Member Article

In Surrey County Council v Suez Recycling and Recovery Surrey Ltd [2021] EWHC 2015, the parties had entered into a number of agreements and England’s Technology and Construction Court had to determine what they had ultimately agreed should be the appropriate dispute resolution forum. The Court granted the application for a stay of the proceedings in favour of arbitration, under s.9 of the Arbitration Act 1996 (equivalent to s.20(1) of Hong Kong’s Arbitration Ordinance (Cap 609)) and held that the presumption in favour of “one-stop” adjudication still applies where there are multiple contracts between the same parties, each containing a different dispute resolution clause.

Background

Surrey County Council (Surrey) entered into a 25 year Waste Disposal Project Agreement (WDPA) with Suez Recycling and Recovery Surrey Ltd (Suez), under which Suez was to provide various facilities and services for Surrey. The WDPA contained dispute resolution provisions. Certain types of identified disputes were referrable for Expert Determination pursuant to Clause 51. Pursuant to Clause 52, any dispute arising out of or in connection with the WDPA, not being a Clause 51 dispute, was to be resolved initially by conciliation and then by arbitration. Clause 63 stated that the WDPA would be governed by the laws of England and that the parties submitted to the exclusive jurisdiction of the courts of England and Wales.

Due to planning issues, the parties had to adapt their plans regarding the building of waste facilities and they concluded three further agreements (Deeds of Variation) to cater for such, each of which amended the WDPA in various respects. The WDPA remained in full force and effect and was to be read and understood subject to the new provisions which applied to it. The changes included the creation of an EcoPark, which while in one sense was a discrete project, fell to be implemented and operated within the over-arching machinery of the WDPA.

Clause 15 of Deed of Variation 2 (DOV2) provided that the Courts of England shall have exclusive jurisdiction in relation to the Deed and any contractual or non-contractual obligations arising from or connected with it together with any claim, dispute or difference concerning the Deed and any matter arising from it.

The Parties’ contentions

A dispute arose between the parties in relation to the EcoPark works and Surrey commenced proceedings against Suez.  Suez applied to stay the proceedings, contending that the dispute was subject to the arbitration clause (Clause 52) of the WDPA, which remained applicable. Whilst Surrey accepted that disputes arising within the original scope of the WDPA and which had nothing to do with the subject matter of DOV2 were still subject to arbitration pursuant to Clause 52 of the WDPA, it argued that any dispute concerning the construction of the EcoPark was subject to Clause 15 of DOV2.  

Contractual interpretation

The Court said that where successive agreements are involved, it is relevant to take into account the character of the later one and its relationship with the earlier one when determining the scope of the dispute resolution provisions.  A later agreement which involves say the resolution of disputes under the earlier agreement or which provides for its wholesale termination may be regarded differently from one which contains amendments to the earlier agreement, which otherwise remains effective.

Applicable principles

The Court derived the following principles from the case authorities:

• Where possible, the Court should strive to give effect to an arbitration clause in the presence of a competing jurisdiction clause.

• Unless they expressly and clearly say otherwise, there is a strong presumption that parties are assumed to have agreed on a single tribunal for the determination of all their disputes, at least when there is only one agreement between them.

• Where there are two agreements, each containing different provisions for dispute resolution, the outcome may depend on the nature of the second agreement and its relationship to the first. A second agreement which varies the first one will probably be regarded differently from a second agreement which makes a clean break from the first one. The desire for one-stop shopping means that, where possible, the clauses should be regarded as mutually exclusive in their scope of application, rather than overlapping. However, some degree of fragmentation may be inherent in what has been agreed, in which case the centre of gravity of a given dispute will be relevant.

• Where a contract contains a hierarchy or conflicts clause, there should be no predisposition to find or not find a conflict between two clauses. The ordinary rules of construction should first be deployed and only if those result in a conclusion that the two provisions are irreconcilable is recourse to the conflicts clause required.

Court’s decision

The Court came to the clear conclusion that the parties intended the dispute resolution provisions of the WDPA to remain applicable for substantive disputes arising in respect of the construction of the EcoPark because:

• Each of the successive agreements, including DOV2, was described as a variation to the WDPA. Clause 2.3 of DOV2 expressly stated that the terms of the WDPA were to remain in full force and effect, unless expressly modified. DOV2 did not expressly modify Clause 52 to make it subject to Clause 15 of DOV2 so, by reference to Clause 2.3, it must remain in full force and effect.

• Surrey's construction required the clause in the WDPA concerning Expert Determination to be rewritten to refer to litigation in respect of disputes arising from DOV2, but the parties did not specify that as one of the amendments they chose to make to Clause 51.

• The fact that DOV2 was described by the parties as a variation to the WDPA made it different from, say, a settlement or termination agreement. The relationship was ongoing. It made it more likely that the parties would have intended their substantive disputes to be dealt with in a single forum, namely the one first identified.

• When agreeing the WDPA, the parties contemplated that it may later be amended. It followed that Clause 52 should be read as encompassing disputes arising out of or in connection with the Agreement as from time to time amended.

• The two provisions were capable of reconciliation and were not in conflict. The Court said it was possible to construe Clause 15 of DOV2 in a manner which sat alongside the continued application of Clause 52 of the WDPA because DOV2 identified the provisions of the WDPA that were to be varied and the parties must therefore have intended that disputes in relation to the obligations in those new clauses were subject to the arbitration clause in the WDPA. Other provisions of DOV2 not falling within the scope of the variation fell within the ambit of clause 15 and were therefore subject to the jurisdiction of the court. Stripped of the clauses falling within the scope of the variation, the remaining provisions in the Deeds were largely standard ones concerning, for example, service of notices. It was therefore unsurprising that the parties should leave those, largely procedural, matters in the hands of the Courts by virtue of Clause 15. Even if Clause 15 was left with very little purpose in practice, that would not be a reason to reject the application of the arbitration clause.

• Clause 52 should continue to be broadly construed, which approach to construction was in keeping with the principle of liberal interpretation in favour of arbitration.

• That all substantive disputes about the construction and operation of the EcoPark be subject to arbitration under the WDPA, was far more satisfactory and in accordance with the expectation of commercial businessmen, than one which divided the fora for dispute resolution between the construction of the EcoPark on the one hand and its operation on the other.

• The parties in this case must be taken to have agreed to arbitration under the WDPA for reasons of neutrality, expertise and privacy. The Courts look to the strong legal policy in favour of arbitration. Pursuant to the WDPA, arbitration would have been the appropriate forum to resolve disputes of a technical nature, had they arisen. No commercial or other reasons were advanced to explain why, what was attractive as a means of dispute resolution originally, stopped being so when it came to DOV2. 

Comment

Disputes about the conflicting dispute resolution mechanisms in different but related contracts are not uncommon. The presumption that parties are assumed to have agreed on a single tribunal for the determination of all their disputes arising out of their legal relationship, is difficult to displace, unless there is an express term saying otherwise. In this regard, the drafting of any later agreement must expressly replace the arbitration clause in the original agreement.