Double trouble: Court of Appeal confirms jurisdiction over part of business relationship

Separate dispute resolution mechanisms in separate agreements between the same parties will likely double the litigation burden a company will have to bear if the relationship turns sour.

3 September 2015

The need to ensure dispute resolution provisions are consistent across a transaction or relationship is nothing new.  Earlier this year, the Monde Petroleum judgment illustrated that the parties are free to choose their dispute resolution mechanisms, and that the English Court will hold them to those choices. (See previous article: A stitch in time saves nine).  

The cornerstone of this issue is the House of Lords’ judgment in Fiona Trust, in which Lord Hoffmann concluded that there is a rebuttable presumption that parties would have intended to adopt a “one-stop shop” approach to dispute resolution.  Lord Hoffmann stated, “the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered  . . .  to be decided by the same tribunal.  Fiona Trust & Holding Corp. v Primalov [2007] UKHL 40, para. 13. 

The Court of Appeal recently examined the scope of this presumption in Trust Risk Group SpA v AmTrust Europe Ltd. [2015] EWCA Civ 437.  Amtrust had entered into a non-exclusive insurance brokering agreement with Trust Risk in 2010, including an agreement that disputes would be submitted to the English Court to determine applying English law.  Several months later, the same companies entered into a “framework agreement” whereby they agreed to deal exclusively with each other in relation to medical malpractice insurance policies, and the terms and conditions appended to this agreement provided for arbitration in Milan under Italian law.  When a dispute arose between the parties, AmTrust issued proceedings in the English Court, and Trust Risk swiftly countered by issuing arbitration proceedings in Milan.  The question in the English proceedings became whether the English proceedings under the brokerage agreement could continue or whether the terms and conditions in the Italian framework agreement had superseded the dispute resolution provisions in the English brokerage agreement.

The Court of Appeal reviewed Fiona Trust and other relevant authorities, concluding:

...what is required is a careful and commercially-minded construction of the agreements providing for the resolution of disputes.  This may include enquiring under which of a number of inter-related contractual agreements a dispute actually arises, and seeking to do so by locating its centre of gravity and thus which jurisdiction clause is ‘closer to the claim’.

Taking this approach, the Court decided that the Italian framework agreement did not supersede the English brokerage agreement, and that a dispute concerning payments due under the brokerage agreement would continue to fall within the jurisdiction of the English Court and would be determined under English law.

This judgment highlights some of the problems that can arise when a dispute resolution strategy is not consistent across a business relationship.  Very often different forms of dispute resolution are selected for no good reason, simply because there is no one within an international organisation with responsibility for oversight of commercial agreements in different jurisdictions.  There may have been commercial motives that dictated the decision to use different governing law and different dispute resolution mechanisms in the two agreements at issue in this judgment.  But the end result was separate litigation in two different countries over alleged breaches of the two agreements.  Doubtless the proceedings in England and Italy will involve common factual issues, common witnesses, common documents, and so on, but there will be parallel litigation in two jurisdictions, almost doubling the costs and the efforts involved in the dispute resolution process.  Litigation under a single set of national laws in one unified proceeding would have cut legal costs in half, and probably saved a considerable amount of valuable management time involved. 

This case provides yet another example of the importance of thinking through the dispute resolution strategy in international commercial agreements.