05/05/2022

Commercial Court dismisses attempt to rely on arbitral findings in proceedings against non-parties

In a reserved judgment handed down on 11 April 2022 in PJSC National Bank Trust v Mints and others [2022] EWHC 871 (Comm), Mr Justice Foxton dismissed the claimant-Banks’ applications for permission to amend their Particulars of Claim to plead that the First to Third Defendants (D1-3) were precluded from challenging certain findings made by an LCIA arbitration tribunal in an arbitration between the Banks and three companies alleged to be under D1-3’s control (the LCIA Claimants), on the grounds of issue estoppel or to prevent an abuse of process, and for summary judgment on those amendments.

The underlying dispute concerns claims brought by the Banks against seven defendants, including D1-3 but not the LCIA claimants, seeking damages in respect of certain transactions entered into by the Banks. The claims involve allegations of dishonesty against the defendants. In the LCIA arbitration, which related to one of the transactions in the court proceedings, the Banks argued that the alleged dishonesty of D1-3 in relation to that transaction was to be attributed to the LCIA claimants and counterclaimed damages for fraud against the LCIA claimants. Each of D1-3 gave voluntary disclosure, provided witness statements and gave oral evidence in the arbitration. The arbitration tribunal upheld the LCIA claimants’ counterclaim.

In the court proceedings, the Banks wished to allege that D1-3 were precluded from disputing certain issues in the litigation by reason of findings said to have been made in the arbitral award. The court held that they could not do so. In summary, the Judge decided that:

1. An arbitral award can create an issue estoppel not only against the parties to the arbitral award, but also their privies. The test of who is a privy for these purposes is the same as it is in relation to findings made in court proceedings, namely the test laid down in Gleeson v Wippell, being whether, having due regard to the subject matter of the dispute, there is a sufficient degree of identification between the parties to the arbitration and the relevant other person to make it just to hold that a finding in the arbitration should be binding on that other person in proceedings to which it is party. That said, the Judge acknowledged that the contractual source of an arbitral tribunal’s substantive jurisdiction will be one of a number of reasons why any attempt to establish the preclusive effect of an arbitral award against anyone except the parties or their contractual privies will be an “extremely challenging task”.
2. There was no question of there being a summary determination in the Banks’ favour that any of the respondents were “Gleeson privies” of the LCIA claimants, not least because the Judge was unable to summarily determine all, or a sufficient number, of the underlying factual allegations upon which the Banks relied. The Judge went further in denying the Banks permission to amend, concluding that it was not realistically arguable that the matters relied upon by the Banks, even to the extent that they might realistically be established at a trial, could support a finding of privity.
3. The court held that for an issue estoppel to arise, the determination of the relevant issue must be necessary for the decision, an “ultimate” issue, and not a “collateral” one; and the determination must be clear, a requirement which was particularly important when the determination was made by an arbitration award, since the court would not second-guess the intentions of the arbitration tribunal where the finding was not crystal clear on the face of the award. Applying that approach and accepting Mr Edey QC’s “short, but highly effective, submissions” for D1, the court held that the Banks’ applications as against D1, would have been rejected for the further reason that the arbitral award did not even arguably contain any finding of the requisite clarity that he had held the knowledge or dishonest state of mind alleged against him.
4. The abuse of process amendment was not realistically arguable either. The factors which led the Judge to conclude that it was not arguable that D1-3 were privies of the LCIA claimants provided compelling grounds for concluding that there was no abuse of process in D1-3 raising issues in their defences which were inconsistent with the findings in the arbitral award. In particular, this was not a case in which the issue estoppel case had failed on some technical requirement, such that it could be said that preventing D1-3 from advancing their defences in a manner which was inconsistent with the arbitral award fell within the “spirit” of an issue estoppel.

For D1: Philip Edey QC and Sarah Tresman of Twenty Essex, and Tetyana Nesterchuk of Fountain Court, instructed by Quinn Emanuel Urquhart & Sullivan UK LLP.

For D4: Richard Greenberg of Twenty Essex, instructed by Stephenson Harwood LLP.

Read the full judgment