Hashwani & Ors v OMV Maurice Energy Ltd

This is an appeal against an order made by Burton J. on the hearing of an application under section 72 of the Arbitration Act 1996 for a declaration that the International Chamber of Commerce (“ICC”) does not have jurisdiction to hear and determine certain disputes which have arisen between the appellants, Zaver Petroleum Corporation Ltd (“Zaver”) (a company incorporated in Pakistan) and Ocean Pakistan Ltd (“OPL”) (a company incorporated in California) and the respondent, OMV Maurice Energy Ltd (“OMV”) (a company incorporated in Mauritius). By his order dated 25^th June 2015 the judge held that the ICC does have jurisdiction in respect of the dispute between OMV and OPL and he made a declaration accordingly. He was less certain, however, that it had jurisdiction in respect of the dispute between OMV and Zaver and therefore stayed the proceedings to give the arbitrators appointed by the ICC an opportunity to decide that question. This is the appeal of OPL and Zaver against the judge’s order. OMV cross-appeals, seeking to set aside the judge’s order staying the proceedings in relation to Zaver. It contends that the same order should be made in relation to Zaver as was made in relation to OPL.

The application arises out of a complex set of agreements entered into for the purposes of exploring for oil in an area of Sindh and Baluchistan. On 29^th December 1999 the President of Pakistan issued a Petroleum Exploration Licence in relation to an area identified as the Mehar Block in favour of OPL, an American company, then called Orient Petroleum Inc., and the Government of Pakistan, referred to as “Government Holdings”. OPL was granted a 95% working interest and Government Holdings a 5% working interest. On the same date the President entered into a Petroleum Concession Agreement (“PCA”) with OPL and Government Holdings which contained the terms under which exploration and production operations were to be carried out. It is unnecessary to refer to any particular provisions of the PCA other than Article XXVIII, which contained provisions for arbitration to which it will be necessary to refer in more detail at a later stage.

On the same date OPL and Government Holdings also entered into a Joint Operating Agreement (“JOA”), which contained detailed provisions for carrying out operations within the concession area. The agreement was annexed to, and was expressed to be part of, the PCA. It contained its own arbitration clause in Article 17, which provided that any dispute arising out of it should be dealt with mutatis mutandis in accordance with Article XXVIII of the PCA.

On 30th March 2000, OPL entered into a Farmout Agreement (“FOA”) with Zaver and OMV (then called Petronas Carigali (Pakistan) Ltd), under which it agreed to transfer to them the bulk of its interest in the Mehar Block concession, so as to produce the following working interests: OMV 75%; OPL 15%; Zaver 5%; Government Holdings 5%. It was also agreed that OMV would become the operating company in place of OPL.

Two documents, each described as a Deed of Assignment, but more properly characterised as a novation, were executed by OPL, the President and Government Holdings to give effect to the FOA, one with OMV with an effective date of 14^th May 2000 and one with Zaver with an effective date of 20^th October 2000. OMV and Zaver thereby became parties to the PCA and the JOA as from the effective dates.

In due course a disagreement erupted between OMV on the one hand and OPL and Zaver on the other in relation to operations in the Mehar Block. OPL and Zaver maintained that OMV was in breach of the JOA and stopped paying their respective shares of the operating costs. There were proceedings between the parties in the Pakistani courts, but although both sides sought to extract from them some support for their positions in the present appeal, I do not think that they have any real relevance to the questions we have to decide. In November 2014 OMV sought to refer the dispute to arbitration under the auspices of the ICC. In response OPL and Zaver issued an application under section 72 of the Arbitration Act 1996 seeking a declaration that the ICC did not have jurisdiction in the matter. (I refer to “dispute” in the singular as a matter of convenience and without prejudice to the contention that as a matter of law there are in fact two separate disputes in this case, one between OMV and OPL and one between OMV and Zaver.) To complete the picture, I should mention that OMV made an application under section 9 of the Act or the court’s inherent jurisdiction for the proceedings under section 72 to be stayed, but that has played no significant part in the appeal and it is unnecessary to spend time on it.

In order to explain the nature of the issues that arise in these proceedings it is necessary to refer in greater detail to the terms of the various arbitration clauses.

Article XXVIII of the PCA provides as follows:

“28.1

Any question or dispute arising out of or in connection with the terms of this Agreement or the Licence or any Lease (regardless of the nature of the question or dispute), shall, as far as possible, be settled amicably. Failing an amicable settlement within a reasonable period, such dispute shall be submitted to the International Center for Settlement of Investment Disputes (ICSID) established by the “Convention on the Settlement of Investment Disputes Between States and Nationals of Other States” and THE PRESIDENT and the Working Interest Owners, to the extent required by said Convention, hereby consent to arbitration thereunder.

. . .

28.2

If for any reason, the request for arbitration proceedings is not registered by ICSID, or if the ICSID fails or refuses to take jurisdiction over such dispute, such difference or dispute shall be finally settled by arbitrators under the Rules of Arbitration of the International Chamber of Commerce (the “Chamber Rules”) and by three (3) arbitrators appointed in accordance with the Chamber Rules. The arbitrators shall not be nationals of Pakistan or of the country of the other party to the dispute nor shall any of such arbitrators be employees or agents or former employees or agents of any of the parties to the proceedings.

28.3

This Article is only applicable in case of a dispute between foreign Working Interest Owners inter se or between foreign Working Interest Owners and THE PRESIDENT, provided that in the event of a dispute between the Pakistani Working Interest Owner(s) inter se, or between the Pakistani Working Interest Owners and THE PRESIDENT, the arbitration shall be conducted in accordance with the Pakistan Arbitration Act.”

Article 17 of the JOA provides as follows:

“Any dispute arising out of this Joint Operating Agreement shall be dealt with mutatis mutandis in accordance with Article XXVIII of the Concession Agreement.”

Article 7 of the FOA provides as follows:

“7.2

This Agreement and the relationship between the Parties shall be governed by and Interpreted in accordance with the laws of the Islamic Republic of Pakistan. With respect to all disputes to be resolved hereunder, the Parties agree that the forum will be in Islamabad, Pakistan and any dispute shall first be settled by negotiation by the Parties and then resolved by reference to three Arbitrators each one to be nominated by the Parties in accordance with the Arbitration Act 1940 or any other statutory laws enforced for the time being in Pakistan. And in case of any disagreement between the Arbitrators, by an Umpire to be appointed by the Arbitrators but with the consent of the Parties, whose decision shall be final and binding upon the Parties.

7.3

However, there shall be no bar on the Parties to settle any dispute through the laws of England after exhausting option/remedy available under Article 7.2 above.”

Article 29.6 of the PCA provides that the Pakistan Petroleum (Exploration and Production) Rules 1986 (“the Rules”) are to remain applicable for the purposes of the agreement. For reasons which will become apparent it is therefore also necessary to mention Rule 73, which provides as follows:

“Arbitration – Except as otherwise agreed, any question or dispute regarding a Petroleum right or any matter or thing connected therewith shall be resolved by arbitration in Pakistan, and in accordance with Pakistani laws.”

Before the judge OPL and Zaver contended that the provision for ICC arbitration, which is to be found in Art. XXVIII of the PCA, had not survived the execution of the FOA as far as disputes involving any one or more of the parties to that agreement were concerned. They argued that any dispute of that kind relating to the concession, whatever its origin, was to be determined by arbitration under Article 7.2 of the FOA. They also argued that in this case there was only one dispute involving OMV, OPL and Zaver, to which Article XXVIII of the PCA did not apply. The judge disagreed. He held that there were two separate disputes, one between OMV and OPL and one between OMV and Zaver; that both disputes arose under the JOA; that Art. 7.2 of the FOA was limited to disputes arising under that agreement and so had no application to the disputes in issue; that the dispute between OMV and OPL fell within the terms of Art. XXVIII of the PCA, because they were both foreign working interest owners; and that the dispute between OMV and Zaver also fell within Art. XXVIII because the effect of the words “mutatis mutandis” in Art. 17 of the JOA was to render Art. XXVIII applicable to it.

Before us Mr. Brindle Q.C. submitted that Art. 7.2 of the FOA provided a complete answer to the question of jurisdiction. He argued that, faced with a number of complicated agreements containing arbitration clauses couched in different terms, the parties to the FOA, who were limited to the three private working interest owners, had decided to simplify matters by agreeing an arbitration clause that would apply to disputes arising between any one or more of them in relation to the concession, whatever their origin or nature. That was why they had referred in the first sentence to their relationship and not just to the agreement itself. Mr. Brindle also submitted that the disagreements between OMV and OPL and Zaver were exactly the same and that there was in reality only one dispute in this case. It was not a dispute between two foreign working owners inter se and so did not fall within Art. XXVIII of the PCA, and the expression “mutatis mutandis” could not bear the weight which Mr. Hancock Q.C. sought to place on it. The result was that the ICC did not have jurisdiction and the dispute had to be referred to arbitration in Pakistan.

Mr. Hancock’s starting point was that there were two disputes in this case. He submitted that OMV was seeking to recover from OPL and Zaver sums due under the JOA by way of operating costs. OPL and Zaver might be seeking to defend the claims on the same grounds, but the claims against them were distinct and unrelated in legal terms. However, contrary to Mr. Brindle’s submission, he submitted that that was not a critical issue. Even if there were one tripartite dispute, Art. XXVIII applied if two parties on opposite sides were foreign working interest owners, because there would then be a dispute between foreign working interest owners inter se. He submitted that, in order to understand the agreements correctly, it was necessary to consider them chronologically. The JOA had been entered into at the same time as the PCA. The only parties to it were OPL and Government Holdings, who at that stage were the only working parties to the PCA. Art. 5.2 of the PCA gave Government Holdings the right to increase the size of its interest to 25% if a commercial discovery were made and Art. 12.4 gave a working interest owner the right to transfer all or part of its rights, but there was nothing to indicate that any such transfer had been in immediate contemplation at the time the agreement was made. Accordingly, if it were not for the words “mutatis mutandis”, there was an obvious difficulty in seeing what content Art. 17 could have. The parties had clearly intended it to have some content, however, and the most obvious purpose was to extend to OPL the benefit of ICSID or ICC arbitration which Art. XXVIII extended to a foreign interest owner. No other purpose had been suggested. It followed, therefore, in Mr. Hancock’s submission, that the words “mutatis mutandis” must have been intended to achieve that objective. When OMV, and later Zaver, became parties to the JOA under the Deeds of Assignment they became bound by Art. XXVIII of the PCA in that extended form in relation to disputes arising under the JOA. Art. 7.2 of the FOA was limited to disputes arising under that agreement. It was unrealistic, he submitted, to think that the parties had intended that disputes arising under the JOA which involved only two or more of the private working interest owners should be decided under the terms of Art. 7.2 but that any dispute involving Government Holdings should be decided under Art. XXVIII of the PCA as extended by Art. 12 of the JOA.

In some respects it is difficult to ascertain exactly what the parties had in mind in relation to dispute resolution when they entered into these various agreements. It is important to remember, however, that the task of the court is to ascertain their intention from the language they have used, unless it is clear from the context in which the words appear or the background to the transaction that they must be given a meaning which they would not otherwise naturally bear. The PCA and the JOA were entered into at the same time and for the same purpose and I think it is therefore fair to assume that the parties had the same objects in mind. The position in relation to the FOA is uncertain. There is nothing in the background to that agreement, other than the PCA and JOA, which might affect its construction. However, since the preceding agreements provide an essential part of the context in which each succeeding document has to be understood, I agree with Mr. Hancock that the right course is to examine the documents in the order in which they came into existence.

Apart from the exploration licence itself, which has not played a significant role in the argument, the PCA is the primary document. The JOA is expressed to form part of it, but is subsidiary in the sense that it was intended to contain more detailed provisions covering the practical aspects of operations. One can therefore take Art. XXVIII as the starting point. As is clear from the terms of Art. 28.1.and 28.2, the parties have gone to some trouble to identify well-recognised independent international bodies for the resolution of disputes under the PCA. In particular, the agreement to refer disputes to ICSID suggests that they were conscious of the status of OPL as a foreign investor which wished to have the comfort of a dispute resolution procedure insulated from the country in which it was investing. On the other hand, there is a clear intention to subject other kinds of dispute to domestic arbitration, as might be expected. In this context Art. 28.3 poses difficulties. Although OPL might have a dispute with the President, to which the provisions for ICSID or ICC arbitration might apply, it was the only foreign working interest owner and there could therefore be no disputes between foreign working interest owners inter se. Moreover, one obvious possibility was that a dispute might arise between OPL and Government Holdings, but a dispute of that kind is not expressly provided for at all. As a dispute with a state actor, it could, perhaps, be assimilated to a dispute with the President, but Mr. Brindle submitted that any such dispute fell through the cracks of the agreement to be caught by the safety net of Rule 73. It seems to me unlikely that the parties foresaw that possibility and intended to deal with it in such an informal manner, but it is possible that they both simply overlooked it, in which case the safety net might come into play.

The dispute in this case does not arise under the PCA. There is a dispute between the parties whether it arises under the JOA or the FOA, to which I shall come in due course, but at this stage of the discussion and in order to assist the analysis of these various provisions I shall assume that it arises under the JOA. It is therefore to the provisions of the JOA that it is necessary to look in order to see what, if anything, the parties have agreed about how it should be resolved. I agree with Mr. Hancock that the original parties to the agreement (Government Holdings and OPL) intended to achieve something by Article 17 and thought they had done so. This is where the expression “mutatis mutandis” comes into play. Art. XXVIII provides for ICSID or ICC arbitration in two cases: where there is a dispute between a foreign party and the President and where there is a dispute between foreign parties inter se. In my view the most likely purpose of using the expression “mutatis mutandis” was to enable Government Holdings to be substituted for the President in Art. 28.3, so that for the purposes of the JOA the arbitration agreement extended to disputes between OPL as a foreign working interest owner and Government Holdings as the representative of the state. It thus filled what would otherwise have been a lacuna in Art. 28.3 if it had been applied to the JOA in its original form.

The FOA was entered into three months after the JOA. There is no reason to think that at that stage anything had occurred to raise questions about the efficacy of Article XXVIII of the PCA as it applied to disputes arising under the JOA. Although most businessmen consider dispute resolution procedures important when their attention is drawn to them, they are not usually at the forefront of their minds when they are engaged in commercial negotiations and there is nothing in the evidence to suggest that they were in this case. I find it difficult to accept, therefore, that when they entered into the FOA the parties were so concerned about uncertainties over the way in which Article XXVIII would apply once they had acquired working interests in the concession that they decided to put in place different arbitration arrangements in respect of any disputes that might arise between them under the JOA. That is all the more unlikely, in my view, given that the arrangements would not have applied to any disputes that also involved the owner of the fourth working interest, Government Holdings. As was pointed out in Fiona Trust and Holding Corporation v Privalov [2007 UKHL 40, [2008] 1 Lloyd’s Rep. 254, it can normally be assumed that businessmen intend all disputes arising out of the same relationship to be determined by the same tribunal. It is not surprising, on the other hand, that the three parties to the FOA should have agreed that the FOA itself and their relationship under it should be governed by the law of Pakistan, because it was concerned with the division of an existing interest in a Pakistani concession. Nor, for the same reason, is it surprising that they should have decided that disputes to be resolved “hereunder” should be resolved by arbitration in accordance with Pakistani law. It is a far cry from that, however, to infer that the parties wished to have a limited class of disputes arising under a separate agreement to which another working interest owner was a party decided under different provisions. No doubt the parties could have achieved that if they had wished to do so, but if that had been their intention, I am confident that they would have expressed it in different and much clearer terms. In my view Article 7.2 is naturally to be understood as limited in its scope to the FOA itself and that the “relationship” to which it refers (though only for the choice of proper law) is to be understood as referring only to the relationship under that agreement. I find it unnecessary to say anything about the effect of Article 7.3, which, on any view, is far from clear in its meaning.

The two Deeds of Assignment, although differing slightly in their terms, are to substantially the same effect. Each provides in Article 1.1 as follows:

“This Assignment Deed is and shall be construed as a deed supplementing and amending, in part, the Concession Documents . . . Except as expressly amended in this Assignment Deed, the Concession Documents remain in full force and effect according to their respective provisions.”

For these reasons I am satisfied that on the true construction of the documents as a whole the parties intended that disputes arising out of the JOA were to be determined in accordance with Article XXVIII of the PCA “mutatis mutandis”.

At this point it is convenient to deal with Mr. Brindle’s submission that there is in this case only one dispute within the meaning of Article XXVIII capable of being referred to arbitration. His argument was that a “dispute” is broader than a mere cause of action and that in this case, because OMV’s claim against OPL raises exactly the same issues as its claim against Zaver, there is in reality only one dispute to which all three of them are parties. This is not, therefore, a case in which there is a dispute between two foreign working interest owners inter se and so is not one which can be referred to ICSID or the the ICC. He sought to support that argument by reference to the proceedings in Pakistan, in which OMV has referred to “a dispute” with OPL and Zaver.

Although all parties have sought to make something out of the way in which the others have characterised the argument between them, both Mr. Brindle and Mr. Hancock accepted that the positions they have adopted in proceedings hitherto do not bind their hands. In my view, therefore, nothing is to be gained from a review of the Pakistani proceedings or the steps taken by OMV to refer the matter to the ICC. Whether there is one dispute or two for these purposes depends on the correct interpretation of the relevant arbitration agreement and the particular circumstances of the case.

At this point it is convenient to digress to discuss the question of the agreement under which OMV’s claims arise. Mr. Brindle submitted that OMV’s claims arise under articles 4 and 5 of the FOA, but in my view that fails to take proper account of the nature of the FOA and its relationship to the other agreements relating to the concession. The FOA itself was no more than an agreement to transfer part of OPL’s interest to OMV and Zaver. It was subject to the approval of the President (Article 1.1) and contemplated the execution of further documents in order to complete the transfer (Article 1.2). The parties envisaged that as from the effective date of the respective Deeds of Assignment OMV and Zaver would become parties to the JOA, which remained the principal agreement under which exploration and production operations in the concession area were to be carried out. In that context it would be surprising if the parties had intended that the primary obligation to contribute to the cost of operations was to be found in the FOA (to which Government Holdings was not a party) rather than the JOA. In my view Articles 4.4 and 4.5 of the FOA were at best intended to clarify the obligations that were to arise under the JOA as from the effective dates of the two Deeds of Assignment; they were not intended to give rise to independent obligations collateral to those contained in the JOA itself. Even if that is wrong, however, the primary source of the obligations on which OMV’s claims are founded is the JOA. On the other hand, any right OMV has to enforce the obligation of OPL and Zaver to transfer to it their interests in the concession must arise under the FOA, since no comparable provision is to be found in the JOA.

For these reasons I am satisfied that any right OMV has to recover from OPL and Zaver their respective shares of the costs of operations in the concession area arises under the JOA. OPL and Zaver resist those claims on the grounds that OMV is itself in breach of the JOA. OMV’s claims against OPL and Zaver are independent, both in law and fact, in the sense that if one were compromised the other would be unaffected. It is true that they turn on the same facts and the same principles of law and that it would therefore be desirable in terms of saving time and costs for them to be heard and determined together, but in legal terms they are entirely distinct. An arbitration clause, even one contained in an agreement which has more than two parties, is intended to be effective even though only two of the parties are in dispute, provided that the rights and obligations to which the agreement gives rise are not joint. One would therefore expect any reference to a “dispute” or “difference” to refer to a disagreement that has arisen between two of the parties to it. If the parties had wanted to ensure that parallel disputes of the kind that exist in this case were treated as a single dispute for the purposes of the arbitration agreement, one would expect them to have made that clear. All this suggests that Article XXVIII of the PCA is directed primarily to disputes of the kind which, in law, involve only two parties and that the word “dispute” is used in that sense. For these reasons I am of the view that in this case there are two separate disputes for the purposes of Article XXVIII. It it unnecessary in these circumstances to determine whether, if there were only one dispute, it would, as far as OPL and OMV are concerned, constitute a dispute between two foreign working interest owners inter se within the meaning of Article 28.3. The next question, therefore, is how the arbitration agreements apply to the disputes between OMV and OPL on the one hand and OMV and Zaver on the other.

The way into Article XXVIII is through Article 28.3, which limits the application of Articles 28.1 and 28.2 to disputes between foreign working interest owners inter se and disputes between foreign working interest owners and the President. The expression “foreign working interest owner” is not defined in the PCA, but it is clearly used in contrast to “Pakistani working interest owner”. Both OMV and OPL are incorporated outside Pakistan and in my view are to be regarded as foreign working interest owners for this purpose. It follows that insofar as the dispute between OMV and OPL involves a claim to recover money due under the JOA, it falls within the scope of Articles 28.1 and 28.2.

However, the matter is complicated by the fact that by Article 5.2 of the FOA OPL and Zaver agreed that if either of them failed to pay any amount due to OMV by way of cash calls and remained in default for more than 90 days, it should be obliged to transfer the whole of its working interest to the non-defaulting parties. Mr. Brindle submitted that insofar as OMV is seeking to enforce its right under that Article it can pursue its claim only by arbitration in Pakistan in accordance with Article 7 of the FOA. The interlocking nature of these agreements and the fact that they contain mutually inconsistent arbitration clauses makes it more difficult to decide where jurisdiction lies in any given case. However, for reasons I have already given, I am unable to accept that Article 7.2 of the FOA applies to disputes arising under the JOA and consequently I accept that OMV is entitled to pursue a claim for sums due under the JOA against OPL in arbitration under the rules of the ICC in accordance with Article 28.2 (ICSID having declined to act). Whether the arbitrators appointed by the ICC will have jurisdiction to decide any other issues may depend on what OPL chooses to rely on by way of defence, but their decision on any issues that fall within the scope of their jurisdiction is likely, at least under English law, to give rise to an issue estoppel.

The dispute between OMV and Zaver is between a foreign working interest owner and a Pakistani working interest owner. On the face of it, therefore it is difficult to bring it within the scope of Article 28.3. However, relying on the expression “mutatis mutandis” in Article 17 of the JOA, Mr. Hancock submitted that Article 28.3 is to be read as if it provided that Articles 28.1 and 28.2 are to apply to a dispute of that kind. At the moment when Zaver became a party to the JOA Article XXVIII of the PCA applied to disputes between OMV and Government Holdings, the former being a foreign working interest owner and the latter a Pakistani working interest owner. That was sufficient, he submitted, to demonstrate an intention on the part of the parties to the JOA (and, if necessary, the parties to the PCA) that disputes involving foreign working interest owners should be referred to ICSID or the ICC, as the case might be. The purpose of using the expression “mutatis mutandis” in Article 17 of the JOA was to ensure that the principles embodied in Article XXVIII applied to disputes between parties to the JOA. One of those principles was that disputes involving a foreign working interest owner should be referred to arbitration outside Pakistan.

Whereas it was possible to make a relatively simple linguistic alteration to Article 28.3 to enable it to accommodate the relationship between OPL and Government Holdings under the JOA, it is more difficult to make linguistic changes of a kind that would bring about the position for which Mr. Hancock contended. Since Zaver is a Pakistani working interest owner, any dispute it may have with Government Holdings must be referred to arbitration in Pakistan, simply as a result of reading “the President” as referring to Government Holdings. However, Article XXVIII makes no express provision for disputes arising between foreign working interest owners and Pakistani working interest owners. There are therefore only two possibilities: either such disputes fall outside the provisions of Article XXVIII and are caught by the safety net of Rule 73, or they have to be assimilated to another class of disputes that do fall within Article XXVIII.

Article XXVIII read together with Article 17 of the JOA contemplates three kinds of claims: those between foreign parties alone, those between Pakistani parties alone and those between foreign parties and emanations of the Pakistani state. Given the fact that the PCA, the JOA and the OMV Deed of Assignment all provided for arbitration in accordance with Article XXVIII of the PCA and that on becoming parties to the Concession Documents Zaver formally ratified and confirmed them, I find it difficult to accept that the parties intended disputes between Zaver and OMV to fall outside the terms of Article XXVIII altogether. If they had intended that such disputes should be referred to arbitration in Pakistan, they would surely have said so in terms, rather than simply leaving the matter to be determined in accordance with the Rules.

I agree with Mr. Hancock that one matter that emerges clearly from Article XXVIII as a whole is an intention to resolve disputes involving foreign working interest owners by arbitration outside Pakistan. If that is so, effect can be given to the expression “mutatis mutandis” by substituting “a Pakistani working interest owner” for “the President” in Article 28.3. The result would be that disputes between Zaver and a foreign working interest owner would be referred to arbitration abroad and disputes between Zaver and another Pakistani working interest owner would be referred to arbitration in Pakistan. Mr. Brindle submitted that the expression “mutatis mutandis” could not bear the weight which Mr. Hancock sought to put on it, but in my view, once the parties’ intention has been identified from the documents as a whole, a simple substitution of one name for another, which is well within what that expression contemplates, can easily be made. For these reasons I am satisfied that OMV is also entitled to pursue a claim for sums due under the JOA in arbitration against Zaver under the rules of the ICC.

A party who makes an application under section 72(1) of the Arbitration Act 1996 is asking the court to determine whether the tribunal in question has jurisdiction to hear and determine the matters submitted to it. That is a question of law which ultimately admits of only one answer, however difficult it may be to ascertain it, and it is the court’s responsibility to decide the question on the basis of the evidence the parties have chosen to put before it, unless there is some justification for not doing so. There is a good reason for that. Although arbitrators have jurisdiction to decide their own jurisdiction, they do not have the final word on the subject, because it is open to the parties to challenge their award under section 67 of the Act on the grounds that they lacked substantive jurisdiction. In simple terms, a party is not bound by the award of a tribunal on a matter that he did not agree to refer to it. It may be that in a few cases there may be practical reasons for allowing the tribunal to reach a decision on its own jurisdiction before the court finally rules on the matter, but such cases are likely to be rare. In the present case a decision by the tribunal might have had some persuasive authority, but could not finally determine the matter before the court.

For understandable reasons the judge felt less confident in his conclusion in relation to Zaver than he did in his conclusion in relation to OPL and for that reason he decided to adopt the approach discussed in Birse Construction v St. David [1999] B.L.R. 194 and Ahmed Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyd’s Rep. 522 and to stay Zaver’s application in order to give the arbitrators appointed by the ICC an opportunity to decide for themselves whether they had jurisdiction to act.

In Ahmed Al-Naimi v Islamic Press Agency the claimant was engaged to carry out building works for the defendant under a contract which contained an arbitration clause. Additional works were then agreed which gave rise to a dispute. The claimant brought proceedings against the defendant arguing that the additional work had been carried out under an oral agreement which did not include an arbitration clause. The defendant applied to the court under section 9 of the Arbitration Act 1996 for a stay of the proceedings. The judge stayed the proceedings ostensibly under section 9 of the Act, but declined to decide whether the dispute was subject to an arbitration agreement. On appeal the court held that there was a strong argument that the court cannot grant a stay under section 9 unless it is satisfied that there is an arbitration agreement and that the subject matter of the proceedings falls within it, but it also recognised that the court may be justified in exercising its inherent power to stay the proceedings if good sense and litigation management make it desirable for an arbitrator to consider the whole matter first. In doing so it approved the observations of His Honour Judge Humphrey Lloyd Q.C. in Birse Construction v St. David. It is worth noting, however, that Judge Humphrey Lloyd himself considered that to stay the proceedings under the inherent jurisdiction is likely to be appropriate only in cases where the court can be virtually certain that there is an arbitration agreement or the dispute is only about the ambit or scope of the agreement. That is not this case. I agree with the views expressed by Lightman J. in Albon v Naza Motor Trading Sdn Bhd [2007] EWHC 665 (Ch) that it will only be in exceptional cases that a court faced with proceedings which require it to determine the jurisdiction of arbitrators will be justified in exercising its inherent power to stay those proceedings to enable the arbitrators themselves to decide the question.

In the present case Burton J. thought that since there would be an arbitration in any event, it was sensible, having regard to what had been said in Al-Naimi v Islamic Press, to leave the question of jurisdiction to the arbitrators. He therefore stayed the proceedings. In my view he was wrong to do so. He did not explain why that was a desirable course to take in the interests of good case management and it is difficult to see how it could have been, because the issue turned entirely on the construction of the various agreements to which I have referred and there must have been a very considerable risk that, whatever the arbitrators decided, the court would in due course be required to resolve it on an application under section 67. Moreover, the fact that there was going to be an ICC arbitration raising similar issues between OMV and OPL was not a reason for leaving the unrelated question of the ICC’s jurisdiction over the dispute between OMV and Zaver to the same or any other arbitrators appointed by the ICC. The present case is quite unlike the sort of cases which Judge Humphrey Lloyd or this court had in mind in the cases to which I have referred. In my view the judge’s decision to stay the proceedings between OMV and Zaver was not a proper use of the court’s power.

For the sake of completeness I should refer briefly to OMV’s application for a stay of the proceedings under the inherent jurisdiction or section 9 of the Arbitration Act. The judge made no order on that application which was, as Mr. Hancock accepted, misconceived in any event insofar as it was made under section 9 of the Arbitration Act. Section 9 enables a party against whom substantive proceedings have been brought in respect of a matter which he asserts is the subject of an arbitration agreement to apply to the court for a stay. There were no such proceedings in this case, since the dispute about the jurisdiction of the ICC was not said to be the subject of an arbitration agreement. That was so, despite that fact that by virtue of section 30 of the Act itself, or the terms of the ICC rules, the tribunal has the power to determine its own jurisdiction, since that power is merely ancillary to its function of determining the substantive claim.

For these reasons I would dismiss OPL’s appeal and allow the appeal of OMV.

I agree.

I also agree.