A topical and interesting decision from the Commercial Court last month, PJSC National Bank Trust v Boris Mints, looks at the circumstances in which an arbitration decision can bind non-parties. Topical, for me at least, not just because it was yet another case where Russian litigants were using English courts to resolve their disputes, but also because I have had a couple of cases recently where a related point has arisen.
It is well-established that, just like with court proceedings, parties to an arbitration cannot seek to re-litigate issues between themselves which have previously been decided in that arbitration; they are subject to an issue estoppel. At the same time, subject to an important exception, a party that was not involved in the arbitration cannot be bound by its findings. Accordingly, a party found liable in court or in an arbitration cannot, for example, simply rely on the findings of that arbitration to establish an entitlement under an insurance policy which only responds to negligence. The insurer is entitled to require the insured to prove the negligence. So far, so good.
It is also uncontroversial that parties who are successors in title to the right which gives rise to the issue estoppel are similarly bound by the estoppel. In other words, you can’t get round the estoppel by simply assigning the right; the successor in title is treated as being “privvy” to the interest.
However, case law in court proceedings has gone further. In Gleeson v Wippel, Megarry VC decided that the concept of a “privvy” would extend beyond successors in title and would include those with:
“[…] a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other, but it does seem to me that, having due regard to the subject matter of the dispute there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party”.
Did the Gleeson principle apply to arbitrations?
Although there were a few cases where it had been assumed that the Gleeson principle applied to arbitrations, the point had never previously been argued and in PSGE v Boris Mints, Foxton J considered the position from first principles.
A blog is not the place to do justice to the legal analysis on this point, which included an analysis dating back to the Arbitration Act 1889, but in essence the defendants argued that, unlike proceedings in court, an arbitration is a matter of contract between the parties, and the enforcement of such an award (and therefore the underpinning of any issue estoppel) arises from an implied contractual promise to perform the award. None of that, they said, was capable of precluding the rights of third parties. They also pointed to the wording of the Arbitration Act, which expressly stated that an award was binding “on the parties and on any persons claiming through or under them”, that is,limited to successors in title.
Foxton J did not agree. The wording in the Act was not stated to be exhaustive. While it is true that the substantive rights under the arbitration are governed by the contract, the question of issue estoppel is a matter for the “second” tribunal to consider as a matter of public policy. Therefore, although the fact that the original decision was in an arbitration may well be “a highly relevant factor” in deciding whether the award binds a third party, he rejected the contention that the Gleeson principle did not apply.
Was Gleeson wrongly decided?
The defendants argued that the court, even at first instance, was not bound by the decision in Gleeson, even though it had been cited with approval in the House of Lords and the Court of Appeal. They said that the criticism of Gleeson, which had some academic support, had not been advanced in those cases and so the point remained open to the judge. Perhaps unsurprisingly, Foxton J was unwilling to go down that route. It is however worth noting that the Judge made three “observations”, all to the effect that, regardless of precedent, he was unconvinced that the defendants’ substantive arguments were right.
Application of Gleeson
So, having found that the Gleeson principle did apply, would it preclude these defendants from advancing points contrary to the findings in the arbitration to which they were not a party?
The judge accepted that the defendants were “the moving spirits” behind the companies in the arbitration, but was unwilling to make a finding to the requisite summary judgment standard. This was despite finding that the defendant’s involvement in the arbitration reflected “a collective interest” where a “common position” was adopted.
The judge emphasised the exceptional nature of the Gleeson principle. It should not be used to override the distinction between corporate entities and their directors, controllers and particular caution was required in cases of arbitration. He concluded that permission to amend to plead the issue estoppel point should be refused.
Abuse of process
In addition to the issue estoppel arguments, the claimant also argued that to allow the claim to proceed would be an abuse of process. Although this opened up a separate line of authorities, the analysis, reasoning and decision were largely a mirror-image of the debate over issue estoppel. Interestingly, once again, the fact that the initial decision was in an arbitration was found to be a material element of deciding that there was no abuse of process.
There is a lot going on below the surface in this claim. The judge complained that the two days made available for the hearing were insufficient for him to consider the extensive case law and arguments being raised, never mind the detailed factual background underpinning those arguments. As a result, the decision covers an enormous amount of ground in a relatively short space, much of which this blog has barely touched on and which requires further study.
Nevertheless, two fundamental points do emerge. Firstly, absent a higher court decision, the Gleeson principles will be applied to issue estoppel questions in court where there has been an arbitration decision. Secondly, in such circumstances, the courts will be slow to find that the principles preclude re-arguing points for entities that were not parties to the original arbitration.
Article by David Pliener – first published in Practical Law’s Arbitration Blog.