To arbitrate or not - that is the question
The English commercial court has upheld the “strong public interest” position that commercial parties are at liberty to agree to resolve their disputes by arbitration and should be made to keep that agreement. Further, English courts will not lightly conclude that a dispute between commercial parties is incapable, as a matter of public policy, of being submitted to arbitration.
NDK was one of three shareholders in a coalmine joint venture company (SPV). They were governed by the terms of SPV’s articles of association and a shareholders’ agreement (SHA). The agreement to arbitrate was contained solely in the SHA. It was a key term of SPV’s articles and SHA that existing shareholders would have the pre-emption right to buy any issued shares. Two parties to the SHA, holding together a 25 per cent interest in SPV, caused their shares in SPV to be transferred to a third party thereby circumventing the pre-emption right. This third person was deemed a competitor of the SPV. NDK therefore commenced proceedings in Cyprus to challenge the share transfer and contended that the SHA was terminated. NDK claimed breach of the SPV’s articles of association and conspiracy to defraud.
To block NDK’s Cyprus proceedings, the Defendants obtained an anti-suit injunction partial award. In challenging this partial award, NDK contended that the claims brought in the Cyprus proceedings were outside the scope of the arbitration agreement (construction question) and were non-arbitrable (arbitrability question).
Addressing the construction question, the Court reasoned as follows:
- Firstly applying the principle in Fiona Trust & Holding Corporation v Privalov, it affirmed the starting position that “the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal.”
- Secondly, the Court should apply the 6-point "Extended Fiona Trust principle" to consider the inter relatedness of the SHA and SPV articles, noting that while the Articles had no jurisdiction clause, it was a relevant consideration that both agreements were entered into by the same parties, at the same time, covering the same issues.
- Thirdly, the court must determine whether a dispute falls within an arbitration agreement by “looking at the substance of the dispute” rather than the particular legal vehicle used to advance the case before a foreign court.
- Finally, to determine whether a matter before the court has been referred to arbitration, the court should consider the role and commercial purpose of the various agreements under consideration. The SHA was deemed a critical document between the parties.
In addressing the arbitrability question, the court noted that there are generally only three circumstances where a matter may be non-arbitrable, namely: (i) the relief sought is one that only the court can grant; (ii) persons who are not party to the arbitration agreement will be impacted the arbitral decision and (iii) the matter to be referred to arbitration is an attempt to delegate to arbitrators a matter of public interest which cannot be determined within the confines of a private contractual process. Overall, the courts will not lightly conclude that a dispute between commercial parties is incapable, as a matter of public policy, of being submitted to arbitration.
A copy of the judgment is available here.