Michael Wilson & Partners Ltd v Sinclair & Anor

Proceedings against a non-party to an earlier arbitration may constitute an abuse of process, but such cases will be rare. A collateral challenge to an award carries no presumption of abuse. The applicant must establish, through a close examination of all the circumstances, manifest unfairness to a party or harm to the administration of justice. Arbitration’s consensual and private character requires particular caution. A defendant’s refusal to join the arbitration, coupled with its freedom from adverse findings, is highly material when it subsequently seeks to rely on favourable findings. Potential unfairness to a witness does not satisfy the requirement of manifest unfairness to a party. An earlier award may be examined to determine an abuse application, even though its admissibility as evidence at trial raises a separate question.

Michael Wilson & Partners Ltd, a provider of legal and consultancy services, employed John Emmott as a director and employee. It alleged that he diverted shares and funds arising from a transaction involving its client, Sokol Holdings Incorporated, and Sokol’s managing director, Thomas Sinclair. The shares and funds were received by Eagle Point Investments Ltd, a company understood to be owned by the trustee of a trust in which Emmott was interested.

The company pursued contractual and fiduciary claims against Emmott in arbitration. The tribunal rejected its claim to the shares and most of the funds, finding that the shares were held for Sinclair. Sinclair gave evidence and funded Emmott’s defence, but refused an invitation to become a party. The company subsequently brought proceedings against Sinclair and Sokol alleging, among other matters, dishonest assistance and payment of a bribe or secret commission.

Teare J struck out those proceedings, apart from a debt claim, as an abuse of process: [2012] EWHC 2560 (Comm). Sinclair and Sokol had joined Emmott as a Part 20 defendant, but later discontinued that claim. The company appealed. The principal questions concerned the abuse jurisdiction following arbitration, the use of the award on the application and at trial, and whether the particular proceedings were abusive. A subsidiary costs issue concerned the effect of discontinuing the Part 20 claim.

Appeal allowed unanimously. Simon LJ’s reasoning was agreed by the Senior President of Tribunals and Patten LJ.

1. Where res judicata and issue estoppel did not apply, abuse of process required a close, merits-based examination of all the circumstances. The relevant interests were protection against repeated vexation and the public interest in finality. A collateral challenge was not presumptively abusive. The applicant bore the burden of establishing manifest unfairness to a party or circumstances bringing the administration of justice into disrepute. Such abuse would be rare where the parties or their privies differed. The principles in Johnson v. Gore Wood & Co, [2002] 2 AC 1, and the other authorities required that approach.

2. An arbitral award could found an abuse application concerning subsequent litigation. The court was protecting its own process. However, arbitration’s consensual and private character, and the inability to compel joinder, required caution. Sun Life Assurance Company of Canada and others v. Lincoln National Life Insurance Company, [2005] 1 Lloyd’s Law Rep 606, established no categorical exclusion. Proceedings against an arbitration non-party would probably constitute abuse only in a very rare case.

3. The award was admissible for determining whether the proceedings constituted an impermissible collateral challenge. The rule excluding another decision-maker’s factual findings as evidence at trial did not prevent examination of the earlier decision for that purpose. The award’s admissibility at trial, and any restriction on cross-examining Emmott, were left for the Commercial Court.

4. The exacting threshold was not met. Sinclair had refused to join the arbitration and would have remained free of adverse findings. That absence of mutuality was highly material. Giving evidence, funding the defence and benefiting from the award did not confer jurisdiction on the tribunal to determine claims between the company and Sinclair or Sokol. Reichel v. Magrath, (1889) 14 App Cas 665, differed because the later claimant there claimed through a party to the earlier proceedings.

5. The company’s only means of pursuing its claims against Sinclair and Sokol was this action. It had not sued Emmott. His position as a potential witness did not establish manifest unfairness to a party under Secretary of State for Trade and Industry v. Bairstow, [2004] Ch 1. The judge also appeared to reverse the burden by requiring justification for making the allegations again.

6. The proceedings should continue to trial. The subsidiary costs issue did not require determination. The court expressed strong doubts that later discontinuance of the Part 20 claim automatically entitled the company to reversal of the earlier costs order.

• Court of Appeal (Civil Division): In [2017] EWCA Civ 3 , unanimously allowed the appeal against the abuse-of-process strike-out and concluded that the proceedings should continue to trial.
• Court of Appeal (Civil Division): An earlier judgment, [2015] EWCA Civ 774 , explained the delay in hearing the appeal.
• Commercial Court: Teare J struck out the proceedings, apart from the debt claim, as an abuse of process on 21 September 2012 and granted permission to appeal: [2012] EWHC 2560 (Comm) .