Source: http://www.civillitigationbrief.com/2017/01/14/adverse-decision-in-arbitration-proceedings-did-not-render-an-action-an-absue-of-process-court-of-appeal-reversed-striking-out-decision/
Timestamp: 2018-04-22 18:12:25
Document Index: 333352731

Matched Legal Cases: ['EWCA ', '§152', '§155', '§92', 'EWCA ', 'EWCA ', 'art 20']

ADVERSE DECISION IN ARBITRATION PROCEEDINGS DID NOT RENDER AN ACTION AN ABSUE OF PROCESS: COURT OF APPEAL REVERSED STRIKING OUT DECISION – Civil Litigation Brief
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ADVERSE DECISION IN ARBITRATION PROCEEDINGS DID NOT RENDER AN ACTION AN ABSUE OF PROCESS: COURT OF APPEAL REVERSED STRIKING OUT DECISION
January 14, 2017 · by gexall · in Applications, Striking out
In Michael Wilson & Partners -v- Sinclair [2017] EWCA Civ 3 the Court of Appeal overturned a decision to strike out the claimant’s case. The fact that there had been earlier arbitration proceedings did not, in this case, render a second action on similar matters an abuse of process.
The Court of Appeal overturned a hearing striking out the claimant’s action on the grounds that there had been earlier adverse findings made against them in arbitration proceedings.
It was no necessarily an abuse of process to issue proceedings after adverse findings had been made in arbitration proceedings.
The party making an application of abuse had the burden of proof in establishing that an order should be made.
On the facts of this case the parties to the action and the arbitration were not identical. It was not appropriate to strike the action out.
The Court of Appeal overturned the decision to strike the action out.
The claimant’s action against four defendants was struck out on the grounds that findings had already been made in arbitration proceedings.
The Court of Appeal considered the cases relating to striking out when there had been previous proceedings.
The following themes emerge from these cases that are relevant to the present appeal.
(1) In cases where there is no res judicata or issue estoppel, the power to strike out a claim for abuse of process is founded on two interests: the private interest of a party not to be vexed twice for the same reason and the public interest of the state in not having issues repeatedly litigated; see Lord Diplock in Hunter v. Chief Constable, Lord Hoffmann in the Arthur Hall case and Lord Bingham in Johnson v. Gore Wood. These interests reflect unfairness to a party on the one hand, and the risk of the administration of public justice being brought into disrepute on the other, see again Lord Diplock in Hunter v. Chief Constable. Both or either interest may be engaged.
(2) An abuse may occur where it is sought to bring new proceedings in relation to issues that have been decided in prior proceedings. However, there is no prima facie assumption that such proceedings amount to an abuse, see Bragg v. Oceanus; and the court’s power is only used where justice and public policy demand it, see Lord Hoffmann in the Arthur Hall case.
(3) To determine whether proceedings are abusive the Court must engage in a close ‘merits based’ analysis of the facts. This will take into account the private and public interests involved, and will focus on the crucial question: whether in all the circumstances a party is abusing or misusing the court’s process, see Lord Bingham in Johnson v. Gore Wood and Buxton LJ in Taylor Walton v. Laing.
(4) In carrying out this analysis, it will be necessary to have in mind that: (a) the fact that the parties may not have been the same in the two proceedings is not dispositive, since the circumstances may be such as to bring the case within ‘the spirit of the rules’, see Lord Hoffmann in the Arthur Hall case; thus (b) it may be an abuse of process, where the parties in the later civil proceedings were neither parties nor their privies in the earlier proceedings, if it would be manifestly unfair to a party in the later proceedings that the same issues should be relitigated, see Sir Andrew Morritt V-C in the Bairstow case; or, as Lord Hobhouse put it in the Arthur Hall case, if there is an element of vexation in the use of litigation for an improper purpose.
(5) It will be a rare case where the litigation of an issue which has not previously been decided between the same parties or their privies will amount to an abuse of process, see Lord Hobhouse in In re Norris.
To which one further point may be added.
(6) An appeal against a decision to strike out on the grounds of abuse, described by Lord Sumption JSC in Virgin Atlantic Airways Ltd v. Zodiac Seats UK Ltd [2014] AC 160 at [17] as the application of a procedural rule against abusive proceedings, is a challenge to the judgment of the court below and not to the exercise of a discretion. Nevertheless, in reviewing the decision the Court of Appeal will give considerable weight to the views of the judge, see Buxton LJ in the Taylor Walton case, at [13].
Although these points were not substantially in issue between the parties, their application to the facts was hotly contested.
The law: (2) the application of abuse of process to prior arbitral awards
Mr Samek relied on the observations of this Court in Sun Life Assurance Company of Canada and others v. Lincoln National Life Insurance Company [2005] 1 Lloyd’s Law Rep 606 to support a broad submission that a prior arbitration award cannot form the basis of an abuse of process.
The issue on appeal in the Sun Life case, as explained by Mance LJ at [1], has a superficial similarity to the present case.
This appeal concerns the correct analysis of an arbitration award relating to a dispute between X and Y, and its relevance in a subsequent, separate arbitration between X and Z in which the legal position between X and Y is in issue. X represents the appellants in this court, Sun Life … Y represents, Cigna … and Z represents the respondents in this court … (‘Lincoln’)
One of the points considered by the Court of Appeal was whether, where there were two arbitral tribunals, an award in one arbitration could give rise to an estoppel per rem judicatam in another. The question arose in the context of insurance and reinsurance. It was not suggested that the principles of res judicata and issue estoppel could have any direct application, see Mance LJ at [53]. The submission was that if, on a proper reading of the first award, an issue had been determined in a manner giving rise to an issue estoppel as between the parties to that arbitration, a reinsurer, whose rights or liabilities depended upon the legal position between the parties to the first award was entitled to rely on that determination against an insurer, who was one of those parties, see Mance LJ at [48]. In fact, no issue estoppel was created by the first arbitration award and so the observations of the court on the point were not a necessary part of the reasoning, see Mance LJ at [8] and [48] and Longmore LJ at [71]. It is equally clear that no argument was advanced on the basis of abuse of process, see Mance LJ at [63].
The observations of Mance LJ on which MWP relied were directed to whether, if an arbitral tribunal had power to prevent its process from being abused, there were considerations which would have excluded its use on the facts of the case. In rejecting that argument Mance LJ identified the important differences between arbitration and litigation.
[68] … more fundamentally, the solution for which (counsel for Lincoln) contends appears to me to overlook or obscure important differences between arbitration and litigation. In the context of litigation, problems of potentially conflicting judgments arrived at between different parties to the same overall complex of disputes are met by provisions for joinder of parties or proceedings or for trial together, if necessary on a mandatory basis using the courts’ compulsive powers. Even in circumstances in which there has been no such joinder, and where neither res judicata nor issue estoppel has any application, the court may intervene to prevent abuse of its process, as stated in paragraphs 63 and 65 above. All this is facilitated by the public nature of litigation, the public interest in the efficient administration of justice and the courts’ coercive powers. Considerations of general justice of the sort to which Toulson J referred thus have relevance and can be given effect in the context of litigation. Arbitration is in contrast a consensual, private affair between the particular parties to a particular arbitration agreement. The resulting inability to enforce the solutions of joinder of parties or proceedings in arbitration, or to try connected arbitrations together other than by consent, is well-recognised – though the popularity of arbitration may indicate that this inability is not often inconvenient or that perceived advantages of arbitration, including confidentiality and privacy are seen as outweighing any inconvenience. Different arbitrations on closely inter-linked issues may as a result lead to different results, even where, as in the present case, the evidence before one tribunal is very largely the same as that before the other. The arbitrators in each arbitration are appointed to decide the disputes in that arbitration between the particular parties to that arbitration. The privacy and confidentiality attaching to arbitration underline this; and, even if they do not lead to non-parties remaining ignorant of an earlier arbitration award, they are calculated to lead to difficulties in obtaining access, and about the scope of any access, to material relating to that award.
See also Jacob LJ at [87].
Although I accept these points as far as they go, I do not consider that they support Mr Samek’s broad proposition. What is clear is that there are good reasons why a court should be cautious before accepting that later court proceedings are an abuse of its process because it involves a collateral attack on an earlier arbitration award.
Mr Shepherd referred to a decision of Reyes J in the High Court of Hong Kong in which a broad submission similar to Mr Samek’s was considered, see Parakou Shipping Pte Ltd v. Jinhui Shipping and Transportation Ltd (2010) HCAJ 184/2009. In that case, there had been a London arbitration to determine whether Parakou had entered into an agreement to charter a vessel from Galsworthy Ltd. Galsworthy contended that they had and Parakou contended that they had not. In an arbitration award made in August 2010 the tribunal concluded that there had been a prima facie binding fixture which had been ratified by Parakou, and that no relevant misrepresentations had been made for which Galsworthy was responsible. Prior to the date of this award, in August 2009, Parakou had begun proceedings in Hong Kong alleging against the defendant that they had made misrepresentations which had induced the contract, if such had been concluded.
Reyes J held that the Hong Kong claim raised the same misrepresentation issues that had been decided by the arbitrators, albeit in an arbitration between different parties to those sued in the Hong Kong action, and struck out Parakou’s claim. The Judge identified what he described as the second aspect of the Court’s jurisdiction to strike out collateral attacks on adverse final decisions as an abuse of process: namely, where the doctrine of res judicata did not strictly apply.
96. Where a collateral challenge is alleged to be an abuse of process under the second aspect, the Court scrutinises the relevant facts carefully. This is because it is a serious matter to strike out a claim and prevent a plaintiff litigating a matter. It is not every collateral attack that will be held to be an abuse of process by the Court a collateral attack will typically only be an abuse where the Court finds that there will be ‘manifest unfairness’ or ‘the bringing of justice into disrepute’ if a plaintiff is allowed to continue with subsequent proceedings …
In the course of his judgment, Reyes J recited a number of arguments advanced by Parakou which were similar to those advanced by Mr Samek on behalf of MWP. First, that the London arbitration award was not binding otherwise than as between the immediate parties (Galsworthy and Parakou), and on that basis it could not be an abuse for Parakou to litigate issues which featured in the arbitration. Secondly, in relation to issues which arose in the arbitration and litigation, the Hong Kong court might make different findings. Thirdly, there was nothing unusual or objectionable about different forums coming to different conclusions.
Reyes J considered the judgment of the Court of Appeal in the Sun Life case on which Parakou had relied, and concluded that it did not assist Parakou’s argument in answer to the strike out application. First, as already noted, it was not an abuse of process case (see the Parakou judgment at §152). Secondly, and pertinently, an analysis of what was said in the Sun Life case did not support the proposition that the abuse of process jurisdiction was not available where the court was faced with an attempt to re-litigate issues decided in an arbitration (see the Parakou judgment §§155-157). Thirdly, where the doctrine of res judicata did not strictly apply and the parties to the subsequent proceedings were not the same parties or their privies in the earlier proceedings, the Court was bound to engage in a fact sensitive enquiry to see whether there is manifest unfairness or conduct which brings ‘justice into disrepute’, (see the Parakou judgment §§92-95). Reyes J concluded:
171. I do not read Mance LJ as having in mind (or extending his remarks to) the situation here, where in effect Parakou is seeking by litigation in Court to re-open matters decided in an Arbitration to which the Defendants were privies. In contrast to Lincoln’s argument in Sun Life, the Defendants here advance a more modest application. This is not a case of two arbitrations …
172. In the present circumstances, regardless of the availability of joinder or consolidation in arbitration proceedings, the Court must undoubtedly have jurisdiction in the interests of justice to prevent its own process from being abused.
173. Where arbitration is concerned, of course the Court must exercise caution given the differences between arbitration and ordinary litigation identified by Mance LJ. But caution does not mean that the Court should not strike out in an appropriate situation. In light of the similarity of issues and of the alter ego relationship between the Defendants and Galsworthy, it seems to me that the proper and efficient administration of justice imposed a duty (Lord Diplock’s expression) to refuse to allow the Hong Kong action to proceed.
After further consideration of the facts of the case with which he was concerned, Reyes J added:
184. Closely read, I do not think that Sun Life supports Parakou’s case. The abuse of process jurisdiction may be invoked in appropriate cases even where arbitration in involved.
In the present case Teare J adopted a similar approach to the question whether the abuse of process doctrine could apply where the previous decision was that of an arbitral tribunal.
50. In answering this question it is necessary to bear in mind that the question is whether the process of this court is being abused by a claim being brought before it. The nature of the court or tribunal which has given the decision said to be under collateral attack will or may be important in deciding whether the proceedings in this court are an abuse of its process. For example, where the decision under collateral attack is the decision of a jury in a criminal trial, there may be particularly cogent reasons for saying that the collateral attack is an abuse of the process of this court; see Arthur JS Hall v Simons [2002] 1 AC 615 at p.702 per Lord Hoffmann. But there is high authority for saying that it is unwise to limit to fixed categories the circumstances in which it is the court’s duty to prevent its processes from being abused; see Hunter v Chief Constable [1982] AC 529 at p.536 per Lord Diplock and Arthur JS Hall v Simons [2002] 1 AC 615 at p.702 per Lord Hoffmann. I have therefore concluded that there can be no rule that the court can have no such duty merely because the tribunal whose decision is under attack is an arbitral tribunal. However, it will probably be a rare case where an action in this court against a non-party to an arbitration can be said to be an abuse of the process of this court. Where a claimant has a claim against two or more persons and is obliged to bring one such claim in arbitration the defeat of that claim in arbitration will not usually prevent the claimant from pursuing his claim against the other persons in litigation. Arbitrations are private and consensual and non-parties cannot, in the absence of consent, be joined or be affected by the decisions of the arbitral tribunal.
At [52] Teare J considered MWP’s arguments based on the Sun Life case, noting, as had Reyes J, that the observations of Mance LJ were obiter and that abuse of process had not been relied on. Having referred to the considerations set out by Mance LJ, Teare J continued:
54. I accept that these are relevant considerations to bear in mind when deciding whether, on the facts of any particular case, there has been an abuse of the process of this court. It seems to me that they will often cause this court to conclude that it is not an abuse for A to make allegations against B which are contrary to the findings in an arbitration between A and C to which B was not party. However, in the light of the clear guidance from the House of Lords to which I have referred I am unable to accept that the doctrine of abuse of process cannot apply merely because the decision under collateral attack is that of an arbitral tribunal. Further, the court in Lincoln National Life v Sun Life Assurance Co. of Canada was not considering the case of an arbitration followed by litigation but of successive arbitrations.
A similar approach was adopted by Hamblen J in Arts & Antiques Ltd v Richards and others [2014] Lloyd’s Law Rep (Ins and Reins) 21.
20. It is apparent that abuse of process may be relied upon by a non-party to the earlier litigation said to give rise to the abuse. This is illustrated by the case of Taylor Walton (a firm) v David Eric Laing [2007] EWCA Civ 1146. That case concerned a negligence claim brought by Mr Laing against his solicitors. The claim made depended on Mr Laing proving that the agreements, about the drafting of which complaint was made, were in the terms alleged by Mr Laing. That issue had been decided against Mr Laing in proceedings between him and the other party to the agreement. That decision had not been appealed and the Court of Appeal held that it was an abuse of process to seek to relitigate that decision in the further proceedings brought.
Having cited [49] and [50] of Teare J’s judgment in the present case, Hamblen J continued.
23. It is also apparent that abuse of process may be relied upon where the earlier decision was that of an arbitral tribunal rather than a court and that arbitration involved a different party.
24 In the circumstances of that case Teare J decided that it would be an abuse of process to allow a collateral attack on the decision of the arbitral tribunal to be made, even though the court proceedings were brought against a non-party to the arbitration.
On the facts of the Arts & Antiques case, Hamblen J set out his conclusion at [46].
I agree that the Taylor Walton v Laing decision supports a finding of abuse of process in this case. Aside from the fact that the earlier decision was in arbitration, the two cases are analogous. There is in this case no new evidence which casts doubt on the arbitrator’s decision. Indeed, for reasons set out below, such further evidence as there is confirms the correctness of his decision. That decision has sought to be challenged by appeal but the application has been dismissed on the basis that the decision is ‘not open to serious doubt’. For the issue to be relitigated in this court involves a collateral attack on the arbitrator’s final and binding decision. Further, that decision relates to the terms of the contract as between A&A and Zurich, which have been determined in accordance with the agreed contractual machinery, namely by arbitration. In all the circumstances, I conclude that it would bring the administration of justice into disrepute, and would be oppressive and unfair on Towergate and Mr Richards, for A&A to be allowed to fight the issue of whether or not the contract contained CP2 all over again. It would accordingly be an abuse of process.
In OMV Petrom SA v. Glencore International AG [2014] 2 Lloyd’s Law Rep 308, Blair J followed the approach of Teare J and Hamblen J in the earlier cases.
23. The question whether abuse of process may be relied upon where the earlier decision is that of an arbitral tribunal, rather than that of a court, arose directly in Michael Wilson & Partners Limited v Sinclair [2013] 1 All ER (Comm) 476. At [50], Teare J pointed out that the question is whether the process of the court is being abused by a claim being brought before it. He accepted that the nature of the tribunal which has given the prior decision may be important in deciding whether the subsequent court proceedings are an abuse of process. This (it is to be noted) takes account of the principle that arbitration proceedings are confidential to the parties of the arbitration. But in deciding whether it is the court’s duty to prevent its processes from being abused, he concluded that ‘… there can be no rule that the court can have no such duty merely because the tribunal whose decision is under attack is an arbitral tribunal’: see also Art & Antiques Limited v Richards [2013] EWHC 3361 (Comm) at [23], Hamblen J.
24. In this case, Petrom of course was not a party to the arbitration. As regards non-parties, Teare J goes on to say that ‘… it will probably be a rare case where an action in this court against a non-party to an arbitration can be said to be an abuse of the process of this court’. As he pointed out, where a claimant has a claim against two persons and is obliged to bring one claim in arbitration, the defeat of the claim in arbitration will not usually prevent him from pursuing his claim against the other person in litigation. On the facts of that case, however, he decided that it would be an abuse of process to allow a collateral attack on the prior decision of the arbitral tribunal to be made, even though the court proceedings were brought against a non-party to the arbitration. I would accept also, that it can be an abuse of the process of the court to seek to relitigate in court proceedings issues which have been the subject of prior proceedings before an arbitral tribunal if the tests set out in the authorities are otherwise satisfied.
Mr Samek was critical of the decisions in these cases, going so far as to contend that the Art & Antiques case was wrongly decided. I reject his criticism.
In my view Teare J correctly stated the law in [50] of his judgment in the present case. There is no ‘hard edged’ rule that a prior arbitration award cannot found an argument that subsequent litigation is an abuse of process. The Court is concerned with an abuse of its own process; and there are abundant references in the authorities to the dangers of setting limits and fixing categories of circumstances in which the court has a duty to act so as to prevent an abuse of process.
I agree with Reyes J’s observation in the Parakou case that, although a Court will be cautious in circumstances where the strike out application is founded on a prior arbitration award, that caution should not inhibit the duty to act in appropriate circumstances. I would also add my agreement with Teare J’s observation at [50] of his judgment that it will probably be a rare case, and perhaps a very rare case, where court proceedings against a non-party to an arbitration can be said to be an abuse of process.
In my judgment the real argument is whether the present case is one of those rare cases; but before turning to that issue it is necessary to consider a logically prior question.
The admissibility of the award.
The issue is whether the award is admissible for the purposes of the application and the appeal, see [14] above at subparagraph (1) (a).
Although the arbitrators authorised the release of the award to Mr Sinclair, the EPIL trustees and the Bahamian Court, Mr Samek submitted that it was not open to the Sinclair defendants to use the award for the purposes of its strike out application. He relied on the principle that factual findings made in one case are inadmissible in subsequent proceedings (unless the party against whom it is sought to deploy the finding is bound by decision by reason of an estoppel per rem judicatam). In support of this proposition, he relied on the decision of this Court in Rogers v. Hoyle, Secretary of State for Transport and another intervening [2014] EWCA Civ 257, [2015] QB 265 at [32]. In that case an action was brought by executors against the pilot of an aircraft in which the deceased had died following a crash. The pilot applied for a declaration that a report of the Department of Transport Air Accident Investigation Branch was inadmissible because, among other reasons, its admission was precluded under the rule in Hollington v. Hewthorn, see Hollington v. F. Hewthorn & Co Ltd [1943] KB 587.
In the course of his judgment dismissing the appeal, Christopher Clarke LJ (with whom Arden and Treacy LJJ agreed) reviewed the authorities and reaffirmed the rule in Hollington v. Hewthorn, adding, by reference to the decision of Hoffmann J in Land Securities plc v. Westminster City Council [1993] 1 WLR 286, that the rule also applied to the findings of fact made by arbitrators, see [34]. At [39-40] he referred to the foundation on which the rule rested:
39. As the judge rightly recognised the foundation on which the rule must now rest is that findings of fact made by another decision maker are not to be admitted in a subsequent trial because the decision at that trial is to be made by the judge appointed to hear it (‘the trial judge’), and not another. The trial judge must decide the case for himself on the evidence that he receives, and in the light of the submissions on that evidence made to him. To admit evidence of the findings of fact of another person, however distinguished, and however thorough and competent his examination of the issues may have been, risks the decision being made, at least in part, on evidence other than that which the trial judge has heard and in reliance on the opinion of someone who is neither the relevant decision maker nor an expert in any relevant discipline, of which decision making is not one. The opinion of someone who is not the trial judge is, therefore, as a matter of law, irrelevant and not one to which he ought to have regard.
40. In essence, as the judge rightly said, the foundation of the rule must now be the preservation of the fairness of the trial in which the decision is entrusted to the trial judge alone.
These observations are uncontroversial. However, they do not have the consequence that a court is not permitted to consider the contents of either an earlier judgment or an earlier arbitration award in order to see whether a later claim amounts to an abuse of its process. In cases where it is said that a current claim is an abuse of process because it amounts to an impermissible collateral challenge to an earlier decision it is plainly necessary to look at the earlier decision; and the suggestion that it is inadmissible for such a purpose is wrong.
Of course, this still leaves open a question as to the use to which the earlier judgment or award may be put in the later proceedings, but that is a different question to which I will return later.
I turn then to what is now the central question on the appeal: whether the Judge was right to conclude that MWP’s claim against the Sinclair defendants was an abuse of the court’s process?
Abuse of process and the present claim
The Judge’s starting point was to identify that the burden of demonstrating abuse of process was on the Sinclair defendants and that the test that they had to meet was an exacting one.
He noted that, although the factual allegations against Mr Emmott mirrored the failed allegations made against him in the arbitration and that the claim amounted to a collateral challenge to the findings of the arbitrators, it could be said to be justified because Mr Sinclair had not been a party to the arbitration and the action was the only means by which MWP could bring its claim against the Sinclair defendants, see his judgment at [59].
At [61] the Judge considered whether MWP had been labouring under a disadvantage in the arbitration from which it would be free in the litigation, and concluded that it had not.
In the following paragraphs of his judgment at [62]-[67] the Judge set out the ‘special circumstances’ which in his view made it an abuse of process to permit MWP to make the same factual allegations which had been made and rejected in the arbitration.
There was the fact that, whereas most arbitrations have, and are intended to have, effect only between the parties, this arbitration was different. The issue of whether the Max shares were held by EPIL to the order of Mr Sinclair or of MWP was at the heart of the arbitration. The Judge noted that the tribunal envisaged that EPIL would dispose of the Max shares in accordance with the instructions of Mr Sinclair pursuant to the tribunal’s award. This was clear from the terms of the seventeenth procedural order referred to above.
MWP would need to prove in its claim against the Sinclair defendants that the Max shares had been received by EPIL on behalf of Mr Emmott in breach of his fiduciary duty to MWP. However, that was an allegation that the arbitrators had rejected when made by MWP against Mr Emmott in the arbitration. In the light of MWP’s acceptance that it was estopped as against Mr Emmott from alleging that EPIL had received the Max shares on behalf of Mr Emmott in breach of his fiduciary duty, it was difficult to see how MWP could challenge any evidence which Mr Emmott might give at trial on the issue. The Judge noted Mr Samek’s submission that he could put MWP’s central allegation to Mr Emmott in cross-examination at trial, but found it difficult to see how that could be allowed in the light of the admitted estoppel between MWP and Mr Emmott. The Judge considered that this was a further illustration of the abusive nature of MWP’s claim.
While the Judge recognised that striking out the court proceedings would prevent MWP from advancing its claim against the Sinclair defendants, save for the claim in debt which it is accepted would not be stayed, MWP had been able to put its entire case on the facts when cross-examining Mr Emmott and Mr Sinclair in the arbitration. In these circumstances, he did not consider that the fact that Mr Sinclair refused to be a party to the arbitration and that the Commercial Court action was therefore the only forum in which MWP could advance its claim against him was sufficient to prevent the claim amounting to an abuse of process, particularly since a breach of fiduciary duty alleged against Mr Emmott was a necessary pre-condition of MWP’s claim against Mr Sinclair.
The Judge accepted that mutuality was absent and that, if the arbitrators had decided in MWP’s favour, Mr Sinclair would have been able to say that he was not bound by the tribunal findings, but concluded that this was not a complete answer. He referred to a passage in the Sun Life case at [88] in which Jacob LJ said that where a party seeks to re-litigate in subsequent proceedings against Y a point that he fought fully in earlier proceedings against X, it might be that, notwithstanding a lack of mutuality, he could be prevented from doing so on the grounds of abuse of process. That tentative view was reinforced by the decision in Reichel v Magrath (1889), where Dr Magrath (the new vicar) was able to rely on the abuse of process even though he had not been party to the earlier proceedings between Reichel (on the one hand), and the Bishop and the College (on the other) and so was not bound by any issue estoppel arising out of those proceedings. It was, in the words of Lord Hoffmann in the Arthur Hall case, within the spirit of the issue estoppel rule. The Judge recognised that lack of mutuality was a factor to be taken into account but considered that in the circumstances it did not prevent MWP’s claim from being an abuse of process. Mr Sinclair had not been a party to the arbitration but his involvement in the arbitration and the fact that he had received the shares from EPIL pursuant to the award brought the case ‘within the spirit’ of the issue estoppel rule.
Finally, the Judge took into account the issue of whether it would be fair to allow the action to proceed. Mr Sinclair and Mr Emmott had both been involved in the lengthy arbitration and had given evidence. The Judge did not accept that it would be manifestly unfair to permit MWP to advance its allegations a second time against Mr Sinclair, since he had always maintained that the result of the arbitration would not bind him and must have been aware of the risk that further proceedings would be brought against him. However, Mr Emmott was in a different position. He had defended himself against the allegations in the arbitration and the tribunal had rejected MWP’s suggestion that he had been the intended recipient of the Max shares. The arbitrators had found that he expected to receive about 250,000 shares in Max and that if MWP had not obtained a freezing order against the shares Mr Sinclair might well have given Mr Emmott shares in Max for which he would have had to account to MWP as a secret profit. On this basis it could not be said that his reputation had survived the arbitration intact. Nevertheless, in the Judge’s view, when allegations have been fully and carefully considered it is usually unfair to permit the accuser to have a second opportunity to make the same allegations. Circumstances might exist which would justify a second opportunity but they do not exist in this case. Although MWP had not made Mr Emmott a party to the Commercial Court litigation, he had been made a party by Mr Sinclair late in the day giving rise to the suspicion that the joinder was only done to strengthen the abuse of process argument; but whether or not that was so, the Judge considered that Mr Emmott would necessarily have been a witness in the action and MWP would have wanted to put its allegations to him a second time, and this would be manifestly unfair to him.
Mr Shepherd (supported by Mr Sinclair) commended this reasoning and the conclusion that the claim was an abuse of process. He submitted that MWP’s claim in the legal proceedings was entirely predicated on showing that Mr Emmott had acted in breach of his fiduciary duties to MWP. After a lengthy and expensive investigation of the issues the arbitrators concluded that he had not. On this basis they argued that the Judge’s analysis was entirely correct. Unless there was a clearly discernible justification for it, what was a collateral attack on the arbitrators’ decision was an abuse of the court’s process.
Despite these arguments and the Judge’s careful reasoning, I am clear that his conclusion was wrong and that the high threshold which engages the Court’s duty to act to prevent abuse of its process was not met.
There were a number of material considerations which weighed heavily against the conclusion that the claim was an abuse of process.
The prior proceedings relied on to support the application to strike out were arbitration proceedings to which Mr Sinclair was not a party. Not only had he not been a party, he had been invited by MWP to join as a party to the arbitration and agree to be bound by an award so that the issue of beneficial ownership of the Max shares could be conclusively determined in a way that would bind each of MWP, Mr Emmott and Mr Sinclair, giving rise to res judicata or creating estoppels on which each could subsequently rely. He had refused to join in the arbitration; and had adopted the position in the Bahamian proceedings that the outcome of the arbitration was ‘totally irrelevant to the dispute’ between MWP and him.
Despite this, he now relied on the arbitration proceedings and award to characterise MWP’s claim against him as an abuse of process, seeking to take the benefit of an arbitration award by which the Sinclair defendants would not have been bound had it been decided differently. This was the point about lack of mutuality which plainly troubled the Judge; and it was a highly material, if not dispositive, factor. As Kerr LJ said in Bragg v. Oceanus:
… where, as here, consolidation was in fact sought by the party in question, I cannot begin to see how any question of abuse of the process of the Court could be said to arise.
It is necessary therefore to consider the steps which led the Judge to conclude that the Sinclair defendants had satisfied the ‘especially’, ‘exacting’ test which Teare J had recognised had to be satisfied.
Although he identified ‘special circumstances’ which he considered satisfied this test, in doing so he placed too much emphasis on the arbitration and award to which the Sinclair defendants were not a party and gave too much weight to the position of Mr Emmott in the litigation despite the fact that he had not been sued by MWP.
This was not a case in which there had been a prior claim by MWP against the Sinclair defendants; and it follows that the application to strike out could not be founded on the private interest of a party not to be vexed twice for the same reason. MWP’s only means of pursuing its clams against them was by means of the present action. Nor was Mr Emmott being vexed twice, since he was only a party in the litigation at the suit of the Sinclair defendants, by whom he was subsequently released. The Judge’s suspicion that his late joinder by the Sinclair defendants was only done to strengthen the abuse argument appears to be justified.
It also seems to me that the Judge placed too much weight on his view that, because MWP was inviting the Court to come to a different view to the arbitrators in relation to the nature and discharge of Mr Emmott’s obligations, it was mounting an illegitimate collateral attack on the award. However, as Lord Hobhouse expressed it in the Arthur Hall case at p.743 C:
There is no general rule preventing a party inviting a court to arrive at a decision inconsistent with that arrived in another case.
In the course of dismissing MWP’s challenge to the award under ss.68 and 69 of the Arbitration Act 1996, see Michael Wilson & Partners Ltd v. Emmott [2011] EWHC 1441 (Comm), Andrew Smith J set out an unchallengeable view of the matter at [63]:
Mr. Sinclair was not party to the reference or the Award. The Tribunal’s findings and directions do not determine any dispute other than between MWP and Mr. Emmott. They confer no rights upon Mr. Sinclair. I am unable to see how the finding that the Tribunal made can result in substantial injustice to MWP: as MWP acknowledges, in proceedings to which Mr. Sinclair is party the courts are free to reach a different conclusion from that of the Tribunal. This possibility might, as MWP submits, lead to conclusions which MWP characterises as ‘irreconcilable’…
As noted above, the Judge’s conclusion that the legal proceedings were an abuse was based on four ‘special circumstances … which must be taken into account’, see [60] of the judgment: (1) Mr Sinclair was a witness in the arbitration, (2) Mr Sinclair funded Mr Emmott’s defence in the arbitration, (3) the tribunal found that the Max Shares were held to the order of Mr Sinclair, and (4) the tribunal intended and expected that the effect of the award would be that EPIL would transfer the Max shares to Mr Sinclair.
Taking these in turn, I do not agree that the fact that (1) Mr Sinclair was a witness in the arbitration, and (2) funded the defence, bore any material weight in the light of his equivocal approach to the arbitration. I accept that the arbitrators (3) found that, as between MWP and Mr Emmott, the Max shares were held to the order of Mr Sinclair, and (4) that they intended that EPIL would transfer the Max shares to Mr Sinclair in consequence of the award. However, the tribunal did not have jurisdiction to adjudicate on the claims in a way that bound MWP in relation to a non-party; and the fact that the arbitrators gave limited permission for parts of the award to be published to Mr Sinclair is not material. The tribunal did not and could not grant any relief as between MWP and Mr Sinclair or Sokol.
Nor am I persuaded that the application was to be resolved by reference to the ‘spirit’ of the issue estoppel rule, see the Judge’s citation from Reichel v. Magrath. In that case the party who sought to strike out the claim (Dr Magrath) was claiming through the College, which had previously succeeded in litigation against Reichel. This is not what occurred in the present case. Mr Sinclair claims that he always had the beneficial interest in the Max shares and did not derive that interest from or through Mr Emmott, as the Judge held when dismissing the argument that he was Mr Emmott’s privy. Moreover, and again as the Judge rightly held, there was no mutuality in Mr Sinclair being allowed to rely on the findings favourable to him in the arbitration, since his participation and interest would not have been sufficient to bind him to the arbitrators’ findings if they had been adverse. On this basis it is difficult to see how the case fell ‘within the spirit’ of the issue estoppel rule.
Although Teare J considered that it would be manifestly unfair to Mr Emmott for him to have to face MWP’s allegations for a second time, it is important to bear in mind that MWP did not sue him and has not sought any relief against him. He is not being vexed twice by MWP. He was joined as a Part 20 defendant at the suit of the Sinclair defendants and is now no longer a party. So far as MWP’s claim is concerned, Mr Emmott is no more than a potential witness. I say ‘potential’ because it was not agreed between the parties to the appeal that Mr Emmott would be called as a witness, what he might say if he were called or how he would respond to questions that he might be asked. These are matters to which I will return later. The Judge appears to have regarded it as material that Mr Emmott ‘would, in any event, have been a witness in the proceedings.’ Whether or not that is so, the abuse jurisdiction as expressed in Bairstow is concerned with manifest unfairness to a party, not a witness.
Finally, Mr Samek is entitled to submit that in saying:
Circumstances may exist which justify a second opportunity [to make allegations against Mr Emmott] but I am persuaded that they do not exist in this case;
the Judge appears to have reversed the burden of proof. It was not for MWP to identify circumstances which justified bringing the claim but for the Sinclair defendants to identify reasons why doing so was manifestly unfair on a party to the action. The justification for making the allegations again (and against the Sinclair defendants, not Mr Emmott) was that MWP had properly triable claims against the Sinclair defendants in respect of the Max shares and Max funds which it would not otherwise be able to prosecute.
In forming this view, I have not overlooked a further argument raised by MWP: a criticism of the Judge’s view, expressed at [61], that this was not a case in which MWP was labouring under a disadvantage in the arbitration from which it would be free in the litigation. Mr Samek submitted that there was evidence before the Judge which demonstrated (or raised a serious argument) that there were gaps in the disclosure to MWP in the arbitration which MWP could reasonably expect would be filled in the litigation. This may or may not be so, but, in the light of my conclusions set out above, it is not necessary to express any view about this.
Tags: Abuse of process, Striking out
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