A v. B [2018] EWHC 1370 (Comm)
This case involved a charterparty with two different, and
potentially conflicting, arbitration provisions. The Court held
that the arbitral tribunal should not have concluded that it lacked
jurisdiction over the dispute. In doing so, the Court helpfully set
out how it will construe ambiguous and potentially conflicting
contractual clauses. Where possible, such clauses should be read
together and in context to avoid any potential conflict.
The background facts
The original dispute arose under a voyage charterparty on the Asbatankvoy form with amendments. The charterparty was in two parts, with an express provision that if there was a conflict between Part I and Part II, Part I would take precedence.
Part I, clause J, contained an arbitration provision in Russian. The literal translation of this clause was as follows:
"Arbitration proceedings – London international arbitration court, in accordance with the laws of Great Britain ..."
Part II, clause 24, however, also contained an arbitration provision, as follows:
"Arbitration. Any disagreements and disputes ... arising out of the C/P are to be resolved by arbitration in New York or London, according to which of these places is provided for in Part I ... by a tribunal of three people, one appointed by the owners, one by the charterers, and one appointed by the two arbitrators elected in such a way."
After Party A commenced arbitration, both parties appointed arbitrators. The arbitrators accepted their appointments on LMAA Terms 2012. Party B then made an application, challenging the jurisdiction of the arbitrators.
After considering the two arbitration clauses, the Tribunal found that the provisions were in direct conflict with each other. The arbitrators decided that: (1) the intention of clause J was to refer disputes to the London Court of International Arbitration (LCIA); and (2) clause 24 was not compatible with the referral of disputes to the LCIA, as it placed the responsibility for making arbitral appointments on the parties (whereas the LCIA Rules provide that the LCIA itself will appoint the arbitrators).
In circumstances in which the two clauses were thought to conflict, the Tribunal held that clause J must prevail as it was in Part I of the Charterparty and, therefore, took precedence. The Tribunal concluded that it lacked jurisdiction, having accepted appointment under LMAA Rules.
Party A appealed, arguing that the Tribunal had been wrong to determine the construction of clause J in isolation and that it should have looked at the proper, purposive construction of clause J in the light of the contract as a whole.
The Commercial Court decision
The Court summarised the principles applicable to contractual construction as follows:
1. The proper approach, when considering the interpretation of contractual clauses, is to look at the provisions of the contract as a whole in construing their meaning.
2. In determining whether there is a conflict between contractual provisions, the first step must be to construe the clauses. This meant looking at both clauses together, rather than examining each clause individually.
3. Where there is an additional factor that might affect the construction of a clause (as in this case, where the Court was asked to construe a clause in a foreign language and there were doubts as to the proper translation), the Court would need to apply a combined process, namely assessing the evidence regarding the accuracy of the translation, together with the usual tools of construction.
Applying these principles to the facts of this case, the Court held that the Tribunal should not have ignored clause 24 in determining the proper meaning of clause J. Despite the ambiguity, it was possible to read the two clauses together. When considering the two clauses together: (1) clause J did not clearly indicate a choice for the LCIA; and (2) clause 24 was more applicable to an ad hoc arbitration.
The Court concluded that, on the balance of probabilities, the parties' intention was to refer their disputes to an ad hoc arbitration in London. The Tribunal, therefore, had jurisdiction over the substantive dispute.
Comment
This case highlights the continuing trend of the English courts to take a purposive and commercial approach to the construction of contracts when approaching clauses with disputed or ambiguous wording. Whilst these cases will always turn on their particular facts, this decision confirms that the Court will endeavour to give effect to parties' (presumed) intentions by selecting the interpretation that makes the most commercial sense. To avoid such disputes, however, parties drafting contracts should seek to ensure that, insofar as possible, their provisions are unambiguous and do not conflict.
02.10.2018
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