Kruppa v Benedetti & Anr

[2014] EWHC 1887 (Comm)

Benedetti made an application to stay proceedings brought by Kruppa pursuant to section 9 of the Arbitration Act 1996. The main question for Mr Justice Cooke to decide was whether or not the clause in question constituted an arbitration agreement within the meaning of the Act. The relevant clause reads as follows:

“Laws of England and Wales. In the event of any dispute between the parties pursuant to this Agreement, the parties will endeavour to first resolve the matter through Swiss arbitration. Should a resolution not be forthcoming the courts of England shall have non-exclusive jurisdiction.”

Benedetti said that this clause required the parties to arbitrate their dispute. Further, the word “arbitration”, on its own, was sufficient for an English court to find a binding arbitration agreement. The clause here had been drafted by professionals and the words “Swiss arbitration” referred only to arbitration and not to mediation or some other form of ADR. Parties would be expected to know the difference between “arbitration” and “mediation”. When the word “arbitration” is used, it should be given its ordinary and natural meaning.

However, the Judge considered that there were a number of difficulties with that approach. First, the parties had not specifically agreed to refer any dispute to arbitration. They had agreed to “endeavour” to resolve the matter through Swiss arbitration. Secondly, the clause plainly envisaged the possibility of two stages in the dispute resolution process. The parties had agreed to attempt to resolve the matter first by arbitration and if that did not result in a solution then there would be a need for litigation in the courts.

The clause was a two-tier dispute resolution clause which provided for a process referred to as “Swiss arbitration” with a right to the parties to refer the matter to the jurisdiction of the English court, “should a resolution not be forthcoming” through the Swiss procedure envisaged. It was logically not possible to have an effective multi-tier clause consisting of one binding tier (i.e. arbitration) followed by another binding tier (i.e. litigation).

In the Judge’s view, what the parties had in mind was that there should be an attempt to agree a form of arbitration between them in Switzerland. If they failed to do so, the English court was to have non-exclusive jurisdiction.

The nature of that obligation showed that there was not a binding agreement to arbitrate but merely an agreement to attempt to resolve the matter by a process of arbitration which itself had not been set out in the clause or elsewhere in the contract. The absence of provisions relating to the number of arbitrators, the identity of the arbitrators, the qualifications of candidates for arbitration or the means by which they should be chosen further demonstrated the need for the parties to reach further agreement on the subject because the reference to “Swiss arbitration” did not specify the seat of the arbitration nor the court that could make any appointment in lieu of the parties’ agreement. The requirement to submit finally to a binding arbitration is absent and would, on the face of the clause, be inconsistent with its terms because of the two stage process envisaged.

Benedetti’s application was dismissed.

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