Non-sensical dispute resolution clause?

It happens all too often.  In Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia SA [2012]  the contract provided, by clause 7, that the contract was “governed exclusively by the laws of Brazil” and that any disputes were “subject to the exclusive jurisdiction of the courts of Brazil”.   Clause 11 provided for mediation and that if mediation was not successful or either party refused to participate then the dispute was to be referred to arbitration.

Clause 12 dealt with the arbitration and provided  that in the event that the parties failed to agree through mediation the dispute be referred to arbitration with a London seat.  The issue arose, unsurprisingly, whether a substantive dispute was to be litigated in the Courts of Brazil or arbitrated in London.   The Court held that the arbitration clause was governed by English law on the basis on a London seat – an unsurprising result in light of CvD.  Furthermore, insofar as the mediation provision was an integral part of the agreement to arbitrate it was governed by the same law.  The arbitration clause was an agreement to arbitrate whenever there was a failure to settle by mediation. Entering into mediation proceedings was not a condition precedent to the existence of a binding arbitration agreement.

Clause 12 obliged all disputes to be referred to arbitration notwithstanding that this deprived clause 7 of much of its utility. Clause 7 remained of some use as it enabled the courts of Brazil to declare the arbitrable nature of a dispute, to compel arbitration, to declare the validity of the award, to enforce the award or to adjudicate on the merits if the parties agreed not to arbitrate.  No other court could adjudicate on the merits.  Viewed in this way, apparently, clause 7 and clause 12 could live alongside each other (whether they did so happily is another matter!).

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