UK: Stay No More: English Commercial Court Reviews Section 9 Test (Again)

Last Updated: 10 August 2018
Article by Duncan Bagshaw

Parties to international contracts often agree to arbitrate their disputes. But what if one party decides that it is better off pursuing a claim in court? Normally the law of the country where the claim is brought, giving effect to Article II(3) of the New York Convention, will ensure that the court proceedings are halted in favour of arbitration.

However, national laws on this subject are worded in a variety of ways, and the approaches of different courts vary significantly.

The English Commercial Court has added little clarity to the picture in England in the recent judgment of: China Credit & Export Insurance Corporation v Emerald Energy Resources Limited [2018] EWHC 1503 (Comm).

Emerald is part of a consortium of Nigerian owners of OML141, a shallow-water oil block on the Niger delta. Under a farm-in agreement, the Claimant (known as "Sinosure") acquired an interest in OML141 in return for a payment plus the obligation to fully fund exploration costs, with a condition that Sinosure's recovery of its funding would only be from oil production revenues.

Having secured funding for the large (approximately US$50m) cost of seismic surveying of the block, Sinosure farmed-out of the block (relinquished its interest). Following lengthy negotiations, Sinosure sued Emerald in the English Commercial Court under a promissory note ("PN") (containing a non-exclusive jurisdiction clause) granted by Emerald to a bank as part of the funding structure arranged by Sinosure. The PN had been assigned to Sinosure when Sinosure satisfied the debt to the bank, pursuant to a credit insurance policy Sinosure had issued to the bank as part of its obligation to secure funding for exploration.

The Court decided that Sinosure was entitled to sue on the PN notwithstanding the arbitration agreement, because the non-exclusive jurisdiction clause, properly construed, bound Emerald not to dispute the jurisdiction of the English Court to hear claims brought under the PN, even if such a claim might also be caught by the arbitration agreement (as arising 'in connection with' the farm-in).

A significant issue was the approach of the Court under section 9 of the English Arbitration Act, which concerns stay of proceedings in favour of arbitration. Several past English cases have taken subtly different approaches to the issue of threshold. Must the Court be satisfied that there is a binding arbitration agreement, and that its scope encompasses the claim? Or should one or both of these issues be left to the arbitrators? What amounts to a matter going to section 9(1) of the Act (whether there is an agreement to refer to arbitration the matter in respect of which the claim is brought), and what is properly categorised as a matter which the Defendant may seek to establish under section 9(4) of the Act (whether the arbitration agreement is null and void, inoperative or incapable of being performed)?

The principal English cases on the point include Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyd's Rep 522; Fiona Trust & Holding Corp v Privalov [2007] 2 Lloyd's Rep 267 (in the Court of Appea); Albon v Naza Motor Trading [2007] 2 Lloyd's Rep 1; Hume v AA Mutual International Insurance [1996] LRLR 19; Lombard North Central PLC & Anr v GATX Corp [2012] 1 Lloyd's Rep 662; JSC Aeroflot Russian Airlines v Berezovsky [2013] 1 Lloyd's Rep 345; and The Barito [2013] 2 Lloyd's Rep 421.

The Court followed Lightman J's decision in Albon v Naza in holding that the Court should decide, bindingly, whether there is an arbitration agreement and whether its scope includes the claim brought in the court proceedings.

Internationally, there is support for an approach which does not require the Court to resolve bindingly whether there is an arbitration agreement which catches the particular matters raised in the court proceedings. In Tomolugen Holdings Ltd v Silica Investors Ltd (above), the Singapore Court of Appeal held that Singapore law only requires a prima facie assessment of the existence and scope of the arbitration agreement at the stage of considering a stay for arbitration. This approach was consistent with the spirit and purpose of Singapore's arbitration law, the UNCITRAL Model Law on which it was based, and the New York Convention from which most national laws on the subject derive.

As the Singapore Court of Appeal put it, under the prevailing English approach followed by the English High Court in the Emerald case, "if the claimant decides to pursue its claim by bringing proceedings in court the court will be obliged to make a full determination on the existence and scope of the arbitration clause; this will deprive the putative arbitral tribunal of its kompetenz-kompetenz."

The English High Court did not give permission to appeal in the Emerald case, notwithstanding that Rix LJ had done so in TXM Olaj-Es Gazkutato KTF v Claxton Engineering Services Ltd [2011] EWCA Civ 410 (in which the appeal was not pursued), and despite the fact that the Commercial Court in Lombard v GATX and the Court of Appeal in Al-Naimi both indicated that a binding decision may not be necessary on both the existence and scope of the arbitration agreement, and whether the disputes in the proceedings are caught thereby.

International arbitration purists will have to wait to see whether the English court will one day reconsider its rigid stance on this issue, and restore some of the kompetenz which the Act purports to bestow on arbitrators.

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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