Norscot Rig Management PVT Ltd v Essar Oilfields Services Ltd

An arbitration clause covering disputes arising out of or relating to an agreement may extend to disputes under an earlier, closely connected agreement. The question is one of construction, assessed in the commercial context and by reference to the parties’ relationship and dealings as a whole. A transaction set-off arising from closely connected dealings will ordinarily indicate sufficient relatedness. The court should favour a practical, one-stop resolution of disputes, but convenience alone cannot create jurisdiction. On the facts, claims concerning defective equipment purchased and refurbished before the operations management agreement nevertheless related to that agreement.

The claimant challenged under section 67 of the Arbitration Act 1996 an arbitrator’s decision that he had jurisdiction over the defendant’s set-offs and counterclaims. The claims concerned a defective blow-out preventer stack and associated equipment purchased and refurbished in connection with a drilling rig.

The claimant relied on the absence of an arbitration clause in the purchase contracts and contended that the arbitration clause in the later Operations Management Agreement covered only disputes arising out of that agreement. The defendant relied on the close commercial connection between the purchase and refurbishment project and the later management relationship. The central issue was whether the claims arose out of, or related to, the Operations Management Agreement.

1. Challenge dismissed. The court dismissed the section 67 challenge and upheld the arbitrator’s jurisdiction over the disputed set-offs and counterclaims.
2. Under section 67, the court reheard the jurisdiction issue. It had to construe the arbitration clause in the relevant agreement and determine whether the claims fell within it. The issue was decided on the documents and evidence, rather than being left to the arbitrator merely because the facts were involved.
3. The phrase “relating to” was broad. Its application depended on fact and impression, assessed by construing the agreements in the context of the transaction as a whole. The approach in Fiona Trust v Privalov [2008] 1 Lloyd’s Rep 254 (HL), including the preference for a one-stop method of adjudication, was relevant even though the dispute involved more than one contract.
4. The relevant considerations included the purpose for which the equipment was acquired, the continuity of the parties’ relationship, the overlap between the purchase and management work, the parties’ correspondence and dealings, and the extent to which the claims formed part of a running account. Practicality was relevant as part of the one-stop approach, but there was no separate forum conveniens discretion.
5. The equipment was acquired expressly for the rig, was an essential component of its drilling operations, and was refurbished during the same continuing relationship in which the claimant became operations manager. The pleaded failures were also part of the factual history relevant to alleged breaches of the management agreement. The counterclaims therefore related to that agreement, although the court was not satisfied that they arose out of it.
6. The alternative ad hoc arbitration argument failed. The consent order recorded an agreement, but its express terms required referral only of claims disputed under clause 12 of the Operations Management Agreement.

This was a first-instance section 67 challenge to an arbitration jurisdiction ruling.

• Arbitration: Sir Philip Otton held by an award dated 26 May 2009 that he had jurisdiction over the defendant’s pleaded set-offs and counterclaims.
• High Court (Commercial Court): Mr Justice Burton dismissed the challenge and confirmed jurisdiction.