Jagger & Ors v Decca Music Group Ltd

An arbitration agreement expressed in wide terms will ordinarily cover disputes concerning breach of a contractual audit or information right. A restriction of the arbitrator’s remedies to damages does not necessarily deprive that right of substance. Damages may be assessed by determining what the audit would have revealed, which may require disclosure of the documents that the contractual auditor could reasonably have requested. Where the statutory conditions are satisfied, a stay under section 9 of the Arbitration Act 1996 is mandatory.

Decca appealed against the Master’s refusal to stay proceedings under section 9 of the Arbitration Act 1996. The claimants alleged that Decca had breached a contractual right to audit royalty-related books and records. The arbitration clause covered disputes arising under or in connection with the agreement, but limited the arbitrator’s remedy to payment of a sum awarded in arbitration and made an award a condition precedent to proceedings.

The central issue was whether the audit obligation fell within the arbitration clause, or whether the damages-only limitation made arbitration incapable of providing an effective remedy.

1. Appeal allowed. The proceedings were stayed under section 9 of the Arbitration Act 1996.
2. The arbitration clause was expressed in exceptionally wide terms. The words “in connection with” were sufficient to encompass an alleged breach of the contractual audit provision. The court was reinforced in that conclusion by Ashville Investments Ltd v Elmer Contractors Ltd [1989] Q.B., which treated such wording as covering disputes connected with the parties’ contractual relationship.
3. The damages-only limitation did not make the arbitration clause repugnant to the audit obligation. If an audit would have revealed an underpayment, the underpaid sum could represent the damages. If no underpayment would have been revealed, damages could be nominal.
4. Determining the proper damages required investigation of what an audit would have discovered. The arbitrator could therefore require disclosure of the documents that an auditor acting under the audit clause could reasonably have requested. The claimants did not first have to establish an underpayment before obtaining that disclosure.
5. The same practical result could also be approached through an account before the arbitrator, although the scope of disclosure would be less directly tied to the contractual audit right. The existence of an adequate arbitral remedy meant that the audit clause retained its substance.
6. There was no other applicable exception to the mandatory stay. The court gave effect to the parties’ agreement to arbitrate and reserved costs for agreement or further argument.

• High Court (Chancery Division): allowed Decca’s appeal from the Master’s decision dated 11 June 2004 and stayed the proceedings under section 9 of the Arbitration Act 1996.