Clash Of Dispute Resolution Clauses: An Avoidable Occurrence

By Samira Ladan Tsamiya

Lawyers seldom pay attention to the construction of dispute resolution clauses such as jurisdiction and arbitration clauses, because they customarily appear at the tail of contracts and are mostly dismissed as ‘boilerplate’. However, these commonly ignored clauses could radically affect the enforceability of the obligations and rights of parties in a contract.

Although both arbitration and jurisdiction clauses are enforceable in contracts, issues might arise in interpreting contracts containing both arbitration and jurisdiction clauses. A contract could have a jurisdiction clause stipulating that a certain court should have exclusive jurisdiction to settle disputes arising out of the agreement and another arbitration clause in the same agreement stipulating that disputes arising out of the agreement to be referred to and resolved by arbitration. A party seeking to avoid arbitration may argue that the presence of the jurisdiction clause in the contract renders the arbitration clause in the same contract ineffective, as both clauses are irreconcilable. This raises the jurisdictional question of the proper forum (the court or arbitral tribunal) to determine the dispute, to the effect that, does the arbitration clause constitute a waiver of parties’ right to require disputes to be determined by the courts?

The analysis of many recent judicial decisions such as the English case of Melford Capital Partners (Holdings) LLP & others v Digby [2021] EWHC 872 (Ch) shows that the approach of the courts to this issue is that the presence of a jurisdiction clause in a contract submitting the substantive dispute of parties to a chosen court does not render in-effective an arbitration clause in the contract submitting same dispute to arbitration. Hence, the arbitration clause is to be construed as the primary dispute resolution clause in the contract, while the jurisdiction clause is to be construed as only conferring on the court a supervisory jurisdiction over the contract. In other words, the presence of the jurisdiction clause merely emphasizes the supervisory jurisdiction of the chosen court over the arbitration. Rightly so, the fact that parties submit their disputes to arbitration rather than litigation should be deemed as a practical concession and ought to be given precedence. This argument is even more compelling if the jurisdiction clause is non-exclusive (choosing the courts of one jurisdiction but without prejudice to parties’ right to take the dispute to another appropriate jurisdiction), as it makes sense to give precedence to the arbitration clause over the non-exclusive jurisdiction clause since the latter is an optional provision and the former, a mandatory one.

There are limits to this generous approach to resolving the issue as it all depends on the intention of parties, which must be objectively determined. Therefore, it is not in all cases that these clauses in a contract are completely inconsistent, because in some, the intention of the parties may suggest otherwise. For instance, in Silverlink Resorts v MS First Capital Insurance Ltd. [2020] SGHC 251, a Singaporean court discerned from facts that parties intended that both clauses should perform separate functions and be independently enforceable, which made it to deviate from the above approach by applying a ‘carve-out’ approach to uphold the precedence of the jurisdiction clause above the arbitration clause in the agreement. Similarly, the English case of Amstrust Europe Ltd. v Trust Risk Group SPA [2014] EWHC 4169 (Comm) shows that in resolving the issue in cases where parties enter into suites of or competing contracts with different dispute resolution mechanisms, reference must be made to the purpose and construction of the agreement.

While there are good reasons to believe that the courts are likely will to hold in favor of arbitration clauses over jurisdiction clauses in contracts, there is, however, nothing sacrosanct about this approach since the way to resolve the issue could depend on the proper construction of those clauses in a contract or contracts. Undoubtedly, this uncertainty demonstrates the importance of thoughtful and precise drafting of dispute resolution clauses. Where arbitration and jurisdiction clauses are likely to overlap, a lawyer must be careful in drafting the clauses to ensure that they do reflect the true intention of the parties. If it is intended for both clauses to operate independently it should be stated, and if it is intended for one to be subject to the other, it should also be stated. Particularly, where there is a multi-contract relationship, those related contracts must be checked to ensure that the dispute resolution clauses are consistent, unless there is a compelling reason why different mechanisms should apply, which must be stated in clear terms. It is also advisable to adapt standard dispute resolution clauses to parties’ requirements, as they are clear and basic.  Truly, the inadvertence of lawyers can cause undesirable consequences such as uncertainty, delays and additional costs to clients; therefore, as a matter of best practice, dispute resolution clauses must not be treated any less than other important clauses in contract negotiation and drafting.

Written by Samira Ladan Tsamiya, LL.B, LL.M, B.L, ACIArb. (UK)

Partner, Honoris Legal, Abuja, samiratsamiya@yahoo.com