ENGLISH COURT CONSIDERS APPLICATION FOR PART 20 CLAIMS POTENTIALLY SUBJECT TO ARBITRATION AND ISSUE ESTOPPEL

In Tugushev v Orlov and others [2021] EWHC 926 (Comm), the English High Court refused to grant a defendant permission to pursue two claims against a co-defendant on the basis that they had agreed to refer them to arbitration. However, permission was granted for a third claim, despite the fact that the applicant had pursued foreign proceedings on some of the same issues in the past.

This decision confirms that English courts will interpret the scope of arbitration clauses when required, and in doing so, may find that they capture claims based on connected contracts between the same parties. The judgment also evidences a common sense approach to issue estoppel in circumstances where it might otherwise cause injustice.

Background

A dispute arose between Mr Tugushev, Mr Orlov, and Mr Roth over the ownership of a fishing business. Mr Tugushev had initiated English court proceedings against Messrs Orlov and Roth, alleging that they had conspired to deny him his interest in the business (Mr Tugushev has since settled his claim against Mr Roth).

This judgment dealt with an application made by Mr Roth to bring three claims against Mr Orlov, under Part 20 of the Civil Procedure Rules. These claims involved a series of agreements the parties were alleged to have entered into regarding their interests in the business.

Mr Orlov argued that:

1. the first two claims fell within the scope of an LCIA arbitration clause contained within an agreement made between Mr Roth and Mr Orlov in 2016 (the "2016 Agreement");
2. the third claim raised issues that had already been the subject of a prior judgment in foreign civil proceedings.

The Court had to determine if it should grant permission for the Applicant to pursue his claims in this case, or deny them out on the grounds submitted by Mr Orlov.

Decision

Stay in favour of arbitration

Under sections 9(1) and 9(4) of the Arbitration Act 1996, a claim must be stayed if it is in respect of a matter which the parties have agreed to refer to arbitration, as long as this agreement was validly made.

The Court undertook a full review of the scope of the arbitration agreement in the 2016 Agreement and the proposed claims to determine whether the first two proposed claims should be stayed. It expressly rejected the argument that it should only undertake a prima facie review, considering this not to be the position under English law.

The Applicant submitted that the claims were brought under agreements he allegedly made with Mr Orlov regarding the fishing business in 1997 (the "1997 Agreements"), which did not include arbitration clauses. The Court therefore had to determine whether the arbitration clause in the 2016 Agreement captured disputes said to arise from earlier contracts.

Mr Orlov argued that the 2016 Agreement was akin to a settlement agreement which superseded all previous agreements, so that the he and Mr Roth had agreed to refer all future claims between themselves regarding the business to arbitration.

The Court found that the two proposed claims were covered by the arbitration agreement. It considered there to be sufficient similarity between the parties and subject matter of the different agreements, so that a claim under the 1997 Agreements could be regarded as a claim "in connection" with the 2016 Agreement, and therefore subject to its arbitration clause. It concluded that the 2016 Agreement was a "parting of the ways" which created a strong presumption in favour of the parties having intended "one-stop adjudication" of all future claims that arose from the past and present agreements.

Issue estoppel  

Mr Orlov opposed the third proposed claim on the basis of a decision rendered by the Hong Kong Court in a previous case between him and the Applicant. He submitted that this judgment had already determined issues that the Applicant sought to raise again by way of his present claim.

The Court outlined the conditions for issue estoppel in relation to past foreign proceedings:

1. the foreign court was of "competent jurisdiction";
2. the decision of the foreign court "clearly or necessarily decided the issue finally";
3. this same issue is sought to be raised in English proceedings;
4. the prior decision was made in proceedings between the same parties; and
5. the effect of estoppel would not be unjust in the circumstances of the case.

The Court found that the first four conditions were satisfied, but accepted that there were special circumstances that made it unjust to apply the principle of issue estoppel in this case, given the overlap between Mr Roth's third claim and Mr Tugushev's claim against Mr Orlov.

Comment

This judgment is a reminder of the debate surrounding the appropriate scope of review of arbitration agreements by state courts. While recognising the power of arbitral tribunals to determine their jurisdiction, and addressing the deferential approach adopted by courts in other jurisdictions (with particular reference to Singapore), the Court confirmed that under English law judges should determine for themselves the scope of parties' consent to arbitration.

In doing so, the Court addresses the difficulty of interpreting multi-contract scenarios, where different agreements with overlapping subject matter and dispute resolution provisions need to be reconciled. The Court used as a starting point the famous presumption derived from Fiona Trust v Privalov [2015] EWHC 527 (Comm) that parties intend for all disputes arising out of their relationship to be determined in a single forum.

This presumption means that the intention of parties with regards to disputes arising from chains or series of contracts will be read in the context of their overarching relationship, and not by viewing each agreement in isolation. It may also mean, as in this instance, that  a claim under one contract may be held to fall within the scope of the arbitration clause of another where there is sufficient overlap between different contracts. As such, it is very important that parties consider in such circumstances whether they intend to replace pre-existing dispute resolution provisions with the dispute resolution provisions of that new agreement and draft accordingly.

For more information, please contact Chris Parker, Partner, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

The authors would like to thank Louis Austin for his assistance in preparing this blog post.