J&W Sanderson Ltd v Fenox (UK) Ltd & Ors

The court refused an application to stay a shareholder petition pending arbitration. Section 9 of the Arbitration Act 1996 was held inapplicable because the petitioner was not a party (nor claiming under a party) to the arbitration agreement, relying on the principle in Mayor and Commonalty and Citizens of the City of London v Sancheti. The court also considered the court's discretionary power to stay (relying on the approach in Reichhold Norway ASA v Goldman Sachs International) but declined to exercise it because there were no arbitration proceedings in progress, insufficient material to assess the interrelationship between arbitration and the petition, and no compelling reason to deprive the English court of a statutory shareholder remedy.

This was a first instance Companies Court hearing of an application by respondents to join an additional party, serve out of the jurisdiction and, centrally, to stay a shareholder petition pending arbitration.

Background and parties:

• The petitioner, J&W Sanderson Ltd, is a 50% shareholder in Fenox (UK) Limited (the Company); Fenox GmbH is the other 50% shareholder.
• The Company holds 602,806 shares in JV Unison CJSC, a Belarus company. The dispute arises from allegations of deadlock, invalid director appointments and purported powers of attorney enabling a sale of most of the Company’s Unison shares.
• Underlying the shareholder dispute is a Partnership Agreement said to exist between two individuals, Mr Vaganov and Mr Arbuzov, containing an arbitration clause requiring disputes to be arbitrated in Russia.

Nature of the application and relief sought:

• The petitioner brought a shareholder petition seeking, among other reliefs, an order for equal transfer of the Company’s Unison shares between the two shareholders (its "preferred remedy"), injunctions against certain individuals alleged to be acting on the Company’s behalf, and potentially a just and equitable winding up.
• The third respondent (Mr Arbuzov), supported by Fenox GmbH, sought a stay of the petition on the basis that disputes between the partners fell within the arbitration clause in the Partnership Agreement.

Issues framed by the court:

• Whether section 9 of the Arbitration Act 1996 required a stay as of right.
• Whether the court should exercise its discretion to grant a stay under its inherent jurisdiction or case management powers (the Reichhold approach), taking account of interrelationship between the arbitration and the petition.
• Procedural ancillary issues (joinder and service out of the jurisdiction) were raised but not pursued as determinative.

Court’s reasoning and conclusions:

• Section 9 did not apply because the petitioner was not a party to the Partnership Agreement or the arbitration agreement and was not suing "under or through" a party to that agreement; reliance was placed on the reasoning in Sancheti.
• The discretionary stay principles from Reichhold require a careful assessment of the interrelationship of the proceedings and other factors such as convenience and the interest of justice. That assessment was not possible because there were no arbitration proceedings before the tribunal, no clear statement of the issues or relief to be pursued in arbitration and a real prospect of preliminary jurisdictional disputes. An undertaking to commence arbitration within 28 days was offered but did not cure the absence of material on which to exercise the discretion.
• The English petition was an appropriate vehicle to determine the statutory shareholder remedies and there was no compelling reason to stay those proceedings. Accordingly, the application for a stay was refused.

The application for a stay was dismissed. Section 9 of the Arbitration Act 1996 was inapplicable because the petitioner was not party to the arbitration agreement and was not claiming under or through a party to it. The court also refused to exercise its discretion to stay the petition under its inherent jurisdiction because there was insufficient material to assess the interrelationship between hypothetical arbitration proceedings and the petition and no compelling reason to deprive the English court of its statutory jurisdiction to resolve a shareholder dispute.