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Arbitration

ENGLISH HIGH COURT STAYS COURT PROCEEDINGS IN FAVOUR OF ARBITRATION

In Helice Leasing S.A.S. v PT Garuda Indonesia (Persero) TbK  [2021] EWHC 99 (Comm), the English Commercial Court faced with conflicting dispute resolution provisions applied a business common sense construction in deciding in favour of arbitration.

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The court granted a stay of proceedings under section 9 of the Arbitration Act 1996, finding a reference to “court” in the underlying contract to be a reference to the London Court of International Arbitration.

The case is a reminder to commercial parties that they should give consideration to specific breaches that might arise under a contract and in what forum they wish those specific breaches to be resolved.

FACTS

PT Garuda Indonesia (Persero) TBK (“Garuda”) and Helice Leasing S.A.S (“Helice”) were the lessee and lessor respectively of a Boeing 737-800 aircraft.

Garuda was in rental arrears which was an undisputed fact. Following some failed attempts at reaching agreement regarding a repayment plan, Helice issued a claim in the High Court against Garuda for non-payment. Garuda applied to stay the proceedings pursuant to section 9 of the Arbitration Act 1996, on the basis that Helice had breached the parties’ agreement to arbitrate under the aircraft lease

CONFLICTING DISPUTE RESOLUTION PROVISIONS IN AIRCRAFT LEASE

The lease contained two apparently contradictory dispute resolution clauses:

  • Clause 15.2 provided that “…any dispute arising out of or in connection with this Lease Agreement, … shall be referred to and finally resolved by arbitration under the Rules of the London Court of International Arbitration.
  • In contrast, Clause 13.2 provided that “… if an Event of Default occurs, … Lessor may at its option … proceed by appropriate court action or actions to enforce performance of this Lease Agreement or to recover damages for the breach of this Lease Agreement.

At the hearing Helice argued that Clause 13.2 gave it an additional, unilateral, option to commence litigation proceedings, in the event that Garuda was in default for non-payment.

HIGH COURT’S DECISON

The Commercial Court noted that Clause 13.2 was “not happily worded” and held that:

In order to give the contract a business common-sense construction… the “court action” referred to in Clause 13.2 must reasonably have been intended to mean action before the London Court of International Arbitration, in accordance with Clause 15.2;

The wording of clause 13.2 was held to be significant: It would only apply “If an Event of Default occurs” and not merely “If an Event of Default is alleged“. The Court considered that any dispute as to whether an Event of Default had in fact occurred would plainly constitute a “dispute” under clause 15.2. Specifically, the Court dismissed a claim by Helice that because Garuda had impliedly admitted that sums were due and owing, there was no dispute capable of being referred to arbitration. Whether or not an “Event of Default” occurred was a “dispute” itself within the meaning of clause 15.2 and should therefore be resolved in arbitration. It was held that if this issue were to be resolved by the Court that would usurp the role of the arbitrator.

Relatedly, the High Court was also asked to consider whether there was a dispute capable of being referred to arbitration given that Garuda had impliedly admitted it was in rent arrears and did not dispute the quantum of the claim. The Court held that by reason of Garuda’s refusal to pay there was a “dispute” within the meaning of clause 15.2. This conclusion was reinforced by the fact that Helice also sought an indemnity pursuant to the Lease which had not been foreshadowed by it in inter-party correspondence.

The court therefore granted Garuda a stay of the proceedings in favour of arbitration, in light of the parties’ agreement to arbitrate under Clause 15.2 of the lease.

COMMENT

This case is a good illustration of why it is important that jurisdiction and dispute resolution provisions in commercial agreements should be clear and consistent, to avoid the risk of lengthy and costly disputes.

The English Courts will endeavour to construe the terms of the relevant contract, including the dispute resolution provisions, so as to give effect to the parties’ objective intentions. However, where drafting is unclear or provisions are contradictory, the courts will adopt a “business common-sense” approach to construction – but the result might not always be easy to predict!

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Craig Deuchrass

Senior Associate

craig.deuchrass@collyerbristow.com