Capital Trust Investments Ltd v Radio Design TJ AB
| Jurisdiction | England & Wales |
| Judge | Jacob J,Schiemann,Clarke,Arden L JJ |
| Judgment Date | 15 February 2002 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 February 2002 |
Court of Appeal (Civil Division).
Jacob J; Schiemann, Clarke and Arden L JJ.
Stephen Smith QC (instructed by Gouldens) for the claimant.
Alan Steinfeld QC (instructed by Reynolds Porter Chamberlain) for the first defendant.
The following cases were referred to in the judgment of Jacob J:
Eagle Star Insurance Co Ltd v Yuval Insurance Co LtdUNK [1978] 1 Ll Rep 357.
Houldsworth v City of Glasgow BankELR (1880) 5 App Cas 317.
Patel v PatelELR [2000] QB 551.
Pitchers Ltd v Plaza (Queensbury) LtdUNK [1940] 1 All ER 151.
The following additional cases were referred to in the Court of Appeal judgment:
Ashville Investments Ltd v Elmer Construction LtdELR [1989] QB 488.
Bank of Credit and Commerce International SA v AliUNKELR [2001] UKHL 8; [2002] 1 AC 251.
Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co LtdELR [1993] QB 701.
Kuwait Airways Corp v Iraqi Airways CoUNK [1994] 1 Ll Rep 276 (CA).
Malik v Bank of Credit and Commerce International SAELR [1998] AC 20.
S Pearson & Son Ltd v Dublin CorpELR [1907] AC 351.
Arbitration — Stay of proceedings — Claimant applied to subscribe for shares in defendant company on form containing arbitration clause — Claimant issued proceedings alleging that it was induced to buy shares by misrepresentation — Whether defendant entitled to stay of proceedings in favour of arbitration — Whether defendant was party to contract on terms subscription application form containing arbitration agreement — Whether misrepresentation claims were within arbitration clause — Whether defendant had taken step in proceedings by applying for summary judgment if application for stay unsuccessful — Arbitration Act 1996 s 9(3), (4).
This was an appeal by the claimant (“CTIL”) against an order of Jacob J dismissing the appeal of the claimant against an order of Master Bowman ordering a stay of the proceedings against the first defendant (“Radio Design”) under s. 9(4) of the Arbitration Act 1996 on the ground that the parties had agreed any claim should be submitted to arbitration in Sweden.
In 1998 Radio Design issued a confidential information memorandum in relation to a proposed placing of shares. The memorandum was sent to potential investors including CTIL. Radio Design engaged Enskilda as placement agent and financial advisor with respect to the placing shares. In July 1998 CTIL signed an application form to subscribe for 33,333 B3 preference shares in Radio Design at a cost of about £2.6m. The application form was submitted to Enskilda which signed as escrow account manager. The application form was governed by Swedish law and any dispute was to be settled exclusively by arbitration in Stockholm.
CTIL issued proceedings claiming that it had been induced to buy the shares by representations made fraudulently or negligently. The alleged misrepresentations related essentially to the state of readiness of Radio Design's mobile telecommunications product for commercial production and to the use to which the proceeds of the allotment of the shares would be put. Radio Design applied for a stay of proceedings under s. 9(4) of the Arbitration Act 1996 relying on the arbitration agreement in the subscription application form. The master ordered a stay on the basis that Radio Design was a party to an agreement on the terms of the application form and to the arbitration clause contained in it. The judge dismissed CTIL's appeal against that order. The judge further held that Radio Design had not taken any step in the proceedings within the meaning of s. 9(3) by making an application for summary judgment “in the event that its application for a stay was unsuccessful”. The summary judgment application was based on the submission that under Swedish law the claim had no real prospect of succeeding because a company was not liable for misrepresentations made on its behalf in connection with an issue of shares.
CTIL appealed arguing that, contrary to the findings of the master and judge, no contract came into existence between CTIL and Radio Design on terms of the subscription application form, that CTIL's claims were not within the arbitration clause and that Radio Design had taken a step in the proceedings for the purposes of s. 9(3).
Held, dismissing the appeal:
1. By signing the subscription application form CTIL created Enskilda its agent for the purposes of subscribing for the shares. That was a matter of mechanics so that the bank was authorised to sign the subscription list, required by Swedish law, on behalf of investors. The document was an offer document and the offer could only be made to Radio Design or to the bank as its placing agent. The application could not be being made to the bank as agent for CTIL. Nor could it be being made to the bank as principal. It was intended that Radio Design should be a party to the contract to be evidenced by the form if it accepted CTIL's offer to subscribe to the shares, as it did when the shares were duly allotted. Therefore Radio Design became a party to a contract on the terms of the application form, including the arbitration clause.
2. CTIL's claims were within the arbitration clause. The court rejected CTIL's argument that although the parties used language which was wide enough to encompass pre-contractual misrepresentations, they must be taken to have intended to exclude such claims because the innocent party could not possibly have been aware at the time that it might have a claim in deceit and/or for negligent misrepresentation. It was far more likely that the parties intended that such claims and claims for breach of contract would all be determined by the same tribunal. (Bank of Credit and Commerce International SA v AliUNK[2001] UKHL 8; [2002] 1 AC 251andHarbour Assurance Co (UK) Ltd v Kansa General International Insurance Co LtdELR[1993] QB 701considered.)
3. Radio Design had not taken any step in the proceedings within s. 9(3). The application for summary judgment was not such a step because there was no expression of willingness that the courts should determine CTIL's claims instead of arbitrators. On the contrary it was clear that the application was only advanced in the event that its application for a stay was not successful. The application made it clear that it was specifically seeking a stay, with the result that a step which would otherwise be a step in the proceedings was not so treated. Radio Design did not take a step in the proceedings when it made its application for summary judgment nor did it take any such step thereafter. (Patel v PatelELR[2000] QB 551applied.)
(16 February 2001)
Jacob J:
1. These are two appeals from orders of Master Bowman. The first order is dated 27 June 2000, the second 31 July 2000. The master gave permission for both appeals. By the first order the master stayed the proceedings as between the claimant and the first defendant; by the second he gave summary judgment for the first defendant, striking out the whole claim as against it. The parties were agreed that the two orders were inconsistent: logically you cannot stay an action and then give judgment on it. It was common ground, therefore, that if the stay was the right order the second order could not stand.
2. The claimant is an investment company. It subscribed, via a private placement, to an issue of shares in a Swedish company called Radio Design TJ AB, the first defendant. Prior to its investment the claimant had a document which was in effect a prospectus, though it went out of its way to disclaim a formal status as such. The document was called a “confidential information memorandum” and is dated 27 May 1998. It was issued by a division (called Enskilda Securities) of a Swedish bank. In the document Enskilda was called “the placement agent”.
3. The purpose of the share issue as described in the memorandum was to raise money for the development and launch of a system which improved existing analogue mobile networks. The improvement was claimed to be much cheaper than replacement with a digital system and so attractive in many countries where a switch to a digital had yet to occur. The claimant alleges that the memorandum painted a wholly false picture of the state of development and workability of the system. It says this picture was knowingly and deliberately false — the system was no more than an inchoate heap of junk and the company and its directors knew that.
4. So the claimant sues Radio Design in deceit. It also sues the directors identified in the memorandum and two other parties. It says they were each responsible for the misleading information it was given. I am only concerned with the claim against Radio Design.
5. Enskilda, as I have said, describing itself as “placement agent” supplied the memorandum. However, the memorandum begins with “notices to investors” which make it plain that this document is the responsibility of Radio Design. It commences with the words,
“Radio Design is furnishing this confidential information memorandum solely for the consideration of institutional and other sophisticated investors who have sufficient knowledge and experience to evaluate the merits and risks of an investment.”
The memorandum explicitly indicates that “Radio Design and its directors [who are named] accept responsibility for the information contained in this memorandum”. The memorandum clearly was intended for potential investors in a number of countries: it contains special notices directed to investors in the UK and Sweden and a general notice pointing out that it has not been registered or approved by the SEC in the USA.
6. Enskilda had been appointed placement agents in September 1997. I do not think anything turns on the terms of appointment. The terms expressly empower Enskilda to arrange that all legal agreements be put in place and to “close the transaction (e.g...
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