El Nasharty v J. Sainsbury Plc

Under section 9 of the Arbitration Act 1996, proceedings concerning a matter within an arbitration agreement must be stayed unless the agreement is null and void, inoperative or incapable of performance. Separability requires a challenge to the arbitration agreement itself. A challenge based only on duress affecting the wider contract is insufficient. The relevant facts must be specific to the arbitration clause. A party may also waive reliance on duress by unequivocally invoking the arbitration agreement. Inability to meet arbitration costs does not ordinarily make the agreement inoperative or prevent waiver of Article 6 rights, particularly where the applicable costs regime pursues a legitimate and proportionate aim.

The claimant sought a declaration that an agreement dated 8 April 2001, under which J. Sainsbury Plc sold shares in Egyptian Distribution Group SAE to him and others, had been entered into under duress and had been avoided. He also claimed substantial damages. The agreement contained an ICC arbitration clause providing for arbitration in Paris.

Sainsbury applied under section 9 of the Arbitration Act 1996 for a stay. The claimant argued that arbitration would violate his Article 6 right of access to a court because the agreement, including the arbitration clause, had been procured by duress and because he could not afford the arbitration costs. The central issues were whether the alleged duress directly impeached the arbitration agreement and whether the costs position made the agreement inoperative.

1. The application was granted and the proceedings were stayed under section 9 of the Arbitration Act 1996. The claims fell within the arbitration clause, and the clause was neither null and void, inoperative nor incapable of performance.

2. The separability principle in section 7 requires the arbitration agreement to be treated as a distinct agreement. The invalidity, rescission or avoidance of the wider contract does not necessarily affect the arbitration clause. The challenge must be based on facts specific to the arbitration agreement. An allegation that the claimant was coerced into entering the principal agreement, without more, is parasitic on the challenge to that agreement and is insufficient.

3. This conclusion was supported by Fiona Trust and Holding Corporation v Privalov [2007] Bus LR 686, as affirmed in Premium Nafta Products Limited v Fili Shipping Company Limited [2007] UKHL 40, and by the separability reasoning in Harbour Assurance Co (UK) Limited v Kansa General International Insurance Co Limited [1993] QB 701.

4. On the facts, the claimant had freely negotiated the arbitration provision through solicitors. Sainsbury had initially proposed exclusive court jurisdiction; the claimant requested ICC arbitration, and Sainsbury accepted that request. The alleged duress could arguably have affected the purchase of the shares, but it did not prevent the claimant exercising free will concerning the dispute-resolution machinery.

5. The claimant had, in any event, waived any right to contend that the arbitration agreement was voidable for duress. He had invoked the arbitrators’ jurisdiction by advancing counterclaims under the 2001 agreement. The subsequent absence of a determination on the merits did not prevent that conduct from being an unequivocal assertion of an enforceable arbitration agreement.

6. The claimant’s inability to fund the arbitration did not render the agreement inoperative. The ICC costs regime was published and transparent. Its purpose of ensuring payment of arbitrators’ fees and administrative expenses was legitimate, and the regime was proportionate. The court was not required to assess a party’s financial resources on a stay application, although the claimant’s evidence was in any event unsatisfactory.