Top 3 Cases September 2023 03 October 2023
In this series of articles, we aim to highlight 3 of the most interesting cases in our field decided in the past month. This month, we’ve selected a pair of cases from the Supreme Court and Privy Council on the scope of arbitration agreements and bifurcation, and one from the Upper Tribunal on service charges.
1) Firstport Property Services Ltd v Various Leaseholders of Switch House [2023] UKUT 219 (LC)
Summary
The First-tier Tribunal had made an order preventing a management company from including in service charges the legal costs that it had incurred during proceedings challenging service charges under Landlord and Tenant Act 1985 s 20C, on the basis that although the leaseholders had had limited success, their suspicion about the management company was justified, given its failure to comply with the lease term requiring it to hold the reserve fund in a separate account, and its failure to supply accounts for the reserve fund. The Upper Tribunal set the order aside; the breach of covenant had no relevance to the issues in the proceedings, so was not a matter which should have been taken into account by the First-tier Tribunal when considering whether to make an order under s20C.
Why it’s important
The jurisdiction to make an order under s20C is of key importance in service charge cases where the legal costs are greater than the sums in dispute: frequently, the default position under the lease will be that the landlord can recover all its costs of the proceedings, even if it is unsuccessful. Section 20C exists to allow the First-tier Tribunal to prevent that. However, it is equally important that landlords should not be deprived of their contractual entitlement to recover costs in cases where they have been the substantial winner, unless there is a proper basis for that. This case re-affirms that principle.
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2) Republic of Mozambique v Privinvest Shipbuilding Sal (Holding) and ors [2023] UKSC 32
Summary
The issue was whether issues raised in the defence relating to quantification of damages were within the scope of various arbitration agreements (which were governed by Swiss law) which provided (in 2 cases) that “all disputes in connection with this Project” and (in another case) “any dispute, controversy or claim arising out of, or in relation to, this contract” were to be resolved by arbitration. Despite the wide wording, the Supreme Court held that they were not: none of the issues in the claims were (following amendment) covered by any arbitration agreement, and in these circumstances, the parties would not have intended the quantum issues raised in the defence to be hived off to arbitration.
Why it’s important
The single judgment set out a “general international consensus” for determining which matters must be referred to arbitration, as follows:
- The Court should adopt a 2 stage procedure: (i) determine what matters will arise in the proceedings by considering the substance of the allegations raised on the pleadings and any reasonably foreseeable defences; and (ii) determine whether each matter falls within the scope of the arbitration agreement;
- If some of the matters are within the scope of the arbitration agreement and others are not, there should be a partial stay;
- A “matter” is a substantial or essential issue that is legally relevant to a claim or (foreseeable) defence; an issue which is peripheral or tangential to the subject matter of the proceedings does not need to be stayed;
- A degree of judgment and common sense is required.
- The Court should have regard to the context in which the matter arises in the legal proceedings, and a party’s autonomy to choose which of several claims it wishes to advance.
This is likely to be the leading authority on the scope of arbitration agreements for some time.
It is likely to make it difficult for a party to argue that issues relating to quantum should be determined in an arbitration, if liability is determined in Court.
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3) FamilyMart China holding Co Ltd v Ting Chian (Cayman Islands) Holding Corporation [2023] UKPC 33
Summary
Under the relevant legislation in the Cayman Islands, a party is entitled to stay legal proceedings in respect of any matter agreed to be referred to arbitration unless the Court is “satisfied that the arbitration agreement is…inoperative”. The Privy Council rejected an argument that an agreement was ‘inoperative’ because one party was seeking relief from the Court (the winding up of a company) that the arbitrator was unable to award; the proceedings would be stayed whilst the underlying matters were determined by arbitration, and then resurrected for the purpose of considering whether a winding up order should be made, or whether the remedy of a share buy out should be given.
The Board also rejected an argument that the presence of the arbitration clause and the fact that the arbitrator could not make a winding up order meant that the parties had contractually bound themselves not to apply for a winding up order.
Why it’s important
The judgment contains a detailed review of the circumstances in which an arbitration agreement could be inoperative, and concluded that there were 2 types of inoperability: first, where certain types of dispute are excluded by statute or public policy from determination by an arbitral tribunal (“subject-matter non-arbitrability”); and secondly, where the award of certain remedies is beyond the jurisdiction of the arbitral tribunal (“remedial non-arbitrability”). However, the fact that the arbitrator would not have jurisdiction to grant the remedy sought did not prevent the underlying issues from being determined in arbitration first.
The decision that it is possible for underlying issues to be determined in arbitration as a precursor to a “just and equitable” winding up is inconsistent with previous English first instance authority, which should now be treated with caution.
The Board effectively repeated the analysis in Mozambique, but expanded (in places) to take account of the different legislative framework. The case is useful as shedding further light on the interpretation of Mozambique.
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