Court considers parallel arbitral and court proceedings

​The High Court has considered a request for a stay of court proceedings relating to one arbitration where a new arbitration had been commenced.

The case of Minister of Finance (Incorporated) v International Petroleum Investment Company highlights the potential complexities of parallel court and arbitration proceedings. Here, the judge would not allow the defendants to misuse section 9 of the Arbitration Act 1996 (the Act) to obtain a stay of the court’s supervisory jurisdiction over one arbitration by starting a later one, but granted a stay using case management powers to avoid duplicative processes.

Unravelling settlement

The parties entered into three arbitration agreements each providing for arbitration seated in London. The first arbitration agreement was made when the parties entered into a binding term sheet. The other two were made when the parties agreed settlement deeds 10 months later to resolve disputes arising from the term sheet, leading to the issue of a consent award.

The claimants alleged that all three agreements, the consent award and the choice of arbitration as the means of dispute resolution (which provides confidentiality of process) furthered a conspiracy by Mr Najib Razak, the former Prime Minister of Malaysia, to misappropriate funds. The claimants therefore commenced court proceedings to challenge the consent award under sections 67 (substantive jurisdiction) and 68 (serious irregularity) of the Act.
The defendants responded by commencing two arbitrations under each of the deeds seeking a declaration that the deeds and the consent award were valid and binding. The underlying issue to be determined by the court or arbitral tribunal was, therefore, the same: namely, were the deeds and award valid. The defendants applied for a stay of the claimants’ challenge based on: (i) section 9 of the Act (automatic stay); or (ii) the court’s inherent case management powers. The claimants hit back by with an anti-arbitration injunction pending the court’s decision on the consent award.

Staying parallel proceedings

The judge found that there could be no stay under section 9 of the Act. The parties’ choice of seat meant they agreed implicitly to the English Court’s supervising jurisdiction as to the status of the consent award. However, the judge also acknowledged that the parties had agreed to arbitrate disputes arising from the deeds. Those agreements shared an “equality in foundation” - party autonomy - “that militates against according priority to one over the other”. Section 9 of the Act therefore does not apply where there is concurrent jurisdiction. Specifically, the judge cautioned parties against using section 9 to get around the court’s supervisory jurisdiction over complaints about one arbitration by starting a further arbitration about those same complaints.

Despite the above, the judge concluded that it would be appropriate to stay the claimants’ court proceedings under his inherent case management powers. Key to his conclusion was the fact that the proceedings shared the same underlying question and running them in parallel invited “delay, cost, disorder and uncertainty” due to duplication in investigation and decision-making. Once the arbitral tribunal has made its finding on the validity of the deeds, the court will decide the claimants’ challenge to the consent award. In the meantime, the judge required the parties to provide the court short written reports of the arbitral proceedings so that the court may, consistent with its concurrent supervisory jurisdiction, consider whether the circumstances justify lifting of the case management stay.

In coming to his decision, the judge also rejected the claimants’ arguments that an arbitral tribunal is, in principle, less suited to investigating factual matters than the court.

Whether the judge’s proactive approach is adopted in other cases remains to be seen. However, this case highlights the scope of the court’s supervisory jurisdiction and some of the considerations it will take into account when considering parallel proceedings.

The growth of parallel proceedings

Major events increasingly lead to multiple proceedings spanning the civil courts, criminal courts, arbitral tribunals, employment tribunals, competition appeal tribunal and others. Understanding how a matter may develop and the issues that arise when parallel proceedings are taking place is key for in-house lawyers. Visit our Parallel Proceedings website for more information.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.