In Michael Wilson & Partners Limited v. Sinclair and others  EWCA Civ 3 the Court of Appeal overturned the judgment of Teare J,  EWHC 2560 (Comm), in which the Judge struck out a multi-million dollar fraud, bribery and dishonest assistance claim brought by Michael Wilson & Partners Limited (“MWP”) against the defendants, for the reason that the basis of the claim had been decided adversely to MWP in a prior arbitration between it and a third party and thus was an abuse of the Court’s process.
The appeal considers the fundamental question: whether it is an abuse of the Court’s process for A to claim in legal proceedings against C, on a basis which has been decided against A in arbitration proceedings between A and B.
MWP’s claim, brought in 2010, was in respect of shares and cash which had been received by a company, EPIL, and which were apparently held on behalf of Mr Emmott, a former director and employee of MWP. MWP asserts that Mr Emmott had acquired the shares and cash in breach of his contractual obligations and fiduciary duties owed to MWP. The claim against Mr Sinclair (and also his company, and Sokol) (‘the Sinclair defendants’) was brought on the basis that Mr Emmott acquired these benefits with their knowing assistance, or alternatively, that the transfer of the benefits constituted the payment of a bribe or secret commission for which the Sinclair defendants are liable. By contrast, the Sinclair defendants contended that EPIL held the benefits on behalf of Mr Sinclair and not Mr Emmott.
The Sinclair defendants applied to strike out MWP’s claim, on the basis that the tribunal in the arbitration between it and Mr Emmott in 2006 had rejected MWP’s claim that he had received the shares and cash as a bribe or secret profit from the Sinclair defendants. The arbitral tribunal had thus rejected the foundation of the claim now brought in the Commercial Court against the Sinclair defendants. MWP had not sued Mr Emmott, but shortly before the hearing of their strike-out application, the Sinclair defendants joined Mr Emmott to the proceedings as a Part 20 Defendant.
Teare J agreed with the Sinclair defendants. The Judge ruled that there were ‘special circumstances’ which, notwithstanding Mr Sinclair had refused to join in and be bound by the arbitration, supported the strike out of MWP’s claim, including that Mr Sinclair had given evidence in the arbitration and had funded Mr Emmott’s costs, and that the arbitrators had intended that Mr Sinclair should obtain the benefit of their award. However, the Judge gave permission to appeal.
The appeal gave rise to three issues:
The Court conducted an extensive review of the law of abuse of process, determined that the doctrine did apply where the previous determination was that of an arbitral tribunal but nonetheless concluded that the Judge was wrong and allowed MWP’s appeal.
As to issue (i), the Court held that there were good reasons why a court should be cautious before accepting that later court proceedings are an abuse of its process because it involves a collateral attack on an earlier arbitration award. However, that caution should not inhibit the duty to act in appropriate circumstances. The issue is fact dependent, and there is no ‘hard edged’ rule that a prior arbitration award cannot found an argument that subsequent litigation is an abuse of process. The Court noted, however, that it will be a rare case, and perhaps a very rare case, where court proceedings against a non-party to an arbitration can be said to be an abuse of process.
As to issue (ii), the Court ruled that (having regard to Hollington v Hewthorn and other appellate cases) the previous judgment or award was admissible on an abuse of process application to see what had been determined. However, it would be a matter for the trial judge to determine the extent to which, if at all, the award was admissible at trial.
As to issue (iii), the Court held that the high threshold which engages the Court’s duty to act to prevent abuse of its process was not met. Mr Sinclair was a non-party to the arbitration, had refused to join when requested, and had asserted in related Bahamian litigation that the arbitration was irrelevant to his dispute with MWP. Despite that, he now sought to rely on the arbitral award to assert that the claim was an abuse, and sought to take the benefit from the award, in circumstances in which he would not have been bound if the award had been in MWP’s favour. The Judge was wrong to have concluded that it was an abuse of process of that the cases was ‘within the spirit of the issue estoppel rule’. The Judge had placed too much weight on irrelevant factors, and had also wrongly reversed the burden of proof from the Sinclair defendants onto MWP.
This now means that MWP’s claim can proceed to trial.
This is the second time that this case has been to the Court of Appeal. Charles Samek QC and Adam Solomon were also successful in Michael Wilson & Partners Limited v. Sinclair and others  EWCA Civ 774 in overturning a decision of the single lord justice striking out the appeal. It was that success which led to the appeal being revised and determined in MWP’s favour.