Parties’ arbitration agreement trumps exclusive jurisdiction clause

18th May 2021

International arbitration specialist Nick McQueen considers a recent case where the court grappled with apparently conflicting dispute resolution provisions in the parties’ agreement – a clause providing for arbitration under the Rules of the London Court of International Arbitration (LCIA) and an exclusive jurisdiction clause in favour of the English courts.

WM Comment

Unless strong reason is shown otherwise, the English courts will uphold a jurisdiction agreement and keep the parties to their bargain. As far as possible, they will seek to reconcile apparently conflicting provisions. The decision in this case, consistent with previous authority, reinforces the English courts’ pro-arbitration approach. While each case will turn on its own facts, it seems clear that the courts will be extremely reluctant to reject the parties’ arbitration agreement in favour of an exclusive jurisdiction clause.

Parties can save the time and cost associated with arguments over jurisdiction by taking time at the outset to consider what they will do in the event of a dispute, and draft accordingly.

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Walker Morris has a large team of specialists experienced in all aspects of commercial dispute resolution, including international arbitration, across all sectors. Two of our partners are Fellows of the Chartered Institute of Arbitrators.

If you trade internationally and/or are considering arbitration, and need any assistance or advice on drafting, dispute resolution options or strategy, please contact Nick, who will be very happy to help.

What was this case about?

Melford Capital Partners (Holdings) LLP and others v Digby [1] concerned a complex partnership dispute involving allegations of wrongdoing and bad faith. One of the claimants, Holdings, was a Guernsey limited liability partnership (LLP). The LLP agreement was governed by Guernsey law and contained an exclusive jurisdiction clause in favour of the Guernsey courts. The other claimant, MCP, was an English LLP and the LLP agreement was governed by English law. It contained both an exclusive jurisdiction clause in favour of the English courts and an arbitration agreement under LCIA Rules.

The claimants issued proceedings in London for damages, breach of confidence and injunctions to restrain the defendant from, among other things, using and misusing their confidential information. The claimants argued that the defendant’s counterclaim should be stayed or dismissed because the matters alleged against Holdings were subject to the Guernsey exclusive jurisdiction clause and should be decided in Guernsey; and the matters alleged against MCP were subject to the compulsory LCIA arbitration clause and should be decided in arbitration.

What did the court decide?

• Should the court give effect to the arbitration agreement? The answer was yes. Following a line of previous decisions, it could be read in harmony with the exclusive jurisdiction clause, which would operate to recognise the supervisory jurisdiction of the English courts over any arbitration. The judge found it impossible to hold that the arbitration agreement was entered into for no good purpose. He said he 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 resolve their dispute by arbitration when they had gone to some trouble to agree to that very course in their principal commercial agreement.
• Had Holdings lost or waived the right to invoke the Guernsey exclusive jurisdiction clause because it had brought injunction proceedings in England? The court said no. The proceedings were brought to address the urgent problems the claimants faced. Limited relief was sought for precise and carefully considered reasons. There was no attempt to litigate all of the matters in dispute, or expected to be in dispute, between the parties.
• Was the defendant entitled to persist with his counterclaim? The court said no, it would not be in the interests of justice. The defendant was seeking to broaden the dispute by putting in issue the validity of his expulsion from the partnerships and the valuation of his share as an outgoing partner. He could defend himself perfectly well if he needed to on those matters in his defence. To have them litigated in London risked fragmentation, since matters in the same dispute could be adjudicated in Guernsey litigation and arbitration. There was a risk of different findings by different tribunals and it was in all the parties’ interests to close down one forum.

 [1] [2021] EWHC 872 (Ch)