Michael Wilson & Partners Ltd v Sinclair & Ors

A claimant may pursue litigation against a person who was not a party to an earlier arbitration, even where the litigation requires allegations inconsistent with the arbitral findings. However, the court’s power to prevent abuse of its process is not excluded merely because the earlier decision was made by an arbitral tribunal. It will be exercised in an exceptional case where the claimant had a full opportunity to establish the relevant facts, the non-party was materially involved in the arbitration, the award was intended to determine the relevant proprietary issue, and relitigation would be unfair or bring the administration of justice into disrepute.

A claim is not satisfied merely because an earlier claim against another potentially liable person was dismissed. A proprietary claim arising from a fiduciary breach may nevertheless have a real prospect of success where the alleged asset was the beneficiary’s own commercial opportunity, rather than merely a benefit obtained through wrongdoing.

MWP alleged that shares and money connected with a transaction were diverted by its former director and employee, Mr Emmott, in breach of contractual and fiduciary duties. It pursued claims in the present action against Mr Sinclair, Sokol and others, including claims for dishonest assistance, procurement, fraud and proprietary relief.

MWP had previously pursued Mr Emmott in arbitration. The tribunal rejected its claim concerning the shares, finding that they were held for Mr Sinclair, and MWP’s statutory challenges to the award under sections 68 and 69 of the Arbitration Act 1996 were dismissed. Mr Sinclair had not been a party to the arbitration, although he had given evidence, funded Mr Emmott’s defence and later received the shares pursuant to the award.

The application concerned whether MWP’s claims should be struck out or summarily dismissed because they contradicted the arbitral findings, constituted an abuse of process, were extinguished by satisfaction, or had no real prospect of success.

1. Estoppel. The beneficial ownership of the shares was the same estate in issue in the arbitration and the present action. Nevertheless, estoppel per rem judicatam operates mutually. Since Mr Sinclair was not a party to the arbitration, he could not have been bound had the award favoured MWP. MWP was therefore not estopped, as against Mr Sinclair, from advancing its case. The reasoning in Powell v Wiltshire [2005] QB 117 was distinguished on that basis.
2. Abuse of process. The court may prevent a collateral attack on an earlier decision even where that decision was made by an arbitral tribunal. There is no fixed category excluding such cases. The jurisdiction is likely to be exercised only rarely where the later action is against a non-party to the arbitration, because arbitration is private and consensual.
3. The burden was on Mr Sinclair, and the test was exacting. The court considered the nature and effect of the award, the basis of the later claim, the justification for the collateral challenge, the appropriateness of the earlier tribunal and parties, and any disadvantage or unfairness arising from the earlier proceedings.
4. The present case satisfied that test. MWP repeated the same factual allegations rejected in the arbitration. Mr Sinclair had been cross-examined, had funded Mr Emmott’s defence, and had a direct interest in the award. The tribunal had intended the shares to be transferred to him and had authorised disclosure of the relevant award material. The allegation of Mr Emmott’s breach was a necessary precondition to MWP’s claim against Mr Sinclair. Relitigation would also be manifestly unfair to Mr Emmott.
5. The absence of mutuality did not prevent a finding of abuse. The circumstances brought the case within the spirit of the issue estoppel rule. MWP’s claims, apart from the debt claim, were accordingly struck out as an abuse of process.
6. The doctrine of satisfaction did not independently apply. Where a claim against one jointly liable person has been dismissed, the claimant has not obtained satisfaction. Whether a claim against another person can proceed depends on abuse of process.
7. The alternative summary-judgment application was dismissed. The principle in Sinclair Investments v Versailles [2011] 3 WLR 1153 did not establish that MWP’s reformulated proprietary claim must fail at the interlocutory stage. The distinction identified in Cadogan Petroleum v Tolley [2011] EWHC 2286 (Ch) could not be resolved without deciding whether MWP had expected the shares as part of its reward. The further particulars also made the pleadings sufficiently complete.

First-instance decision. The judgment states that Andrew Smith J dismissed MWP’s applications under sections 68 and 69 of the Arbitration Act 1996 on 8 June 2011, but that decision was not under appeal in the present application.