Reichhold Norway ASA v Goldman Sachs International

The court may exercise its inherent jurisdiction to stay a bona fide English action temporarily pending related arbitration against another party abroad. A claimant's freedom to choose whom to sue does not confer unrestricted control over the order in which related proceedings are pursued. Such stays require rare and compelling circumstances. The applicant bears a substantial burden of showing that the interests of justice favour a stay and that its likely benefits clearly outweigh the disadvantages to the claimant.

Relevant considerations include the parties' contractual relationships, overlapping proceedings, cost and convenience, the prospect of effective compensation, and prejudice from delay. The court must respect the claimant's legitimate interests and remain mindful of Article 6 of the European Convention on Human Rights. An appellate court should uphold a discretionary procedural decision which is free from legal misdirection or manifest error.

Jotun AS engaged Goldman Sachs International to advise on and negotiate the sale of its subsidiary, Jotun Polymer Holding AS. Reichhold Chemicals Inc negotiated the purchase, and the shares were transferred to Reichhold Norway ASA. The negotiations involved a confidentiality agreement excluding responsibility for evaluation material. The sale agreement provided warranties, damages remedies and arbitration in Oslo. Jotun's engagement agreement also indemnified Goldman Sachs against certain liabilities arising from its services.

Reichhold brought an English negligence action against Goldman Sachs concerning a memorandum about Polymer's expected profitability. It subsequently commenced arbitration against Jotun under the sale agreement, while seeking to leave that arbitration dormant. On Goldman Sachs' application, Moore-Bick J stayed the English action pending final determination of the Norwegian arbitration.

Reichhold appealed. It accepted the existence of the court's power to grant a stay but argued that exercising it in these circumstances infringed a claimant's right to pursue a bona fide claim against a defendant within the jurisdiction. The central issue was whether the judge could properly and lawfully give priority to the pending arbitration.

The appeal was dismissed unanimously. Lord Bingham of Cornhill delivered the judgment, with which Otton and Robert Walker LJJ agreed.

1. The court's inherent jurisdiction permitted a temporary stay of the English action pending related arbitration against another party in Norway. The absence of abuse, oppression or vexation did not exclude that power. A claimant's freedom to choose defendants remained an important principle, but choosing whom to sue differed from choosing the order in which related proceedings should be pursued.

2. The court accepted the distinction between this temporary postponement and measures which effectively prevented a claimant from pursuing an English action. The arguments concerning Abraham v Thompson, [1997] 4 All ER 362, and Molnlycke AB and Another v Procter & Gamble Ltd and Others, [1992] 1 WLR 1112, did not establish an absolute prohibition on regulating the sequence of proceedings. Likewise, the forum non conveniens comparison concerned whether an action should proceed here, rather than when it should proceed.

3. Stays of this kind should be granted only in rare and compelling circumstances. Very strong reasons were required, and the likely benefits had clearly to outweigh the disadvantages to the claimant. The applicant bore a real burden of showing that the interests of justice favoured a stay. Courts had to consider the claimant's legitimate interests and remain mindful of Article 6 of the European Convention on Human Rights.

4. The judge properly evaluated the linked contractual arrangements, overlapping claims, comparative complexity, cost, convenience and likely delay. The arrangements contemplated a warranty remedy against the seller in the agreed arbitral forum. Whether Goldman Sachs could enforce the confidentiality agreement, and whether its terms covered the alleged representation, remained undecided. The stay regulated the priority of a claim which Reichhold had already commenced and wished to preserve; it did not require pursuit of an unwanted claim. On these facts, abandonment or compromise of the arbitration claim would have removed the basis for the application.

5. Reichhold identified no practical advantage in pursuing the English action first and no prejudice beyond an estimated year's delay, compensable by interest if its claim succeeded. The judge accounted for all relevant considerations and no irrelevant ones. His decision involved neither legal misdirection nor manifest error and was within his discretion. The appeal was dismissed with costs, and leave to appeal was refused.

• Court of Appeal: On 28 June 1999, unanimously dismissed Reichhold's appeal and upheld the stay pending final determination of the Norwegian arbitration. The decision is identified as [1999] EWCA Civ 1703 and reported at [2000] 1 WLR 173 . Leave to appeal was refused.
• High Court, Queen's Bench Division, Commercial Court: On 25 November 1998, Moore-Bick J granted Goldman Sachs' application to stay further proceedings under the inherent jurisdiction preserved by section 49(3) of the Supreme Court Act 1981.