REUTERS | Mike Blake

The dispute resolution clause is not just boilerplate

Chalbury McCouat International Ltd v PG Foils Ltd shows the English courts’ willingness to support the process of arbitration, where that is what the parties intended. It also reminds us that if the dispute resolution clause is properly thought out in the first place, parties can avoid getting into disputes about dispute resolution.

The claimant (an English company) alleged that the defendant (an Indian company) had not paid it for plant dismantling services carried out in the Netherlands. The claimant invoked the arbitration clause in the parties’ contract. That clause did not specify the governing law of the contract, nor the seat or the laws of the arbitral proceedings. The claimant wanted the arbitration to take place in England, while the defendant wanted arbitration in India.

The claimant applied to the English court for assistance. Under section 18 of the Arbitration Act 1996, the court can support the arbitration process in certain circumstances, where there has been a failure to appoint the arbitral tribunal. Where no seat is specified in the arbitration agreement, the court may only lend its support if “by reason of a connection with England and Wales or Northern Ireland the court is satisfied that it is appropriate to do so” (section 2(4)(b)).

Ramsey J held:

When parties have agreed to arbitrate then I consider that the court should strive to give effect to that intention and should seek to support the arbitral process.

He criticised the poor wording of the arbitration clause. A reference within it to “arbitration as per prevailing laws of European Union in the Europe” gave a clue as to the parties’ intentions about the laws they had wanted to govern the arbitral procedure. From it he deduced that the seat of the arbitration was likely to be in Europe, and possibly in England. A further two “connections” with England were that:

  • Applying the principles of the Rome Convention, English law was the likely governing law of the contract.
  • According to the payment clause in the contract, payment was to be made in England.

The judge therefore concluded that this was a case where it was appropriate for the court to exercise its section 18 powers. He ordered that the London Court of International Arbitration (LCIA) should make the arbitral tribunal appointment.

The parties could have saved a great deal of time and money by paying attention to the arbitration clause when they drafted their contract. There are plenty of suggested draft clauses out there; for example the International Bar Association published a set of guidelines earlier this year containing advice and model clauses, while the major international arbitration institutions all propose simple model clauses for use in contracts.

In commercial contracts, a “boilerplate” dispute resolution clause is always worth a second glance.

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