Tugushev v Orlov & Ors

Under section 9 of the Arbitration Act 1996, a stay is mandatory where proceedings concern a matter falling within an arbitration agreement. The court must identify all reasonably foreseeable substantial issues arising in the proceedings and then determine which are within the agreement. The enquiry is not confined to the principal issue. Arbitration clauses are construed by reference to what reasonable parties would have intended, including the presumption of one-stop adjudication. That presumption may apply where a later agreement is closely connected with earlier agreements. Issue estoppel arising from foreign proceedings remains subject to the overriding requirement that its application work justice. Special circumstances may justify refusing to apply an otherwise established estoppel, particularly where doing so would create inconsistent findings in the same proceedings.

The claimant brought proceedings concerning alleged interests in a fishing business. The second defendant, Mr Roth, sought permission to bring three Part 20 claims against the first defendant, Mr Orlov: a Partnership Claim, an Alex Bundle Claim and a TTC Claim.

Mr Orlov contended that the first two claims fell within arbitration clauses in agreements between the parties and that the TTC Claim was barred by issue estoppel arising from earlier Hong Kong unfair-prejudice proceedings. The court therefore had to determine the scope of the arbitration agreement and whether the Hong Kong decision precluded the TTC Claim.

1. Partnership and Alex Bundle Claims. The application for permission to bring these claims was refused because they concerned matters required to be referred to arbitration. Section 9 of the Arbitration Act 1996 requires a stay unless the arbitration agreement is null and void, inoperative or incapable of being performed.
2. The section 9 enquiry has two stages: identifying the matters in respect of which proceedings have been brought, including reasonably foreseeable substantial issues, and deciding which matters fall within the arbitration agreement. The court must consider all such issues, not merely the principal dispute. Fragmentation of proceedings may result because the statutory obligation to respect the parties’ contract takes precedence over procedural unification.
3. The court was required to determine the scope of the arbitration clause, rather than undertake only a prima facie review. The presumption of one-stop adjudication applied. The 2016 Framework Agreement was closely connected with the earlier agreements because they concerned the same Russian business, and its clause covering disputes arising out of or in connection with the agreement was fairly capable of extending to claims under the earlier agreements.
4. The Partnership Claim, including claims concerning the alleged 2007 Understanding and the declarations sought, and the Alex Bundle Claim were therefore within the arbitration agreement. The fact that the same factual issue might arise in the main proceedings did not give the court discretion to avoid the mandatory stay. Mr Orlov had not waived the right to seek a stay: defending Mr Tugushev’s claim before the Part 20 claims had been articulated was not an unequivocal invocation of the court’s jurisdiction over those claims.
5. TTC Claim. The Hong Kong proceedings necessarily proceeded on the basis that Mr Orlov and Mr Roth were the only persons with any interest in TTC’s shares. The elements of issue estoppel were otherwise satisfied, including competent jurisdiction, a final decision on the merits, identity of issue and identity of parties.
6. Issue estoppel is nevertheless subject to the overriding requirement that it operate justly. The prospect that the same court might find in the main action that Mr Tugushev was entitled to one third of TTC, while preventing Mr Roth from relying on that finding in his related claim, constituted a special circumstance. Applying the estoppel would risk inconsistent findings and allow Mr Orlov to retain payment for shares to which he was not entitled. It would therefore work an injustice.
7. The application for permission to bring the TTC Claim was granted. Advancing that claim would not constitute an abuse of process for substantially the same reasons.