Monde Petroleum SA v Westernzagros Ltd

Where a settlement or termination agreement contains a dispute-resolution clause inconsistent with that in an earlier contract, the clauses must be construed commercially and as a whole. The strong presumption favouring one-stop adjudication means that the later clause will commonly supersede the earlier clause for disputes connected with both agreements, especially where parallel proceedings would fragment issues and risk inconsistent findings. Separability does not require an express reference to terminating the earlier arbitration agreement where the later, inconsistent clause directly addresses the forum for resolving disputes.

A challenge under section 67 of the Arbitration Act 1996 is a full rehearing. Security for costs must be just, assessed broadly, and provided in a form allowing swift enforcement against a creditworthy source.

Monde provided consultancy services to WesternZagros under a consultancy services agreement containing a London arbitration clause. Following its purported termination, the parties entered a Termination Agreement. That agreement released their claims under the earlier agreement and conferred exclusive jurisdiction on the courts of England and Wales.

Monde later alleged that the Termination Agreement had been induced by misrepresentation and duress. It brought Commercial Court proceedings and commenced an ICC arbitration protectively. WesternZagros counterclaimed in the arbitration for declarations concerning the termination of the consultancy agreement and Monde’s alleged continuing rights. The tribunal held that it lacked jurisdiction over those counterclaims and awarded Monde its costs.

WesternZagros challenged that ruling under section 67 of the Arbitration Act 1996, sought to set aside the costs-enforcement order, challenged part of the Commercial Court claim, and sought security for costs. The central issue was whether the later exclusive jurisdiction clause superseded the earlier arbitration clause.

1. The section 67 appeal was dismissed. A challenge under section 67 of the Arbitration Act 1996 requires the Court to determine jurisdiction afresh. The tribunal had correctly held that it lacked jurisdiction over WesternZagros’s declaratory counterclaims.
2. The starting point was the strong presumption that rational commercial parties intend disputes arising from their legal relationship to be resolved in one forum. That principle applies to exclusive jurisdiction clauses as well as arbitration clauses: Fiona Trust & Holdings v Privalov & others [2007] Bus LR 1917. Clear and commercially rational dispute-resolution agreements must nevertheless be given effect even where more than one contract may otherwise produce fragmentation.
3. A later settlement or termination agreement with an inconsistent dispute-resolution clause will often be intended to supersede the earlier clause. The construction depends on the language and circumstances, but the risk of duplicated proceedings, inconsistent findings, delay and expense was powerful in this case. The Termination Agreement’s exclusive jurisdiction clause, its use of attorn, and its entire-agreement provision showed that the parties intended the Commercial Court to decide disputes concerning both the settlement and the rights released under the consultancy agreement.
4. Section 7 of the Arbitration Act 1996 did not require an express statement terminating the earlier arbitration clause. A later and inconsistent jurisdiction clause directly addresses the separate agreement on forum and may therefore supersede it without undermining separability. The Court distinguished DDT Trucks of North America Ltd v DDT Holdings Ltd [2007] 2 Lloyd's Rep 213, where the terminating agreement contained no replacement dispute-resolution provision.
5. The alternative suggestion that the releases alone rendered the arbitration agreement inoperative was rejected. If the later jurisdiction clause had not superseded the arbitration clause, the tribunal would retain jurisdiction to determine the validity and effect of the releases.
6. Security for costs was ordered in the sum of £220,000, limited to the period up to exchange of factual witness statements. It was conditional on WesternZagros paying the tribunal’s costs award to Monde. Security had to be paid into court or provided by a first-class London bank guarantee; the proposed solicitor’s undertaking and personal guarantee did not offer sufficiently certain and swift enforcement. The related enforcement and jurisdiction applications stood or fell with the unsuccessful section 67 appeal.

• ICC arbitral tribunal: by an award dated 16 July 2014, it held that it lacked jurisdiction over WesternZagros’s declaratory counterclaims and ordered WesternZagros to pay Monde’s costs.
• Commercial Court: WesternZagros’s challenge under section 67 of the Arbitration Act 1996 was dismissed. The Court upheld the tribunal’s conclusion on jurisdiction.