City of London v Sancheti

[2008] EWCA Civ 1283

Stay of Arbitration proceedings

The Facts

By lease, the Corporation of London let business premises on New Bond Street to ALC Press Inc., a Japanese Company, in 1998. By a clause in the lease, both parties submitted to "the non-exclusive jurisdiction of the competent courts of England and Wales". The lease was to be construed in accordance with English Law.

Four years into the lease, Mr Sancheti (a solicitor of Indian nationality) took an assignment of the unexpired term of the lease. The lease then came to an end in October 2004 following the service of the requisite notices and Mr Sancheti vacated the premises to pursue his practice elsewhere.

At that time, there was an outstanding rent review under the lease which was determined. The Corporation accordingly sought to recover the balance of the rent from Mr Sancheti who refused to pay.

Mr Sancheti served a notice of the dispute on the Treasury Solicitor under the United Kingdom-India bilateral investment treaty alleging breaches of that treaty. His complaints were of discrimination by various manifestations of the UK. His complaints against the Corporation were of harassment, racial discrimination and misfeasance.

County Court Proceedings were commenced by the Corporation for payment of the outstanding rent pursuant to the lease.

Mr Sancheti applied for a stay of the proceedings under the Arbitration Act 1996 s.9 on the basis that he had invoked the arbitration provisions in the treaty.

The judge refused his application for a stay, finding that the treaty was "not intended in any way to affect the relationship between an individual of a contracting state and a local authority of the other contracting state". Mr Sancheti filed a defence without prejudice to his contentions that the Court had no jurisdiction over the matter by reason of the provisions of the treaty and without prejudice to any appeal. His defence was, effectively, the Corporation had not been entitled to appoint an assessor to determine the rent. Mr Sancheti’s defence was dismissed on the basis that:

a. Section 9 of the Arbitration Act 1996 had no application to the case;

b. There was a distinction between breach of contract and breach of the treaty such that breaches of the treaty did not relate to the County Court proceedings pursuant to the contract but were separate to and independent of them;

c. The Corporation was not a party to the arbitration agreement and any award made within the arbitration would not bind the Corporation.

d. Accordingly, it would not be right to grant a stay under the inherent jurisdiction of the Court.

Mr Sanchetti sought to appeal. He submitted that s.9 of the Arbitration Act did not require the claimant in the "legal proceedings" to also be party to the "arbitration agreement". He argued that the legal proceedings had to be brought "in respect of a matter which under the agreement is to be referred to arbitration" which was the case given that he was arguing that the Corporation had violated the treaty. He also submitted that the Corporation were a party to the arbitration agreement pursuant to Section 82(2) of the Arbitration Act given that the UK government were either responsible for the acts of the Corporation as an emanation of the state and/or controlled the Corporation or had entered into the treaty on behalf of the nation which included the Corporation. Finally, he said, given there was going to be an arbitration, there should be a stay on proceedings to allow that to be considered first.

The Issue

Can and should a stay on civil proceedings be granted pending arbitration?

The Decision

Section 9 of the Arbitration Act provides: "A party to an arbitration agreement against whom legal proceedings are brought...in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the Court in which the proceedings have been brought to stay the proceedings so far as they concern that matter". Lord Justice Lawrence Collins had no doubt that section 9 did not apply if the parties to the Court proceedings were not parties (or persons claiming through or under a party) to the arbitration agreement. His Lordship considered that it would be wholly inconsistent with the 1996 Act if a stay could be obtained against a claimant who was not a party to the arbitration. It is not sufficient that the subject matter is to be referred to arbitration. Further, it was not sufficient that there was a mere connection between the Claimant and another person who was bound by the arbitration agreement. The case of Roussel-Uclaf v GD Seale was relied upon by Mr Sancheti but held to be wrongly decided on this point, and, even if it were not, to be of no assistance to him. In the present case, the Corporation was not a party to the arbitration agreement. The party was the UK Government. The Corporation was not made a party just because, under certain circumstances, the state is responsible under international law for the acts of one of its local authorities. Further, given that the lease contained the clause that the parties "submit to the non-exclusive jurisdiction of the competent Courts of England and Wales", that amounted to a contractual agreement that if a party were sued in England they would not object to the jurisdiction of the English Courts. Accordingly, there was no basis for the argument that the subject of the litigation was in respect of a matter which, under the agreement, was to be referred to arbitration. Therefore, there was no need to consider the elaborate arguments distinguishing contractual claims and claims for breach of the treaty further. Finally, there was no criticism to be made of the Judge’s refusal to grant a stay under the inherent jurisdiction. Permission to appeal was given to allow the Court to give general guidance but the appeal was dismissed.

Comment

A stay will only be granted when the parties to the litigation are the same or such that they fall within the definition of s. 82(2), namely, persons claiming through or under a party. Elaborate arguments and tenuous connections will not suffice.