Baytur SA v Finagro Holdings SA
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LLOYD,LORD JUSTICE FARQUHARSON,LORD JUSTICE NOLAN |
| Judgment Date | 13 June 1991 |
| Judgment citation (vLex) | [1991] EWCA Civ J0613-3 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 91/0589 |
| Date | 13 June 1991 |
[1991] EWCA Civ J0613-3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR K. ROKISON Q.C. SITTING AS A DEPUTY HIGH COURT JUDGE)
Royal Courts of Justice
Lord Justice Lloyd
Lord Justice Farquharson
Lord Justice Nolan
91/0589
MR NICHOLAS MERRIMAN Q.C., instructed by Messrs Taylor Joynson Garrett, appeared for the Appellants (Defendants).
MR P.N. LEGH-JONES, instructed by Messrs Clifford Chance, appeared for the Respondents (Plaintiffs).
The principal question in the present case, as to which there is little if any authority, is whether the equitable assignee of a cause of action can become party to a pending arbitration, and if so how. Mr Merriman for the defendants submits that the assignee becomes a party to the arbitration automatically, at the moment the assignment becomes effective in equity, without the need for any notice to the arbitrator, or to the other party to the arbitration. Mr Legh-Jones, for the plaintiffs, submits that something more is required. At the very least the assignee must give notice, and submit to the jurisdiction of the arbitrator. Mr Rokison Q.C., sitting as a Deputy Judge of the High Court, has decided the point, together with a number of other points in favour of the plaintiffs. There is now an appeal to this court.
The facts are fully and clearly set out in the judgment below. In brief the plaintiffs, Baytur S.A., of Geneva, Switzerland, agreed to sell to a French Company Establissement Claeys Luck S.A., a quantity of Turkish Vetches C & F Sete for shipment from Mersin or Samsun. The contract was dated 24th July 1985. The sellers failed to ship any goods of the contract description. By letter dated 14th April 1986 the buyers claimed damages based on the difference between contract price and market price. The dispute was referred to arbitration pursuant to clause 37 of GAFTA form 62. Each side appointed an arbitrator, and the two arbitrators appointed a third arbitrator. The parties presented their cases in writing over a period of 18 months, between April 1986 and October 1987. The arbitrators did not publish their Award until 12th April 1989. They found in favour of the buyers, and awarded damages of $1,338,175.
Meanwhile, the buyers had ceased to exist. By an agreement known as a Traite de Scission dated 24th October 1986, the shareholders of Establissement Claeys Luck S.A. agreed that the company should be split into two, pursuant to Article 371 of the Law of 24th July 1966, the equivalent of our Companies Act. The effect of a scission in French law is that the assets and liabilities of one company are transferred to two or more other companies. As soon as the transfers are completed, the transferor company is dissolved. In the present case the effect of the scission was to transfer all rights and obligations possessed by the buyers under the contract of sale to Claeys Luck International S.A., including rights and obligations in the pending arbitration. The transfers under the traite de scission took effect on 15th December 1986. The buyers ceased to exist on that date, long before the award in their favour. On 1st January 1989 Claeys Luck International changed its name to Finagro Holding S.A. It is said that, had Claeys Luck International not changed its name, the sellers might never have noticed. But obviously that cannot affect our decision.
There was much discussion in the court below as to the system of law by which the principal question should be decided. Mr Merriman submitted that the relevant law was French law. Mr Legh-Jones submitted that it was English law, and cited rule 121 in Dicey and Morris Conflict of Laws 11th Edition volume 2 page 957 in support of his submission. Before us Mr Merriman conceded that English law is the relevant law for all purposes. His argument in this court proceeded as follows:
(1) By English law the benefit of the contract of sale, including the arbitration clause, could be and was validly assigned to the defendants on 15th December 1986: see Shayler v. Woolf [1946] Ch. 320, and The Jordan Nicolov [1990] 2 L.L.R. 11.
(2) The defendants thereupon became equitable assignees of the benefit of the buyers' claim against the plaintiffs. Notice to the plaintiffs was not required to complete the defendants' equitable title.
(3) As equitable assignees of a legal chose in action, the defendants were entitled to commence an arbitration against the plaintiffs in their own name. Although, as a matter of practice, an equitable assignee usually joins his assignor when bringing proceedings, this is not strictly necessary: see William Brandt's Sons & Co. v. Dunlop Rubber Company, Limited [1905] A.C. 454 and Weddell v. Pearce & Major [1988] Ch. 26.
(4) There is no authority which precludes an assignee from joining in a pending arbitration. There is at least one case where this has been allowed at first instance: see The Jordan Nicolov.
(5) Since the defendants could have joined in the pending arbitration as soon as the equitable assignment took effect, that is to say, on 15th December 1986, they should be treated as having been a party to the arbitration from that date. It matters not, therefore, that the buyers ceased to exist on that date. The arbitration remained alive, and was still alive when the arbitrators published their award in April 1989.
Mr Legh-Jones accepted every step in Mr Merriman's argument save the last. There is, he submits, a crucial distinction between possessing a right in equity, and exercising that right. The fact that the defendants might have applied to become a party to the arbitration does not mean that they were already a party. They had, in Mr Legh-Jones' vivid phrase, bought a ticket. They had not yet joined the train.
In my judgment, Mr Legh-Jones' objection is well founded. It has never been suggested that the assignee of a cause of action becomes a party to pending litigation simply by virtue of the assignment. There is nothing automatic about it. To become a party to litigation, the assignee must first apply to the court for an order under RSC Order 15, rule 7.
I cannot see why a different rule should apply to arbitrations. Mr Merriman argues that the authority of an arbitrator is based in contract, and that this makes a difference. I accept, of course, that arbitration is a consensual method of settling disputes. But that, if anything, should make it more difficult for the assignee to join in an existing arbitration, not less.
Mr Merriman argued that we should strive to adapt our arbitration procedure so as to enable a traite de scission to take effect in English law without undue formality. This is a desirable objective. But there are difficulties, both conceptual and practical.
In The Felicie [1990] 2 L.L.R. 21 Phillips J. found it a startling proposition that a third party could become party to an arbitration without giving notice to anyone. In that case he was concerned with a transfer of rights under the Third Parties (Rights Against Insurers) Act 1930. I would find it equally startling in the case of an equitable assignment. In The Jordan Nicolov, Hobhouse J. held that a legal assignee could succeed to the rights of an assignor in a pending arbitration. But the learned judge made clear that two steps are necessary. First the assignee must give notice to the other side to perfect the legal assignment. Secondly, he must "intervene" in the arbitration, by giving notice to the arbitrators. I quote from his judgment at page 18, where, after referring to The Felicie, he said:
"However, in the case of a legal assignment written notice has to be given. Notice must have been given to the party liable ( ex hypothesi the respondent in the arbitration). In order to affect the arbitrators, notice must also be given to the arbitrators (as, in fact, happened in the present case). Once these steps have been taken both the practical and conceptual difficulties are, or can be, resolved. The right to arbitrate is assignable; that assignment is completed and becomes legally binding upon the other persons concerned by the service of the notice. The service of the notice and the intervention in the arbitration provide as effective and satisfactory a method of carrying on the proceedings as that which is provided in relation to litigation by Order 15, rule 7(2) of the Rules of the Supreme Court".
A little later on at page 19, when dealing with the liability of the assignee for costs, he says;
"As regards the subsequent costs of the arbitration, the intervention of the assignee clearly is a submission to the jurisdiction of the arbitrators and therefore, in addition to confirming the capacity of the arbitrators to make an award in favour of or against the assignee on the substantive claim, includes the acceptance that the arbitrators shall have in relation to the assignee the discretion to award costs conferred by section 18 of the Arbitration Act 1950".
In the present case not only was there no submission to the jurisdiction of the arbitrators, there was not even any notice of the assignment. So...
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