Options To Arbitrate: Plain Language And Commercial Sense Prevail

• Published date: 19 December 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Law Firm: Debevoise & Plimpton
• Author: Patrick Swain, Patrick Taylor, Hugo Farmer and Sonja Sreckovic

Key Takeaways:

• If an arbitration provision does not set down a specific procedure to be used for exercising an option to arbitrate, courts are unlikely to imply formal requirements, unless these are necessary to give the provisions efficacy.
• The decision of the High Court highlights the importance of drafting arbitration provisions with precise terms and mechanisms It also highlights the dangers of trying to avoid an obligation to arbitrate by trying to conjure up "creative" reinterpretations of the arbitration provision.

Background

In Aiteo Eastern E&P Company Limited v Shell Western Supply and Trading Limited [2022] EWHC 2912 (Comm), Mr Justice Foxton dismissed the challenges brought under s 67 of the Arbitration Act 1996 by Aiteo Eastern E&P Company Limited ("Aiteo") against two partial awards made by a tribunal in arbitral proceedings.

The underlying dispute concerned two interlocking facility agreements (the "Facility Agreements"). Aiteo borrowed funds from Shell Western Supply and Trading Limited ("SWST") and other lenders under the Facility Agreements. The Facility Agreements included a clause giving SWST, but not Aiteo, the option to refer disputes to arbitration (the "Option to Arbitrate"). Specifically, the Option to Arbitrate provided that SWST and the other lenders "may elect to refer" any disputes arising out of or in connection with the Facility Agreements to arbitration.

Aiteo and SWST fell into a dispute regarding Aiteo's compliance with the Facility Agreements, culminating in a formal demand for repayment being issued to Aiteo on 23 October 2019. Two days later, Aiteo commenced proceedings against SWST and the other lenders in the Federal High Court of Nigeria. Aiteo also obtained an interim injunction from the Federal High Court of Nigeria restraining SWST and the other lenders from enforcing their rights under the Facility Agreements.

On 12 November 2019, SWST and most of the other lenders filed a notice of appeal in the Nigerian courts asserting that, due to the Option to Arbitrate, the Nigerian proceedings should be stayed and that the Federal High Court of Nigeria had acted without jurisdiction in granting the injunction (the "Notice of Appeal"). On 11 December 2020, SWST commenced arbitration before an arbitral tribunal seated in London (the "Tribunal") in accordance with the provisions of the Facility Agreements. SWST also obtained an anti-suit injunction from the High Court of England and Wales restraining Aiteo from continuing...