Stay granted in respect of closely related claims (Commercial Court) | Practical Law

Stay granted in respect of closely related claims (Commercial Court) | Practical Law

The Commercial Court has granted a stay of proceedings that concerned claims that were, in substance, the same as disputes that had already been referred to arbitration.

Stay granted in respect of closely related claims (Commercial Court)

Practical Law UK Legal Update Case Report 7-508-0106 (Approx. 4 pages)

Stay granted in respect of closely related claims (Commercial Court)

by PLC Arbitration
Published on 31 Aug 2011 • England, Wales
The Commercial Court has granted a stay of proceedings that concerned claims that were, in substance, the same as disputes that had already been referred to arbitration.
In Deutsche Bank Ag v Tongkah Harbour Public Company Ltd [2011] EWHC 2251 (Comm), Blair J considered an application for a stay of court proceedings under section 9 of the Arbitration Act 1996. The claimant financed the defendant's gold exploration and mining business under two separate, but related contracts. Each contract conferred on the claimant an option to arbitrate. Disputes arose, and the claimant commenced court proceedings under one contract and arbitral proceedings under the other.
Blair J held that the claims were substantially the same. Although they arose under different contracts, they concerned the same events of default and the defences to the claims were likely to be similar. Properly analysed, they were aspects of the same matter. The claimant was not entitled to refer one dispute to both arbitration and to court. The option to arbitrate had been exercised and the court proceedings were now subject to a stay under section 9. Furthermore, the fact that the two contracts concerned different branches or departments of the claimant bank was irrelevant. The contracts had been concluded by a single contracting party.
The financing arrangements concluded by the parties included two related contracts:
  • A facility agreement, under which the claimant advanced funds to the defendant. The claimant's functions under the facility agreement were to be performed by its Bangkok, Singapore and Amsterdam branches, under the auspices of the bank's structured commodity trade finance division.
  • An export contract, under which the claimant's London branch purchased gold from the defendant at prescribed prices. The purpose of the export contract (which was dealt with by the claimant's global commodities division) was to repay monthly instalments under the facility agreement.
Each contract contained a dispute resolution clause, which referred disputes to the English court, but which entitled the claimant to opt to refer disputes to London Court of International Arbitration (LCIA) arbitration. (An application for a stay in relation to separate proceedings commenced against the defendant's parent company under a third contract was dismissed on the basis that it did not provide for arbitration at all.)
Disputes arose and the claimant commenced both:
  • Proceedings in the Commercial Court against the defendant under the facility agreement.
  • LCIA arbitral proceedings against the defendant under the export contract.
The defendant applied for a stay of proceedings under section 9 of the Arbitration Act 1996. (For further information about stays, see Practice note, Remedies for breach of the arbitration agreement: stays of English court proceedings.)
Blair J held that:
  • Where the court was concerned with dispute resolution provisions in separate, but related agreements, the allocation of jurisdiction was fundamentally one of construction.
  • It was common ground that the claimant could not refer a dispute to both arbitration and to court. Once the option to arbitrate had been exercised, litigation would be subject to the statutory stay under section 9. Therefore, the court's task in the present case was to determine the scope of what had been referred to arbitration.
  • Having reviewed the pleadings in the court proceedings and the arbitration, it was clear that the two sets of claims arose out of the same breach of the same contractual arrangements and were "aspects of the same matter". The claimant could have referred this matter to the court or to arbitration: it could not do both.
  • The fact that different divisions or branches were concerned with disputes under the two contracts was irrelevant. The claimant was a single contracting party. Its different branches or departments were not entitled to make their own decisions about whether to arbitrate claims separately.
Therefore, Blair J granted the application for a stay.
The case is another good example of the court's approach to dispute resolution provisions in related contracts (compare Legal update, Court considers competing jurisdiction and arbitration clause (Commercial Court)). It further illustrates that, where contracts are concluded by different branches of a single contracting party, the decision of one branch to exercise an option to arbitrate will bind the others. Note, however, that the conclusion that the claims were, in substance, the same followed from the slightly unusual nature of the financing arrangements (under which the facility agreement was repaid by means of sales under the export contract). Blair J expressly noted that the situation may have been different had the export contract operated by way of security only (paragraph 29, judgment).
Case: Deutsche Bank Ag v Tongkah Harbour Public Company Ltd [2011] EWHC 2251 (Comm).