MDA Law
Michael Wilson & Partners Ltd v Emmott (2018) EWCA Civ 51
Judges: Sir Terence Etherton MR, Jackson and Underhill LJJ
As per the approved judgement of Sir Terence Etherton MR
Background
- The dispute in this case is based on an agreement dated 7 December 2001 (“the MWP Agreement”) between Mr Emmott (“the Respondent”) and Michael Wilson & Partners, MWP acting by its ultimate beneficial owner and controller, Michael Wilson (“the Appellant”).
- The Appellant was incorporated in the British Virgin Islands and has a legal practice in Kazakhstan. The purpose of the MWP Agreement was to establish a “quasi partnership” under which the Respondent became a director of the Appellant and the shares were to be divided as to 33% to the Respondent and as to 67% to the Appellant.
- Clause 5.2 of the MWP Agreement contained the following arbitration provisions:
“This Agreement shall be governed by and interpreted in accordance with the laws of England and Wales and all and any disputes shall be referred to and are subject to arbitration in London before a tribunal of three arbitrators with one arbitrator to be appointed by each party and the chairman of the tribunal to be appointed by the President of the Law Society.” - On 20 December 2005, the Respondent entered into a co-operation agreement with David Ross Slater, Robert Nicholls and Armen Shaikenov, [“the Co-operation Agreement”]. Mr Slater and Mr Nicholls were Australian lawyers who had joined the Appellant as employees and were subject to restrictive conditions. Mr Shaikenov was a Kazakh lawyer. The Co-operation Agreement directed that Mr Shaikenov and Mr Slater establish and operate a consultancy business. Mr Nicholls and the Respondent would thereafter be able to join the consultancy on the basis as set out in the Co-operation Agreement.
- The Co-operation Agreement would be owned and operated by Temujin (comprising of “Temujin International Ltd” and “Temujin Services Ltd”).
- Clause 7 of the Co-operation Agreement provided that “any and all differences, discrepancies, divergences or disputes arising out of or in connection with the Co-operation Agreement” were to be resolved by arbitration in English, in London or such other location, as the parties may agree under the rules of the London Court of International Arbitration.
- In December 2005 Mr Slater left the Appellant to work at Temujin and Mr Nicholls joined him in March 2006. The Appellant and the Respondent had a disagreement in the middle of 2006, each alleging to accept a repudiatory breach of the MWP Agreement by the other. The Respondent thereafter left the Appellant on 30 June 2006 and went to work for Temujin.
- In August 2006, the Appellant gave notice of arbitration to the Respondent under clause 5.2 of the MWP Agreement.
- The Appellant initiated numerous claims against the Respondent, including the claim that, while still a director of the Appellant, he diverted work, commercial opportunities, clients and potential clients to Temujin. The Respondent, claimed that he was entitled to 33% of the issued share capital of the Appellant up and until he left the employment of the Appellant in June 2006. His claim was denied by the Appellant on the grounds that the conditions under which he was to become entitled to the shares were not satisfied before his departure.
- The arbitrators concluded that the Respondent was entitled to have his 33% shareholding in the Appellant issued or transferred by the end of the calendar year 2004. The arbitrators considered that the fairest and most practical solution was to treat the Respondent’s liability to compensate the Appellant for his undercharging as satisfied by denying him the right to recover anything for the work he did for the Appellant during the period from August 2005 to 30 June 2006. They concluded that the Respondent had been guilty of deliberate, serious and dishonest breaches of his fiduciary obligations to the Appellant.
In the appeal under justice O’Farrell
- This application was an appeal by, the Appellant, against the Respondent, in respect of the judgement handed down by Justice O’Farrell.
- The appeal was granted by the court in its order directing, inter alia, that:
- The assigned claims for contribution and account in New South Wales (“NSW2”) fell within the scope of the arbitration clause in the MWP Agreement; and
- If she was incorrect in the above finding, the assigned claims in respect of Mr Nicholls and Mr Slater, would fall within the arbitration clause in the Co-operation Agreement.
- The Respondent issued the claim in which this appeal is based claiming, inter alia:
- An order prohibiting the Appellant from continuing its claims in NSW2; and
- Prohibiting the Appellant from commencing, or pursuing any other claim, or proceedings arising out of or in relation to the MWP Agreement, or the Co-operation Agreement, other than in accordance with clause 5.2 of the MWP Agreement or clause 7 of the Co-operation Agreement.
- Sir Terence Etherton MR dealt with Justice O’Farrell’s order and stated the following:
- The scope of clause 5.2 of the MWP Agreement – “all and any disputes”- is extremely wide;
- The Appellant and the Respondent were parties to the NSW2 and the MWP Agreement. The matters in NSW2 concern the alleged breaches of obligations the Respondent owed to the Appellant, in terms of conducting the Appellant’s business.
- He disagreed with Justice O’Farrell in that the claims fell within the scope of the arbitration clause in the MWP Agreement;
- The rights which the Appellant sought to enforce were rights of individuals who had not been parties to the MWP Agreement. The disputes mentioned in the clause were disputes between the Appellant and the Respondent in their capacity as quasi-partners (para 41, 42, 45). It could not be said that the arbitration provisions in the Co-operation Agreement incorporated the claims in New South Wales (para 50).
- The rights which the Appellant seeks to enforce in NSW2 are rights of those people that were not parties to the MWP Agreement or bound by the arbitration.
- Justice O’Farrell referred to Lord Hoffmann’s comments in Fili Shipping Co Ltd v Premium Nafta Products Ltd [2007] Bus LR 1719, at [5] – [8] and [13] regarding the interpretation of arbitration agreement. Lord Hoffmann emphasised the need for the court to give effect to the commercial purpose of the arbitration clause. He also stated that the interpretation of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal.
- It is highly unlikely that, at the time they entered into the MWP Agreement, the Respondent and the Appellant had any intention to include such claims within clause 5.2 of the MWP Agreement.
- He disagreed with Justice O’Farrell that the claims in NSW2, fell within the scope of clause 7, in terms of Mr Nicholls and Mr Slater. He held that in terms of Temujin, it is not in dispute that the claims in NSW2, do not fall within clause 7, as neither of the entities forming Temujin were a party to the Co-operation Agreement.
- In conclusion, Sir Terence Etherton MR granted an order prohibiting the Appellant from pursuing any NSW2 claims which it had lost in the arbitration; matters contrary to findings in the arbitration which were adverse to the Appellant; and claims for fraud or conspiracy.
