In Anzen Limited and others v Hermes One Limited [2016] UKPC One, the Privy Council has reversed an instance of agreement between the Court of Appeal of the Eastern Caribbean Supreme Court (CA) and Bannister J at First Instance, in settling an important point on the interpretation of non-exclusive arbitration clauses.
Synopsis
In an appeal from the British Virgin Islands, described by the Board as raising "short and interesting points on the interpretation of an arbitration clause in a shareholders' agreement", the Privy Council has decided that both Justice Bannister in the Commercial Court and the Court of Appeal which upheld his decision, were wrong to hold that a party to a non-exclusive arbitration clause was not entitled to a stay of litigation, without themselves having commenced an arbitration.
Background
The relevant part of the arbitration clause in question read: "If a dispute cannot be settled within twenty (20) business days through negotiation, any Party may submit the dispute to binding arbitration" (our emphasis). Proceedings were nevertheless commenced by the Respondents to the appeal, claiming inter alia statutory remedies in relation to alleged unfairly prejudicial conduct, damages and the appointment of a liquidator.
The appellants applied for a stay pursuant to s. 6(2) of the Arbitration Ordinance 1976 relying on the arbitration clause in the SHA.
In the view of the Board, three possible analyses were open to them (para 9):
The words "any party may submit the dispute to binding arbitration" are not only permissive, but exclusive, if a party wishes to pursue the dispute by any form of legal proceedings (analysis I);
The words are purely permissive, leaving it open to one party to commence litigation, but giving the other party the option of submitting the dispute to binding arbitration, such option being exercisable either by:
a. Commencing an arbitration, as the respondent submits and Bannister J1 and the CA held (analysis II); or
b. Requiring the party which has commenced the litigation to submit to arbitration, by making an unequivocal request to that effect and/or by applying for a corresponding stay, as the appellants had done (analysis III).
After a very helpful discussion of the authorities, including Commonwealth and US cases, the Board preferred analysis III in a very "pro-arbitration" move: "enabling a party wishing for a dispute to be arbitrated, either to commence arbitration itself, or to insist on arbitration, before or after the other party commences litigation, without itself actually having to commence arbitration if it does not wish to".
Parties who opt to litigate disputes in BVI in the face, although not necessarily in breach, of an arbitration clause, it seems must accept that those proceedings might be stayed forcing them and not their opponents to bring arbitration proceedings instead. It would now surely be advisable in these circumstances, to bring arbitration proceedings on day one.
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