UK: Project Dispute Resolution - Using Choice Of Law And Jurisdiction Clauses To Maximise The Prospects Of Efficient Dispute Resolution And An Enforceable Judgment Or Award

Last Updated: 27 June 2012
Article by Nigel Cooper

Originally published in The Lawyer, June 25th 2012

Recent announcements of projects such as the intention of the Kuwait Petroleum Company to fund the redevelopment of Britain's first producing but currently abandoned North Sea Oilfield and the intention of the State Grid Corporation of China to buy into the electricity transmission line business in Brazil serve to remind that projects involving the energy and off-shore industries often, if not almost inevitably, involve complex contractual structures between parties from differing legal systems. Finding a choice of law and forum for dispute resolution is not therefore necessarily straightforward particularly as the current economic climate forces greater attention on the issue of whether any judgment or award will ultimately be enforceable. This briefing aims to consider some of the recent developments encouraging commercial certainty when English law is the law of the contract and showing how the choice of forum can assist in the efficient disposal of a dispute.

So far as choice of law is concerned, English law continues to be seen as an option that provides for commercial certainty in its approach to the construction of contracts. There have been suggestions that the approach to contractual construction now advocated in the decision of the Supreme Court in Rainy Sky SA v Kookmin Bank [20011] 1 WLR 2900 undermines that certainty given the court's acknowledgement that where there are two possible constructions the court is entitled to prefer the construction which is consistent with business common sense. However, while what is business common sense may be a matter of dispute, particularly where the businesses in question come from different political and cultural backgrounds, the willingness of the court to allow for some flexibility in its approach to interpretation can only be commended in an international context given that it allows a court or tribunal a greater opportunity to consider the commercial background against which the contract was made. In any event, as Eder J has recently confirmed in Ted Baker PLC v Axa Insurance UK PLC [2012] EWHC 1406 at [81], where a contract when fairly read is not open to more than one interpretation the court has to give effect to that interpretation.

Moving from the realms of gentlemen's apparel back to the off-shore environment, the importance of putting a contract in its commercial context and construing particular provisions with regard to the agreement as a whole was recently reaffirmed by the Court of Appeal in Hess Corporation v Stena Drillmax III Ltd [2012] EWCA Civ 522. The case concerned the proper construction of the hire provisions under a charter for a mobile offshore drilling unit and in particular the application of the provisions governing adjustment of the exchange rate to be used for calculating the hire payments due (a fall in value of sterling against the U.S. dollar meant that at the date of the judgment, there was a sum of US$ 5 million at stake with another five or six years of the contract still to run). In deciding which case on the interpretation of the contract to prefer, the Court looked at the agreement as a whole and took into account the medium to longer term nature of the contract and the parties' intention to allow for changes in operating cost over the period of the contract to be reflected in the remuneration provisions and found that Hess had overpaid hire. Leaving aside the fact that the case provides a useful insight into the operation of complex hire mechanisms for offshore structures, it is also a reminder of the need to construe contractual provisions in the context of the agreement as a whole as well as of the use of preliminary issues to resolve questions of construction between the parties not only when there has been a breakdown in contractual relations but also where there is a desire to keep the contract alive but a genuine difference as to the proper interpretation of the contract.

Of course in the context of drilling contracts, another reminder is perhaps also useful, namely that if a contract is on a standard form then a change in the choice of law from that usually governing the standard terms may impact on the scope of the protection offered by the exclusion clauses within that standard form. In Seadrill Management Services v. OAO Gazprom [2010] 1 Lloyd's Rep. 543 (upheld on appeal [2011] 1 All E.R. (Comm) 1077), the claimant sought to argue that its liability for its negligence during the pre-loading of a rig was excluded by the exclusion clauses found in the drilling contract which was on an amended version of the International Daywork Drilling Contract – Offshore form, a form usually subject to U.S. law and was therefore entitled to recover hire even for those periods when the rig was out of operation due to the claimant's negligence. In seeking to make good its case, the claimant sought to rely on a number of American authorities. However, the parties had amended the choice of law provisions in the contract to make it subject to English law. Finding that as a matter of English law, the relevant exclusion clauses did not exclude the claimant's liability for its negligence, Flaux J. (at paragraphs 169 to 174 and 203) also found that neither the history and development of a standard form within a foreign legal system nor previous decisions under U.S. law could be used to override the result which would be legitimately reached applying the normal English law principles of construction.

Moving from choice of law to jurisdiction, many parties are content to contract on the basis of the default jurisdiction clause found in whichever standard form is at the root of their contract. However, there is a growing choice of international institutions from which parties can select their dispute resolution tribunal. In the context of international arbitration, whatever the chosen law of contract, geographical, cultural or political considerations are playing an increasing role in the choice of arbitration institution or tribunal. Within those considerations, however, another important element in the choice of institution is the range of measures that the rules of the chosen arbitration tribunal make available to the parties for both interim measures and final relief as well as the ultimate enforceability of any award obtained. So for example, depending on the territory where one is looking enforce an award, it may be relevant to the choice of seat that the country of the seat and the country where enforcement is likely to be sought are party not only to the New York Convention but also a regional convention for the enforcement of awards.

So far as interim measures are concerned, a number of the international institutions have re-vamped their rules to make expedited or emergency relief available to parties using their rules. Institutions such as the ICC, the Singapore International Arbitration Centre ("SIAC") and the American Arbitration Association (amongst others), have introduced an emergency arbitrator procedure and bodies such as the SIAC and the Korean Commercial Arbitration Board offer formal expedited procedures although the ICC takes a less formal route and leaves it to the parties to agree an expedited procedure if they so wish. Of course, there are limitations to the use of such procedures. Whichever is used, they can only be invoked on notice to the respondent and will not be binding on third parties. There remains, therefore, a valuable role for national courts to provide interim relief in support of arbitration in circumstances where relief, such as an order freezing assets, is required without notice to the respondent or where the cooperation of third parties such as banks is essential for effective relief.

Another area where national courts can provide support for the arbitration process is by holding parties to their agreement to arbitrate. This may be through measures such as anti-suit injunctions but course within the European Union, the power of a national court to grant anti-suit relief has been circumscribed by the judgment of the European Court of Justice in Allianz Spa v West Tankers Inc. (The "Front Comor), Case C-185/07, [2009] 1 AC 1138. However, displaying admirable ingenuity in finding a way to ensure that their right to arbitrate was protected notwithstanding proceedings in Italy brought in breach of the arbitration agreement, the claimant owners sought and obtained a declaratory award from the arbitration tribunal that they were under no liability to the voyage charterers' insurers for the collision that was at the root of the dispute. Apparently fearing that the Italian court might not recognise the award under the New York Convention, the claimants applied to have the declaratory award registered as a judgment of the High Court, thereby entitling them to rely on the reciprocal recognition provisions of the Brussels Regulation (EC Regulation 44/2001). The insurers' challenge to the registration of the award on the grounds that a declaratory award could not be recognised or enforced within the meaning of s.66 of the Arbitration Act 1996 failed at first instance and on appeal, see West Tankers Inc v. Allianz SpA [2012] EWCA Civ 27, demonstrating again the willingness of the High Court (like many other national regimes) to protect the parties' choice to arbitrate their disputes.

There is no doubt that in today's economic climate building a path to a judgment or award that can be enforced in practice often requires considerable ingenuity. A considered choice of law and choice of forum may provide a party with the foundation stone for that path.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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