REUTERS | David Gray

An erosion of the Fiona Trust “one-stop shop” presumption?

In Michael Wilson & Partners Limited v John Forster Emmott, the English Court of Appeal allowed an appeal in part against the first instance decision of O’Farrell J to maintain an anti-suit injunction in respect of proceedings in New South Wales which were, it had been said, brought in breach of an agreement to arbitrate in London. The decision raises significant questions about the true scope and application of the Fiona Trust “one-stop shop” presumption to the construction of arbitration clauses, which I examine in this post.

(The Court of Appeal also considered other matters, including allegations of issue estoppel and abuse of process, which I am not going to look at).

The “one-stop shop” presumption

It was held in Fiona Trust & Holding Corp v Privalov that the construction of an arbitration clause should start from the presumption that the parties are likely to have intended “any dispute arising out of the relationship into which they have entered” to be decided by the same tribunal, unless the language makes clear that certain matters were to be excluded from the arbitrator’s jurisdiction.

The justification for the Fiona Trust presumption lay in what the House of Lords identified as the purpose of an arbitration clause:

“The parties have entered into a relationship… which may give rise to disputes. They want those disputes decided by a tribunal which they have chosen…”

Lord Hoffmann went on to say:

“If one accepts that this is the purpose of an arbitration clause, its construction must be influenced by whether the parties, as rational businessmen, were likely to have intended that only some of the questions arising out of their relationship were to be submitted to arbitration and others were to be decided by the national courts.”

The weight placed by the House of Lords on whether the dispute “arose out of the parties’ relationship” was accompanied by a firm rejection of the technical distinctions drawn in earlier cases on the wording of arbitration clauses, between, for example, disputes “arising under” and “arising out of” an agreement; and between disputes “regarding rights and obligations created by the contract itself” and a “wider class of disputes”. Such distinctions, Lord Hoffmann said, reflected “no credit on English commercial law”.

Michael Wilson & Partners v Emmott

The dispute in Michael Wilson & Partners v Emmott concerned two agreements formed in 2001 and 2005 respectively. By the first agreement, Michael Wilson & Partners (MWP) and Mr Emmott agreed to establish a “quasi-partnership”, under which Mr Emmott became a director and received shares in MWP. By clause 5.2, it was provided that “all and any disputes” would be referred to arbitration in London.

By the second agreement, Mr Emmott proposed to join a consultancy business which included current employees of MWP among its members and was, by the nature of its work, a direct competitor of MWP.

MWP was, understandably, unhappy with this arrangement. In 2006, MWP commenced arbitral proceedings in London against Mr Emmott and court proceedings in New South Wales against other parties involved in the consultancy. The central allegation in both sets of proceedings was that the defendants had dishonestly diverted work and clients from MWP to the consultancy.

The outcome of the arbitration was a financial award in Mr Emmott’s favour (reflecting share capital in MWP to which he was entitled), whilst the outcome of the New South Wales court proceedings was a finding that the defendants were jointly and severally liable to MWP for a substantial sum. MWP then obtained assignments from the defendants in the New South Wales proceedings of their rights to contribution and an account from Mr Emmott in respect of their liability to MWP, and commenced fresh claims against Mr Emmott in the New South Wales courts pursuant to the assigned rights.

Mr Emmott responded by applying to the English High Court to restrain MWP from pursuing the new New South Wales proceedings on the grounds that they were brought in breach of clause 5.2 of the partnership agreement. An interim anti-suit injunction was granted by Burton J on a without notice application, and continued by O’Farrell J on the return date.

On appeal, the English Court of Appeal held that MWP’s claims against Mr Emmott in the New South Wales proceedings did not fall within the ambit of clause 5.2, on the grounds that:

  • The rights MWP was seeking to enforce were not the rights of parties to the partnership agreement, but were rights that had been assigned to MWP by the defendants in the earlier New South Wales proceedings. If those defendants had brought contribution proceedings against Mr Emmott in their own names, clause 5.2 of the partnership agreement would have been no bar, and MWP, as assignee of their rights, could be in no worse position absent provision to that effect in the partnership agreement.
  • The “disputes” with which clause 5.2 was concerned were, on the face of it, “disputes between MWP and Mr Emmott in their capacity as quasi-partners”, not “disputes between third parties and one or other of MWP and Mr Emmott”. It was “highly unlikely” that MWP and Mr Emmott “had any intention to include such claims within clause 5.2”.

The injunction granted at first instance was substituted for a more limited injunction restraining MWP from advancing claims which it had lost in the arbitration; matters contrary to findings in the arbitration which were adverse to MWP; and claims for fraud or conspiracy. This left MWP free to pursue the assigned claims in the New South Wales proceedings.

Discussion

The English Court of Appeal’s analysis of the clause 5.2 point has two features of interest.

First, rather than starting out with the assumption that the parties intended any disputes arising out of their relationship to be decided by the same tribunal, and then moving on to consider whether it was clear from the language that the parties intended certain matters to be excluded, the court began with the proposition that clause 5.2 was “[on] the face of it” concerned only with “disputes between MWP and Mr Emmott in their capacity as quasi-partners”, and then expressly declined to apply the Fiona Trust presumption on that basis.

The court’s view as to the scope of clause 5.2 cannot have been arrived at via a purely textual analysis of the words used, which were in the widest possible terms (“all and any disputes”). Nor does it appear to have been the court’s view that the dispute in question did not “arise out of the parties’ relationship” in Fiona Trust terms: as the court acknowledged, “many of the matters [in the New South Wales proceedings] concern alleged breaches of obligations owed by Mr Emmott to MWP in relation to the running of MWP’s business”. Instead, the court appears simply to have regarded it as obvious that the parties would not have intended assigned claims to fall within the scope of the arbitration agreement, notwithstanding the absence of direct support for that view in the language of the clause.

This approach is not easy to reconcile with Fiona Trust. If the Court of Appeal was entitled to act as it did, the corollary would seem to be that the Fiona Trust presumption can be dis-applied where, notwithstanding that the court is satisfied that a particular dispute arose out of the parties’ relationship and is not excluded by the language of the relevant arbitration agreement, the court forms the view that the parties would not, for other reasons, have intended that dispute to fall within the scope of the provision. If that is right, it might be thought that the Fiona Trust presumption is now of rather limited value.

Second, in circumstances where the dispute plainly arose out the parties’ relationship as a matter of fact, the weight placed by the English Court of Appeal on the (essentially legal) point that the claims in the New South Wales proceedings were brought pursuant to assigned rights does not sit well with the House of Lord’s rejection, in Fiona Trust, of the technical distinctions previously drawn between disputes “regarding rights and obligations created by the contract itself” and a “wider class of disputes”. Where the factual substance of the allegation remains the same, the fact that a particular claim is brought pursuant to a right that has been assigned is, I would suggest, not a point that the business world is likely to regard as especially significant.

Conversely, had MWP’s claims against Mr Emmott been brought pursuant to assigned rights that had no connection with MWP at all (such as debts owed by Mr Emmott to unconnected third parties, for example), a decision that such claims fell outside the scope of the arbitration agreement would be easy to understand. However, this would be because a dispute of that kind would not “arise out of the parties’ relationship”, rather than because there is anything inherently special about assigned rights.

Conclusion

For those reasons, I would suggest that the decision of the English Court of Appeal in Michael Wilson & Partners v Emmott may represent something of an erosion of the conventional approach to the construction of arbitration agreements laid down by the House of Lords in Fiona Trust. The introduction of a distinct approach to claims that have been assigned may give a new lease of life, in the context of applications for anti-suit injunctions and elsewhere, to submissions relying on technical distinctions between different legal classes of dispute of the kind found in the pre-Fiona Trust authorities.

Keating Chambers Harry Smith

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