Arbitration agreement applied despite not written into contract

Pamela McDonald of Pinsent Masons, a specialist in international arbitration, was commenting after the Paris Court of Appeal set aside an arbitral award made in relation to a dispute between Keppel Seghers Engineering Singapore (Keppel) and the Public Works Authority of Qatar (Ashghal).

Ashghal and Keppel had entered into a contract under which Keppel would build and operate a wastewater treatment plant in Qatar. A dispute arose between the parties following the termination of that contract. In 2023, an arbitral tribunal determined that it lacked the jurisdiction to rule on the dispute on the basis that there was no arbitration agreement in place between the parties. The arbitrators instead concluded that standard terms included in the contract between Ashghal and Keppel, which provided for disputes to be resolved before the Qatari courts, was binding.

However, Keppel has insisted that an arbitration agreement was in place and argued before the Paris court that the evidence for this had not been properly considered by the arbitral tribunal. The Paris court has now agreed, setting aside the earlier decision and ordering Ashghal to pay €300,000 in costs to Keppel.

Doha-based McDonald said: “The case is a helpful reminder that in many jurisdictions, pre-contract and post-contract conduct and communications are relevant and scrutinised when an ambiguity arises, especially in relation to the appropriate dispute resolution forum. It also reiterates the pro-arbitration stance of the French courts, which were deliberate in their efforts to interpret the parties’ true intentions.” 

According to the Paris Court of Appeal, the evidence indicated Ashghal and Keppel had agreed to include an arbitration agreement in the contract. It did not consider the fact the contract did not contain that agreement in writing to supersede this interpretation.

The court found the conduct of the parties during contract negotiations, and during the period when works were performed under that contract, was indicative of their intention to arbitrate. Keppel had made a reservation during tender stage that the litigation clause should be replaced with an arbitration agreement, providing for disputes to be resolved via arbitration proceedings seated in Paris and under ICC Rules. Subsequently, during negotiations, Keppel reiterated its position on multiple occasions and emphasised that the agreement to arbitrate was important to it.

In addition, Ashghal had told Keppel that the sticking point was the seat of arbitration and the Paris court found this indicative that Ashghal had agreed on the principle of arbitration. 

Another factor the Paris court considered included the fact that the date of the contract award was just one day after Keppel had reiterated its position on the need to include the arbitration agreement.

Importantly, the court found that Ashghal’s failure to provide Keppel with a copy of the written arbitration agreement did not mean that agreement had not been validly made to arbitrate. In that regard, it assessed the fact that an internal Ashghal ‘arbitration approval letter’ was contained within the nine volumes of documents that comprised the parties’ contract.

Further evidence was also given weight by the court, including the fact the project engineer had, during the project execution phase, made reference to the final stage of dispute resolution being arbitration – a comment that Ashghal had not objected to. It also considered that when the parties attempted to mediate in 2021, Ashghal did not object to Keppel’s mention that the mediation may be a precursor to arbitration. 

In reaching its decision, the Paris court considered two core principles of French law: first, the principle of ‘effet utile’, according to which, when the parties insert an arbitration clause into their contract, it should be presumed that their intention was to establish an effective mechanism for the settlement of disputes; and second, the principle of good faith, which the court held meant that one party was not entitled to unilaterally withdraw from a commitment, even if it was made in a “clumsy or confusing way”.

In light of the evidence assessed, the Paris court considered the fact that the general terms and conditions contained the original Qatari court litigation clause made no difference to the question of whether an arbitration agreement was in place.

Post-script: Paris v Doha seat – could the outcome have been different?

In this case the parties chose the ‘seat’ of the arbitration, i.e. the applicable procedural law, as Paris. Had the arbitration been seated in Doha, similar principles would have been applicable. These include the requirement to act in good faith, provided for under Article 172 of Qatar’s Civil Code, and the requirement to interpret contracts according to the common intention of the parties, provided for under Article 169 of the Civil Code.

However, had the seat been Doha, the ‘priority of documents’ clause in the Ashghal contract may have been given more significance, McDonald said. The general conditions, containing the litigation clause, are usually first in order of interpretation priority in Ashghal’s contract, and the principle of ‘freedom of contract’ contained at Article 171.1 of the Qatar Civil Code would have been a relevant consideration for the arbitrators when deciding whether the pre- and/or post-contract conduct and discussions should supersede that.

McDonald said that one further point which may have had a decisive impact on the outcome if the Qatar Arbitration Law was applicable is the effect of Chapter 2, Article 2.2 of the Arbitration Law, which requires arbitration agreements contained in administrative contracts to be approved by the prime minister of Qatar, or their delegate.

In this regard, McDonald said that as Ashghal is an administrative entity and that the project in this case – a wastewater treatment plant – is for the public benefit, the contract is therefore administrative. While the contract at issue in this case was executed in 2007, before the 2017 law came into force, McDonald highlighted that Article 3 of the Arbitration Law states that the requirements of the Arbitration Law applies “to any arbitration commencing after the law enters into force”. On this basis, the contract at issue in this case is arguably captured by the requirement for prime ministerial approval, she said, which Ashghal is required to obtain.

McDonald said even the slightest doubt as to the validity of an arbitration agreement should be resolved early to avoid the enforceability of the award being challenged.