Author: Iain Sharp And Reema Shour
United Kingdom – February 16, 2024
In this case, the Court granted the claimant’s application for an ‘anti-arbitration’ injunction (AAI) to prevent the defendants from pursuing an LCIA arbitration which they purported to commence in December 2023.
The Court also considered and dismissed an application by one of the defendants under s.9 of the Arbitration Act 1996 (the Act), to stay enforcement of the judgments entered in respect of certain arbitration awards in the claimant’s favour, and as the case developed, to stay the AAI application.
The background facts
The facts and history of this dispute are detailed and complex involving both court and arbitration proceedings. This was the latest in a series of disputes which had occupied the Commercial Court since 2012.
In very brief terms, however, the claimant had fallen out with a number of individuals in respect of an alleged profit-sharing arrangement resulting from the sale of a data centre business in 2012. Among other things, the claimant alleged that the various individuals held assets on trust for him and that there had been a fiduciary breach of trust (the dispute).
In 2014, the claimant entered into a settlement agreement with three individuals (Mr Cooper, Mr McNally and Dr Cochrane) which incorporated an LCIA arbitration agreement. The recitals of the settlement agreement stated that it was entered into to settle the dispute. A company, Pro Vinci (controlled by Mr Smith, who was not a party to the settlement agreement) was to pay the claimant £12 million in settlement of the dispute in instalments.
Pro Vinci did not pay all the instalments and the claimant obtained an arbitration award (Pro Vinci award) in his favour.
Pro Vinci went into liquidation and the claimant commenced English Court proceedings against Dr Smith, Mr Cooper and Mr McNally, claiming breach of trust and dishonest assistance. The Court stayed those proceedings against Mr Cooper and Mr McNally under s.9 of the Act because the settlement agreement provided for LCIA arbitration. The Court also stayed the proceedings against Dr Smith because it found that he was a third-party beneficiary of certain settlement and release provisions in the settlement agreement and was entitled to enforce those provisions in arbitration under the Contracts (Rights of Third Parties) Act 1999.
The claimant, therefore, commenced a second LCIA arbitration against Dr Smith, Mr Cooper and Mr McNally. The claimant obtained a further award (third partial award), in which Messrs Cooper and McNally were found to have acted in fraudulent breach of trust, and Dr Smith was found to have dishonestly assisted in those breaches. A final award followed, in which Dr Smith was ordered to make further substantial payments on account of interest and costs.
Pursuant to s.66 of the Act, the Court granted permission for all three awards to be enforced in the same manner as a court judgment.
Dr Smith had indicated an intention to challenge these three awards in court and to seek to have them set aside but did not satisfy the requirements for such a challenge under the Act. He then filed a Request for Arbitration to the LCIA in his and Dr Cochrane’s names, seeking essentially the same relief as he had sought in court.
Dr Smith also applied to the Court under s.9 of the Act, seeking to stay enforcement of the awards. The claimant issued an application for an anti-arbitration injunction (AAI). Dr Smith then requested that the stay application should be extended to the AAI application.
The Commercial Court decision
Arbitral Matter
For a stay application to be granted, Dr Smith had to establish that the enforcement proceedings and the AAI application had been brought in respect of a matter which under the arbitration agreement was to be referred to arbitration – see s.9(1) of the Act. The Court referred to this as an ‘Arbitral Matter’.
There have been recent Privy Council and Supreme Court decisions on what constitutes an Arbitral Matter for these purposes: FamilyMart China Holding Co Ltd -v- Ting Chuan (Cayman Islands) Holding Co Ltd [2023] UKPC 33 and Republic of Mozambique -v- Privinvest Shipbuilding SAL (Holding) [2023] UKSC 32, handed down on the same day. The Court summarised the guidance provided by the two judgments as follows:
- The Court should focus on the substance of the dispute, taking into account reasonably foreseeable defences.
- An Arbitral Matter does not have to encompass the whole dispute raised in court proceedings.
- An Arbitral Matter must be a substantial issue which is legally relevant to a claim or defence, or foreseeable defence and be susceptible to determination as a discrete dispute. It must be an essential element of the claim or defence, and not simply a mere issue or question that might fall for decision.
- Identification of an Arbitral Matter requires judgement and common sense and is not a mechanistic exercise.
- The Court should have regard to the context in which the matter arises in the legal proceedings.
The Court thought the last requirement was particularly important here. It also concluded that, applying this guidance, enforcement of the awards was not an Arbitral Matter. The enforcement of arbitral awards was not a matter for the arbitral tribunal (which became functus officio to the extent it had issued a final award) but for each court in which enforcement proceedings were commenced.
In addition, the awards had been the subject of orders under the Act and were now enforceable as judgments of the Court. The status of these s.66 orders, and whether they should be stayed, was a matter falling within the Court’s exclusive jurisdiction, not a matter which the parties to the settlement agreement had agreed to refer to arbitration.
It has also been confirmed in two decisions – Sheffield United Football Club -v- West Ham United Football Club Plc [2008] EWHC 2855 (Comm) and Nomihold Securities Inc -v- Mobile Telesystems Finance SA [2012] EWHC 130 (Comm) – that an application for an AAI is not an Arbitral Matter. Such an application came within the supervisory jurisdiction of the Court and, in entering into the arbitration agreement, the parties also agreed to the Court’s supervisory jurisdiction. Consequently, an anti-suit injunction (and an AAI) would not be a breach of even a broadly worded arbitration clause.
AAI
The principles governing the grant of anti-suit injunctions apply equally to AAIs, namely that: (i) the pursuit of the arbitration infringes the applicant’s legal or equitable rights; and (ii) the pursuit of the arbitration is vexatious and oppressive.
The Court highlighted the principal scenarios in which AAIs were sought. Among these was where the parties had agreed to bring the claim in some other forum or not to arbitrate at all. Another scenario was where the applicant was protecting a contractual right arising from the agreement to arbitrate, namely where the parties had agreed their arbitration was to have its legal seat in England and Wales and the losing party then sought to challenge the award otherwise than in accordance with the requirements of the Act. The Court referred to the latter scenario as a ‘Non-Compliant Challenge’. Additionally, it highlighted situations where there was an attempt to assert claims in arbitration where the tribunal would have no jurisdiction.
It decided that this was a case of a Non-Compliant Challenge. In commencing the LCIA arbitration, Dr Smith was in substance seeking to bring a Non-Compliant Challenge to the outcome of the three awards, and in doing so, was infringing the claimant’s legal right under the Act that any challenges to the awards be brought only by the means, and within the time, permitted by the Act.
Although Dr Smith was not a party to the settlement agreement, he sought and obtained a s.9 stay in respect of the claimant’s claims against him in court, with the benefit of the rights accorded to him by a combination of the settlement agreement and the Contracts (Rights of Third Parties) Act 1999.
By invoking the right to have any claim brought in an arbitration seated in England and Wales, enforcing it through a s.9 application and then participating as a party in the resultant arbitration, Dr Smith had breached the obligation arising from the arbitration agreement not to bring a Non-Compliant Challenge to any award in the arbitration.
In the Court’s view, there was no strong reason not to grant an AAI in respect of this infringement of the claimant’s rights.
The Court also thought that some of the claims in the LCIA arbitration amounted to an attempt to assert claims in respect of which the tribunal had no jurisdiction. In the circumstances of this case, particularly the overlap with the Non-Compliant Challenge, the Court decided it would not be appropriate to leave the question of jurisdiction to the tribunal to determine. It was satisfied that it should grant an AAI in respect of the jurisdictional claims also, rather than leave the matter to the kompetenz-kompetenz jurisdiction of the LCIA arbitral tribunal.
The Court further noted that, while Dr Cochrane had been named as a claimant in the LCIA arbitration brought by Dr Smith, Dr Smith was the moving spirit behind that arbitration and was using Dr Cochrane’s name to assist his cause. Dr Cochrane was also subject to bankruptcy proceedings under Jersey law and any claims he had would be vested in the trustee in bankruptcy. As the tribunal would not have jurisdiction to hear those claims, the Court concluded that the AAI should, therefore, be extended to Dr Cochrane also.
Comment
The decision is useful because it restates what is an Arbitral Matter for the purposes of a successful s.9 stay. It also helpfully summarises the circumstances in which the English Court may be prepared to grant an anti-arbitration injunction and what constitutes a Non-Compliant Challenge.
Additionally, the Court made it clear that it will not permit its supervisory jurisdiction over an English seated arbitration to be arbitrarily ousted.
