Ellis & Anor v Coleman

An arbitration clause in a partnership agreement should generally be construed commercially to give effect to its evident purpose. A literal definition of Partners will not exclude a dispute between continuing and outgoing partners where that construction would frustrate the clause’s evident intention to submit partnership disputes to arbitration. The clause may therefore extend to disputes concerning an outgoing partner’s entitlement on retirement.

The appellants, continuing partners in a courier business, appealed under section 67 of the Arbitration Act 1996 against an arbitrator’s ruling that he had substantive jurisdiction. The dispute concerned whether the partnership agreement required payment for goodwill when the respondent retired and his share was purchased.

The appellants relied on the agreement’s definition of Partners, arguing that it excluded an outgoing partner. The respondent contended that the arbitration clause was intended to cover disputes arising from the partnership and should not be read literally. The issue was whether the arbitrator had jurisdiction over the dispute.

1. Appeal dismissed. The arbitrator had jurisdiction to determine the dispute concerning goodwill.
2. Clause 33.1, read without the definitions clause, plainly covered disputes concerning the partnership, its construction and the rights and liabilities of the partners. Its evident commercial purpose was to resolve such disputes by arbitration wherever possible.
3. The definition of Partners did not require the arbitration clause to be confined to disputes between persons who remained partners at the date of the dispute. That excessively literal construction would frustrate the apparent purpose of clause 33.1. The agreement contained other clauses which also did not work satisfactorily if the term were given that strict meaning.
4. The commercial approach was consistent with Sirius International Insurance Co v FAI General Insurance Ltd [2004] UKHL 54 at paragraph 19. The valuation provisions did not alter the construction, and section 61 of the Arbitration Act 1996 enabled justice to be achieved through a costs award.

The appeal was brought under section 67 of the Arbitration Act 1996 against the arbitrator’s ruling on substantive jurisdiction. The High Court dismissed the appeal and upheld the arbitrator’s jurisdiction.