English Court Refuses Stay Under Escrow Agreement

In Albion Energy Limited v Energy Investments Global BRL [2020] EWHC 301 (Comm), the English High Court considered, inter alia, an application for a stay of proceedings under s.9 of the Arbitration Act, arising out of the payment of the final instalment from the sale of 20% of an oil production and exploration company (Heritage).

Albion agreed to sell 20% of Heritage to Energy Investments for $100m in three instalments under a sales and purchase agreement. The first two instalments were made; prior to payment of the third instalment ($33.3m), Energy Investments asserted claims against Albion as a result of which Energy Investments agreed to pay $20m of the outstanding instalment unconditionally, with the remaining $13.3m to be held by Albion’s solicitors on the terms of an escrow agreement. Albion brought proceedings seeking summary judgment for the outstanding amount of $13.3m; in response, Energy Investments sought a stay of the proceedings under s.9 of the Arbitration Act, relying on the arbitration clause in the Escrow Agreement which, it argued, varied and supplanted the High Court jurisdiction clause in the sale and purchase agreement.

The court considered the position where parties have entered into more than one agreement, and their agreements contain different dispute resolution clauses, referring [16-17] to the summary of the law by Hamblen LJ in BNP Paribas v Trattamento Rifiuti Metropolitani SpA [2019] EWCA Civ 768 at [68] as to the proper approach in these circumstances:

“… I would summarise the approach to be as follows:

(1) Where the parties’ overall contractual arrangements contain two competing jurisdiction clauses, the starting point is that a jurisdiction clause in one contract was probably not intended to capture disputes more naturally seen as arising under a related contract: Trust Risk Group at [48]; Dicey, Morris & Collins at § 12-110.

(2) A broad, purposive and commercially-minded approach is to be followed – Trust Risk Group at [48]; Sebastian Holdings at [39] and [50].

(3) Where the jurisdiction clauses are part of a series of agreements they should be interpreted in the light of the transaction as a whole, taking into account the overall scheme of the agreements and reading sentences and phrases in the context of that overall scheme: see UBS v Nordbank [2009] at [83]; Trust Risk Group at [47]; Sebastian Holdings at [40].

(4) It is recognised that sensible business people are unlikely to intend that similar claims should be the subject of inconsistent jurisdiction clauses: UBS v Nordbank at [84], [95]; Sebastian Holdings at [40]; Savona at [1].

(5) The starting presumption will therefore be that competing jurisdiction clauses are to be interpreted on the basis that each deals exclusively with its own subject matter and they are not overlapping, provided the language and surrounding circumstances so allow: Monde Petroleum at [35]-[36]; Savona at [1].

(6) The language and surrounding circumstances may, however, make it clear that a dispute falls within the ambit of both clauses. In that event the result may be that either clause can apply rather than one clause to the exclusion of the other – Savona at [4] and [31].”

The Court held that Energy Investments was not entitled to a stay as Albion’s claim – concerning its entitlement to be paid the outstanding instalment of the purchase price – did not fall within the Arbitration Agreement. The Court reached that conclusion on a number of bases, including the following [24-29]:

  • There is nothing particularly surprising in parties stipulating for different dispute resolution provisions in principal and security agreements, given the different purposes of those agreements. It was inherently more likely that the arbitration agreement in the Escrow Agreement was intended to address the security and other ancillary obligations created by that agreement, rather than to displace the parties’ agreed choice of jurisdiction under the SpA.
  • The language of the Arbitration Agreement – in particular its reference to “any dispute or difference …. arising out of or in connection with this letter (including any question regarding its existence, validity, interpretation, performance or termination)”, suggests that the focus of the clause is obligations created by the Escrow Agreement rather than disputes as to the interpretation, performance or termination of the SpA.
  • Clause 2.9 of the Escrow Agreement, which provides that the payment into escrow is “without prejudice to… any other rights which Albion … may have under the SpA” tells against the suggestion that the arbitration agreement in the Escrow Agreement was intended to remove Albion’s right under the SpA to take proceedings in the High Court.
  • The Escrow Agreement concerned only three of the six parties to the SpA. This factor itself suggests that the parties can only have intended the Arbitration Agreement to have a localised effect, in order to avoid the commercially unattractive position where claims between some of the parties to the SpA were subject to High Court jurisdiction, and other related claims under the SpA were subject to ICC arbitration. This is an outcome which sensible businesspeople are unlikely to have intended.

See also the review of this case by Herbert Smith Freehills.

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Hong Kong Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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