It is a well understood concept that Parties entering into a contract can either remain silent on how disputes that arise under the contract between them will be dealt with, in which case the courts of the country in which the contract is formed will have jurisdiction to deal with disputes, or the Parties can elect to incorporate an arbitration provision into their contract
Parties can take things further if they wish to by introducing compulsory mediation, adjudication, expert determination and a whole raft of other options that can or have to be deployed should a dispute arise between the Parties and they need to resort to a dispute resolution process in order to get to a settlement.
Rational Parties that find themselves in an argument will endeavour to negotiate and find their own solution to the dispute. If a settlement is reached, terms are usually put down in a settlement agreement or confirmed by an exchange of letters or emails. All is well in the world until a further problem arises under the settlement agreement. What happens if the Parties cannot settle their differences by negotiation and, as is so often the case, they find that the settlement agreement does not provide any provisions or rules on how disputes under the settlement agreement are to be dealt with?
This is what happened in the case of Sonact Group Limited -and- Premuda SPA (The “Four Island”)  EWHC 3820. The charterparty negotiated by Sonact (the hirer) and Premuda (the owner) included a valid arbitration provision which meant that any disputes which arose between them would be dealt with by an arbitral tribunal and not by the courts.
At the end of the hire, Premuda SPA, the owner of the Four Island brought a claim against Sonact for demurrage and heating costs. No formal settlement agreement was ever concluded between the Parties but an agreement was reached, confirmed in an exchange of emails, under which Sonact agreed to pay Premuda some 600,000 dollars. Sonact, however, didn’t pay Premuda and Premuda commenced arbitration proceedings in reliance upon the arbitration provisions set out in the original charterparty. Premuda was successful in obtaining an award in its favour.
During the life of the arbitration, and indeed afterwards, Sonact challenged the jurisdiction of the arbitral tribunal arguing that there was no arbitration provision included with the agreed terms of settlement. It seems, however, that the tribunal had little time for such arguments and the award contained the following findings:
“24. We had to consider first the argument that we had no jurisdiction to determine the claim under the settlement agreement because the settlement agreement did not contain an arbitration clause and we therefore had no jurisdiction to determine claims under the settlement agreement.
“25. It is noteworthy that the settlement agreement was not contained in a separate self-contained document. As is usually the case, the parties exchanged views and stated their rival positions as to the demurrage and heating costs payable in exchanges sent through the broking channel. As generally happens, one party eventually put forward what it declared to be its final position and the other party accepted it.”
“26. Although in this case the owners had instructed Genoa lawyers, presumably in an attempt to add weight to their position, it did not alter the nature of the process under which both parties exchanged positions and one party eventually accepted the position of the other party.
“27. We had little hesitation in concluding that, given the nature of the negotiations and the manner in which they had been carried out, the objective but unexpressed intention of the parties was that the second agreement should be governed by the same provisions for dispute resolution as the original charterparty under which the claims arose. Indeed the negotiation and agreement of demurrage claims under voyage charterparties and final hire statements under time charters is so much part and parcel of operating and chartering ships that people working in the industry would be astonished to be told that the dispute resolution provision in the governing charterparty did not apply. Should that be the correct analysis, unless the parties expressly agree the fresh dispute resolution provision none would be applicable and they would have to take their chances in attempting to establish jurisdiction of the courts in a country that might or might not be appropriate. This would be such an extraordinary result that we would classify that the evidential burden of establishing that the charter party dispute resolution provisions did not apply to the routine agreement of a demurrage claim rested on the party seeking to argue the contrary. Of course it is perfectly open to parties to agree that any agreement should be governed by dispute resolution provisions that are different to those in the governing charterparty, but particularly where there is no separate self-contained settlement agreement and merely an exchange of emails such an agreement would have to be expressly recorded and could not just be inferred, unless the parties had expressly raised the issue in their exchanges.”
Sonact challenged the award of the arbitral tribunal in court, again arguing that the settlement agreement concluded by the parties did not contain an arbitration provision, the arbitrators did not have jurisdiction to determine the claim and that consequently the award should be set aside.
The court, as it was required to do, considered Sonact’s jurisdiction challenge afresh. Having done so, it concluded that “although a settlement agreement gives rise to a new legal relationship, replacing the relationship under the charterparty………………..there is, in my judgment, no bright-line rule that once the parties enter into a new legal relationship, here a settlement agreement, an arbitration clause in the underlying contract necessarily can no longer apply”. The court decided, in the same way that the arbitrators had decided, that the settlement agreement incorporated the arbitration agreement set out in the underlying charterparty. Had the Parties intended otherwise, they would surely have negotiated and included a specific dispute resolution provision as part of the terms of settlement.
If you are negotiating a settlement agreement and you require certainty on how disputes which might subsequently arise under the settlement agreement are to be dealt with, it is important that you include appropriate and specific provisions dealing with such an eventuality in your new agreement. As with all things in life, it always desirable to have certainty in any agreement you enter.
The Vinden Partnership