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

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