Anzen Limited and others v Hermes One Limited

An arbitration clause stating that, after failed negotiations, any party may submit a dispute to arbitration ordinarily gives each party a unilateral option. It does not, before election, bar litigation or impose a duty to arbitrate. Once unequivocally invoked, arbitration becomes binding on both parties. The option may be exercised by requiring arbitration and applying for a stay; commencing a separate arbitration is unnecessary. Section 6(2) of the Arbitration Ordinance 1976 is wide enough to permit a stay before arbitration has begun and despite a contractual preliminary step. Construction turns on language and context, with clear wording required to exclude litigation and commercial common sense favouring a workable interpretation.

The shareholders in Everbread entered into a shareholders’ agreement containing an English-law arbitration clause. After an unresolved dispute, the respondent commenced proceedings alleging unfairly prejudicial conduct and seeking, among other relief, damages and the winding up of Everbread or appointment of a liquidator. The appellants applied for a stay under section 6(2) of the Arbitration Ordinance 1976, without commencing ICC arbitration. Bannister J dismissed the application, and the Court of Appeal upheld that decision. The Board considered whether the clause required the appellants to commence arbitration themselves, or whether an unequivocal request for arbitration and stay application were sufficient.

The Board allowed the appeal and advised that the proceedings be stayed, subject to the respondent’s reserved right to seek court orders which an arbitrator could not grant.

1. Section 6(2). Until an option to arbitrate has been exercised, there is no matter agreed to be referred within section 6(2) of the Arbitration Ordinance 1976. The appellants’ initial submission that a conditional arbitration agreement was itself sufficient was therefore rejected. Once the option was exercised, however, the section was wide enough to permit a stay even though no arbitration had yet been commenced and the clause contemplated a prior negotiation or waiting period.
2. Construction of the clause. The words that any party may submit the dispute to binding arbitration were permissive and conferred a unilateral option. They did not clearly exclude litigation before the option was exercised. The Board contrasted that wording with clauses providing that disputes should or shall be submitted to arbitration. The language and context of the agreement were decisive, with commercial common sense supporting the workable interpretation: Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900.
3. Method of exercising the option. Requiring a defendant, after litigation had begun, to commence a separate arbitration seeking mirror-image negative declarations would be commercially incongruous. The better construction was that an unequivocal request for arbitration, including the stay application, could invoke the option. Arbitration would then be binding on both parties. This analysis accorded with the consensual nature of arbitration and the mutual duties of co-operation described in Bremer Vulkan Schiffbau und Maschinenefabrik v South India Shipping Corp Ltd [1981] AC 909.
4. Scope and final order. It was common ground that an arbitrator could not order the winding up of Everbread or appoint a liquidator, but could determine underlying factual and legal disputes relevant to those remedies. The stay was accordingly granted with an appropriate reservation of the respondent’s right to apply to the court after any award.

• Privy Council: The Board allowed the appeal and ordered a stay of the proceedings, subject to the stated reservation concerning court-only remedies.
• Court of Appeal of the Eastern Caribbean Supreme Court (British Virgin Islands): On 11 June 2014, the Court of Appeal dismissed the appellants’ appeal and upheld the refusal of a stay.
• High Court of the British Virgin Islands: On 6 March 2014, Bannister J dismissed the appellants’ application for a stay under section 6(2) of the Arbitration Ordinance 1976.