Stay of proceedings - Pre-trial or post-judgment relief - Section 9 of the Arbitration Act 1996

Deutsche Bank AG v Tongkah Harbour and another company: QBD (Comm) (Mr Justice Blair): 24 August 2011

The defendants, Tongkah Harbour Public Company Ltd and Tungkum Ltd, (Tungkum and Tongkah) were companies incorporated under the laws of Thailand. The claimant bank entered into a facility agreement and export contract (the FAEC) with Tungkum by which it agreed to advance Tungkum $35m.

At the same time the claimant entered into a guarantee agreement with Tongkah. The dispute resolution provisions under the FAEC gave jurisdiction to the English court, while giving the claimant the option to refer disputes to the London Court of International Arbitration (LCIA). The guarantee agreement did not give the claimant or Tongkah the option of arbitration.

The claimant alleged that Tungkum was in breach of the export contract and facility agreement and that such breaches constituted events of default. It brought proceedings in the Commercial Court against Tungkum for sums due under the facility agreement and against Tongkah in respect of the guarantee.

On the same day it brought proceedings in the LCIA against Tungkum for payment of the early termination amount allegedly due to it under the export contract. The defendants applied under section 9 of the Arbitration Act 1996 (the act) and/or under the court’s inherent jurisdiction or case management powers to stay the actions brought against them by the claimant in favour of an LCIA arbitration.

The issue was whether the actions had been brought in respect of matters which had been referred by the agreements between the parties to arbitration. The claimant submitted, inter alia, that as different divisions of the bank were concerned in the dispute, one team was entitled to take the view that the English court provided a swifter method of enforcing its rights under the facility agreement and guarantee, whereas the other was entitled to go down the arbitration route.

The defendants submitted that the key disputes raised by the claimant were the same as those referred to in the LCIA arbitration. The claimant responded that its claim in the Commercial Court against Tungkum was for repayment of the sum due under the facility agreement whereas the claim in the LCIA arbitration was for a different sum under a different agreement and that fundamentally, the LCIA arbitration and the Commercial Court would be concerned with different claims.

The court ruled: (1) It was established law that where it applied, section 9 of the act imposed a mandatory stay where a party to an arbitration agreement against whom legal proceedings had been brought in respect of a matter which under the agreement was to be referred to arbitration might apply to the court in which the proceedings had been brought to stay the proceedings so far as they concerned that matter.

An application might be made notwithstanding that the matter was to be referred to arbitration only after the exhaustion of other dispute resolution procedures. An application might not be made by a person before taking the appropriate procedural step (if any) to acknowledge the legal proceedings against him or after he had taken any step in those proceedings to answer the substantive claim.

The court could grant a stay unless satisfied that the arbitration agreement was null and void, inoperative, or incapable of being performed. If the court refused to stay the legal proceedings, any provision that an award was a condition precedent to the bringing of legal proceedings in respect of any matter was of no effect in relation to those proceedings (see [23] of the judgment).

In construing an arbitration clause, the assumption was that the parties, as rational business people, were likely to have intended any dispute arising out of the relationship into which they had entered to be decided by the same tribunal. Similarly, where the question arose in the context of dispute resolution provisions in multiple-related agreements, the assumption was that the parties did not generally intend a dispute to be litigated in two different tribunals.

Where the provisions in one agreement gave jurisdiction to the court, and in another referred disputes to arbitration, the allocation of jurisdiction was fundamentally one of construction (see [24] of the judgment).

In the instant case, so far as Tungkum was concerned, the fact that different divisions of the bank had been concerned added nothing to the legal analysis. The claimant was a single contracting party. Nor did it matter that different branches of the bank had been concerned, as it was not a situation analogous (for example) to a bank’s liability to repay deposits, where for some purposes its branches were treated as separate entities.

Although the claims were closely connected, the pleadings in the Commercial Court action had made it clear that the relevant provisions in the two contracts were interconnected.

Furthermore, both claims had been were based on the same events of default. The claimant was not being deprived of the right of access to this court, it could have referred the matter to the court, or it could have referred it to arbitration but having referred it to arbitration, the statutory stay applied as regards the court proceedings (see [29] of the judgment).

A claim under a guarantee might raise similar, or the same, issues as the claim against the principal debtor, but the covenant to pay was given by a different party (see [30] of the judgment).

As regards the action against Tongkah under the guarantee, the difference was that in the case of the guarantee, there had been no arbitration agreement. Under the terms of the guarantee, the parties had agreed that the court should have jurisdiction and the claimant was entitled to enforce the guarantee if it could make good its claim.

It was possible and commercially rational to allow the claim to proceed even though it might result in a degree of fragmentation in the resolution of the overall dispute (see [30] of the judgment).

The application succeeded to the extent that the proceedings against Tungkum would be stayed under section 9 of the act (see [30] of the judgment).

Jeffrey Chapman QC and Katherine Watt (instructed by Olswang) for the defendants/applicants; Edmund Cullen (instructed by SNR Denton UK) for the claimant/respondent.