Nasharty & Ors v J Sainsbury Plc

An arbitration clause referring proceedings “in relation to” an agreement uses wide language. It covers disputes about whether that agreement was varied, including disputes about the existence, terms or effect of the alleged variation. The characterisation of the issue as one of authority does not alter that conclusion where the alleged variation affects rights and obligations under the original agreement. Under section 9 of the Arbitration Act 1996, proceedings falling within the arbitration agreement must be stayed. The court should leave the existence of an arbitration agreement to the arbitrator under its inherent jurisdiction only in an exceptional case where it is virtually certain that such an agreement exists. A stay was therefore granted.

The claimants sought declarations that agreements made in 2001 by Amr, purportedly on their behalf, were unauthorised and did not bind them. Those agreements allegedly varied two 1999 share sale agreements by extending the warranty deadline and extinguishing deferred consideration rights.

J Sainsbury plc had notified claims under the 1999 agreements and sought a stay of the declaratory proceedings under section 9 of the Arbitration Act 1996, alternatively under the court’s inherent jurisdiction. The central issue was whether the proceedings were “in relation to” the 1999 agreements despite the immediate dispute concerning Amr’s authority.

1. The application under section 9 of the Arbitration Act 1996 was granted. The proceedings were within the arbitration clauses in the 1999 Share Sale Agreements.

2. The expression “in relation to” was wide. It extended beyond disputes arising directly under a contract and included disputes connected with it. A dispute about an alleged variation was therefore a dispute in relation to the original contract, whether the issue concerned the construction or effect of an admitted variation, the terms of the variation, or whether any variation occurred at all. The reasoning in Faghirzadeh v Rudolf Wolff [1977] 1 Lloyd’s Rep 630 and Ashville Investments v Elmer Contractors [1989] QB 488 assisted that construction.

3. The real dispute was whether the 1999 agreements had been varied by the 2001 agreements. The fact that this depended upon whether Amr had authority to act did not make the proceedings unrelated to the 1999 agreements. A favourable judgment could create an issue estoppel in the arbitration concerning warranty claims and any claim or counterclaim concerning deferred consideration rights.

4. It was unnecessary to decide the alternative inherent-jurisdiction application. The judge nevertheless held that, applying the guidance in Al-Naimi v Islamic Press Agency [2000] 1 Lloyd’s Rep 522, the court would ordinarily leave the existence of an arbitration agreement to arbitrators only where it was virtually certain that such an agreement existed. This was not an exceptional case, and the court was not virtually certain that the 2001 agreements bound the claimants.

5. The broader case-management argument under section 49(3) of the Supreme Court Act 1981 did not require determination because the section 9 stay had already been granted. On the assumed basis that section 9 did not apply, the judge indicated that he would have been minded for the court to determine the issues.

not stated in the judgment.