Autoridad del Canal de Panama v Sacyr SA and others [2017] EWHC 2228 (Comm) and [2017] EWHC 2337 (Comm)

1. Summary

On 5 September 2017, Blair J, sitting in the Commercial Court, refused a stay under section 9(1) of the Arbitration Act 1996 (“Section 9(1)“) in respect of proceedings commenced pursuant to guarantees subject to an exclusive jurisdiction clause (the “English Law Guarantees“), in circumstances where there was a parallel arbitration in respect of (i) the underlying contract (the “Main Contract“) and (2) guarantees governed by Panamanian law (the “Panamanian Law Guarantees“).

In doing so, Blair J explained that when considering what is meant by “matter” for the purposes of section 9(1), the court will focus on the substance of the controversy between the parties and that the risk of inconsistent decisions in two sets of proceedings will not necessarily mean that the same “matter” arises in each.

Blair J also went on to provide some useful commentary on the circumstances in which the court will exercise its inherent jurisdiction to grant a stay (a request made by the Defendants in the alternative), as well as confirming that the principle in Owusu v Jackson (Case C-281/02) [2005] EUECJ does not apply to stays in the context of related arbitration (as opposed to court) proceedings.

On 21 September 2017, Blair J refused the Defendants’ application for permission to appeal on the basis that the test outlined in CPR 52.6 had not been met. He also provided clarity on the issue of whether filing a defence in court proceedings would automatically result in an appeal under Section 9(1) being lost (it will not).

2. Factual Background

The Claimant (a Panamanian Public Corporation) had enlisted the services of a contractor (the “Contractor“) to design and construct a set of locks which would allow the Panama Canal to be widened, permitting the passage of larger vessels. The Claimant made numerous advance payments to the Contractor.

The Claimant was the beneficiary of various guarantees in relation to those payments, namely (i) the English Law Guarantees (governed by English Law and giving exclusive jurisdiction to the English Courts) and (ii) the Panamanian Law Guarantees (governed by Panamanian Law).

3. The Proceedings

The Claimant commenced proceedings on 30 November 2016 in the English Commercial Court to enforce the English Law Guarantees.

Shortly after, on 31 January 2017, the Defendants (as claimants) filed a request for arbitration under the Main Contract and the Panamanian Law Guarantees (the “Miami Arbitration“), seeking a declaration that repayment of the advance payment sums were not due and/or payable under Panamanian law.

The Defendants sought a stay of the English Court Proceedings pursuant to Section 9(1). This provides that:

9(1)A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.

4. The decision of Blair J regarding the application for a stay

(i) Whether to grant the stay

Having dismissed the Claimant’s application for summary judgment (an overview of which is outside the scope of this article), Blair J turned to consider the application for a stay under Section 9(1).

Blair J rejected the argument raised by the Defendants that the “matter” in question in both the English Court Proceedings and the Miami Arbitration was the liability of the principal debtor (i.e. the Contractor) to repay the advance payments. Rather, he concluded that the “essential nature of the claim here [i.e. before the English Courts] is that it is brought under guarantees…which are subject to English Law and jurisdiction” and noted that “the substance of the controversy between the parties is the claim under the [Advanced Payment Guarantees] and that is the “matter” for the purpose of s. 9(1)[1].” Although the issue of the liability of the principal debtor to repay the advance payments is “necessarily bound up with[2]the nature of the instrument as a guarantee it was not “the, or a, matter[3] for the purposes of Section 9(1).

The Defendants’ application for a stay pursuant to Section 9(1) was therefore refused.

(ii) Whether the court should grant a stay on case management grounds

Blair J went on to consider whether the court should nonetheless exercise its inherent jurisdiction to grant a stay on case management grounds. The Claimant argued that the court was not permitted to exercise its inherent jurisdiction to stay proceedings in a matter inconsistent with the Brussels Regulation ((EU) No 1215/2012). Blair J rejected this argument, and confirmed “there is nothing in Owusu which expressly addresses the issue of a stay which is not in favour of the courts of another state, but is made pending the determination of disputes in arbitration[4] and confirmed that “the jurisdiction inhibition exemplified by the Owusu principle does not apply to case management stays made in the context of related arbitration proceedings[5]. As such, there was nothing in the case law that would prevent him from exercising the court’s inherent jurisdiction to grant a stay if he saw fit. However, on the facts of the case, he declined to do so.

Central to the reasoning of the decision to refuse the stay was the history of the proceedings. The Claimant had a choice to commence proceedings under either the Panamanian Law Guarantees or the English Law Guarantees and it could not be suggested that the Claimant’s choice to enforce the English Law Guarantees was “not a reasonable commercial one[6]. Further, in terms of the progress of the respective proceedings, this was not a case where the arbitral proceedings were more advanced than the court proceedings. On the contrary, the English Court Proceedings were underway, whereas the tribunal for the arbitration had yet to be constituted. In the circumstances, the court did not consider that it would be appropriate to use its inherent jurisdiction/case management powers to grant a stay.

However, Blair J did go onto note that the “position could be very different[7]” if the issue of repayment turns out to depend on disputes relating to the performance of the Main Contract. Accordingly, it was made clear that although the Defendants had been unsuccessful, “the door [was] not closed on an application [for a stay under the court’s inherent jurisdiction] being made in the future“.[8]

5. The decision of Blair J re the request for permission to appeal [2017] EWHC 2337 (Comm)

The Defendants sought permission to appeal shortly after the decision outlined above. They also argued that if permission was refused, a stay should nevertheless be granted pending the decision of the Court of Appeal on whether or not to grant permission.

Blair J concluded that the appeal would not have a real prospect of success. In the absence of any other compelling reason for the appeal to be heard (such that the test in 52.6 of the CPR was not met), he refused permission to appeal.

As for the question of whether a stay should be granted pending the decision of the Court of Appeal, the Defendants relied heavily on Section 9(3) which provides that:

an application may not be made by a person [for a stay under Section 9]…after he has taken any step in those proceedings to answer the substantive claim“.

The crux of the Defendants’ argument was that, in the event they were required to serve a Defence, they would fall foul of Section 9(3) and, accordingly, would be deprived of the “fruits of a successful appeal“.

Blair J’s “commercial instinct[9]” told him that the claims under the English Law Guarantees should “not be allowed to languish“. Further, he agreed with the Claimant’s submission that by “filing a Defence…which is valid unless and until set aside on appeal, the Defendants evince no intention to submit the dispute to the court.[10]” On the contrary, it was said that by seeking an appeal of such order, the Defendants “stand by their contention that a stay must be granted under Section 9[11]“. The Defendants were therefore instructed to file their Defence in accordance with a revised timeline but could, for the avoidance of doubt, express an “appropriate reservation in the defence[12].

6. Comment

The decision regarding the application for a stay

This decision provides detailed commentary on the term “matter” which, to date, has received relatively little judicial interpretation. Notably it appears that when it comes to interpreting what is meant by “matter” for the purposes of Section 9(1), the court will focus on substance (i.e. the “essential nature”) of the issue raised. Exactly how the courts will undertake this “common sense inquiry[13]” in practice, ensuring that it avoids characterising the matter “in an overly broad, or unduly narrow and pedantic manner[14] is unclear. However, this case provides considerably more insight than we have received previously on this issue and, in that regard, is likely to be welcomed by practitioners.

This decision also highlights the extent to which the court is willing to keep its case management powers under review: time and time again the court reiterated that the position with regards to the exercise of its inherent jurisdiction and case management powers is not static and the door was left “open” for future applications by the Defendants on this basis.

The decision regarding permission to Appeal

This decision provides reassurance to parties that the entitlement to a stay under section 9 will not automatically be lost as a result of filing a defence in English court proceedings in circumstances where (i) the party has been ordered to do so and (ii) the decision to refuse a stay is being appealed. However, in the interests of caution, clients would be well advised to expressly reserve their rights in the body of the defence.

Further, it is worth reflecting on the fact that Blair J considered that the “balance” between (i) the Defendants’ right to appeal/to seek permission to appeal and (ii) the fact that the court’s judgment is binding unless and until set aside on appeal was “held” by “requiring the Defendants to plead their defences. Any step beyond this would be a matter for the court at a later date“.[15] As such, the reassurance appears to be confined to the filing of the defence: parties being asked to file documents beyond this point should proceed with caution.