Issue estoppel stopped: English High Court blocks reliance on foreign arbitral award

The London Arbitration

Eletson Gas LLC (EG) is a company in the transportation industry, and a dispute arose over who were the true controllers of EG: Group 1 (defendants four to eight) or Group 2 (defendants nine and ten). The English proceedings in question emerged in the context of charter agreements which had been signed, by EG and defendants one to three, for three oil tankers. The charters gave EG the option to purchase these three tankers. Both Group 1 and 2 purported to exercise EG’s option to purchase the tankers, and there was a dispute as to which group had validly exercised the option. In that dispute, both Group 1 and Group 2 purported to appoint an arbitrator on behalf of EG in a London-seated arbitration (the London Arbitration). 

This gave rise to an application under s32 of the Arbitration Act 1996. A s32 application is a rarely used process for the English court to make a preliminary determination on a question of jurisdiction. In this case, the question was whether Group 1 or Group 2 held the right to appoint an arbitrator on EG’s behalf in the London Arbitration. 

The previous proceedings

Prior to the London Arbitration, there were various other relevant proceedings.

• First, there had been an arbitration seated in the Southern District of New York administered by JAMS (a US arbitral institution) which had decided whether preferred shares in EG had been sold to companies controlled by Group 2 (the New York Arbitration). The arbitrator made a finding that the companies controlled by Group 2 did hold the preferred shares in EG.
• Second, there were US bankruptcy proceedings, the effect of which was that the JAMS award was to be suspended until a further ruling by the US Bankruptcy Court. No such ruling was made. 
• Third, Group 1 then made an application to set aside the award, on grounds of fraud, which remains under consideration by the US District Court for the Southern District of New York (the SDNY District Court). The SDNY District Court made a series of orders which were cumulatively interpreted by the English Court to be ordering the suspension of enforcement and recognition of the award until the set-aside application was determined.

No issue estoppel from New York Arbitration award

In these proceedings, Group 2 attempted to argue that the New York Arbitration award established that Group 2 controlled EG, and that this created an issue estoppel which prevented the finding that Group 2 controlled EG from being reargued. However, they were unsuccessful. 

The Court held that, before a party can rely on an issue estoppel created by a foreign arbitral award, the award must first be recognised by an English court order under ss.101-103 of the AA. Group 2 had failed to obtain such recognition and so no issue estoppel arose. 

Proceeding to provide some further obiter comments, the Court noted that:

First, even if an application for recognition had been made, the Court would likely have adjourned any decision on recognition under s103(5) of the AA until after the set-aside proceedings before the SDNY District Court were decided. In making these observations, the Court took into account the credibility of this application. 

Second, even if the Court did not adjourn its decision on recognition in such a scenario, the Court observed that it would likely have refused recognition under s103(2)(f) of the AA, which allows courts to deny applications for recognition where an arbitral award has been “set aside or suspended by a competent authority of the country in which, or under the law of which, it was made”. This applied here following the suspensions issued by the US Bankruptcy Court and the SDNY District Court. A temporary suspension by the competent authorities, as had occurred here, was still enough to satisfy s103(2)(f). 

Finally, even if the New York Arbitration award had been recognised, the parties in the proceedings would not have had standing to found an issue estoppel on the award. In this case, the parties in the London Arbitration were different from those in the New York Arbitration. While the judge considered whether the parties in the London Arbitration should be bound as ‘privies’ to the parties in the New York Arbitration, the judge followed recent authority in holding that the Court should be slow to treat parties as privies in an arbitration context given the inability of non-parties to an arbitration agreement to participate in an arbitration. In other words, since not all parties could participate in the New York Arbitration, this was another reason not to treat the New York award as preclusive. 

Commentary

This complex case is particularly interesting for the decision that a foreign arbitral award only gives rise to an issue estoppel if it has been recognised by the English court. This is a somewhat surprising decision: it is not clear why the policy against relitigating an issue should only apply when recognition has been obtained, and why the arbitral decision alone is not enough to found an issue estoppel. It is possible that this proposition will get appellate attention at some stage.

While obiter, this case also provides helpful guidance on how the English court would approach recognition proceedings when there are parallel set-aside proceedings at the seat. In particular, the Court’s guidance indicates that the credibility of a set-aside application will form part of the relevant assessment. Implicit in the decision is that the court might not adjourn recognition proceedings if the set-aside application appears to be manifestly unfounded. 

Judgment: Eletson Gas LLC v [A Ltd]