Anzen Ltd and Others v Hermes One Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Mance,Lord Clarke |
| Judgment Date | 18 January 2016 |
| Court | Privy Council |
| Docket Number | Privy Council Appeal No. 0041 of 2015 |
| Date | 18 January 2016 |
Privy Council
Lord Mance; Lord Clarke; Lord Sumption; Lord Carnwath; Lord Hodge
Privy Council Appeal No. 0041 of 2015
and Others
Appellants Michael Black QC Seamus Andrew (Instructed by S C Andrew LLP).
Respondent Stephen Midwinter (Instructed by Forbes Hare LLP).
Arbitration - Stay of proceedings — Arbitration clause — Shareholders agreement — Privy Council — Whether appellants were entitled to stay without having commenced arbitration — Whether Court of Appeal erred by refusing to grant stay — Appeal allowed — Arbitration Ordinance 1976 (Cap. 6), s. 6(2)
Lord Mance AND
This appeal raises short and interesting points on the interpretation of an arbitration clause in a shareholders' agreement providing that in the event of an unresolved dispute “any party may submit the dispute to binding arbitration”. The respondent has commenced the present litigation in respect of an unresolved dispute, and the issue arises whether the appellants are entitled to a stay, under section 6(2) of the Arbitration Ordinance, 1976 (Cap 6), without themselves having commenced an arbitration. Bannister, J. decided that they were not so entitled and the Court of Appeal upheld his decision. The Board's conclusion is that the decisions below were wrong, the appeal should be allowed and a stay granted.
This can be taken from the agreed statement of facts. The appellants and the respondent are shareholders in a BVI business company known as Everbread Holdings Ltd (“Everbread”). Everbread was established to pursue the development of airline fare search software. The parties entered into a shareholders' agreement dated July 2012 (the “SHA”).
The arbitration clause is found in clause 19.5 of the SHA and it reads:
“This Agreement shall be construed in accordance with English law, without reference to its conflict of law principles. If a dispute arises out of or relates to this Agreement or its breach (whether contractual or otherwise) and the dispute cannot be settled within twenty (20) business days through negotiation, any Party may submit the dispute to binding arbitration. Such arbitration will be conducted by a sole arbitrator designated by the International Chamber of Commerce (ICC) and will be in accordance with the ICC's arbitration rules. The arbitration will be held at a neutral site in London, England. The arbitrator will determine issues of arbitrability, including the applicability of any statute of limitation, but may not limit, expand or otherwise modify the terms of the Agreement. The arbitrator's decision and award will be in writing, setting forth the legal and factual basis. The arbitrator may in appropriate circumstances provide for injunctive relief (including Interim relief). An arbitration decision and award will only be subject to review because of errors of law. Each Party will bear its own expenses in connection with the arbitration, but those related to the site and compensation of the arbitrator will be borne equally. The Parties, other participants and the arbitrator will hold the existence, content and result of arbitration in confidence, except to the extent necessary to enforce a final settlement agreement or to obtain and enforce a judgment on an arbitration award. The language to be used in the arbitration procedure shall be English.”
The present proceedings were commenced by the respondent against the appellants and Everbread on 10 January 2014, claiming inter alia statutory remedies in relation to the appellants' alleged unfairly prejudicial conduct in the management of the affairs of Everbread, damages and/or the appointment of a liquidator over Everbread amongst other forms of relief.
On 18 February 2014, the appellants applied to stay the proceedings pursuant to section 6(2) of the Arbitration Ordinance 1976 on the ground that clause 19.5 is a valid and binding arbitration provision (the “Stay Application”). Section 6(2) of the Arbitration Ordinance reads:
“If any party to an arbitration agreement, other than a domestic arbitration agreement, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to the proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings; and the court, unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings.”
On 6 March 2014, Bannister, J. dismissed the stay application on the basis that (i) clause 19.5 of the SHA conferred an option upon any party to the SHA to submit a dispute arising under or relating to the SHA to arbitration, (ii) if one party commenced litigation in respect of a dispute, the option under clause 19.5 was only exercisable by the other party by referring the identical subject matter to ICC arbitration, and (iii) since the appellants had not done this, but had merely sought a stay of the proceedings, they could not rely on section 6(2) of the Arbitration Ordinance. The Court of Appeal on 11 June 2014 dismissed the appellants' appeal, essentially for the same reasons.
It is common ground that an arbitrator could not award all the relief sought by the respondent, including in particular an order for the winding up of Everbread or for the appointment of a liquidator. However, it is also common ground that an arbitrator could determine disputes regarding underlying issues of fact or law relevant to the subsequent pursuit in court of such orders: Fulham Football Club (1987) Ltd. v. Richards [2011] E.W.C.A. Civ. 855; [2012] Ch. 333. In the light of this common ground, and subject to appropriate reservation of the respondent's right to apply to the court for orders, after the making of any award on such underlying issues, the present appeal has been focused on the single question of the correctness of the decisions of the judge and Court of Appeal on the points summarised in para 6 above.
At the outset of the appeal, Mr. Michael Black QC for the appellants argued that, even if any agreement to arbitrate depended upon the exercise of an option which had not been exercised, the language of section 6(2) of the Arbitration Ordinance could still entitle the appellants to a stay. That was and is, the Board considers, a hopeless submission. Even if one could in loose terms describe a conditional agreement to arbitrate as an arbitration agreement, the Board would not regard it as such within the meaning of section 6(2). In any event, unless and until any option required to be exercised has been exercised, there is no “matter agreed to be referred” within the language of section 6(2).
On this basis, the key to this appeal lies in the construction of clause 19.5. The following possible analyses require consideration:
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a. The words “any party may submit the dispute to binding arbitration” are not only permissive, but exclusive, if a party wishes to pursue the dispute by any form of legal proceedings (analysis I).
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b. The words are purely permissive, leaving it open to one party to commence litigation, but giving the other party the option of submitting the dispute to binding arbitration, such option being exercisable either by:
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i. commencing an ICC arbitration, as the respondent submits and Bannister J and the Court of Appeal held (analysis II); or
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ii. requiring the party which has commenced the litigation to submit the dispute to arbitration, by making an unequivocal request to that effect and/or by applying for a corresponding stay, as the appellants have done (analysis III).
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What the respondent does not suggest is that its commencement of litigation pre-empts and prevents any exercise by the appellants of the option to arbitrate. Further, the Board understands the respondent to accept that, if the appellants had commenced (or perhaps do still in the future commence) an ICC arbitration in respect of the underlying disputes, the appellants would then also be entitled to a stay of the present proceedings.
The appellants in turn were minded in oral submissions to accept before the Board that it would be possible for them to commence either an ICC arbitration in which they sought mirror image declarations of non-liability and/or made their own cross-claims against the respondent in respect of the same dispute. They went further, and, as the Board understood it, were prepared to concede that they could simply have submitted the respondent's claims against them to the ICC arbitrator, who would then under the ICC Arbitration Rules have been able to draw up terms of reference determining which party should act as claimant(s) and which as respondent(s) in the arbitration. The Board expressed doubt about the correctness of at any rate this latter concession, and it was effectively withdrawn by the appellants in a post-hearing exchange of written submissions on this aspect. The ICC Arbitration Rules postulate that a person requesting arbitration is itself a claimant making claims, to which the respondent will have to respond: see e.g. article 4.1.1, 1.3(c), (d) and (f) and 1.4 as well as article 5.1(c) and 23.1(c). To request ICC arbitration of the respondents' claims, the appellants would have to be prepared to specify why such claims should be rejected, and to seek negative declaratory relief. They would also have to pay a non-refundable filing fee of US$3,000 (under Appendix III article 1(1)), plus any advance to cover the costs of...
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