​The Court of Appeal has provided important guidance on the circumstances in which a court claim can be struck out as an abuse of process on the basis that it forms a collateral attack on a prior arbitral award between different parties.  The Court held that a prior arbitration award could form the basis of an abuse of process claim; that, whilst its power to strike out proceedings where the application was based on a prior arbitral award (as opposed to court proceedings) should be exercised with caution, that should not inhibit the court’s duty to act appropriately.  It would be a very rare case where court proceedings against a non-party to an arbitration can be said to be an abuse of process: Michael Wilson & Partners Ltd v Sinclair & anr [2017] EWCA Civ 3.

Michael Wilson & Partners Ltd (MWP) appealed against a decision striking out its claim against Mr Sinclair and Sokol Holdings Incorporated (the respondents) as an abuse of process.

At its core, this case came down to the issue of whether it is an abuse of the court’s process for A to claim in legal proceedings against C, on a basis which has been decided against A in arbitration proceedings between A and B.  The Court answered this question in the positive. 

In 2006, MWP had brought arbitration proceedings against one Mr Emmott, a former partner in MWP and the recipient of certain assets (comprising shares and cash) which had allegedly been acquired by him in breach of the contractual obligations and fiduciary duties he owed to MWP as a partner and with the knowing assistance of the respondents.  The respondents maintained that a third party held the shares on behalf of Mr Sinclair, not Mr Emmott, and that there had been no breach of any obligation to MWP for which they were liable.  Mr Sinclair had been invited to join the arbitration as a party, but had declined.  However, Mr Sinclair did appear as a witness for Mr Emmott and provided funding for Mr Emmott’s defence.  In 2010, the arbitral tribunal rejected MWP’s claim, concluding that Mr Emmott had received the shares on behalf of Mr Sinclair and had no beneficial interest them. MWP subsequently brought court proceedings against the respondents and the respondents applied to have those proceedings struck out on the basis of abuse of process.

At first instance, Teare J found that the abuse of process doctrine could apply where the decision under collateral attack (ie the prior decision) was an arbitration award.  However, he also held that it would be rare for a court claim to be an abuse of process where only one of the parties to the court claim had been party to the prior arbitration.  Nevertheless, in Teare J’s view, the instant case contained “special circumstances”, namely the fact that: (i) Mr Sinclair had been a witness in the arbitration and had funded the defence; and (ii) the arbitral tribunal had made determinations as to the ownership of the relevant shares, which rendered the MWP’s claim an abuse of process.  MWP appealed.  In upholding MWP’s appeal, the Court of Appeal provided important guidance on the circumstances in which a court claim can be struck out as an abuse of process on the basis that it forms a collateral attack on a prior arbitral award.

Abuse of process

First, the Court held that it was well established that there was no prima facie assumption that it is an abuse of process to re-litigate previously decided issues.  Although it is in the interests of defendants to ensure that a person is not twice vexed by the same claim and it is in the public interest that the same issue should not be litigated over again, the court’s powers of intervention should only be used where justice requires it.  In this respect, the Court was at pains to state that a close, “merits based” analysis of the facts was required in each case.

Secondly, the Court held that a prior arbitral award could form the basis of an abuse of process.  Simon LJ (with whom Patten LJ and Sir Ernest Ryder (the Senior President of Tribunals) agreed) further explained that, although the Court stated that it would be cautious in finding an abuse of process on this basis, “that caution should not inhibit the duty to act in appropriate circumstances”.  Agreeing with Teare J, his Lordship further stated that “it will probably be a rare case, and perhaps a very rare case, where court proceedings against a non-party to an arbitration can be said to be an abuse of process”.

In overturning Teare J’s decision, the Court held that the present claim did not constitute one of those rare cases.  In reaching this conclusion, a “highly material, if not dispositive factor” was the lack of mutuality between the parties.  Mr Sinclair had been invited to join as a party to the arbitration and agreed to be bound by the award, but had refused to do so.  Indeed, he had gone as far as to adopt the position, in collateral proceedings before the Bahamian courts, that the outcome of the arbitration was “totally irrelevant to the dispute” between him and MWP.  It would, therefore, be unfair to afford Mr Sinclair the benefit of the arbitral award, in circumstances where he would have suffered no adverse burden if the award had been otherwise determined.  Further, this conclusion would not result in the respondents or Mr Emmott being twice vexed.  The former were not parties to the arbitration and the latter was not being sued by MWP in the present action. 

Addressing Teare J’s “special circumstances”, Simon LJ was not persuaded that the fact that Mr Sinclair had been a witness in the arbitration and had funded Mr Emmott’s “bore any material weight in light of [Mr Sinclair’s] equivocal approach to the arbitration”.  Further, although his Lordship accepted that the arbitral tribunal had made certain findings of fact, it “did not have jurisdiction to adjudicate the claims in a way that bound MPW in relation to a non-party” and could not, and did not, grant any relief as between MWP and the Respondents.

Finally, the court made it clear that the burden was not on MWP to identify circumstances which justified the bringing of the claim, but rather was on the respondents to identify reasons why doing so would be manifestly unfair to a party in the action.

Admissibility of prior arbitration award

The Court of Appeal also dealt briefly with the issue of whether the arbitral award previously issued between MWP and Mr Emmott was admissible for the purposes of the respondents’ application and the appeal.  The appellant contended that it was not open to the respondents to make use of the contents of the arbitral award for the purposes of their strike out application. In support of this proposition, MWP relied on the principle that, subject to issues of estoppel, factual findings made in one case are inadmissible in subsequent proceedings.  However, the Court held that in cases where a claim is said to be an abuse of process because it represents a collateral attack on a prior decision, “it is plainly necessary to look at the earlier decision”.

COMMENT

The Court of Appeal’s decision serves as a timely reminder of the high threshold which must be met in order for a claim to be struck out under the abuse of process doctrine.  In particular, where the parties to a claim are different to the parties involved in any previous proceedings (whether arbitral or curial), it is, in Simon LJ’s words, “a rare case, and perhaps a very rare case” in which an abuse of process will be found.

Users of arbitration should take some comfort from the Court’s clear confirmation that re-litigating claims in court, which have already been determined via arbitration, can, particularly in circumstances where the parties to both sets of proceedings are identical, constitute an abuse of process.  Similarly, parties who lose in arbitration might take comfort from the fact that they are not barred from pursuing separate proceedings against third parties who are closely connected to the case, but who were not ultimately a party to the arbitration.

Conversely, those who are, notwithstanding a connection to a particular case, not a direct party to arbitral proceedings should be mindful that they are unlikely to be able to use a prior arbitral award to claim abuse of process if subsequently sued on the same set of facts.  It is not enough to have simply given evidence in the arbitration, even where facts have been determined, at least in part, on the basis of that evidence; nor is it enough to have provided funds for one of the parties.  In such circumstances, and where it is open to a connected party to join arbitral proceedings, third parties would be well advised to carefully weigh the risk of an adverse arbitral finding against the risk that they will not be able to take advantage of a positive finding and may remain exposed to future litigation.