EDO Corporation v Ultra Electronics Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 01 April 2009 |
| Neutral Citation | [2009] EWHC 682 (Ch) |
| Court | Chancery Division |
| Date | 01 April 2009 |
| Docket Number | I/A No. 69 of 2008 |
[2009] EWHC 682 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY
Bernard Livesey QC sitting as a Judge of the Chancery Division
In the Matter of a Potential Action
I/A No. 69 of 2008
James Abrahams, instructed by Osborne Clarke, Bristol, appeared on behalf of Ultra Electronics Limited.
Jacqueline Reid, instructed by Baker & McKenzie LLP, appeared on behalf of EDO Corporation.
This is the official Judgment of the Court and pursuant to CPR 39 PD 6.1 I direct that no further note or transcript be made of it.
Bernard Livesey QC
Deputy Judge of the High Court
st April 2009
This application raises two important questions: the first is whether the procedure for pre-action disclosure provided by section 33(2) of the Supreme Court Act 1981 and CPR Part 31.16 is available to a party where the underlying dispute he may have with the proposed defendant arises out of a contract which requires any dispute to be determined by arbitration; the second is whether, if such an application is available in the above circumstances, section 9 of the Arbitration Act 1996 enables the court to stay it.
The facts in brief:
In 1999 the United Kingdom selected BAE Systems plc for the design and manufacture of its new, Type 45 “Daring” class Air Warfare Destroyer. BAE plc subsequently appointed Ultra as its sub-contractor for the manufacture of a hull mounted sonar system to be used on the Destroyer. EDO and Ultra collaborated on making the bid pursuant to a Teaming Agreement dated September 2000. After Ultra's bid was successful, EDO and Ultra entered into the Sub-Contract in July 2002 to enable the supply of the sonar equipment to proceed.
Both the Teaming Agreement and the Sub-Contract contained terms providing for the reference to arbitration of any dispute between EDO and Ultra arising out of the Agreement or Sub-Contract respectively. There is some difference of wording between the two terms but the differences are immaterial for the purposes of this application.
It is not in dispute that EDO provided some proprietary materials, confidential information and copyright works to Ultra pursuant to the Sub-Contract and Ultra were, in return, prohibited from using them for purposes other than the performance of the Sub-Contract for the Royal Navy on which they were jointly engaged.
In November 2007 the Australian Navy commenced a tender process for the provision of sonar systems for its own, new Air Warfare Destroyer. Both EDO and Ultra separately entered the tender process and Ultra won the contract.
There are similarities between the sonar systems provided to the Australian Navy and that provided to the Royal Navy and EDO has the belief that Ultra has misused proprietary information belonging to EDO in making its bid for the Australian project, in breach of the terms of the Sub-Contract, in breach of a duty of confidence and in breach of copyright. Ultra disputes this.
EDO has concluded that the only way of finding out whether such misuse has occurred is by making application for pre-action disclosure pursuant to section 33(2) of the Supreme Court Act 1981. It argues that, in the absence of the documents sought, it is not possible to ascertain whether EDO has any substantive dispute with Ultra, or if such a dispute exists, its nature and ambit.
The documents of which it seeks disclosure are a significant part of the tender documents which Ultra submitted to the Australian Navy for the Project, that is to say, a total of 11 specified sections from the four or so volumes of documents which comprised the tender. All of the named sections appear at first sight to contain documents which are highly sensitive commercially, if not secret, but disclosable on standard disclosure in litigation, (though I make no ruling on any of these points as I have not heard argument on the merits of the application).
Section 33(2) of the Supreme Court Act 1981 provides as follows:
“On the application, in accordance with rules of court, of a person who appears to the High Court to be likely to be a party to subsequent proceedings in that court, the High Court shall, in such circumstances as may be specified in the rules, have power to order a person who appears to the court to be likely to be a party to the proceedings and to be likely to have or to have had in his possession, custody or power any documents which are relevant to an issue arising or likely to arise out of that claim –
(a) to disclose whether those documents are in his possession, custody or power; and
(b) to produce such of those documents as are in his possession, custody or power to the applicant or, on such conditions as may be specified in the order – (i) to the applicant's legal advisers; .…
CPR Pt 31.16 provides so far as material as follows:
“(1) This rule applies where an application is made to the court under any Act for disclosure before proceedings have started.
(2) The application must be supported by evidence.
(3) The court may make an order under this rule only where –
(a) the respondent is likely to be a party to subsequent proceedings;
(b) the applicant is also likely to be a party to those proceedings;
(c) if proceedings had started, the respondent's duty by way of standard disclosure, set out in rule 31.6, would extend to the documents or classes of documents of which the applicant seeks disclosure; and
(d) disclosure before proceedings have started is desirable in order to
(i) dispose fairly of the anticipated proceedings;
(ii) assist the dispute to be resolved without proceedings; or
(iii) save costs.”
After correspondence in which it appeared that Ultra was reconciled to an application being made, EDO issued its application on 11 th November 2008 but was then met, not by a detailed response to their application but by the current application dated 8 th December 2008 to stay EDO's application based upon section 9 of the Arbitration Act 1996. That section provides as follows:
“(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.
(3) An application may not be made by a person before taking the appropriate procedural step (if any) to acknowledge the legal proceedings against him or after he has taken any step in those proceedings to answer the substantive claim.
(4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.”
The Arguments:
For Ultra, Mr James Abrahams argues as follows:
a. It is firmly established law that arbitration clauses are to be liberally and broadly interpreted so as to give effect to the presumption in favour of “one–stop adjudication”. The House of Lords in Fiona Trust & Holding Corporation v Privalov [2008] 1 Lloyds Rep. 254 held that the principle was to be given paramount importance.
b. It follows that the issues potentially arising in the underlying dispute, regardless of the way the complaint is framed, that is to say, whether in breach of contract, breach of confidence or breach of copyright, all arise out of the Sub-contract relationship, all raise substantially the same facts and all are subject to the arbitration clause.
c. Even the application for pre-action disclosure is a matter which itself falls within the arbitration clauses.
d. Because the relationship between EDO and Ultra is governed by an arbitration clause, if EDO wishes to pursue its complaint, it must do so by way of arbitration. The application for pre-action disclosure is itself a “legal proceeding” to which section 9 of the Arbitration Act 1996 can apply. Therefore on both these grounds the proceedings must be stayed – the court has no discretion.
e. In addition, EDO is not a person which is able to make an application pursuant to section 33(2) of the Supreme Court Act 1981 because it is not, in the words of the section, “a person who appears to the High Court to be likely to be a party to subsequent proceedings in that court”. That is because any subsequent proceedings will be by way of arbitration.
f. In addition, as a matter of principle, even if the wording of section 33(2) and CPR 31.16 did not preclude EDO's application, it would be wrong to allow pre-action disclosure to be used in aid of arbitration proceedings. The whole purpose of the Arbitration Act 1996 is to ensure that disputes between parties to arbitration agreements are resolved in the way the parties have agreed. By section 1(c) it is provided that “the Court should not intervene except as provided by this Part” of the Act.
g. Accordingly, he argues, EDO's application should be stayed.
For EDO, Miss Jacqueline Reid responds as follows:
a. The power to stay legal proceedings pursuant to section 9 of the Arbitration Act 1996 applies only where the legal proceedings “are brought (whether by way of claim or counterclaim)”;
b. The application by EDO under section 33(2) was therefore not “legal proceedings” but was an application “prior to legal proceedings”, that is to say procedural in nature not “substantive” (cf. section 9(3) of the Arbitration Act 1996); accordingly, the court does not have a duty, or indeed any power under section 9 to stay EDO's application;
c. Apart from which, the legal proceedings have to be in respect of a matter “which under the agreement is referred to arbitration”: the matters the subject of EDO's application were not within that description;
d. As regards Ultra's challenge to the validity of EDO's...
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...to the arbitration. 21 Thirdly, although there is no authority on this issue which is binding on me, I note that in EDO Corporation v. Ultra Electronics Limited [2009] EWHC 682 (Ch) Bernard Livesey QC (sitting as a Deputy Judge of the High Court) reached precisely the same conclusion, to th......