The Commercial Court has refused to grant a stay of proceedings under section 9 of the Arbitration Act 1996. The application arose in the context of disputes concerning two related agreements. Although the claims in court were advanced under a contract which contained an English jurisdiction clause, it was arguable that the issues that would arise in the proceedings would, on their face, fall within the scope of the arbitration clause contained in the related contract.

Blair J considered that the issue turned on the construction of the dispute resolution provisions in the two contracts. This required the court to identify the contract under which the substance of the controversy arose. In the present case, the substance of the controversy arose under the contract containing the English jurisdiction clause. The fact that there might be a degree of overlap with the other contract did not mean that a stay should be mandatorily imposed under section 9 of the Arbitration Act 1996.

The court's approach mirrors that adopted, in the context of competing choice of court clauses, in Sebastian Holdings Inc v Deutsche Bank AG [2010] EWCA Civ 998 (discussed in Legal update, Court of Appeal decision on construction of jurisdiction clauses). Where the court is concerned with two or more competing dispute resolution clauses, it will identify the contract with which the claim is most closely identified in order to decide which dispute resolution clause applies. The application of this principle of construction in the arbitration context means that, even though the wording of an arbitration agreement may, on its face, be broad enough to cover a particular claim, where that claim is more closely connected with a different contract the court will refuse a stay of proceedings.

The dispute arose in the context of two agreements relating to the operation of a coal mine in Indonesia:

Disputes arose in relation to payments under the OA and were referred to expert determination and then arbitration. In the meantime, the claimant sought to operate the payment distribution mechanism in the CDA, and commenced proceedings in the Commercial Court seeking to enforce the terms of the CDA. The defendant argued that the issue of whether the claimant was entitled to enforce the payment distribution mechanism under the CDA depended, ultimately, on whether it was entitled to receive payment for services under the OA. That issue was one which, under the OA arbitration clause, was required to be arbitrated, and the court should therefore stay the proceedings under section 9 of the Arbitration Act 1996.

Blair J disagreed. The purpose of the CDA payment mechanism was to provide security, similar to an escrow arrangement, pending the outcome of the underlying disputes arising under the OA. There was some force in the submission that the claims arising under the CDA overlapped with issues under the OA. However, the task of the court in such circumstances was to construe the dispute resolution provisions by identifying the agreement with which the claims were most closely connected (Sebastian Holdings Inc v Deutsche Bank AG [2010] EWCA Civ 998). This involved considering the substance of the controversy, rather than the formal nature of the proceedings. Furthermore, Blair J noted that there was nothing unusual about submitting a contractual dispute to arbitration while referring matters relating to security to the jurisdiction of the court.

Here, the substance of the controversy arose under the CDA, not the OA, and the English jurisdiction clause therefore applied. The court was obliged by section 9 of the Arbitration Act 1996 to grant a stay of proceedings only in respect of a matter "which under the agreement is to be referred to arbitration", there was no such matter here, and a stay would be refused.

For more information about stays, see Practice note, Remedies for breach of the arbitration agreement: stays of English court proceedings.

Case: PT Thiess Contractors Indonesia v PT Kaltim Prima Coal and another [2011] EWHC 1842 (Comm).