The High Court has ordered a temporary case management stay of challenges to a London-seated arbitral award, subject to ongoing review and reporting obligations, where the alternative was “delay, cost, disorder and uncertainty” due to duplication of investigations into a key underlying issue. The judgment is of particular interest for its consideration of the court’s supervisory role in relation to arbitration proceedings.

Background

The claimants in Minister of Finance (Incorporated) v International Petroleum Investment Company [2019] EWHC 1151 (Comm) commenced High Court proceedings to challenge a consent award made by an arbitral tribunal, on the basis that the tribunal did not have substantive jurisdiction and that the award was procured by fraud or contrary to public policy. The consent award was issued after the parties settled an arbitration arising out of a term sheet agreed between the parties. The settlement terms were set out in a settlement deed and a supplemental deed, which both contained arbitration agreements.

The underlying dispute involved allegations of misappropriation and conspiracy against Mr Najib, a former Prime Minister of Malaysia, and others. The claimants allege that the conspiracy was furthered through the agreement of the term sheet, the settlement deeds and the consent award and that the choice of arbitration was part of the attempts to conceal and prevent investigation of this conspiracy.

The defendants responded to the High Court challenge by commencing two further arbitrations under the settlement deed and supplemental deed. They then applied to stay the claimants’ challenge pending the outcome of these new arbitrations, either on the basis that s.9 of the Arbitration Act 1996 entitled them to an automatic stay as of right or that the court should exercise its inherent case management powers to grant a stay. In turn, the claimants applied for an anti-arbitration injunction to restrain the defendants from pursuing these two further arbitrations pending the outcome of the High Court challenge to the consent award.

The underlying issue between the parties was the validity or otherwise of the settlement deeds, and the central question for the court was whether that issue should be determined by the court or by the arbitral tribunal.

No stay under section 9 of the Act

Knowles J found that a stay could not be ordered under s.9 of the Act. Parties could not use s.9 to circumvent the court’s supervisory jurisdiction over complaints about one arbitration by starting a further arbitration about those same complaints. In this case, the nature of the parties’ agreements resulted in two concurrent jurisdictions, namely the supervisory jurisdiction of the court in respect of the consent award and the jurisdiction of the arbitral tribunal under the arbitration commenced in respect of the settlement agreements. S.9 was engaged only where a matter was referred to arbitration alone and was not designed or intended to inhibit the court’s supervisory jurisdiction.

Temporary case management stay granted

However, Knowles J. held that a temporary stay of the challenge proceedings pursuant to the court’s inherent discretion was appropriate in this case. The new arbitrations under the settlement agreements would be allowed to proceed, and it would be for the arbitral tribunal to address the validity of those settlement agreements in the first instance. The alternative was duplication that invited “delay, cost, disorder and uncertainty”. The court did not have to ensure that it, and not the tribunal, investigated all of the factual matters relevant to its supervisory jurisdiction. He noted that the quality of the arbitral tribunal, in terms of experience, independence and expertise, was “a real objective comfort” to the court in this regard.

The court would deal substantively with the challenges to the consent award in due course, in the light of any findings and awards made in the additional arbitrations. Knowles J indicated that he would require the parties to submit a short written report on the process of these arbitrations at regular intervals so that the court could consider whether it should convene a hearing of its own motion to reconsider the stay or give further directions. Any subsequent challenge to the outcome of the additional arbitrations would be listed for hearing alongside the existing challenge to the consent award.

No basis to grant an injunction

Having reached the decision to grant a stay, the court refused to grant an anti-arbitration injunction. The claimants had argued that to allow the arbitrators to decide matters which fell within the court’s supervisory jurisdiction would be a breach of their contractual and statutory rights to have their challenges heard under ss.67 and 68 of the Act. They also argued that the additional arbitrations amounted to vexatious conduct, as they were threatened with parallel proceedings and with penal claims for accelerated payments under the settlement deeds, merely for exercising their contractual and statutory rights.

The court held that the risk of parallel proceedings was adequately dealt with by the stay. It was important that the conspiracy allegations were investigated by an adversarial process before an independent forum, but it was less important whether that was the tribunal or the court. If the fraud was not proved, then an injunction would have deprived the defendants of the forum for which they had validly contracted. Further, the outcome of the arbitrations would not necessarily preclude further investigations by the court if that ultimately appeared appropriate and consistent with its supervisory functions.

This case provides an interesting example of the interplay between arbitration proceedings and the court’s supervisory jurisdiction. Generally, as here, the English court recognises party autonomy by upholding arbitration agreements; however a strong emphasis is also placed upon the importance of the supervisory role of the court.

The court will not allow the mandatory provisions of s.9 of the Act to be misused to circumvent the court’s supervisory jurisdiction in one arbitration by commencing a second arbitration. However, a discretionary case management stay may instead be granted in “rare and compelling circumstances” so as to avoid parallel proceedings and unnecessary duplication of work and costs.

Unusually, in this case, the judge imposed conditions upon the stay in favour of arbitration, envisaging an ongoing and pro-active role for the court during the arbitration proceedings and requiring reports to be made on progress in the arbitration. It remains to be seen whether this approach will be adopted more widely or is simply a result of the unusual circumstances of this case.