Aiteo Eastern E&P Company Limited v Shell Western Supply Trading Limited

An asymmetric arbitration clause expressed as an option becomes an operative arbitration agreement when the option is exercised by an unequivocal communication requiring the relevant dispute to be arbitrated. Commencing arbitration is not ordinarily necessary, and a stay application is not a prerequisite. Once exercised, the election is irrevocable in respect of that dispute and prevents a further inconsistent election for court proceedings. The communication may be made through any medium, including appellate proceedings, provided its substance is unequivocal. Delay does not automatically extinguish the option, although waiver and estoppel may arise from the circumstances.

Aiteo challenged two partial awards under Arbitration Act 1996, s.67. The first award held that the tribunal had jurisdiction over SWST’s claims under an offshore facility agreement. The second consolidated that arbitration with another arbitration concerning an onshore facility agreement.

The central issue was whether SWST had validly exercised an asymmetric contractual option to arbitrate by filing a Nigerian notice of appeal which argued that Aiteo’s court claims had to be referred to arbitration, or alternatively by serving a request for arbitration.

1. The s.67 challenge to the First Award was dismissed. The filing of the notice of appeal unequivocally required Aiteo to refer the disputes raised in the Nigerian proceedings to ICC arbitration. It therefore transformed the inchoate arbitration agreement in clause 41.1 into a fully operative agreement.
2. Following Anzen Ltd v Hermes One Ltd, an option expressed in permissive terms may be exercised by an unequivocal request requiring arbitration. Clear words would be needed if the contract were intended to require the option-holder to commence arbitration, rather than merely invoke the negative covenant requiring disputes to be pursued in arbitration.
3. The exercise of the option did not require a stay application. The substance of the communication mattered, not its medium. A request for arbitration, a stay application, or another unequivocal communication could suffice.
4. The interaction with clause 41.2 did not alter that conclusion. Properly construed, exercising the arbitration option precluded SWST from making a later, inconsistent election for court proceedings concerning the same dispute. That construction was reinforced by the word “elect” and avoided successive movements between arbitration and litigation.
5. The notice of appeal’s grounds, read as a whole, asserted that the Nigerian court lacked jurisdiction because the disputes were subject to London arbitration. Its references to the width of the injunction and possible counterclaims did not make the communication equivocal. The relief sought included striking out the Nigerian proceedings.
6. Clause 41.1 did not lapse automatically after a reasonable time. The contract contained no such time limit, and the facility agreement’s non-waiver clause pointed against that implication. Waiver and estoppel supplied the relevant protection against unfair delay.
7. The challenge to the Second Award was parasitic on the failed challenge to the First Award and was therefore also dismissed. It was unnecessary to decide whether the tribunal would have had jurisdiction to consolidate the arbitrations if the clause 41.1 option had never been exercised.

Not stated in the judgment.