Factual and Procedural Background
This appeal arises from an order dated 16th February 2001 by Judge Jacob dismissing the appeal of the Plaintiff against a prior order of Master Bowman dated 27th June 2000, which stayed proceedings against the first Defendant pursuant to section 9(4) of the Arbitration Act 1996. The stay was granted on the basis that the parties had agreed to submit the Defendant's claim to arbitration in Sweden.
The Plaintiff's action concerns claims for damages for deceit and/or negligent misrepresentation related to the allotment of 33,333 preference shares in the Defendant company, purchased at SEK 1,200 per share but alleged to be worth significantly less. The alleged misrepresentations concerned the readiness of the Defendant’s mobile telecommunications product and the intended use of proceeds from the share allotment.
The appeal focuses solely on the Plaintiff's claim against the first Defendant, though other Defendants are also sued, none of whom seek a stay of proceedings.
The Plaintiff relies on oral and written representations, notably those contained in a Confidential Information Memorandum ("CIM") dated 27th May 1998, which served as a prospectus for the share placement. The CIM included disclaimers and qualifications regarding the information provided and identified Enskilda Securities ("Enskilda") as the placement agent acting on behalf of the Defendant.
The Plaintiff submitted an application form to subscribe for shares, which included an arbitration clause providing for disputes to be resolved by arbitration in Stockholm under Swedish law. The Defendant contends that this form and its arbitration clause form the basis of an arbitration agreement between the parties.
The Defendant applied for a stay of proceedings based on this arbitration agreement, which was granted by the Master and upheld by the Judge. The Plaintiff appeals this decision.
Legal Issues Presented
- Whether the first Defendant was a party to an agreement with the Plaintiff containing an arbitration clause.
- If so, whether the parties agreed, on the true construction of the agreement, to submit all or some of the claims in this action to arbitration in Sweden.
- Whether, if the claims are subject to arbitration, the Defendant has taken a step in the proceedings sufficient to deprive it of the right to seek a stay under section 9(3) of the Arbitration Act 1996.
Arguments of the Parties
Appellant's Arguments
- The application form was solely to empower Enskilda to subscribe for shares on behalf of the Plaintiff and to establish escrow arrangements, not to create a contract between the Plaintiff and the Defendant.
- The Defendant was not a party to the arbitration agreement because it did not see or accept the application form at the time it was signed by the Plaintiff.
- The arbitration clause should not be construed to cover claims for damages for negligent or fraudulent misrepresentation, especially claims not contemplated at the time the agreement was made.
- The Defendant took a step in the proceedings by applying for summary judgment, which should preclude a stay under section 9(3) of the Arbitration Act 1996.
Respondent's Arguments
- The application form constituted an offer to the Defendant to subscribe for shares, which became a contract upon allotment of shares to the Plaintiff, including the arbitration clause.
- The arbitration clause covers all disputes arising out of the application for shares, including claims for negligent and fraudulent misrepresentation.
- The Defendant did not take any step in the proceedings that would waive its right to a stay; the application for summary judgment was conditional on the stay being refused.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317 |
Rule that liability for one's own fraud cannot be excluded. |
Referenced by the Appellant regarding Swedish law immunity for misrepresentations, but held not directly applicable to the arbitration clause construction. |
| S Pearson & Son Ltd v Dublin Corporation [1907] AC 371 |
It is not possible to exclude liability for fraud. |
Not directly applicable as the arbitration clause does not exclude liability but refers disputes to arbitration. |
| BCCI v Ali [2001] UKHL 8, [2001] 2 WLR 735 |
Principles of contractual construction concerning release of claims unknown to parties at the time of contract. |
Applied to distinguish arbitration clauses from release clauses; held that arbitration clauses are intended to cover future disputes, even if unknown at contract formation. |
| Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 |
Principles of contractual interpretation focusing on objective intention and context. |
Used as guiding principles for interpreting the arbitration clause and the contract as a whole. |
| Ashville Investments Ltd v Elmer Construction Ltd [1989] QB 488 |
Claims within arbitration clauses using broad language should be resolved in one tribunal. |
Supports the approach that claims arising out of the contract should be arbitrated to avoid multiple proceedings. |
| Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1993] 1 Lloyd's Rep 455 |
Emphasizes one-stop adjudication for disputes under arbitration clauses. |
Reinforces the inclusion of claims like those in the present case within the arbitration clause. |
| Pitchers v Plaza [1940] 1 All ER 151 |
Definition of "step in the proceedings" affecting right to stay under arbitration statutes. |
Applied in considering whether the Defendant's conduct amounted to taking a step in proceedings. |
| Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyd's Rep 357 |
Step in proceedings must imply willingness to proceed before courts instead of arbitration. |
Adopted to determine that Defendant's conditional application for summary judgment did not waive arbitration rights. |
| Kuwait Airways Corporation v Iraq Airways Corporation [1994] 1 Lloyd's Rep 276 |
Clarifies what constitutes a step in proceedings under arbitration law. |
Followed in assessing Defendant’s procedural conduct. |
| Patel v Patel [2000] QB 551 |
Two requirements for a step in proceedings: election to abandon arbitration and invocation of court jurisdiction. |
Applied to conclude Defendant did not take a step in proceedings precluding stay. |
Court's Reasoning and Analysis
The court first considered whether the Defendant was party to an arbitration agreement contained in the application form. The court accepted the reasoning of the Master and Judge that the application form, prepared by the placement agent Enskilda on behalf of the Defendant, constituted an offer by the Plaintiff to subscribe for shares, which became a contract upon allotment of shares to the Plaintiff. This contract included the arbitration clause.
The court rejected the argument that the form was merely an agency agreement between the Plaintiff and Enskilda and did not bind the Defendant. It held that the application form was an application to the Defendant (through its agent) and that the Defendant was aware of the subscription process and the conditions, including the arbitration clause.
Regarding the construction of the arbitration clause, the court treated the question as one of English law and concluded that the clause's language was sufficiently broad to cover claims for damages for negligent or fraudulent misrepresentation arising out of the application for shares. The court distinguished the present case from release clauses considered in BCCI v Ali, noting that arbitration clauses serve to provide a mechanism for resolving future disputes, including those unknown at contract formation.
The court rejected the submission that claims unknown or unforeseeable at the time of contract formation should be excluded from arbitration. It emphasized the commercial reality and the parties' likely intention to have one tribunal resolve all related disputes.
On whether the Defendant had taken a step in the proceedings sufficient to forfeit the right to a stay under section 9(3) of the Arbitration Act 1996, the court reviewed relevant authorities and principles. It concluded that the Defendant’s conditional application for summary judgment, made only in the event that the stay was refused, did not constitute a step in the proceedings that waived the right to arbitration. The Defendant consistently sought a stay and did not affirm the court's jurisdiction over the substantive claim.
Holding and Implications
The court DISMISSED the Plaintiff's appeal on all grounds.
The stay of proceedings against the first Defendant under section 9(4) of the Arbitration Act 1996 was upheld, confirming that the Plaintiff’s claims against the Defendant must be submitted to arbitration in Sweden pursuant to the arbitration clause in the application form contract.
The decision means that the dispute will be resolved through arbitration rather than court litigation, but the court did not establish any new legal precedent beyond affirming the application of existing principles to the facts.