In the recent case of AdActive Media Inc v Ingrouille [2021] EWCA CIV 313, the English courts further demonstrated their pro-arbitration stance by allowing an appeal against an order granting summary judgment to enforce a US judgment obtained by the respondent for US$11 million.
The English Court of Appeal held that an arbitration clause in a consultancy agreement was not inconsistent with the other jurisdiction clauses of the said agreement. Since the US Court proceedings had included claims within the remit of the arbitration clause, the US Court's judgment was unenforceable in the English courts.
1. The US Proceedings and the Contract
The dispute was in relation to a consultancy agreement (the "Agreement") between AdActive Media Inc (the "Company"), and a consultant, Mark Ingrouille (the "Consultant"). The Consultant was engaged to provide services as part of the expansion of the Company's business in south east Asia. The Company raised the US proceedings for breach of contract and fraud and obtained a default judgment for US$11 million which it then sought to enforce in England.
The Agreement contained three provisions dealing with governing law and jurisdiction:
- Clause 15 provided that the Agreement is to be governed by the laws of the State of California, and that "any case, controversy, suit, action, or proceeding arising out of, in connection with, or related to" the Agreement had to be brought in the courts of California.
- Clause 16 provided that the Consultant consented to the "personal and exclusive jurisdiction" of the courts of California and waived any objection to the venue and "any claim or defence of inconvenient forum".
- Clause 17 provided that, with the exception of any claim by the Company against the Consultant under clauses 7 and 8 of the Agreement, "all claims, disputes, controversies, differences or misunderstandings between the parties" arising out of, or by virtue of the Agreement or its interpretation, would be referred to arbitration.
Clause 7, as referred to in clause 17, contained covenants against the misuse and unauthorised disclosure of confidential information.
2. English Decision at First instance
Judge Russen held that the proceedings had been properly brought in the US Court in accordance with clauses 15 and 16 as, even if the arbitration clause was effective, it did not exclude the US Court’s jurisdiction if the proceedings included claims under clauses 7 or 8. As such, it could not be concluded that the dispute should have been settled by arbitration for the purposes of the Civil Jurisdiction and Judgments Act 1982 ("CJJA"), section 32(1)(a), which prevents the recognition and enforcement of a foreign judgment where the proceedings in the foreign court were contrary to an agreement under which the dispute in question was to be settled.
In addition, the Judge held that the arbitration clause was unenforceable within the meaning of the CJJA, section 32(2) as it was irreconcilable with the other jurisdiction clauses.
3. English Court of Appeal Decision
3.1 Did clause 17 create an effective provision for arbitration?
Lord Justice Richards took the view that the parties intended for the entire contract to take effect. Accordingly, if a term was ineffective because of an irreconcilable conflict with other express terms of the contract, it could be assumed that the parties did not intend to create such a conflict. It was necessary to carefully examine the drafting of the provisions, with a grouping of three clauses in the Agreement meaning that an inconsistency was more improbable, before determining whether a conflict existed.
The main focus was on potential irreconcilable inconsistency between the second sentence of clause 15 and the arbitration agreement in clause 17. The Court concluded that the structure of the two provisions was consistent due to the dissimilarity in the language, particularly as clause 17 used much wider language than clause 15.
Accordingly, it was held that clause 17 contained an effective arbitration agreement and the Judge at first instance had erred in holding otherwise.
3.2 Did clause 17 apply to the dispute raised by the Company in the US proceedings?
The Court of Appeal held that the claims brought by the Company in the US proceedings went beyond claims under clause 7, though no claims were brought under clause 8. Judge Russen had concluded that it was open to the Company to raise court proceedings provided that such proceedings included claims under clauses 7 or 8, they did not, however, have to be restricted to claims under clauses 7 or 8. This was rejected by the Court of Appeal which emphasised that by excepting only claims under clauses 7 and 8, clause 17 mandated that all other claims under the Agreement be referred to arbitration.
In applying section 32(1) of the CJJA, Lord Justice Richards noted that what prevented the enforcement of the US judgment by the English courts was the bringing of the US proceedings in breach of the Agreement and not the terms of the US judgment.
3.3 Abandonment of the right to arbitrate?
The Company sought to argue further that the Consultant, by issuing court proceedings in Thailand based on the same factual subject matter after the start of the US proceedings, had abandoned the arbitration clause and was prevented from relying in on it. But the Court confirmed that the Thai proceedings were not issued against any parties to the Agreement and were therefore not subject to arbitration. The proceedings were also for criminal defamation and therefore fell out with the remit of clause 17. Lastly, there was no evidence to suggest an intention by the Consultant to abandon the arbitration agreement.
4. Conclusions
The English Court of Appeal's judgment affirms the English courts' stance on recognition of arbitration clauses. It also demonstrates the courts' willingness to take a narrow interpretation of section 32 of the CJJA by refusing to recognise and enforce the US judgment on the ground that the US proceedings were contrary to the arbitration agreement, and it was not the terms of the judgment that violated section 32. The position therefore remains that if the parties have contracted to arbitrate then off to arbitration they should go or, on the facts of this case, there is a risk that months of further litigation could follow. The result could be that a court judgment obtained in one jurisdiction is rendered unenforceable in the UK.
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