Jersey: A Stay For Arbitration Where The Defendant Has No Defence?

Last Updated: 3 April 2018
Article by Oliver Passmore

Introduction

In Urbania International Management Consultancy v Petrofac International Limited the Royal Court determined, for the first time in Jersey, whether it is required to stay proceedings for arbitration even where a Defendant clearly has no defence.

This case is therefore of considerable relevance to potential claimants with a Jersey debtor whose contractual arrangements provide for disputes to be referred to arbitration.

Ogier acted for the plaintiff who brought the application before the Royal Court.

Facts

A large outstanding debt was owed to Urbania International Management Consultancy (Plaintiff) by Petrofac International Limited (Defendant) in respect of consultancy services rendered under an English law governed services agreement (Services Agreement).  

The Plaintiff had invoiced the Defendant but had not received payment.  The Defendant had informed the Plaintiff that it (the Plaintiff) was being investigated by the SFO, along with its employees and agents, for suspected bribery, corruption and money laundering; and that in light of that it was not considered appropriate to authorise payment of the Plaintiff's invoice.

In August 2017 the Plaintiff commenced debt recovery proceedings against the Defendant in Jersey.

The Services Agreement contained an arbitration agreement requiring all disputes arising out of or in connection with the Services Agreement to be referred to arbitration.

The Defendant sought a stay of the proceedings for arbitration, alleging that: "The defendant has not paid the invoice ... it is the defendant's position that a dispute therefore arises and that arbitration is the agreed dispute resolution forum".

The Defendant relied on Article 5 of the Arbitration (Jersey) Law 1998 (Arbitration Law) which is in the following terms:

"Mandatory stay of court proceedings where party proves arbitration agreement

"If any party to an arbitration agreement, or any person claiming through or under the party, commences any legal proceedings in any court against any other party to the agreement, or any person claiming through or under him or her, in respect of any matter agreed to be referred, any party to those legal proceedings may at any time before the expiration of a period of 3 weeks from the date on which the action was placed on the pending list or en preuve apply to the court to stay the proceedings; and the court, unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter to be referred, shall make an order staying the proceedings" (emphasis added).

As can be seen, the underlined section states that a stay is not mandatory if the Court is satisfied that there is not in fact a dispute (Exception Wording).

The question for the Court was therefore whether a mere refusal to pay amounted to a "dispute" for the purposes of Article 5 of the Arbitration Law.  If it did, then the Court would have no option but to stay the proceedings.

This issue had not previously arisen for determination in Jersey.

Judgment

The Court noted that the Exception Wording is not contained in the New York Convention on arbitration which the Arbitration Law was enacted in part to give effect to.

The Arbitration Law was based on the English Arbitration Act 1975, which also contained the Exception Wording.  The origin of the Exception Wording in the English Act is to be found in the McKinnon Committee Report of 1927, which recommended such wording so as not to require the Court to stay proceedings in cases such as where a defendant is unable or unwilling to indicate any reason why they should not pay or the existence of any dispute to be decided by arbitration.  The committee considered it would be absurd to require the English Court to stay an action in such circumstances.

The position in England has now changed, in that the Arbitration Act 1996 does not contain the Exception Wording.  Thus, had the matter fallen to be resolved purely by reference to the current English law, the claim would inevitably have been stayed for arbitration.  However, that change has not been reflected in the Jersey position.  Accordingly, the Court considered that English cases decided under the 1975 Act would be far more relevant.

In the relevant English cases, the English courts had given meaning to the Exception Wording – they took the view that they were able to refuse to grant a stay for arbitration if there was no real dispute.  This was interpreted as a claim not being genuinely disputable if it would justify an application for summary judgment.  In other words, if it is clear that any such "dispute" was not a real dispute because, if pleaded, it would give rise to summary judgment then the court was satisfied that it had a basis not to grant a stay for arbitration but instead to enter summary judgment.

The Court noted that the same approach had been adopted by the Guernsey Court of Appeal in relation to equivalent provisions of the Arbitration Guernsey Law 1982 which (at the time) was in effect identical to Article 5 of the Arbitration Law.

Having considered the relevant case law in these jurisdictions, the Court concluded that as a result of the Exception Wording it has a power to refuse to stay in the event that it determines there is no real dispute between the parties.  The Court stated that the policy behind this provision is to filter out cases where the defendant may be simply playing for time or not acting in a bona fide manner in asserting that there is a dispute or where there is in reality no dispute.

In this case, the Court considered that it could readily be seen that the Defendant had offered no explanation as to what any substantive defence to the claim may be, and that a mere absence of payment did not create a valid dispute which should be referred to arbitration.

The Court also took into account the references to the SFO investigation.  However, it was not readily apparent that the mere fact of an SFO investigation provided any real dispute as to the liability of the Defendant to pay the invoice.

Accordingly, the Court declined to stay the Plaintiff's proceedings for reference to arbitration.

Comment

As a result of this judgment, there is now clear judicial authority in Jersey that the Exception Wording gives the Court a power to refuse to stay for arbitration in the event that it determines there is no real dispute between the parties. 

The position in Jersey in this regard is therefore different to England and Wales, and indeed to the many other countries which either did not enact or have chosen not to retain the Exception Wording.

Given that obtaining summary judgment in arbitration can be time consuming and expensive, the Exception Wording provides a useful tool for a plaintiff with a Jersey debtor to obtain judgment quickly and cheaply notwithstanding the existence of an arbitration agreement.

Convention on the Recognition and Enforcement of Foreign Arbitral Awards done in New York on 10 June 1958.

Report of Committee on the Law of Arbitration (1927) (Cmd. 2817)

The States v Miller and Baird CI Limited 2005-2006 GLR 295

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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