Michael Wilson & Partners Ltd v Sinclair & Anor

A prior arbitral award may found an application to strike out later court proceedings as an abuse of process. There is no categorical rule excluding that jurisdiction. The court must, however, approach such an application cautiously, especially where the later defendant was not a party to the arbitration.

Absent estoppel, abuse requires a close, merits-based assessment of unfairness and the public interest in finality. It will be rare for proceedings against a non-party to an arbitration to be abusive. A non-party who refused to join the arbitration and would not have been bound by an adverse award cannot ordinarily rely selectively on a favourable award to prevent a properly triable claim.

MWP alleged that shares and funds received by an offshore company were benefits acquired by its former employee, Mr Emmott, in breach of duty. It sued Mr Sinclair and Sokol for, among other matters, dishonest assistance and knowing receipt.

An arbitral tribunal had previously rejected substantially the same allegations in proceedings between MWP and Mr Emmott. Mr Sinclair had given evidence and funded Mr Emmott's defence, but had refused MWP's invitation to join the arbitration.

Commercial Court: Teare J struck out all but a debt claim as an abuse of process: Michael Wilson & Partners Limited v Sinclair and others [2012] EWHC 2560 (Comm). MWP appealed. The central issue was whether it was abusive for A to sue C on a factual basis rejected in an arbitration between A and B.

1. Appeal allowed. Simon LJ, with whom the Senior President of Tribunals and Patten LJ agreed, held that Teare J had been wrong to strike out the claim.

2. The abuse jurisdiction is not confined to fixed categories. Where neither res judicata nor issue estoppel applies, the court must make a close, merits-based assessment of all the circumstances. It must consider both unfairness to a party and the risk of bringing the administration of justice into disrepute. Relitigation between different parties is not prima facie abusive, and such cases will be rare.

3. A prior arbitral award can in principle be the subject of an impermissible collateral challenge. Arbitration's consensual, private character means that the court should be cautious. There is nevertheless no hard-edged rule that a prior award can never support an abuse application. Proceedings against a non-party to the arbitration will probably, and perhaps very rarely, be abusive.

4. On these facts the required high threshold was not met. Mr Sinclair had refused to become a party to the arbitration and would not have been bound had its outcome been adverse. The lack of mutuality was highly material. His evidence, funding of Mr Emmott's defence, and receipt of shares after the award did not give the tribunal jurisdiction to determine rights between MWP and the Sinclair defendants.

5. MWP had not sued Mr Emmott in the action. Any unfairness to him as a possible witness did not establish manifest unfairness to a party to the action. The judge also reversed the burden by requiring MWP to justify its claim; the Sinclair defendants had to show that its pursuit was abusive.

6. The award was admissible on the strike-out application to determine whether the action was a collateral challenge. That did not decide whether, or for what purpose, it would be admissible at trial. The court expressed strong doubts that discontinuance of a Part 20 claim automatically reversed an earlier costs order, but did not determine that issue.

• Court of Appeal (Civil Division): Allowed MWP's appeal and restored the claim for trial, apart from the debt claim which had not been struck out.
• Commercial Court: Teare J struck out the non-debt claims as an abuse of process in Michael Wilson & Partners Limited v Sinclair and others [2012] EWHC 2560 (Comm).