Sodzawiczny v Ruhan & Ors

Under section 9 of the Arbitration Act 1996, the court must identify each issue capable of constituting a dispute which may fall within the arbitration agreement, and stay proceedings to the extent that the issue falls within its scope. The inquiry is concerned with substance rather than pleading form and may include issues arising from defences, compromise and the validity or effect of a settlement agreement. Arbitration clauses in settlement agreements are ordinarily construed to provide one-stop adjudication of disputes concerning both the settlement and the underlying dispute. A third party entitled to enforce contractual terms may acquire a right to arbitrate under section 8(2) of the Contracts (Rights of Third Parties) Act 1999. The court’s residual power to grant interim relief under section 44 of the Arbitration Act 1996 should not be used to determine matters within the arbitrator’s jurisdiction where the tribunal can act effectively.

The claimant sought continuation of a worldwide freezing order against four defendants. Two defendants applied for a stay under section 9 of the Arbitration Act 1996, relying on an arbitration clause in a settlement deed. The claimant’s claims included trust and fiduciary claims said to pre-date the deed, and tort claims alleging that the deed had been procured by fraud and misrepresentation.

Two further defendants were not parties to the deed but were affiliates entitled to rely on its release and non-suit provisions. They supported the stay application. The central issues were whether the proceedings concerned matters within the arbitration clause, whether the affiliates could invoke the arbitration agreement under the Contracts (Rights of Third Parties) Act 1999, and whether the freezing order should continue under section 44 of the Arbitration Act 1996.

1. Stay of proceedings. All proceedings against the fourth and fifth defendants concerned matters within the scope of the arbitration agreement and were stayed under section 9 of the Arbitration Act 1996. The same conclusion applied to the claims against the second and third defendants.
2. Section 9 involves two stages: identifying the matters in respect of which proceedings have been brought, and construing the arbitration agreement to determine whether each matter falls within its scope. A matter includes any issue capable of constituting a dispute or difference which may fall within the agreement. The court should identify reasonably foreseeable issues where the dispute is not yet fully developed, and must stay every arbitral issue rather than only the principal issue.
3. The inquiry is substantive. It is not confined to the claimant’s pleaded cause of action and may include issues arising from defences, compromise, settlement, estoppel and limitation. The settlement deed’s wide clause covering disputes arising out of or in connection with performance or non-performance encompassed the release and non-suit provisions, the scope and effect of the settlement, the alleged wrongdoing said to impeach it, and the validity of the underlying claims.
4. The strong presumption in favour of one-stop adjudication applied with particular force to a settlement agreement. Rational parties would ordinarily intend disputes concerning the settlement and the underlying dispute to be resolved in one forum, avoiding inconsistent findings.
5. The second and third defendants were affiliates of a contracting party and were entitled under sections 1(a), 1(b) and 1(6) of the Contracts (Rights of Third Parties) Act 1999 to rely on the release and non-suit provisions. Section 8(1) did not apply merely because they relied on those provisions as a defence. Section 8(2) applied because the arbitration clause, properly construed, gave them a right to arbitrate, which they had invoked.
6. The freezing order was continued temporarily pending an application to the arbitrator for equivalent relief. It would have been wrong for the court to determine merits issues which belonged to the arbitrator under section 44. The court’s residual jurisdiction was limited by the requirements of urgency and the tribunal’s inability to act effectively.

First-instance decision. The judgment records no prior appellate decision.