Jurisdictional Battles in Arbitration: The Inoperability of Arbitration Clauses After Settlement

Introduction: The Jurisdictional Tug-of-War

In a significant decision, the English High Court in Destin Trading Inc v Saipem SA [2025] EWHC 668 (Ch) (24 March 2025) revisited the application of section 9(1) of the Arbitration Act 1996. This section mandates that a court stay proceedings in favour of arbitration unless the arbitration agreement is "null and void, inoperative, or incapable of being performed." The case explored a key issue in international arbitration: the impact of a settlement agreement on a pre-existing arbitration clause. Specifically, the court had to determine whether an exclusive jurisdiction clause in a settlement agreement supersedes the arbitration clause in the original contract. This issue is particularly pertinent as it involves conflicting dispute resolution mechanisms within an evolving contractual relationship.

This decision serves as a critical contribution to the ongoing discourse in arbitration, where jurisdictional conflicts between arbitration clauses and litigation clauses are common, especially in international commercial transactions. The judgment provides further clarity on the hierarchy of dispute resolution mechanisms when multiple agreements come into play.

Factual Background: Contractual Evolution and Dispute Genesis

The dispute at the heart of this case arose from the Congo River Crossing Project, a major infrastructure undertaking aimed at transporting natural gas from offshore wells to the Angola LNG plant in Soyo, Angola. Saipem, a global engineering and construction company, was responsible for the construction of three subsea pipelines, while Destin Trading, a logistics service provider, was contracted to provide various management and logistical services, including vessel chartering.

The parties had entered into three Frame Agreements in 2012, which contained arbitration clauses specifying that disputes would be resolved through ICC arbitration in London. However, in 2013, a dispute emerged when Destin claimed that Saipem owed it approximately USD 7 million for services rendered. Saipem denied any outstanding balance, prompting the parties to enter into a Settlement Agreement on 5 November 2013, which formally terminated the Frame Agreements. Importantly, the Settlement Agreement included a jurisdiction clause, granting the courts of England and Wales exclusive jurisdiction over disputes arising out of or in connection with the settlement.

The 2024 Litigation: Fraud Allegations and Jurisdictional Contest

In 2024, Destin initiated legal proceedings in the High Court, claiming it had been induced to enter into the Settlement Agreement by fraudulent or negligent misrepresentations by Saipem. Specifically, Destin alleged that Saipem had led it to believe that further contracts would be awarded in exchange for settling the dispute. Destin sought rescission of the Settlement Agreement and compensation for amounts it would have received under the Frame Agreements had the Settlement Agreement not been executed.

Saipem, however, denied the allegations and argued that the claims brought by Destin were rooted in the Frame Agreements, which contained arbitration clauses. Relying on section 9 of the Arbitration Act 1996, Saipem sought a stay of the court proceedings, asserting that the disputes should be resolved through arbitration under the terms of the original Frame Agreements.

In support of its application, Saipem cited the 2023 Supreme Court decision in Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) & Ors [2023] UKSC 32, which set out a two-stage test for determining whether a dispute should be referred to arbitration. This test involves:

1. Identifying the substantive matters raised (or foreseeably to be raised) in the litigation.
2. Determining whether these matters fall within the scope of the arbitration agreement.

Saipem contended that Destin’s claims fell within the scope of the arbitration clauses in the Frame Agreements and thus, the proceedings in the High Court should be stayed in favour of arbitration.

Destin’s Counter-Argument: The Superseding Effect of the Settlement Agreement

Destin countered that the Settlement Agreement, by its nature, had superseded the Frame Agreements, including their arbitration clauses. Destin argued that the claims it raised—fraudulent misrepresentation and deceit—related specifically to the validity and enforcement of the Settlement Agreement, not the performance of the Frame Agreements. Therefore, the appropriate forum for resolving these issues was the High Court, as the jurisdiction clause in the Settlement Agreement gave the English courts exclusive authority over disputes arising from it. This raised the central issue for the High Court: Should the court stay proceedings in favour of arbitration, or does the jurisdiction clause in the Settlement Agreement override the prior arbitration provisions?

The High Court's Judgment: Settlement Agreements and Arbitration Clauses

The English High Court dismissed Saipem’s application for a stay, allowing Destin’s claims to proceed in court. In reaching this decision, the judge relied heavily on the Monde Petroleum SA v Westernzagros Ltd [2015] EWHC 67 (Comm) decision, in which the High Court had previously ruled that when a settlement agreement includes a jurisdiction clause, that clause will generally override any prior arbitration agreement in the original contract.

The judge emphasised that the Monde Petroleum case established a clear precedent for the principle that dispute resolution clauses in settlement or termination agreements are typically intended to supersede earlier dispute resolution mechanisms, such as arbitration clauses. Thus, the jurisdiction clause in the Settlement Agreement rendered the arbitration clause inoperative under section 9 of the Arbitration Act 1996.

The judge further distinguished the Mozambique v Privinvest case, noting that it concerned a scenario where multiple agreements with competing dispute resolution provisions were in play. By contrast, the current case involved a settlement agreement, which the judge considered to fall into a “special category.” The judge concluded that the dispute resolution clause in a settlement agreement is designed to override any previous dispute resolution provisions.

Even if the two-stage test from Mozambique v Privinvest were applied, the judge found that Destin’s claims related specifically to fraudulent misrepresentation concerning the Settlement Agreement. Therefore, these claims did not fall within the scope of the arbitration clauses in the Frame Agreements, further reinforcing the decision to allow litigation in the High Court.

Key Takeaways: Arbitration Clause Inoperability and Settlement Agreements

The Destin v Saipem case provides crucial clarity on the hierarchy of dispute resolution clauses, particularly when parties move from arbitration to litigation via a settlement agreement. The judgment underscores the importance of precise drafting when dealing with multiple contractual agreements, especially in international commercial disputes.

One of the central lessons is that when a settlement agreement is executed and includes a jurisdiction clause, that clause will generally supersede any prior arbitration provisions unless the parties explicitly preserve the arbitration clause in the settlement agreement. The decision reinforces the principle that a settlement agreement—by virtue of its termination of earlier agreements—can render the arbitration clause inoperative.

Furthermore, the judgment has practical implications for the drafting of dispute resolution clauses in settlement agreements. Parties must take care to specify whether existing arbitration agreements are to be preserved or replaced, particularly when allegations of fraud or misrepresentation are involved.

Conclusion: The Continuing Evolution of Arbitration and Jurisdictional Disputes

The Destin v Saipem decision highlights the complexities of resolving jurisdictional conflicts in arbitration and litigation. It reinforces the growing trend of prioritising settlement agreements with exclusive jurisdiction clauses in cases where contractual relationships evolve through successive agreements. The ruling also serves as a reminder to practitioners that clarity and specificity in drafting dispute resolution clauses are paramount, especially in international arbitration, where multiple agreements and legal systems may intersect.