Unequivocal statement is sufficient to trigger option to arbitrate
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Shell commenced arbitration after Aiteo initiated local court proceedings
To finance its acquisition of an interest in certain oilfields in Nigeria, Aiteo entered into a facility agreement to borrow US$ 512 million from Shell.
The facility agreement contained an asymmetric optional arbitration clause in which it was provided that any of the finance parties (not Aiteo or shareholders in Aiteo) “may elect to refer” disputes under the agreement to London-seated ICC arbitration or alternatively to a court of law.
In 2019, a dispute arose under the facility agreement, resulting in Shell's issuance of a formal demand to Aiteo for immediate repayment. Shortly thereafter, Aiteo commenced court proceedings against Shell in Nigeria to seek, among other relief, declarations that Aiteo was not indebted to Shell and that Shell was not entitled to accelerate repayment.
Shell conditionally appeared before the Nigerian court to contest its jurisdiction and to apply for a strike-out of Aiteo's suit. No application was made to stay the Nigerian proceedings in favour of arbitration. Nonetheless, Shell subsequently (in 2020) commenced an ICC arbitration against Aiteo.
The ICC tribunal issued two awards in favour of Shell, one upholding the tribunal's jurisdiction and the other consolidating the proceedings with another arbitration commenced against Aiteo. Aiteo challenged these awards under section 67 of the Arbitration Act 1996.
Unequivocal statement requiring arbitration sufficient to trigger option to arbitrate
The court noted that an arbitration clause that provides that one or both parties “may” submit disputes to arbitration is not a fully formed arbitration clause. Rather, the arbitration agreement, and with it the obligation to arbitrate, only comes into existence when the option to arbitrate is exercised in the contractually required manner. This is also known as an “inchoate arbitration agreement”.
Adopting the Privy Council's reasoning in Anzen v Hermes One, the court confirmed that an unequivocal statement by Shell requiring Aiteo to refer the dispute to arbitration was sufficient to crystallise the obligation to arbitrate. Aiteo's argument that the election to arbitrate could only be exercised by commencing arbitration, or “at least an unequivocal and irrevocable commitment to arbitrate the relevant dispute(s) without delay”, was rejected. The court found that this interpretation would effectively require a party to incur the costs of commencing arbitration proceedings to pursue negative declaratory relief (i.e. a declaration of non-liability) when it was the other party that had initiated dispute proceedings.
Applying these principles, the court concluded that Shell's notice of appeal filed with the Nigerian court to contest its jurisdiction constituted an unequivocal communication to Aiteo to refer the disputes raised in the court proceedings to arbitration. It was not necessary for Shell to actually seek a stay of the Nigerian proceedings to exercise its election. The High Court was satisfied that the references to the arbitration clause and Shell's unequivocal request for the Nigerian court to give effect to the parties' agreement to arbitrate by declining jurisdiction amounted to Shell's election to arbitrate the relevant disputes. The court therefore dismissed Aiteo's challenge of the two awards.
Lenders often prefer the flexibility afforded by asymmetric arbitration clauses as these clauses allow them to take direct enforcement action against debtors in every jurisdiction where assets are available. The Aiteo judgment brings clarity to the steps that a party who benefits from an option is required to take to make the forum election: “[t]his is a context in which it is the message which matters, not the medium”. The High Court's commercial approach in construing optional arbitration clauses will be welcomed by those that use asymmetric arbitration clauses.
One should, however, be mindful that hybrid dispute clauses are not universally accepted. The courts of some jurisdictions, notably France, Russia and China, have at times expressed doubt over the validity and/or effectiveness of these clauses. It is therefore important for lenders to identify the likely places of enforcement for each transaction and seek local law advice in order to tailor the dispute resolution clause accordingly.