High Court Ruling Underlines the Benefits of English Arbitration Clauses

As a guideline High Court decision emphasised, the greatest advantage of including English arbitration clauses in commercial contracts is that they prevent litigation from proliferating around the world and focus dispute resolution on a single, well-respected forum.

A company engaged a contractor to construct a new tank storage terminal in a Middle Eastern state and to connect it to existing infrastructure. The contract was expressly governed by English law and contained an arbitration clause stating that any dispute whatsoever arising should be resolved by a panel of three arbitrators in London.

The company purported to terminate the contract, essentially on the basis that the works had been heavily delayed, and made demand on more than $4 million which the contractor had lodged as a performance guarantee. The contractor denied that the employer had grounds for ending the contract and claimed entitlement to various payments under it.

The contractor openly accepted its contractual obligation to arbitrate the dispute and duly submitted the matter to a panel in London. It also launched proceedings in the Middle Eastern state, however, on the basis that such action was necessary to secure its legal position pending the outcome of the arbitration. The company's response was to seek an anti-suit injunction to prevent those proceedings from continuing any further.

Ruling on the matter, the Court found that the company had an arguable case that the contractor's proposed pursuit of the Middle Eastern proceedings would breach the exclusivity of the arbitration agreement. The balance of justice fell in the company's favour and there was, on the face of it, no good reason why an anti-suit injunction should not be granted.

The contractor was ordered to cease its pursuit of the Middle Eastern proceedings and to take steps to ensure that they were stayed in favour of the arbitration. The company undertook that it would pay appropriate damages to the contractor if the injunction subsequently turned out to have been wrongly granted.