Abuse of process: The interplay between arbitration and litigation

The Commercial Court has struck out a claim as an abuse of process, because the central issues had previously been decided against the claimant in an arbitration.


Not a surprising move, perhaps: except that in Michael Wilson & Partners Limited (MWP) v Sinclair and others the successful defendants werenotparties to the previous arbitration (see judgment here).

The dispute related to shares issued as part of an IPO. The respondent in the arbitration, John Emmott, was a director of MWP. The company claimed that the shares were held for the benefit of Emmott and as he was involved in the transaction as its agent and employee, MWP was beneficially entitled to them.

The Tribunal found that Emmott had no interest in the shares and had not breached his fiduciary duty to MWP.

Following an unsuccessful attempt to challenge the arbitral award, MWP commenced court proceedings against the parties found to be the beneficiaries of the shares in the arbitral award, including Thomas Sinclair.

Those parties applied to strike out the claim, arguing that to allow the claim would be a collateral attack on a previous decision – namely, the arbitral award – that would amount to an abuse of process.

In his judgment, Mr Justice Teare noted that the court would not usually prevent a claim against a person who had not been a party to prior arbitration proceedings, given the need for consent of a person to be joined or affected by decisions of the Tribunal.

However, given the “special circumstances” of the defendants’ interest in the arbitration, namely that Sinclair had been a witness in the arbitration and Sinclair had funded Emmott’s defence in the arbitration, the tribunal concluded the shares were held to the order of Sinclair. It further ruled that the fact that the tribunal had intended that the effect of its award would be that the shares would be transferred to Sinclair, Teare J granted the application and struck out the claim.

Given the “special circumstances” of this case, it appears that establishing abuse of process against a non-party to a previous arbitration is likely to be rare. To do so, it will be necessary to show that the same issues are being advanced in the subsequent litigation and that the non-party to the arbitration has a degree of involvement in the arbitration and interest in its outcome.

Nonetheless, the decision is significant in that it offers the prospect that persons involved with the dispute who were not party to the arbitral proceedings may, in certain circumstances, be entitled to rely on the award in subsequent litigation.

The decision is likely to be welcomed by arbitration practitioners and users of arbitration as it demonstrates the court’s reluctance to allow issues that have already been the subject of an arbitration to be re-litigated.

Losing parties may, in appropriate circumstances, struggle to circumvent the arbitral process by bringing court proceedings over the same issues against a different party.

The decision also has implications for those who are contemplating arbitration. This case shows that an arbitral award is not necessarily limited in its effect to the parties to the arbitration: an unfavourable result could prejudice rights against a related third party which might otherwise be pursued through the courts. Permission to appeal the decision has been granted.

Julianne Hughes-Jennett is an associate and Simon Nesbitt is a partner at Hogan Lovells

The legal line up

For the claimant Michael Wilson & Partners Limited

Littleton Chambers’ Charles Samek QC led Maitland Chambers’ David Mumford instructed by Healys

For the Defendants and Part 20 Claimants (1)Thomas Sinclair; (2)SOKOL Holdings Inc; (3)Eagle Point Investments Ltd; (4)Butterfield Bank (Bahamas) Ltd
and Thomas Ian Sinclair Sokol Holdings Incorporated

One Essex Court’s Michael Fealy led Nicholas Sloboda of the same set instructed by DLA Piper

For the Part 20 defendant John Emmott
XXIV Old Buildings’ Philip Shepherd QC instructed by Michael Robinson for the Part 20 Defendant