THE AUTHOR: Sajid Suleman, barrister at 36 Commercial
In Helice Leasing S.A.S v PT Garuda Indonesia (Persero) TBK [2021] EWHC 99 (Comm), the High Court of England and Wales was faced with two seemingly contradictory dispute resolution clauses: one providing for arbitration and the other for “court action”. The High Court held that court proceedings should be stayed as the arbitration clause in the agreement between the parties stated that “any” dispute between the parties was to be referred to arbitration, notwithstanding other provisions in the agreement which referred to “court action” in the event of default.
Background
The Claimant leased an aircraft to the Defendant. The Claimant alleged that the Defendant did not pay for the lease between January 2020 and October 2020 and commenced proceedings in the High Court for non-payment. The Defendant made an application to stay proceedings under section 9 of the Arbitration Act 1996, which provides that proceedings may be stayed in the event that legal proceedings are brought in respect of a matter which should be referred to arbitration pursuant to an arbitration agreement.
Issues
The case turned on the interpretation of two seemingly contradictory clauses in the aircraft lease agreement:
- Arbitration clause: “any dispute arising out of or in connection with this Lease Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Rules of the London Court of International Arbitration”;
- ‘Event of Default’ clause: in the event of non-payment by the lessee, “the lessor may at its option…proceed by appropriate court action or actions to enforce performance of this Lease Agreement or to recover damages for the breach of this Lease Agreement”.
High Court judgment
The clauses were “not happily worded” and presented the High Court with the unenviable task of determining the objective intentions of the parties.
The High Court held that the Event of Default clause simply sets out the rights of the Claimant in the event of default. In the event of non-payment, the Claimant would have the right to seek performance or damages. The purpose of this clause is not to set out the forum through which the Claimant could seek to enforce its rights. It has to be interpreted as such; otherwise, the arbitration clause would have stated that it was subject to the Event of Default clause
In order to give the contract a business common sense construction, “court action” was interpreted to mean “action before the London Court of International Arbitration”. The High Court found support for this interpretation in other clauses in the lease, which referred to the “non-exclusive jurisdiction of the courts as set out in [the arbitration clause]”. The “courts” referenced here must be the London Court of International Arbitration, stated the High Court, as there are no other courts mentioned in the arbitration clause.
The High Court went on to explain that the Event of Default clause only applies if there is a default; the question of whether there is a default is a dispute and therefore caught by the arbitration clause which covers any dispute between the parties. The arbitration clause does not state that there are any exceptions. If the arbitrators decide whether there is a default, it will make little sense for the lessor to have the right to go to court to seek performance or damages under the lease as the arbitrators could provide this remedy.
Further, the High Court held that it would be problematic if a claim for non-payment was brought in the courts, and the Defendant’s defence or counterclaim addressed other aspects of the lease which had to be referred to arbitration. The courts would then have to stay proceedings for some of the issues to be resolved by arbitration and reserve jurisdiction for the courts to resolve issues concerning non-payment. This would be contrary to the one-stop-shop construction of arbitration clauses advocated by the House of Lords in Fiona Trust v Privalov [2007] UKHL 40.
Finally, on whether there was indeed a dispute, in this case, the High Court held that there was a dispute as the Defendant had refused to pay, regardless of the merits of that refusal.
Commentary
This case provides a salutary lesson highlighting the importance of careful drafting of dispute resolution clauses. Whilst the courts will do their utmost to determine the parties’ objective intentions, this exercise will often be fact-specific and create uncertainty for the parties. In considering the objective intentions of the parties, the High Court looked at the drafting history and took a holistic view of the various clauses within the agreement to enable the contract to work. The Defendant argued that the reference to “courts” was from the lessor’s template lease agreement which, perhaps due to oversight, had not been amended. This highlights the significance of dispute resolution clauses in any agreement. At the time of drafting an agreement, disputes are usually not at the fore of parties’ minds, yet ensuring that should a dispute arise, the parties can resolve it swiftly and without costly litigation is critical.
The High Court adopted a liberal interpretation of the word “court” to mean the “London Court of International Arbitration” to give the contract business common sense. If the arbitration clause had referred to an arbitral institution which did not have the word “court” in its name, it is doubtful whether this interpretation would have been chosen. The decision is therefore fact-specific and unlikely to assist other parties looking to interpret contradictory dispute resolution clauses.
The High Court was at pains to avoid a fragmented dispute resolution process, and favoured arbitration to court proceedings because the arbitration clause was clearly wider in scope as it covered all disputes. This is a sensible and pragmatic approach by the English courts which ensures that parties can have their disputes resolved in a single forum, without added delays and costs of multiple litigations.
ABOUT THE AUTHORS
Sajid Suleman is a barrister at 36 Commercial (London), specialising in international arbitration and commercial litigation.
