The Commercial Court in London has said it will hear a contractor’s claim against an Indonesian coal mine operator, even though the parties are already in arbitration in Singapore.

In a decision dated 14 July, Mr Justice Blair held that the claim did not fall within the scope of the coal mine’s operating agreement submitting disputes to international arbitration, but an ancillary ‘cash distribution agreement’ intended to govern the management of the mine’s funds and to ensure security for participants in the project should a dispute arise. That agreement submits disputes to the jurisdiction of the English courts.

The court noted that, ‘there is nothing unusual about submitting a contractual dispute to arbitration whilst referring matters relating to security to the jurisdiction of one or more courts.’ It observed that security ‘is frequently a feature of international transactions, and the choice of jurisdiction in the security agreement may have to do with factors independent of the principal agreement.’

Kaltim Prima Coal operates a mine in East Kalimantan, a resource-rich province of Borneo. In 2003 it signed an operating agreement with its main subcontractor, PT Thiess Contractors Indonesia, which called for any pricing dispute under the contract to be submitted to mediation, then expert determination, then UNCITRAL arbitration governed by the laws of Queensland in Australia.

Some three years later Prima Coal signed the cash distribution agreement to replace earlier agreements. This agreement governed its relations with several ‘principal contractors’, marketing agents and banks and dealt with “account administration and cash management arrangements.”

In 2010, a pricing dispute arose between the parties and was referred to arbitration in Singapore after mediation and expert determination failed. Early this year, Thiess initiated separate proceedings in the Commercial Court against Prima Coal and the Singapore branch of Standard Chartered Bank seeking declarations and orders which it claims to be entitled to under the cash distribution agreement. According to the court, the orders would mean that the banks that were party to the agreement would have to transfer the “dispute amount” into an account which could only be used in response to a joint instruction from the parties or “a unilateral instruction accompanied by a final court judgment or a final arbitral award.’

Prima Coal argued that the court should stay the proceedings under section 9 of the 1996 Arbitration Act since the claim fell under the arbitration clause of the operating agreement. Thiess, however, argued that the claim falls solely under the cash distribution agreement.

In reaching a decision the court looked at a line of cases where disputes are governed by substantively-similar parallel agreements containing different choice of court and dispute resolution clauses. In particular it relied upon a 2010 judgment of the High Court of Singapore, Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp, which held that ‘where a claim arose out of or was more closely connected with one agreement than the other, the claim ought to be subject to the dispute resolution regime contained in the former agreement, even if the latter was, on a literal reading, wide enough to cover the claim.’

However, the court said that the latest case was novel because the agreements in question were distinct and separate. Blair J said: ‘In my view, the claim in the English action is a claim under [the cash distribution agreement], concerned with a procedure whereby the sums in dispute are to be set aside until the dispute is determined. It raises a discrete claim, related to but distinct from, the underlying dispute arising under the [operating agreement] that is the subject of the arbitration. There is no reason why the parties cannot be taken to have intended that these claims are to be the subject of different jurisdiction clauses.’ 

GAR understands that Prima Coal intends to appeal the decision.

Commentators in Asia remark on the fact that the judgment cites a Singapore case – the decision of Supreme Court justice Andrew Ang in Transocean – reversing the trend of Singapore courts looking to England for guidance. As Cavinder Bull SC, a director at Drew & Napier in Singapore, puts it: “I think the reference demonstrates how flat the arbitration world is. That the English Court has found it useful to cite a Singapore court judgments demonstrates respect for Singapore jurisprudence in the area of international arbitration.

For those studying the judgment, meanwhile, one name may stand out as familiar, having been referred to in numerous arbitration conferences over the past two years. Counsel to Thiess in both the London and Singapore proceedings is David Mildon QC of Essex Court Chambers – who the tribunal controversially told to step down as claimant counsel in the ICSID case of Hrvatska Elektroprivreda v Slovenia because a colleague in chambers, David AR Williams, was chairing the panel. That decision led to debate about whether the appearence of barristers from the same chambers in an arbitration creates a risk of bias and whether tribunals have jurisdiction to remove an advocate from a case to ensure the immutability of proceedings.

Interestingly, Williams has also been appointed as arbitrator in this case – meaning the situation looks set to raise its head again, whether by accident or design. It is unclear at this stage in what order the appointments took place.

In the High Court, commercial division
– Mr Justice Blair
Counsel to PT Thiess Contractors Indonesia
David Mildon QC and Jern-Fei Ng of Essex Court Chambers
– Stewarts, Partners Jane Colston and Fiona Gillet in London
Counsel to Kaltim Prima Coal
Andrew Baker QC and Sudhanshu Swaroop of 20 Essex Street in London
– Holman Fenwick Willan LLP, Partner Simon Congdon in London

In the arbitration proceedings
Arbitral tribunal
David R Haigh QC 
– Michael Pryles 
– David AR Williams QC
Counsel to PT Thiess Contractors Indonesia
– David Mildon QC and Jern-Fei Ng of Essex Court Chambers
– Rajah & Tann in Singapore
Counsel to Kaltim Prima Coal
– Holman Fenwick Willan LLP in Singapore

This article first appeared in Global Arbitration Review 18 July 2011.



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