Stay No More: English Commercial Court Reviews Section 9 Test (Again)

Parties to international contracts often agree to arbitrate their disputes. But what if one party decides that it is better off pursuing a claim in court? Normally the law of the country where the claim is brought, giving effect to Article II(3) of the New York Convention, will ensure that the court proceedings are halted in favour of arbitration.

However, national laws on this subject are worded in a variety of ways, and the approaches of different courts vary significantly.

The English Commercial Court has added little clarity to the picture in England in the recent judgment of: China Credit & Export Insurance Corporation v Emerald Energy Resources Limited [2018] EWHC 1503 (Comm).

Emerald is part of a consortium of Nigerian owners of OML141, a shallow-water oil block on the Niger delta. Under a farm-in agreement, the Claimant (known as "Sinosure") acquired an interest in OML141 in return for a payment plus the obligation to fully fund exploration costs, with a condition that Sinosure's recovery of its funding would only be from oil production revenues.

Having secured funding for the large (approximately US$50m) cost of seismic surveying of the block, Sinosure farmed-out of the block (relinquished its interest). Following lengthy negotiations, Sinosure sued Emerald in the English Commercial Court under a promissory note ("PN") (containing a non-exclusive jurisdiction clause) granted by Emerald to a bank as part of the funding structure arranged by Sinosure. The PN had been assigned to Sinosure when Sinosure satisfied the debt to the bank, pursuant to a credit insurance policy Sinosure had issued to the bank as part of its obligation to secure funding for exploration.

The Court decided that Sinosure was entitled to sue on the PN notwithstanding the arbitration agreement, because the non-exclusive jurisdiction clause, properly construed, bound Emerald not to dispute the jurisdiction of the English Court to hear claims brought under the PN, even if such a claim might also be caught by the arbitration agreement (as arising 'in connection with' the farm-in).

A significant issue was the approach of the Court under section 9 of the English Arbitration Act, which concerns stay of proceedings in favour of arbitration. Several past English cases have taken subtly different approaches to the issue of threshold. Must the Court be satisfied that there is a binding arbitration agreement, and that its scope encompasses the claim? Or should one or both of...