The English High Court extends an anti-suit injunction against proceedings brought in breach of an arbitration agreement

In the latest chapter of a long-running dispute (John Forster Emmott v Michael Wilson & Partners [2016] EWHC 3010 (Comm)), different aspects of which have been considered by various jurisdictions around the world for over ten years, the English High Court has continued an anti-suit injunction preventing proceedings in New South Wales on the basis that such proceedings were brought in breach of an arbitration agreement.

This is a welcome reminder that the English courts will take active steps to uphold party agreements to submit their disputes to arbitration and prevent parties from seeking to either side-step arbitration agreements or to re-litigate issues which have already been decided in a different forum.

Background

The dispute arose out of an agreement between Mr. Emmott and Michael Wilson & Partners Ltd ("MWP") by which the parties agreed to operate as a "quasi-partnership" by sharing contacts and information (the "MWP Agreement").  That agreement contained an arbitration clause providing for arbitration in London.  Mr. Emmott subsequently entered into an agreement with two other MWP employees which provided for the establishment of a consultancy owned and operated by Temujin International Ltd (the "Co-Operation Agreement").  In December 2005, Mr. Emmott left MWP to work at Temujn, as a result of which he and MWP parted on acrimonious terms.

MWP commenced arbitration proceedings against Mr. Emmott for breach of the MWP Agreement and sought an account of profits and equitable compensation.  Mr. Emmott counterclaimed for sums due.  An award on liability was issued by an arbitration tribunal in February 2010, followed by an award on quantum in September 2014, the net effect of which was an order for MWP to pay Mr. Emmott sums of £3.2m and $841,000.  MWP also commenced parallel proceedings in New South Wales against the two MWP employees with whom Mr. Emmott had entered into the Co-Operation Agreement (the "First NSW Proceedings").

On 2 February 2016, MWP commenced a second set of proceedings in New South Wales, against Mr. Emmott seeking (a) an order for contribution from the two MWP employees under the First NSW Proceedings and (b) an account of fees, commissions, shares and other benefits of the Temujin business (the "Second NSW Proceedings").  These proceedings were ostensibly brought under certain deeds of assignment made by the liquidators of Temjun in favour of MWP, which were stated to be subject to the laws of New South Wales.

Mr. Emmott subsequently sought an anti-suit injunction to restrain MWP from taking any further steps in the Second NSW Proceedings and from commencing or pursuing any other substantive claims against him on the ground that such proceedings were in breach of arbitration agreement(s) between the parties.  On 2 March 2016, Mr Justice Burton granted interim anti-suit relief on a ‘without notice’ application.  This was the return date for the application.

The issues

The key issues for the court to determine in considering whether to continue the anti-suit injunction were:

1. whether the Second NSW Proceedings constituted a breach of the arbitration agreement; and
2. if so, whether it was in the interests of justice for the court to exercise its discretion (under Section 37 of the Senior Courts Act 1981) to continue the anti-suit injunction.

Decision

Mrs. Justice O'Farrell held that the Second NSW Proceedings fell within the scope of the arbitration agreement and exercised the court's discretion to continue the anti-suit injunction.

The starting point (based on the case of Ecobank Transnational Inc v Tanoh [2015] EWCA 1309) was that Mr. Emmott had to show a high degree of probability that there was an arbitration agreement governing the dispute in question.  The court determined that the Second NSW Proceedings were indeed claims which fell within the arbitration agreement on the following grounds, amongst others:

1. The arbitration agreement governed the relationship between MWP and Mr. Emmott and was drafted in wide terms.  In line with the Fiona Trust case of Premium Nafta Products Limited v Fili Shipping Company Limited [2007] UKHL 40, it was likely that the parties intended that any dispute arising out of the partnership arrangement should be decided in arbitration.
2. Although the assigned claims did not arise under the MWP Agreement, the arbitration clause was sufficiently wide to include disputes that "arose out of or in connection" with it.
3. There was nothing in the MWP Agreement which indicated that the parties contemplated any other form of dispute resolution.
4. Although MWP argued that the claims were brought in its capacity as assignee and that the assignors were not party to the arbitration agreement, the effect of the assignment was that MWP was entitled to bring the claims in its own name and did not have to join the assignors.  Therefore this was considered to be an artificial distinction.
5. Some of the alleged breaches were the subject of the arbitration proceedings, and others were directly connected with the MWP Agreement in any event.

The judge then went on to exercise her discretion in favour of continuing the anti-suit injunction based on considerations of issue estoppel and abuse of process.  She held that both the arbitration and the Second NSW Proceedings concerned claims with common necessary ingredients.  The judge also found that there had been a clear abuse of process by MWP which was intended to defeat the enforcement of the arbitration award, whilst the Second NSW Proceedings were a collateral attack on the arbitration award. The determining factor in favour of continuing the injunction was that there had already been final and binding proceedings and it would be unfair and contrary to the policy of finality of proceedings to permit Mr. Emmott to be vexed by further litigation.

Comment

This decision is a welcome example of the robust approach taken by the English courts when faced with breaches of arbitration agreements, even where such breaches are under the guise of different but related contracts and ostensibly between different parties.  It provides useful reassurance that the courts will not permit arbitral awards to be re-opened or unpicked by dissatisfied parties.

On a more practical level, this decision is also a useful reminder of the importance of ensuring that arbitration clauses are sufficiently broad to cover any possible disputes which might arise, as this could be the factor which determines whether a party must incur the time and cost of fighting the same battle on a number of fronts.  That said, this case demonstrates the unfortunate reality that even where an arbitration clause is sufficiently drafted, in some circumstances parties may nonetheless face the unwelcome risk of being dragged into a multiplicity of proceedings and having to rely on the courts' use of their discretionary powers to uphold an award in their favour and defeat determined attempts to re-litigate essentially the same disputes.

For more information, please contact Craig Tevendale, Partner or Elizabeth Kantor, Associate.