights under the CSA at the date of the Termination Agreement. Determination of Monde's allegations that it was induced to conclude the Termination Agreement by misrepresentation and/or duress is likely to require consideration of whether WZL was entitled to withhold the US$700,000 alleged by Monde then to be due under the CSA; whether Monde was in material breach of the CSA, such that WZL was entitled to terminate it; whether WZL was entitled to terminate the CSA pursuant to any other provision of Clause 10.2; and what the relationship was between Bafel Talabani and WZL and Monde. These issues form the necessary background to the determination of the liability questions on the misrepresentation/duress claims, not only the loss issues. It will be relevant for the Court to consider Mr Al-Fekaiki's subjective perception of his rights in order to address the arguments on duress. All this would overlap with an arbitral tribunal seeking to determine what those rights were, and making an assessment of the evidence of Mr Al-Fekaiki on those issues. The possibility of inconsistent findings is self evident. Further, even if the issues were capable of being neatly allocated to two sets of proceedings, and even if there were no risk of conflicting rulings, the parties would not ordinarily be taken to have intended the increased cost, inconvenience and delay in having to litigate separate aspects of the same dispute in two different forums.
- Mr Isaacs relied upon the decision of Cooke J in DDT Trucks of North America Ltd v DDT Holdings Ltd  2 Lloyd's Rep 213 as authority for the proposition that because of the principle of separability of an arbitration agreement from the matrix agreement in which it sits, an agreement which terminates an earlier agreement will not terminate the operation of the arbitration agreement in the earlier agreement in the absence of clear and specific language to that effect. In that case the parties had entered into a distributorship agreement containing an arbitration clause and entered into a subsequent agreement (the "airport agreement") terminating the distributorship agreement. One party brought a claim in arbitration for compensation due under the distributorship agreement alleging that the airport agreement was a nullity as not having been signed by the same entity which was a party to the distributorship agreement and/or that the airport agreement had been procured by fraudulent misrepresentation. The other party, "Holdings", objected to the arbitrator's jurisdiction on the grounds that the airport agreement terminated the arbitration agreement in the distributorship agreement. The arbitrator held that the airport agreement was ineffective on both grounds advanced. Holdings sought to appeal under s. 67 out of time. In refusing to extend time, Cooke J concluded that irrespective of the status of the airport agreement, nothing in it impeached the continued existence of the arbitration agreement in the distributorship agreement, so that a section 67 appeal was doomed to failure. He said:
. … I cannot see that the arbitrator's jurisdiction would be in any way affected by the termination of the Distributorship Agreement. It was argued by Mr Berragan, who appeared for Holdings, that the 4 November 1999 Airport Agreement brought the Distributorship Agreement to an end and terminated all rights to compensation under schedule 3 with the result that there was nothing left to arbitrate about and no possibility of triggering an arbitration by a failure to agree on such compensation. The right to a compensatory payment and the right to arbitrate in default of agreement about such a figure both came to an end.
16. I am unable to accept that submission. The terms of section 7 of the Arbitration Act 1996 provide that "unless otherwise agreed by the parties, an arbitration agreement which forms … part of another agreement…shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement". This is a statutory codification of the well recognised position which existed prior to the Act – see Harbour Assurance Co (UK) Ltd v Kansa General international insurance Co Ltd  1 Lloyd's Rep 455. If the Distributorship Agreement had been brought to an end by accepted repudiation or frustration, the Arbitration Agreement would continue in being in order to deal with issues of compensation, should such arise. It is nothing to the point that the assignment of assets by Holdings occurred after the termination of the Distributorship Agreement, since the allegation is made that compensation is due under the agreement. Whilst the effect of the Airport Agreement, if binding and effective, would be to negate any claim, it would not of itself bring the Arbitration Agreement to an end once a claim for compensation, which could not be agreed, was made. In my judgment there was no agreement to bring the Arbitration Agreement to an end within the meaning of section 7, when the Distributorship Agreement was allegedly brought to an end and Holdings could point to no wording which suggested that this was the case."
- That was not however a case in which there was a new dispute resolution clause in the terminating agreement, or any risk of fragmentation of issues. Where the terminating agreement contains a new dispute resolution provision which differs from that in the agreement which it terminates, different considerations arise. It is then necessary to determine which dispute resolution clause applies and it is likely that the parties should wish the earlier dispute resolution provision, in the form of an arbitration agreement, to be superseded for the reasons I have endeavoured to identify. Whether that is so will depend upon the proper construction of the clause in the terminating agreement in all the surrounding circumstances, but I would not accept that it could only have that effect by making express reference to termination of the arbitration agreement and DDT Trucks is not authority for any such proposition.
- Nor is a different approach dictated by the dictum of Lord Hope at paragraph 35 in Fiona Trust v Privalov upon which Mr Isaacs relied:
"[t]he doctrine of separability requires direct impeachment of the arbitration agreement before it can be set aside. This is an exacting test. The argument must be based on facts which are specific to the arbitration agreement. Allegations that are parasitical to a challenge to the validity to the main agreement will not do".
- A termination or settlement agreement which contains no new dispute resolution clause is unlikely to be treated as a direct impeachment of an arbitration clause in an earlier agreement, in the absence of clear language, because it is directed merely at a challenge to the continued substantive rights under the matrix agreement, not the separate arbitration agreement within it. But a new and inconsistent dispute resolution provision will raise the presumption that the parties intended to impeach not just the earlier agreement but also the dispute resolution agreement within it and so go directly to impeach the arbitration agreement. This is not a failure to give effect to the doctrine of separability, but the reverse: it recognises that a dispute resolution provision in the second agreement raises a presumption that the parties intended to address the separate arbitration agreement within the earlier agreement because both clauses are concerned with how and where disputes are to be resolved and in this respect are in conflict.
- The language of clause 3.3 of the Termination Agreement is supportive of the presumption that the parties intended it to supersede the arbitration clause in the CSA in three respects. First it is expressed to be an exclusive jurisdiction clause and therefore is to be construed as excluding, rather than sitting alongside, any other dispute resolution agreement between the parties.
- Secondly, although the clause is silent on the subject mater of what is to be submitted to the exclusive jurisdiction of the courts of England and Wales, because there is no object of the verb "attorn", the entire agreement provision in clause 3.5 suggests that what the parties had in mind was at least as wide as disputes "with respect to the subject matter hereof". Such a formulation would include disputes as to what rights were extant under the CSA at the time of the Termination Agreement because such rights are the subject matter of the waiver and release provisions in clause 2 of the Termination Agreement. If clause 3.5 were not a legitimate guide to what the parties intended to be governed by the verb "attorn" in clause 3.3, nevertheless following the approach in dictated by Fiona Trust v Privalov, the clause is to be construed as governing the broadest range of potential disputes as might arise between the parties. Clause 3.3 is in this respect analogous to the jurisdiction clause in Continental Bank v Aeakos, which was similarly silent as to its subject matter, to which the Court of Appeal gave a wide construction so to include all disputes in connection with the agreement, in order to avoid what Steyn LJ described as the "forensic nightmare" of claims involving similar facts being tried in two different jurisdictions.
- Thirdly, the verb "attorn" is suggestive of a transfer of jurisdiction not merely a conferment of jurisdiction. In English law attornment is an expression used to signify an acknowledgement by a tenant that he holds a tenancy from a new landlord (Cornish v Searell (1828) 8 B & C 471 per Holroyd J at 476: "the attornment is the act of the tenant's putting one person in the place of another as his landlord"); or an acknowledgement by a bailee that he holds goods for a new owner (see Halsbury's Laws 5th Edn Vol 4 paragraph 3 and the cases there cited). In the Shorter Oxford English Dictionary (5th Edn) "attorn" is defined as to "turn over (goods, service, allegiance, etc) to another; transfer, assign".
- Ms Campbell sought to derive further assistance from the fact that clause 13.2 only brought within the scope of the arbitration clause disputes which had not been amicably resolved through negotiation within 60 days. This is neutral for the purposes of the current debate. Putting on one side any potential effect of clause 3.3 of the Termination Agreement, if an amicably negotiated settlement can be impugned, the pre existing dispute remains within the scope of what the parties have agreed in clause 13.2 to submit to arbitration. Clause 13.2 also governs a dispute as to whether an alleged settlement can be impugned just as much as to the issues giving rise to the dispute which was allegedly settled. In the absence of any newly agreed dispute resolution clause in the settlement agreement, the arbitration agreement in clause 13.2 encompasses the entirety of the parties' dispute. Whether or to what extent the scope of that agreement is superseded by clause 3.3 of the Termination Agreement is a matter of construction of the latter clause, which is not informed by the structure of clause 13.2 of the CSA.
- What the Tribunal referred to as the "interesting question" which would arise if the Court determines that the Termination Agreement should be rescinded is easily resolved. In practice Monde is unlikely to seek rescission in the absence of an ability to prove loss for the purposes of its damages claim, because it would derive no benefit from such relief and would risk an argument that it was obliged to repay some or all of the $700,000, so that the question is unlikely to arise. Should it do so, there is no difficulty with the concept of the Court having exclusive jurisdiction to decide the disputes. Clause 3.3 of the Termination Agreement is a jurisdiction agreement which is separable from the Termination Agreement in which it sits, in the same way as an arbitration agreement is separable, such that the setting aside of the Termination Agreement for misrepresentation or duress does not entail an impeachment of the separate jurisdiction clause: Deutsche Bank AG v Asia Pacific Broadband Wireless Communications Inc  2 All ER (Comm) 129 per Longmore LJ at paragraphs -.
- For these reasons the Tribunal correctly held that it had no jurisdiction in relation to WZL's counterclaims for declaratory relief and the section 67 appeal fails.
- Ms Campbell's alternative argument, based on the scope of clause 2 of the Termination Agreement and an analogy with the Shanghai case, is not in my view well founded. For these purposes one must assume, contrary to my earlier conclusions, that clause 3.3 of the Termination Agreement does not supersede clause 13.2 of the CSA. On that hypothesis, the release and waiver of all claims under clause 2 of the Termination Agreement would not affect the separate arbitration clause in the CSA. Clause 2 of the Termination Agreement does not, in Lord Hope's words, go directly to impeach the separate arbitration agreement and is not based on facts which are specific to the arbitration agreement, but merely on a challenge to the existence of surviving rights and claims under the CSA. Those are matters which remain within the jurisdiction of the arbitrators to decide, albeit that they might decide that there were no continued substantive rights under the CSA. That would be a finding to be made in the exercise of the Tribunal's jurisdiction, and would require a substantive determination of the validity of the Termination Agreement. In this respect the position would be analogous with that in DDT Trucks in which Cooke J confirmed the jurisdiction of the arbitral tribunal. If, contrary to my earlier conclusions, clause 3.3 of the Termination Agreement does not supersede clause 13.2 of the CSA, clause 2 cannot have that effect and the fact that it may remove some or all potential disputes from engaging clause 13.2 does not deprive the Tribunal of jurisdiction to decide that question under section 30 of the Act.
- If the Termination Agreement had no separate and inconsistent jurisdiction clause this would give rise to no difficulty: the Tribunal would be seised of the issues as to the validity and effect of the Termination Agreement, including Monde's claim for damages. Difficulty only arises if clause 3.3 of the Termination Agreement is given limited scope and is to be treated as leaving in place the Tribunal's jurisdiction in parallel with, or overlapping, the jurisdiction of the Court.
- Shangai v Sigma was concerned with an application to the court for a stay under provisions of the Australian Arbitration Act which differ from those of the 1996 Act, and is of no assistance on an issue which even on the alternative hypothesis here being considered, does not arise. It is not necessary for the purposes of the present application to decide whether if the arbitration clause survived, the Court on an application to stay under s. 9 of the Act would exercise its discretion in relation to s. 9(4) to determine or order a trial of the issue whether clause 2 of the Termination Agreement rendered the arbitration agreement "inoperable", or whether it would leave such issue to the undoubted jurisdiction of the Tribunal under section 30 of the Act (see the discussion at Golden Ocean Group Ltd v Humpuss Intermoda Transportai Tbk Ltd  1 CLC 929 paragraphs - and Joint Stock Co Aeroflot v Berezovsky  2 CLC 206 at paragraphs- ). Where, as here, the issue is before the arbitrators, and on the hypothesis that contrary to my earlier conclusion the arbitration clause survives clause 3.3 of the Termination Agreement, the issue of whether any disputes remain which fall within the scope of the arbitration clause would be within the Tribunal's jurisdiction and would fall to be decided by the Tribunal. That would involve the Tribunal deciding whether the Termination Agreement was valid and effective. Given the existence of the inconsistent jurisdiction provision in clause 3.3 of the Termination Agreement, such duplication merely serves to illustrate why it is to be presumed that the parties intended clause 3.3 to supersede the arbitration clause.
Security for costs
- WZL's application for security for the costs of the Commercial Court proceedings invokes two of the conditions in CPR Rule 25.13(2) namely that Monde is resident outside the jurisdiction (CPR 25.13(2)(a)) and that Monde is a company and there is reason to believe that it will be unable to pay WZL's costs if ordered to do so (CPR25.13(2)(c)). Monde accepts that the second of these provides a potential ground for ordering security, but contends that it would not be just to do so for two reasons. The first is that WZL has not paid the costs which the Tribunal awarded should be paid by WZL to Monde. The second is that WZL advanced its claims in the arbitration without having to provide to Monde the benefit of any security for the costs of defending those claims; that those claims raise issues which are the same as, or at least overlap substantially with, the issues which will arise in the Commercial Court proceedings, namely whether the CSA was validly terminated by WZL, or could have been validly terminated on other grounds; and that the position is therefore analogous with cases in which the Court will decline to order security where a claim and counterclaim cover the same subject matter and it is a matter of happenstance as to who has commenced the proceedings.
- As to the first ground, WZL has made clear in correspondence that it was withholding payment of the costs payable under the Award pending determination of its s.67 appeal, and that if such appeal failed it would pay the amount awarded. This was a reasonable approach given the likely overturning of the costs award should the s. 67 appeal succeed, and Monde's financial position.
- As a term of an order made by consent on 1 October 2014, whereby Monde agreed to withdraw a winding up petition, WZL's solicitors, King & Spalding International LLP, undertook that they would hold the sum of £396,579.50 in their client account until determination of the outstanding appeal in relation to the costs award. On behalf of WZL, Ms Byrne suggested that the sum so held could simply be treated as security, in part, for the costs of the Commercial Court proceedings. This is not satisfactory, since the sum is payable in respect of costs already incurred by Monde in the arbitration, and Monde or its legal advisors could potentially be prejudiced by the sum not being paid as awarded. However Monde's objection on this first ground can be met by ordering that the costs award should be paid to Monde as a condition of any order for the provision of security for costs by Monde.
- As to the second ground, the analogy between cases in which the subject matter of the claim and counterclaim are identical or overlap is not an apposite one. The Commercial Court proceedings will involve determination of the grounds on which Monde impugns the validity of the termination agreement, and in particular the allegations of misrepresentation and/or duress, which did not arise in the arbitration. Moreover insofar as there is an overlap between issues, once the costs award has been paid, Monde will have been put in as good a position as if it had had security for those costs.
- Accordingly security should be provided. As to the amount, I propose to order security only in relation to the period up to the exchange of witness statements in view of the relatively early and undeveloped stage which the proceedings have currently reached. In approaching the task of determining the appropriate amount of security I have in mind the following principles. Under CPR 25.13(1)(a) the court's discretion to award security is a discretion to award it in an amount which it considers just having regard to all circumstances of the case. The appropriate amount will generally be the amount that the court considers the applicant would be likely to recover on a detailed assessment if awarded its costs on a standard basis following the trial: see for example Procon (Great Britain) Limited v Provincial Building Co. Limited  1WLR 557. On such an assessment the defendants will recover such costs as are reasonably and proportionally incurred, and reasonable and proportionate in amount having regard in particular to the factors which are set out in CPR Rule 44.4(3). It is not the task of the court when hearing an application for security to undertake an exercise which is similar to a detailed assessment. It is necessary to approach the evidence about the amount of costs which have been and will be incurred, and their reasonableness or otherwise, on a robust basis and applying a broad brush: see Rymer LJ at paragraph 16 of Meridian International Services Limited v Richardson and Others  EWCA Civ 490 and Black LJ at paragraph 64 of Autoweld Systems Limited v Kito Enterprises LLC  EWCA Civ 1469.
- I heard a number of detailed points on the schedule of estimated costs put forward on behalf of WZL which I have taken into account, without it being necessary to set them out. I propose to award security in a total amount of £220,000 to cover the period up to exchange of witness statements, a figure I have reached as follows:
(1) £20,000 in relation to preliminary tasks which are those relating to the issues in the Commercial Court proceedings which do not overlap with those which have already been the subject matter of WZL's claims for declaratory relief in the arbitration;
(2) £50,000 in relation to statements of case;
(3) £30,000 in relation to pre-trial applications. Those exclude any costs in relation to jurisdiction challenges, on which WZL has failed, or any of the costs for the security for costs application which will be dealt with by way of separate order;
(4) £70,000 in relation to disclosure;
(5) £50,000 in relation to preparation of factual witness evidence.
- There was a dispute as to the form in which any security should be provided. On behalf of Monde it was submitted that it could be provided by an undertaking by Monde's solicitors, Candey Ltd, which is a limited liability company, supported by a personal guarantee by Mr Candey.
- It is conventional to order security to be given either by payment into Court or by the provision of a guarantee from a first class London bank. That practice recognises that the security should be in a form which enables the defendant to recover a costs award made in its favour at the trial from funds which are readily available, such that there is little risk of delay or default in enforcement. Although security may be ordered in an alternative form, that form should be such as to fulfil the same function, so as to allow simple and swift enforcement of a costs order from a creditworthy source. In practice any such alternative form of security must be such as can properly be regarded in these respects as at least equal to, if not better than, security by payment into Court or provision of a first class London bank guarantee. See Belco Trading Co. v Condo  EWCA Civ 205 at paragraphs  to  and Versloot Dredging BV v HDI Gerling Industrie Versicherung AG  EWHC 658 (Comm) at paragraph .
- The form of security offered by Monde does not fulfil these criteria. The evidence put forward about Candey Ltd's financial position is unsatisfactory. In particular there are no audited accounts, and the unaudited accounts to 31 March 2014 have only been supplemented in relation to the subsequent 9 months by evidence which does not disclose the asset position of the company. The company advertises itself as undertaking work on a predominantly no win no fee basis, and its cash position at the end of a trial must remain a matter of uncertain speculation.
- It is no doubt in recognition of this deficiency that Monde proffers the support of a personal guarantee by Mr Candey. However the only information about his assets comes in a witness statement, unsupported by any documentation, that he and his wife jointly own the unencumbered equity in their house which is in excess of £3 million. Assuming that to be so, nevertheless the position may have changed at the time that an order for costs in the defendant's favour comes to be enforced after conclusion of a trial. Moreover enforcement against a domestic residential property may turn out to be neither swift nor staightforward, especially given the wife's interest in the property.
- Accordingly I will order security to be provided in the usual form by payment into court or provision of a guarantee from a first class London bank.
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