Staying proceedings in favor of arbitration: New Guidance from the Supreme Court of the United Kingdom
In line with every contracting state to the New York Convention 1958, the courts of England & Wales will stay proceedings brought in the courts of England & Wales and refer the parties to arbitration where an agreement to arbitrate exists unless the court finds that the agreement to arbitrate is null and void.
This principle of the New York Convention is embodied in section 9 of the Arbitration Act 1996. This provides that where proceedings are brought in respect of a “matter” which under the arbitration agreement is to be referred to arbitration the party against whom the proceedings have been brought may apply to the court to stay those proceedings.
In two very recent judgments [1] the Supreme Court and Privy Council gave guidance on how to determine whether a matter falls within scope of the arbitration agreement. Clearly if a matter is not caught by the arbitration agreement, there will be no stay of the proceedings.
The determination is to be made in two stages:
Stage 1. Identify the matter. A matter must be something more than a mere issue and is to be determined from the statements of case and likely defences and must be a substantial issue which would otherwise fall within the scope of the arbitration agreement. It must be an essential part of the claim and not merely peripheral to it. If a “matter” does not satisfy this requirement it will not require a stay of the proceedings. The courts should analyse the substance of the claims and not simply take the case as presented in the pleadings at face value.
Stage 2. Does the matter fall within the scope of the arbitration agreement? The court must next determine whether the matter falls within the scope of the arbitration agreement, if it does not then, a stay will not be given.
In the Mozambique case the court found that matters in the proceedings fell outside of the arbitration agreement and a stay was therefore not ordered.
In FamilyMart Holdings, the court ordered a stay finding that there were substantive disputes which fell within the scope of the arbitration agreement.
A well drafted arbitration agreement that has broad effect should capture most disputes between the contracting parties and in such cases a stay of litigation would be more likely than not.
Although these are decisions from the Supreme Court of the United Kingdom and the Privy Council, section 9 of the Arbitration Act 1996 is founded on the New York Convention and these decisions may therefore have wider international application.
[1] FamilyMart Holding v Ting Chuan [2003] UKHL and Republic of Mozambique v Credit Suisse International [2-23] UKHL.