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Where related contracts contain different dispute resolution clauses
Practical Law Legal Update 4-501-6230 (Approx. 3 pages)
Where related contracts contain different dispute resolution clauses
| Published on 03 Mar 2010 • Singapore |
Alvin Yeo, Senior Counsel (Senior Partner) and Andre Maniam (Head of Litigation & Dispute Resolution Department), WongPartnership LLP
It is not uncommon for transactions involving multiple related agreements to contain different dispute resolution clauses. In such cases, when a dispute in relation to the transaction arises, determining which clause applies to the dispute can become a thorny issue. This was the case in the recent Singapore High Court decision of Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp [2010] SGHC 31 where there were two related contracts: one containing an arbitration clause and the other containing a submission to the jurisdiction of the Singapore courts. The court held that, in the event of a claim for breach of contract, it would consider which contract the dispute was more closely related to and apply the relevant dispute resolution clause accordingly.
Facts
The plaintiff and defendant had entered into a contract (the Drilling Contract) for the supply of a drilling unit and of drilling services to the defendant. Among other things, the Drilling Contract stipulated that parties would enter into an agreement to open an escrow account (the Escrow Agreement). The Drilling Contract stipulated arbitration for the resolution of any disputes "arising out of or in relation to or in connection with" the Drilling Contract.
In contrast, the Escrow Agreement contained a submission to the jurisdiction of the Singapore courts in respect of any legal action or proceedings "relating in any way to" the Escrow Agreement. Furthermore, it stated that a failure by one party to comply with its terms would entitle the innocent party to terminate the Drilling Contract.
When the defendant failed to deposit the escrow amount as required under the Escrow Agreement, the plaintiff purported to terminate the Drilling Contract as per the terms of the Escrow Agreement. It then brought proceedings in court against the defendant claiming damages for breach of the Escrow Agreement. The defendant sought to stay the proceedings on the ground that the dispute should be referred to arbitration instead, pursuant to the arbitration clause in the Drilling Contract.
Decision
The court disagreed with the defendant. It held that the arbitration clause in the Drilling Contract did not apply. It found on the facts that the parties had intended to carve out obligations relating to the escrow account from obligations relating to the provision of the drill bit and drilling services. For obligations relating to the escrow account, they had expressly intended that they be subject to court proceedings to ensure quicker relief.
It also held that where different but related agreements contained overlapping and inconsistent dispute resolution clauses, the nature of the claim and the particular agreement out of which the claim arose had to be considered. Where a claim arose out of or was more closely connected with one agreement than the other, the claim ought to be subject to the dispute resolution regime contained in the former agreement, even if the latter was, on a literal reading, wide enough to cover the claim.
As the claim here arose out of the Escrow Agreement, the arbitration clause in the Drilling Contract did not apply. It therefore declined the application to stay the court proceedings.
Comment
This case is a useful reminder that, where there are multiple related contracts, parties should examine and rationalise their dispute resolution clauses. In this case, for clarity, parties could have considered expressly stipulating in the Escrow Agreement a carve-out from the arbitration clause.