Summary
On 21 September 2012 the Commercial Court handed down the judgment of Teare J in the case of Michael Wilson & Partners Limited (" MWP ") v Thomas Ian Sinclair (" Mr Sinclair "), Sokol Holdings Inc (" Sokol ") and others . The case principally examined whether an abuse of process can arise if A brings an action against B where A previously raised the same issues in arbitration against C. Striking out the claim, Teare J considered that MWP's claim did constitute an abuse of process in view of the fact that the central issues to the claim had previously been decided against MWP in arbitration proceedings against a third party.
The underlying arbitral proceedings involving MWP and John Forster Emmott (" Mr Emmott ") will be familiar to arbitration practitioners, having produced two previous court authorities in arbitration matters, on confidentiality in arbitration and on enforcement of a tribunal’s peremptory order.
Background
The dispute related to a reward of shares issued by an AIM-listed company (the " Max Shares ") and transferred to the third defendant (" EPIL ") following a transaction for the purchase and on-sale of interests in oilfields in Kazakhstan. Mr Sinclair was the managing director and a shareholder of the second defendant, Sokol, which purchased and sold on the interests in oilfields. MWP provided consultancy services to Sokol in relation to the transaction.
The respondent in the arbitration, Mr Emmott, was a director of MWP. MWP claimed against Mr Emmott, contending that the Max Shares were held by EPIL for the benefit of Mr Emmott, and that as Mr Emmott was involved in the transaction as its agent and employee, MWP was beneficially entitled to the Max Shares. The tribunal found that Mr Emmott had no interest in the Max Shares and that Mr Emmott had not breached his fiduciary duty to MWP.
MWP first attempted to challenge the arbitral award at the Commercial Court on grounds of serious irregularities and errors of law, but the application was dismissed . MWP subsequently litigated against Mr Sinclair and Sokol in relation to the same dispute, seeking ( inter alia ) declarations that the Max Shares were held on constructive trust for MWP and compensation for the dishonest assistance of Mr Sinclair and Sokol for Mr Emmott's breaches of fiduciary duty. Mr Sinclair and Sokol applied to strike out the claim, raising the question:
"Where A has pursued a claim in arbitration against B alleging a breach of fiduciary duty and has failed to establish that claim can A thereafter pursue a claim against C in court alleging that C has dishonestly assisted B in committing a breach of fiduciary duty?"
It was argued that in these circumstances it would be an abuse of process for MWP to pursue the claim. Arguments were also made that MWP should be estopped from making allegations against Mr Sinclair which contradict the findings of the arbitration because there was privity of estate between Mr Sinclair and Mr Emmott, and that MWP had already obtained "satisfaction" from Mr Emmott in respect of the claims.
In addition to the striking out application, Mr Sinclair and Sokol applied for summary judgment on the grounds that the claim had no real prospect of success or that the pleadings were defective.
The Decision
Teare J accepted that in these special circumstances MWP's actions were an abuse of process and struck out the principal claim.
The litigation was treated as a "collateral attack" on an earlier decision. In considering whether this amounted to an abuse of process, in cases where the defendant was not party to the previous proceedings, the governing principle was that it must be shown that it would be "manifestly unfair" to the defendant to re-litigate, or that permitting re-litigation would "bring the administration of justice into disrepute".
This appears to be the first time that this principle has been considered in relation to a previous arbitration. Teare J accepted that the principle could apply in such cases. However, usually the court would not prevent a claimant bringing a claim against a person not party to the arbitration, owing to the need for consent of a party to be joined or affected by the decisions of the tribunal.
Teare J accepted that the allegations made by MWP mirrored the allegations made in the arbitration. This would not alone result in an abuse of process: the claimant would usually be entitled to make the same claims against a different party. It was only owing to the special circumstances regarding the relationship between Mr Sinclair and Mr Emmott and Mr Sinclair's interest in the arbitration that led Teare J to strike out the claim. The following circumstances were treated as decisive:
- Mr Sinclair had been a witness in the arbitration.
- Mr Sinclair funded Mr Emmott's defence in the arbitration.
- The arbitral tribunal concluded the Max Shares were held to the order of Mr Sinclair.
- The arbitral tribunal intended and expected the effect of its award would be that EPIL would transfer the Max Shares to Mr Sinclair.
Teare J rejected the other arguments for striking out the claim. It was held that MWP could not be estopped from claiming against Mr Sinclair because of lack of mutuality: a person can only take the benefit of an estoppel if he would have been prejudiced by the decision had it gone the other way. Accordingly, in contrast to the conclusion reached regarding abuse of process, Mr Sinclair could not rely on an estoppel argument, because he had not been party to the arbitration.
The argument that MWP had already obtained "satisfaction" in respect of the claim was rejected as an abuse of language, as MWP's claim in the arbitration had been dismissed.
Having struck out the claim, Teare J was not required to address the application for summary judgment, but nonetheless noted that he was not persuaded that the claim had no real prospect of success or that the pleadings were defective.
Comment
In what appears to be the first time that the issue has been considered, the case provides useful authority that the doctrine of abuse can apply when re-litigating issues that have previously been addressed in an arbitral decision.
The case also confirms that arbitral awards can be considered by courts even in cases where the defendant to the litigation was not party to the arbitration. This is significant owing to the need for consent of a party to be joined or affected by arbitral sessions. It offers the prospect that persons involved with the dispute who were not party to the arbitral proceedings may, in the right circumstances, be entitled to rely on the award in subsequent litigation.
Effect
The decision is likely to be welcomed by arbitration practitioners and parties to arbitrations as it shows the court's reluctance to re-litigate issues that have already been the subject of arbitration. Losing parties will struggle to circumvent the arbitral process by subsequently bringing litigation over the same issues against a different party.
The decision also has implications for those who are contemplating arbitration. It should be considered that an award is not necessarily limited in its effect to the parties to the arbitration: an unfavourable result could prejudice rights against a related third party that could otherwise be pursued through the courts.
Click here to see the judgment.
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