The recent High Court decision in Emmott v Michael Wilson & Partners  EWHC 1 (Comm) confirms the trend of the English Courts to support rather than interfere in the arbitral process.
The decision gives broad application to the Fiona Trust1 principle that parties to an arbitration agreement shall be taken to have agreed that all disputes arising in connection with that agreement should be settled by arbitration, in the absence of clear words to the contrary.
The Emmott decision also shows that the Courts are willing to support the arbitral process by giving effect to a tribunal’s peremptory (or final) order, without assuming the role of the arbitral tribunal by conducting a full re-examination of the merits of the tribunal’s decision. The Court’s decision will provide a useful precedent to parties to arbitrations who wish to have recourse to the coercive powers of the Court against a recalcitrant opponent, without requiring a full rehearing of the merits. The Court further confirmed its supportive approach to arbitration by awarding the applicant a freezing order upon a limited review of the background.
The arbitration behind the Court proceedings was brought by Michael Wilson & Partners (“MWP”) against its former business partner, John Emmott. Under the original 2001 agreement between the parties, Mr. Emmott was to have a 33% profit sharing interest in MWP. The agreement contained an arbitration clause, providing that: “all and any disputes shall be referred to and subject to arbitration in London”.
Among the alleged assets of MWP were shares in a Malaysian-registered company, Steppe Cement (the “Steppe Shares”). In the arbitration, Mr. Emmott counterclaimed against MWP claiming 27% of the Steppe Shares allegedly held on behalf of MWP. Mr. Emmott’s claim was based on an alleged 2005 agreement by which MWP agreed to provide Mr. Emmott with 27% of the Steppe Shares, apparently as being the appropriate amount of Mr. Emmott’s interest in the Steppe Shares under the original 2001 agreement.
The arbitral tribunal had previously made three procedural orders (and one further related procedural order) requiring MWP to procure that “its 27% shareholding [in the Steppe Shares]... is to be held to the order of... the Chairman of the Arbitral Panel”.2 The last of these orders was made “in peremptory terms”.
Once the time for compliance with the tribunal’s peremptory order had expired (on 5 December 2008), Mr. Emmott brought applications before the Court, first for an order of the Court requiring MWP to comply with the tribunal’s peremptory order, and, secondly, for a freezing order in respect of the Steppe Shares.
Before the Court, MWP challenged the jurisdiction of the arbitral tribunal to hear Mr. Emmott’s claim. The 2005 agreement alleged by Mr. Emmott did not contain express provisions relating to jurisdiction. Therefore, the tribunal’s jurisdiction over the counterclaim had to be inferred from the terms of the 2001 agreement.
The English Courts have recently given wide effect to arbitration clauses, and reduced the possibility of successful challenges to a tribunal’s jurisdiction based, particularly, on the unclear wording of arbitration clauses.
In the 2007 House of Lords case, Fiona Trust v Privalov,3 it was held 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”. Therefore, the House of Lords held, arbitration clauses should be construed broadly by the courts, unless the language made it clear that the parties did not intend certain questions to be included in the arbitrators’ jurisdiction.
The Court in Emmott applied the Fiona Trust principle. The Court found that the tribunal was correct to take jurisdiction over the counterclaim, notwithstanding that it arose from an alleged agreement which was separate to the contract in which the arbitration agreement was to be found. The Court sought to establish whether the parties’ had intended that disputes such as the counterclaim would be resolved by arbitration. It was material to the Court’s finding that the alleged 2005 agreement arose directly out of the relationship between the parties governed by the 2001 agreement. It was also material that the alleged 2005 agreement was entered into to resolve the question of Mr. Emmott’s entitlement to the Steppe Shares under the 2001 agreement. Nevertheless, the Court’s decision confirms the recent judicial reluctance to narrow the scope of agreements to arbitrate and to deny tribunals jurisdiction.
A peremptory order is defined in the Arbitration Act 19964 (the “Act”), as an order of the tribunal, following a prior order in the same terms with which a party has not complied, with a time prescribed for compliance. Under Section 42 of the Act, a party may apply for a Court order requiring a party to comply with a peremptory order, provided that: (i) the applicant has exhausted any available arbitral process in respect of failure to comply with the tribunal’s order; and (ii) the person to whom the peremptory order was directed has failed to comply with it within the time prescribed in the order.
In Emmott, the court was asked to consider to what extent it should review a peremptory order issued by an arbitral tribunal. MWP argued that the court must in every case satisfy itself that the case is a proper one for the order which is sought. This was, in part, because of the potentially serious consequences of making such an order, which might include penalties for contempt (including imprisonment) being available against a party which failed to comply with such an order. Mr. Emmott, on the other hand, argued that the proper approach of the court was to enforce the order, save in an exceptional case.
While the Court did not adopt either of these extreme positions in awarding Mr. Emmott the order he sought, it declined to review the decision of the tribunal in detail and, in particular, expressly declined to consider whether it would have made the same order as the tribunal.
The Court noted that it was a general principle of the Act, as expressed by Section 1(c), that the Court should not intervene in arbitration except where permitted by the Act. The Court was permitted to intervene by Section 42 to compel a party to comply with an order of the tribunal. However (at least in the particular case of an order in relation to property), the proper role of the court would be to support the tribunal by making the requested order. The Court had limited powers under the Act to rehear or review the decisions of a tribunal, and it would be surprising if a power to rehear or review was hidden in Section 42.
With regard to the argument that the Court should be careful to impose orders which might carry criminal consequences for non-compliance, the Court held that it was the very purpose of Section 42 that it could only be exercised when the arbitral process had been exhausted (and, by implication, where the limited coercive powers of the tribunal had not been sufficient to procure compliance). The Court disapproved of academic commentary suggesting that the Court should routinely consider whether it would have made the order which the tribunal had made.
However, the Court did accept that there would be circumstances in which it should decide not to make an order that a party comply with a peremptory order of a tribunal. Generally, these were where an order was not required in the interests of justice to assist the proper functioning of the arbitral process. The Court declined to give an exhaustive list of when this would apply, but suggested, by way of example, that it might include where there had been a material change in circumstances since the making of the peremptory order, where the tribunal had not fulfilled its duty to act fairly and impartially, and where the tribunal had made an order it had no power to make.
In the Emmott case, it was argued on behalf of MWP that the tribunal had declined to hear further representations from MWP before issuing the peremptory order, that the balance of convenience was in favour of refusing the order (in part, because there was no risk of the Steppe Shares being dissipated), that Mr. Emmott’s claim over the Steppe Shares had no real prospect of success, that Mr. Emmott had admitted misconduct which he had not previously disclosed, and that the Steppe Shares were subject to the interests of various third parties.
In each case, the Court satisfied itself that the tribunal had itself considered the issue raised by MWP, and was in a better position to consider its weight than the Court. Regarding third parties, the Court stressed that third parties were at liberty to come to the Court if they considered themselves affected by an order of the Court.
The approach the Court adopted in Emmott is significant. It had previously been uncertain to what extent the Court should exercise its own discretion in making an order under Section 42. The Emmott decision indicates that the Court’s discretion will be limited. This provides a powerful weapon in the armoury of a party to arbitration seeking to force its opponent to comply with the tribunal’s orders. It should be noted, however, that parties who agree to exclude recourse to the courts under Section 42 are free to do so, and that the provision only applies to arbitrations seated in England and Wales or Northern Ireland.
The Court granted Mr. Emmott’s application for a freezing order in respect of the Steppe Shares under Section 44 of the Act. Here, the Court did examine the merits of the application, and concluded that there was a clear risk of dissipation of the Steppe Shares. However, it did not do so in detail, and was guided by the peremptory order of the tribunal in relation to the Shares. The Court viewed its role in granting the freezing order sought as being to consider whether to do so would “help the arbitral process to operate efficiently”.
Though the Court’s decision to grant the Section 44 order was in line with authority, and it assumed a greater role in considering the merits of the application for a freezing order than in respect of the Section 42 order, the Court’s decision further demonstrates the availability of Court orders to support the arbitral process.
The Emmott case confirms that the trend of the Courts in arbitral proceedings is to support, rather than to review, the arbitral process. It should be noted that, though the Court did not produce its written decision until 12 January 2009, it informed counsel for the parties of its decision on 22 December, less than three weeks after Mr. Emmott had filed his applications. This approach was reflected in each of the three decisions given by the Court, and particularly its refusal to review the tribunal’s decision in granting an order to force compliance with the tribunal’s peremptory order.
The decision will give comfort to parties to English-seated arbitrations concerned that the other side may seek to disrupt the process or avoid compliance with orders from the tribunal. The message from Emmott is that the Courts may provide recourse against recalcitrant parties in arbitrations without the need for a substantial rehearing on the merits of the tribunal’s decisions. Provided Section 42 has not been excluded, parties can be reassured that they are likely to be able to obtain swift assistance from the Courts to give “teeth” to the orders of arbitral tribunals and force compliance with them.