Salford Estates (No. 2) Ltd v Altomart Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Lord Justice Kitchin |
| Judgment Date | 08 December 2014 |
| Neutral Citation | [2014] EWCA Civ 1575 |
| Docket Number | Case No: A2/2014/0743 |
| Court | Court of Appeal (Civil Division) |
| Date | 08 December 2014 |
[2014) EWCA Civ 1575
THE CHANCELLOR OF THE HIGH COURT
Lord Justice Longmore
and
Lord Justice Kitchin
Case No: A2/2014/0743
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
HIS HONOUR JUDGE BIRD (MANCHESTER DISTRICT REGISTRY)
2141 OF 2014
Royal Courts of Justice
Strand, London, WC2A 2LL
Lesley Anderson QC (instructed by Woodcocks Haworth & Nuttall) for the Appellant
Peter Knox QC (instructed by Vyman Solicitors) for the Respondent
Hearing dates: 11 th November 2014
The Chancellor (Sir Terence Etherton):
Introduction
The issue on this appeal is whether, and if so in what way, the stay provisions in section 9 of the Arbitration Act 1996 ("the 1996 Act") apply to a petition to wind up a company on the ground of its inability to pay its debts where the debt on which the petition is based arises out of contract containing an arbitration agreement.
The appeal is by Salford Estates (No 2) Limited ("Salford Estates") from the order dated 4 February 2014 of His Honour Judge Nigel Bird, sitting as a High Court judge, by which he ordered that the winding up petition presented by Salford Estates against the respondent, Altomart Limited ("Altomart"), on 3 February 2013 be stayed.
The following provisions of the 1996 Act are relevant to this appeal:
"1 General principles.
The provisions of this Part are founded on the following principles, and shall be construed accordingly—
(a) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;
(b) the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest;
(c) in matters governed by this Part the court should not intervene except as provided by this Part."
"9 Stay of legal proceedings.
(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.
(2) …
(3) …
(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."
"82 Minor definitions.
(1) In this Part—
…
"dispute" includes any difference;
…
"legal proceedings" means civil proceedings in the High Court or a county court; …"
The background
The background facts can be shortly stated.
Salford Estates and Altomart are the current lessor and lessee respectively under an underlease dated 29 April 1974 for a term of 125 years from 29 September 1971 ("the Lease"). The Lease is of commercial premises at 53–55 Fitzgerald Way, Salford, M6 5JA ("the Premises"). They form part of the Salford shopping centre ("the shopping centre"), of which Salford Estates is the owner.
By clause 2(3) of the Lease the tenant covenanted to pay by way of an annual service charge "a due proportion … of the expenses … reasonably and properly incurred by the Lessor" in the preceding year in connection with the works and services set out in the third schedule to the Lease ("the services").
By clause 3(2) of the Lease the landlord covenanted to insure the Premises in the joint names of the landlord and the tenant with an insurer approved by the tenant, such approval not to be unreasonably withheld.
By clause 3(3) of the Lease the landlord covenanted at all times throughout the term to the best of its ability and in accordance with the principles of good estate management to carry out, provide, manage and operate the services in an efficient and economical manner.
The Lease provides that an amount equal to the insurance premium is payable by the tenant by way of rent. The Lease further provides that the rent and insurance rent are payable without deduction.
Clause 4(4) of the Lease ("the arbitration clause") contains the following wide and comprehensive arbitration agreement:
"Any dispute or difference arising between the Lessor and the Lessee as to their respective rights duties or obligations or as to any other matter arising out of or in connection with this Underlease shall be referred to a single arbitrator provided the parties are able to agree on one or otherwise to two arbitrators one to be appointed by each party or their umpire in accordance with and subject to the provisions of the Arbitration Act 1950 or any statutory modification or re-enactment thereof for the time being in force"
In July 2012 Salford Estates and Altomart referred to arbitration a number of disputes about Altomart's obligation to pay the service charge and insurance rent. The sole arbitrator was Mr Timothy Fancourt QC. The issues about the service charge concerned the proper interpretation of the service charge provisions of the Lease. Mr Fancourt refused a late application by Altomart to bring within the arbitration the issue of the reasonableness of Salford Estates' expenditure on management fees and marketing fees and the correctness of the due proportion based on rateable values. The dispute over the insurance rent was whether Altomart was liable to pay it since, contrary to the terms of the landlord's covenant, the insurance was neither in joint names nor with a company which Altomart had been asked to approve. It was included in a block policy for the shopping centre.
Mr Fancourt issued a lengthy and detailed final award (save as to costs) dated 28 November 2013 ("the Award"). He found on some issues for Salford Estates and on others for Altomart. One of the matters on which he found for Salford Estates was in respect of Altomart's liability to pay the insurance rent. He concluded that strict performance of clause 3(2) of the Lease was not a condition precedent to the tenant's obligation to pay the insurance rent. He held that the total arrears due to Salford Estates for the 3 years from 1 April 2010 to 31 March 2013 were £64,431.79 (including VAT), comprising £51,383.22 in respect of service charges and £13,048.46 in respect of insurance rent. On 9 January 2014 Mr Fancourt issued a further award on costs ("the Costs Award"), by which he determined that Altomart should pay 50 per cent of Salford Estates' costs in the arbitration.
Altomart did not immediately pay the sums due under the Award. Salford Estates threatened to issue winding up proceedings unless both the £64,431.79 award and some further sums claimed for the year ending 31 March 2014 were paid by 5 pm on 31 January 2014. Those further sums were said necessarily to follow from the Award or the reasoning contained in it. Altomart did not accept that it was liable for those further sums.
On 31 January 2014 Altomart sent a cheque for £64,431.79 to Salford Estates. Before the cheque arrived, however, Salford Estates presented a winding up petition against Altomart ("the Petition"). The ground stated in the Petition for seeking a winding up order was that Atlomart was indebted to Salford Estates in the sum of £92,032.33. That sum comprised (1) £64,431.79 due under the Award, and (2) sums due for the year ending 31 March 2014, consisting of £22,747.22 for the service charge and £4,853.12 for insurance rent.
Altomart, by its solicitors, objected to the Petition on the ground that, apart from the £64,431.79 due under the Award, the other sums were disputed and that dispute had to be referred to arbitration pursuant to the arbitration clause. In the light of Altomart's threat to apply for an immediate stay, Salford Estates agreed not to advertise the Petition before 27 February 2014.
By an application dated 7 February 2014 Altomart applied to strike out or stay the Petition on one or more of several grounds, namely (1) it constituted an abuse of the court's process; (2) Altomart was not unable to pay its debts; (3) the debt which was the subject of the Petition was subject to a genuine dispute; (4) the Petition was liable to be stayed in any event pursuant to section 9 of the 1996 Act.
The application was supported by a witness statement from Mr Raj Soni, a director of Altomart. He said that, although Mr Fancourt had declined Altomart's request for determination of whether each item of expenditure claimed by Salford Estates had been reasonably and properly incurred, it was a relevant issue for the service charge in the year ending 31 March 2014 and for the years prior to 31 March 2011. He said that Altomart had instructed a specialist service charge consultant to provide an expert report on the issue and Altomart was "awaiting further progress in this respect". So far as concerned the demand in respect of insurance rent, Mr Soni said that the insurance had (still) not been procured in joint names or with insurers approved by Altomart and that, although the Arbitrator had ruled that those were not pre-conditions of the tenant's obligation to pay the insurance rent, he believed that in respect of the current year Altomart could have obtained a cheaper premium and so it had been overcharged and had suffered loss. He also said that Altomart was solvent on both a cash flow basis and on a balance sheet basis. In that connection he referred to draft accounts for the year ended 31 March 2013. He said that the accounts "will be finalised in more or less the same form". Finally, he said that he believed...
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