Many litigators have been faced with determining the appropriate course of action to take when they have encountered a sophisticated contract containing two diametrically opposed forms of dispute resolution, final and binding arbitration on the one hand and exclusive jurisdiction of a national court on the other.
The case of Melford Capital Partners (Holdings) LLP and others v Frederick Digby illustrates that when presented with such a contract, the English courts will take a pragmatic and pro-arbitration approach.
Melford v Digby concerned a complex partnership dispute in a real estate fund and centred around two agreements, the relevant one for the purposes of this post being the Limited Liability Partnership Agreement (LLP Agreement). The LLP Agreement was governed by English law and contained both an arbitration agreement (arbitration clause) and an exclusive jurisdiction clause in favour of the English courts (EJC).
Melford initially commenced proceedings in the English courts against Digby for breach of confidence, seeking injunctions and damages. Along with serving its defence, Digby also made a counterclaim. Melford later commenced arbitration against Digby pursuant to the LLP Agreement. Melford subsequently applied to the English court for, amongst other things, a section 9 stay of Digby’s counterclaim.
Digby’s counsel argued, inter alia, that the arbitration clause was of no effect as it was irreconcilable with the EJC.
The court took a very pragmatic and robust approach to reconciling the fact that the LLP Agreement contained both an arbitration clause and an EJC. Rather than finding that the EJC rendered the arbitration clause inoperable, the court found that the arbitration clause was a valid and separable agreement, with the EJC being given effect on the basis of the English court retaining supervisory jurisdiction over the arbitration.
The judgment provides a good summary of the English authorities on conflicting arbitration and jurisdiction clauses.
The court recognised that these were sophisticated parties who would have gone to some trouble to negotiate and agree to resolving their disputes through arbitration. Crucially, the court’s view of the impact of this was very clear and unequivocal, with the court stating that:
“I find it impossible to hold that the arbitration agreement was entered into for no good purpose. I would be very uneasy about adopting a course that would result in the evisceration of a clause designed to ensure that sophisticated business-people, engaged in the business of investment funds, could not resolve their dispute by arbitration when they have gone to some trouble to agree to that very course in their principal commercial agreement.”
In other words, the court was unwilling to accept that the arbitration clause was a provision that could be cast aside so easily. The court recognised that there might be times when having inserted an arbitration clause, the language of the contract compels the conclusion that the parties intended to eviscerate it almost entirely. However, that was not the case here.
Having found that there was a valid arbitration clause, the court went on to grant the section 9 stay on the basis that the counterclaims fell within the arbitration clause and that section 9 stays can be granted with respect to counterclaims.
This is a welcome robust pro arbitration decision. However, the facts illustrate that agreements containing two jurisdiction clauses often lead to satellite litigation on what is the correct forum to bring disputes.
While it might seem prudent to reserve the right to seek redress from the courts of the seat, those courts retain supervisory jurisdiction over the arbitration in any event. Given the potential for satellite litigation in such cases, parties should proceed with caution to ensure that arbitration is clearly the only forum for dispute resolution provided for in the contract.