European Film Bonds A/S & Ors v Lotus Holdings LLC & Ors

Factual and Procedural Background

The Claimants initiated proceedings by a Part 8 Claim Form dated 19 October 2018 seeking a declaration that, under a Completion Guarantee Agreement (CGA) dated 25 April 2016 (as amended), completion and delivery of a film (the Film) had been effected and that the First and Second Defendants had issued a notice in writing confirming such completion and delivery. The Substantive Issue concerned whether completion and delivery, including Sales Agent Delivery, had occurred or was conclusively presumed to have occurred under the CGA.

The Defendants, including the Third Defendant and the First and Second Defendants (collectively the Lotus Entities), applied for a stay of these proceedings under section 9 of the Arbitration Act 1996, contending the matter fell within arbitration agreements between the parties. The court heard submissions on these applications on 20 March 2019 and reserved judgment.

Subsequently, the Third Defendant issued a further application on 4 April 2019 seeking to admit late evidence and to stay the proceedings pending a decision in related proceedings before the California Superior Court. The court heard further submissions on 25 July 2019 before delivering judgment on both the November 2018 and April 2019 applications.

The dispute arises in the context of complex contractual arrangements relating to the funding, production, and distribution of the Film, involving multiple parties and agreements, including the CGA, a Sales Agent Interparty Agreement (SA IPA), a Commissioning and Distribution Agreement (CDA), and others.

Legal Issues Presented

1. Is the law applicable to the arbitration agreements in the CGA and SA IPA English law or Californian law?
2. Have the parties agreed to submit the issue of whether the Substantive Issue falls within the scope of the CGA arbitration agreement (the Scope Issue) to arbitration by the arbitrator?
3. Is the Substantive Issue within the scope of the arbitration agreement contained within the CGA?
4. Should the court stay these proceedings under its inherent jurisdiction or case management powers pending the decision of the California Superior Court in related proceedings?

Arguments of the Parties

Defendants' Arguments (Lotus Entities and Third Defendant)

• The arbitrator has already determined that the Substantive Issue is within the scope of the arbitration agreements, engaging section 9 of the Arbitration Act 1996 and requiring a stay of the proceedings.
• The arbitration agreements incorporate IFTA Rules which obligate the arbitrator to rule on his own jurisdiction, including arbitrability, thus the Scope Issue is for the arbitrator and not the court.
• It would be in the interests of justice, comity, and case management to stay the English proceedings pending resolution of the Scope Issue in California.
• The law governing the arbitration agreements should be Californian law, as the seat and conduct of arbitration are in California.

Claimants' Arguments

• The law applicable to the arbitration agreements is English law, as expressly chosen by the parties in the CGA and SA IPA.
• The arbitration agreements do not extend to the Substantive Issue (the deemed acceptance issue) and therefore section 9 of the Arbitration Act 1996 does not apply to require a stay.
• The court should determine the Scope Issue independently, as there is no clear agreement that the arbitrator has power to decide this issue conclusively.
• It is not just or appropriate to stay the English proceedings pending a decision in California, especially given the absence of evidence on Californian law and the risk of delay and duplication.
• The Claimants are entitled to pursue their position in both jurisdictions without prejudice to their rights.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Shaker v Al-Bedrawi [2002] EWCA Civ 1452	Exceptions to the Default Rule that foreign law is presumed to be the same as English law when foreign law is not proved.	Used to explain why the Default Rule applies here and the court should apply English law to interpret the arbitration agreements in the absence of evidence of Californian law.
Aeroflot - Russian Airlines v Berezovsky [2013] EWCA Civ 784	Burden of proof on party seeking stay under s.9 Arbitration Act 1996 to show existence of arbitration agreement and that dispute falls within its scope.	Adopted to confirm that unless the defendants prove the Scope Issue in their favour, no stay under s.9 can be granted.
Fiona Trust and Holding Corporation v Privalov [2007] EWCA Civ 20	Presumption that disputes arising out of a contract are intended to be decided by the arbitral tribunal unless clearly excluded.	Considered in assessing whether the parties intended the arbitrator to have jurisdiction over the Scope Issue; court found the presumption did not apply here.
Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46	Distinction between ordinary competence/competence and agreement to submit arbitrability to arbitration; court decides arbitrability unless parties clearly agree otherwise.	Applied to distinguish whether the arbitrator's jurisdiction decision is binding or the court must decide the Scope Issue independently.
Al-Naimi (trading as Buildmaster Construction Services) v Islamic Press Agency Inc [2000] 1 Lloyds Rep 522	On s.9 applications, the court may decide the scope of arbitration agreement itself unless exceptional reasons justify a stay.	Used to support the court's decision to determine the Scope Issue itself and not stay proceedings.
Weissfisch v Julius [2006] EWCA Civ 218	Sections 30, 32, 67 and 72 of Arbitration Act 1996 do not apply to foreign arbitrations; sections 9 and 44 do apply.	Confirmed that the English court has jurisdiction to intervene in support of foreign arbitrations under s.9.
Azov Shipping Co v Baltic Shipping Co [1999] 1 All ER 476	Court may re-examine arbitrator's jurisdiction on challenge and is not bound by arbitrator's decision.	Supports the principle that the court must independently determine jurisdictional issues.
First Options of Chicago Inc v Kaplan (1995) 514 US 938	Distinction between parties agreeing to submit arbitrability to arbitration and not; courts independently decide arbitrability unless agreed otherwise.	Reinforces the need for clear agreement to submit arbitrability to arbitration for arbitrator's decision to be binding.
Carl Zeiss Stiftung v Rayner & Keeler Ltd (No.2) [1967] AC 853	Final and conclusive decisions of courts may give rise to issue estoppel; arbitrator’s decisions do not bind courts.	Used to reject issue estoppel arising from arbitrator’s or California court’s decisions here.

Court's Reasoning and Analysis

The court first identified the applicable law to the arbitration agreements as English law, based on express choice clauses in the CGA and SA IPA, and the absence of evidence of Californian law. The Default Rule that foreign law is presumed to be the same as English law in the absence of proof applied.

The court then examined whether the parties had agreed to submit the Scope Issue (whether the Substantive Issue falls within the arbitration agreement) to arbitration. The arbitration agreements specified the matters to be arbitrated and excluded the Scope Issue explicitly or by necessary implication. The IFTA Rules incorporated into the agreements conferred on the arbitrator the power to rule on jurisdiction (competence/competence principle) but did not amount to an express agreement to arbitrate the Scope Issue itself.

The court distinguished between the ordinary competence/competence principle, which allows an arbitrator to rule on jurisdiction subject to court review, and a rare case where parties expressly agree that the arbitrator’s decision on arbitrability is final and binding. The present case fell into the former category.

Given that the defendants bore the burden of proving the Scope Issue in their favour to obtain a stay under section 9 of the Arbitration Act 1996, and that the arbitration agreements did not include the Scope Issue, the court held that section 9 was not engaged and refused to grant a stay under it.

The court further considered whether to stay the proceedings under its inherent jurisdiction or case management powers pending the California Superior Court’s determination of related issues. It found no exceptional circumstances to justify such a stay, noting the risk of delay, duplication, and the availability of issue estoppel depending on which court decided the Scope Issue first.

On the construction of the arbitration agreements and related documents, the court found that the Substantive Issue was not within the scope of the CGA arbitration agreement and that the SA IPA arbitration agreement applied to different parties and disputes. The 2nd to 8th Claimants were not parties to the SA IPA arbitration agreement and thus could not be bound by it.

Accordingly, the court concluded that the Substantive Issue was not arbitrable under the CGA arbitration agreement and that the applications for stay should be refused.

Holding and Implications

The court refused all applications for a stay of the proceedings.

The court held that the Substantive Issue was not within the scope of the arbitration agreement contained in the Completion Guarantee Agreement and that the defendants failed to satisfy the requirements of section 9 of the Arbitration Act 1996 to justify a stay. The court also declined to exercise its inherent jurisdiction or case management powers to stay the proceedings pending related proceedings in California.

The direct effect is that the English proceedings will continue to determine the Substantive Issue. No stay will impede the progress of this litigation. The court emphasized that no new precedent was set beyond the application of established principles concerning the scope of arbitration agreements, the competence/competence doctrine, and the court’s jurisdiction under section 9.