Cunningham-Reid v Buchanan-Jardine

JurisdictionEngland & Wales
JudgeLORD JUSTICE DILLON,LORD JUSTICE WOOLF,LORD JUSTICE BINGHAM
Judgment Date23 June 1987
Judgment citation (vLex)[1987] EWCA Civ J0623-5
Docket Number87/0631
CourtCourt of Appeal (Civil Division)
Date23 June 1987
Michael Cunningham-Reid
Dorothee Cunningham-Reid
and
Irmgard Buchanan-Jardine

[1987] EWCA Civ J0623-5

Before:

Lord Justice Dillon

Lord Justice Woolf

Lord Justice Bingham

87/0631

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM AN ORDER OF SIR NEIL LAWSON,

SITTING AS A JUDGE OF THE HIGH COURT

Royal Courts of Justice

MR ALAN NEWMAN, instructed by Messrs Sears Tooth & Co., appeared for the Appellant (Defendant).

MR JOHN STEVENSON, instructed by Messrs Rubinstein Callingham & Co., appeared for the Respondents (Plaintiffs).

LORD JUSTICE DILLON
1

I will ask Lord Justice Woolf to give the first judgment.

LORD JUSTICE WOOLF
2

This is an appeal, with the leave of Sir Neil Lawson, against a decision which he gave when sitting as a deputy High Court judge in Chambers on 12th February 1987. He then allowed an appeal from Master Lubbock who had granted the defendant a stay pending arbitration in relation to the proceedings brought by the plaintiff.

3

The reason that the learned judge allowed the appeal and refused a stay was because in his view the plaintiff had made an allegation of fraud and the evidence in support was strong and convincing, and in those circumstances it was not appropriate that there should be an arbitration.

4

On behalf of the defendant on the appeal to this court Mr Newman accepts that where a person who is charged with fraud wishes the action not to be stayed but to continue in the courts, the court will allow the action to proceed, but argues that, where, as in this case, it is the person who is charged with fraud who wants the action to be stayed so that there can be an arbitration and it is the party making the charge who wants the action to continue, then in those circumstances the court cannot refuse a stay.

5

The facts can be shortly stated. In December 1984 the defendant, who carries on a business of interior designing agreed to carry out work in relation to the plaintiffs' home at No. 7, Campden Hill Square. The defendant for her services was to receive a fee of £4,500. She was retained pursuant to an agreement in writing dated 14th December 1984 and that agreement contained an arbitration clause which was in these terms:

6

"Any controversy or claim arising out of [or] relating to this agreement or the breach thereof, will be settled by arbitration in accordance with the rules of this country." The agreement also contained terms which provided that "All purchases of furnishings and services" would be in the name of the plaintiffs; all purchases would be billed to the plaintiffs at list prices; the funds provided by the plaintiffs "should be held by an English bank or a local representative".

7

The plaintiffs alleged that the defendant had been guilty of fraud in that she arranged for dummy invoices to be made out by suppliers which showed a larger sum was payable than was in fact due. In addition, the monies received from the plaintiffs, instead of being used for the purposes indicated in the agreement, had been used for personal expenses of the defendant, including such matters as massage and the purchase of shoes. The defendant denies that she has been guilty of fraud. On advice, at this stage she has not gone into detail as to her defence to the allegations which are made. However, on the material which was before the learned judge and which is before this court, it is quite clear that the plaintiffs have a strong prima facie case. However, in fairness to the defendant, it is right that I emphasise that this court has not the advantage of seeing her answer to these allegations.

8

Included in the statement of claim was a claim for an account. An argument was advanced before this court based on that claim by Mr Newman, but he accepted that that argument did have great difficulties and he did not press it.

9

So far as the law is concerned, it is first necessary to refer to the section of the Arbitration Act 1950 which sets out the powers of the court to grant a stay. The section is section 4, subjection (1), which provides:

10

"If any party to an 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 those legal proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to that court to stay the proceedings, and that court or a judge thereof, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the agreement, and that the applicant was, at the time when the proceedigns were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings."

11

It will be noted that section 4 gives the court a wide discretion. However, having regard to its terms, it is right, as Mr Newman submits, that the section places the onus upon a party seeking to show that there should not be a stay to establish the matters relied upon once the other requirements of subsection (1) of section 4 are established. Mr Newman also emphasised the fact that, where the subsection refers to the court being satisfied, it does so in terms which involve a double negative and he submits that that underlines the onus which is placed upon an applicant to the court who is seeking to say that the court should not take the normal course of staying the action so the matter may proceed to arbitration.

12

On behalf of the plaintiff Mr Stevenson did have a subsidiary argument to the effect that in this case the defendant could not fulfil the requirement contained in subsection (1) of section 4 that she should be ready and willing to do all things necessary to the proper conduct of the arbitration. However, in that regard his argument really was based on the matters which were interwoven with the plaintiffs' allegation of fraud, and in my view that contention had no substance.

13

As the reason relied upon for submitting that there should be no stay pending arbitration in this case is flawed, it is next necessary to refer to section subsections (2) and (3) of the same Act. Subsection (2) provides:

14

"Where an agreement between any parties provides that disputes which may arise in the future between them shall be referred to arbitration, and a dispute which so arises involves the question whether any such party has been guilty of fraud, the High Court shall, so far as may be necessary to enable that question to be determined by the High Court, have power to order that the agreement shall cease to have effect and power to give leave to revoke the authority of any arbitrator or umpire appointed by or by virtue of the agreement."

15

Subsection (3) provides:

16

"In any case where by virtue of this section the High Court has power to order that an arbitration agreement shall cease to have effect or to give leave to revoke the authority of an arbitrator or umpire, the High Court may refuse to stay any action brought in breach of the agreement."

17

The plaintiffs on this appeal contend that the proceedings fall within subsection (3). Because of the allegation of fraud, this is a case where the High Court has power to order that an arbitration agreement shall cease to have effect; and, that being so, the court has a discretion under subsection (3) to refuse to stay the action, although otherwise the action would be brought in breach of the arbitration agreement.

18

With regard to subsection (2), it will be noted that, if effect is given just to the language of that subsection, it appears to apply equally to the party who is being charged with fraud and the party who is making the charge, and it would seem that the discretion given by subsection (2), and by virtue of the terms of subsection (2) also given to the court under subsection (3), applies equally where the application is made by either party.

19

So far as the previous authorities are concerned, it-is contended by Mr Stevenson that prior to a decision of the House of Lords, to which I will come in due course, they indicate that an application for a stay can be made by either the party making the charge of fraud or by the party against whom a charge is made, and in both cases the court has a discretion to refuse a stay.

20

Perhaps the most favourable decision to the contention advanced by Mr Stevenson on behalf of the plaintiffs is provided by the earliest case to which the court was referred. That is the case of Wallis v. Hirsch [1856] 1 C.B. (N.S.), volume 140 of the English Reports, at page 131. In that case the plaintiffs were suing in respect of linseed cakes with which they had been supplied, and they contended that they were a spurious immitation of the real thing, a spurious immitation which had been passed off on them dishonestly. The application which was made to stay the proceedings which they brought was made under the relevant statutory provision at that time which was contained in section 11 of the Common Law Procedure Act 1854. (While that Act was not in precisely the same terms as section 4 of the Arbitration Act 1950, there is no significant difference so far as this appeal is concerned.) In the case of Wallis v. Hirsch the first judgment was given by Chief Justice Cockburn, and he said in a short judgment:

21

"I think we should be extremely reluctant to interfere to prevent the full benefit of the enactment in question, where the parties have in writing agreed expressly that the differences between them shall be submitted to arbitration. But, at the same time,...

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