Richard Bryan Forrest Gracie v Patricia Marie Rose
| Jurisdiction | England & Wales |
| Judge | Russen |
| Judgment Date | 10 May 2019 |
| Neutral Citation | [2019] EWHC 1176 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: E30BS342 |
| Date | 10 May 2019 |
[2019] EWHC 1176 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BRISTOL
BUSINESS LIST (ChD)
Bristol Civil & Family Justice Centre
2 Redcliff Street, Bristol BS1 6GR
HH JUDGE Russen QC
(Sitting as a Judge of the High Court)
Case No: E30BS342
Charlie Newington-Bridges (instructed by Porter Dodson LLP, Yeovil) for the Claimants
Mark Anderson QC (instructed by W. Parry & Co, Swansea) for the Defendant
Hearing dates: 30 April and 1 May 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
HH JUDGE Russen QC
His Honour Judge Russen QC:
Introduction
By a Claim Form issued on 9 March 2018 the Claimants (“Mr Gracie” and “the Company”) have brought an arbitration claim against the Defendant (“Mrs Rose”) under the Arbitration Act 1996 (“the Act”).
By their Claim they seek to challenge an Arbitration Award dated 9 February 2018 (“the Award”) which was made by Mr David Bunker FCA (“the Arbitrator”).
The dispute between the present parties which had been referred to the Arbitrator arose out the terms of a Shareholders Agreement dated 1 April 2005 to which Mrs Rose's late husband, Edward Rose, his son Alan Rose, Mr Gracie and the Company were each party. Mr Edward Rose died on 10 October 2015, a little over a year after Alun Rose had relinquished his directorship of the Company and been bought out of his shareholding. In circumstances where Mr Rose's death led Mrs Rose (as his executrix) to be treated as a “Retiring Shareholder” for the purposes of the Shareholders Agreement, the issue arose as to the price to be paid for Mr Rose's 50% shareholding in the Company. There was also an issue over Mrs Rose's entitlement to receive dividends (or other “distributions”) equivalent to those received by Mr Gracie since Mr Rose's death.
The purchase of the remaining Rose shareholding fell to be addressed under the terms of Schedule 6 to the Shareholders Agreement. In default of the Company being wound up, as the “Continuing Shareholder” Mr Gracie was obliged to purchase that shareholding for a sum calculated in accordance with the Schedule, though its terms expressly provided that he “might arrange for them to be purchased by the Company but the liability to pay the Retiring Shareholder shall remain that of the Continuing Shareholder[s]”. It was the Company which had purchased, and duly cancelled, Alun Rose's shareholding in September 2014.
Although the Company is a party to the present proceedings and (as appears below in the discussion of the third ground of challenge) was party to the arbitral proceedings, the real dispute was between Mrs Rose and Mr Gracie. He was the single party identified in the statements of case and in the Award itself as “the respondent”. In relation to share price, the central issue was whether that element of it referable to a valuation of the Company's goodwill was to be calculated by reference to the “aggregate” of the Company's profits over 3 years (as the Shareholders Agreement stated and Mrs Rose claimed) or by reference to their “average” over those 3 years (as Mr Gracie contended). In relation to Mrs Rose's claim to equal dividends (or other distributions) the dispute was essentially over the correct characterisation of the sums that Mr Gracie had received (and whether they or any part of them were to be treated as remuneration, dividends or loans).
Mr Gracie had also made a counterclaim in the arbitration against Mrs Rose. It was based upon her alleged breach of the Shareholders Agreement in divulging confidential information to one of the Company's most important customers, Direct Line. The Company specialised in carrying out restoration work funded by insurers. Mr Gracie claimed unliquidated damages to reflect the diminution in the value of his shareholding which he said had resulted in the harm caused to the Company by the alleged breach.
By the terms of the Award, the Arbitrator (1) upheld Mrs Rose's computation of the share price (by reference to the “aggregate” of the three years' profit); (2) substantially upheld her claim to an entitlement equal to the dividends received by Mr Gracie in addition to his salary (though not that aspect of the claim which had asserted that, like Mr Gracie, she was entitled to what I might describe as a “base” payment of £1,500 per month); and (3) concluded that Mr Gracie was not entitled to make his counterclaim for damages based upon reflective loss.
It is these findings that Mr Gracie seeks to challenge, though only the third of them would have involved consideration of the legal merits behind the finding on an appeal (on a point of law) under section 69 of the Act. Mr Gracie's challenge to the first two findings is instead made under section 68 of the Act and his claim that in reaching them the Arbitrator was guilty of at least one irregularity in the conduct of the arbitration which has caused substantial injustice. As it is, Mr Gracie's appeal against the Arbitrator's rejection of his counterclaim – the fourth ground identified in the Claim Form — was abandoned by his solicitors' letter dated 22 October 2018, leaving the first three grounds of challenge based upon one or more limbs of section 68(2).
This is my judgment on the three remaining grounds identified in the Claim Form, the nature of which I identify below when addressing each in turn.
At the hearing of the arbitration claim before me, Mr Gracie and the Company were represented by Mr Charlie Newington-Bridges and Mrs Rose was represented by Mr Mark Anderson QC. I am grateful to each of them for their submissions. They revealed a significant difference in the suggested application of the legal principles on a claim under section 68. Although the principles are well established, I have therefore considered it necessary to summarise them and to set out the interrelationship between some of them for the purposes of explaining my decision on each of the three grounds.
Legal Principles
As Mr Anderson QC urged upon me, by reference to the decision of Morison J in Fidelity Management SA and others v Myriad International Holdings BV and another [2005] EWHC 1193; [2005] 2 ALL (Comm) 312, at [2]–[5], the court should be cautious in contemplating the exercise of its jurisdiction under section 68 and pay due regard to the fact that the parties have agreed to have their dispute determined by arbitration. He referred me to the notes in the White Book upon section 68 of the Act (2019 ed, Vol 2 para. 2E-262) which record the authorities making it clear that “the section is a long-stop available only in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected” (a departmental committee comment on what was then the Arbitration Bill that was later endorsed by the House of Lords in the Lesotho Highlands decision mentioned below). It is clear that the test of “substantial injustice” is intended to support the freestanding nature of the arbitral process rather than to encourage interference with it.
Section 68(2)(d) of the Act identifies a want of due process through the “failure of the tribunal to deal with all the issues that were put to it.” That provision is relied upon in support of Grounds 1 and 2 of the challenge to the Award.
Section 68(2)(d) does not enable the claimant to launch an indirect appeal against the arbitral tribunal's decision on a particular claim, or issue within it, by criticising the reasoning in support of it. Like the other grounds in the subsection which are concerned with due process, instead of being directed to an error of judgment it addresses the arbitrator's “failure” to deal with an issue: see Weldon Plant Ltd v Commission for New Towns [2000] EWHC (TCC) 76; [2001] 1 All ER (Comm) 264, either [29] or [31] according to the report, per Judge Humphrey Lloyd QC.
Although the subsection refers to a failure by the tribunal to deal with all of the issues that were put to it, the authorities show that the arbitrator does not have to deal with every point raised in argument. Instead, “failure” for section 68(2)(d) purposes is tested by reference to the concept of what some of them describe as “essential issues”. Use of the term “issue” has the potential to confuse when there can be different grades of such, descending to particular points of legal or factual detail advanced in argument (and therefore “in issue” between the parties) and said to be relevant to the outcome. To come within section 68(2)(d) the failure must be one that involves the tribunal overlooking a key issue that needs to be addressed, and “dealt with”, if a fair decision on the reference is to be reached.
In the Weldon Plant case the judge referred, in addition to the scenario of a head of claim having been overlooked, to an inability to justify the decision because “a particular key issue has not been decided which is crucial to the result.” I refer also to the decisions of Colman J in World Trade Corporation Ltd v C Czarnikow Sugar Ltd [2004] EWHC 2332 (Comm); [2004] 2 ALL ER (Comm) 813, at [16]; Morison J in the Fidelity Management case at [9(3)]; and of Mr Gavin Kealey QC (sitting as a Deputy High Court Judge) in Buyuk Camlica Shipping and Industry Co Inc v Progress Bulk Carriers Ltd [2010] EWHC 442 (Comm), at [28]–[29]. The chain of citation in those later cases shows that they can be traced back to the relevant paragraph in the Weldon Plant case.
Obviously, the concept of a key issue, required to be addressed, is one that embraces not only essential elements of the claim but also of any “specific...
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