Court Proceedings Stayed Under Court's Inherent Jurisdiction Pending Outcome of Arbitration by Plaintiff Against Different Party

Background

Reichhold Norway ASA and Another v Goldman Sachs International (QBD (Comm CT)) [1998] AllER(D) 630 Commentary The decision asserts the court's inherent jurisdiction to stay its proceedings even where the parties to the arbitration are not the same as those to the court proceedings. Applications for a stay of proceedings are not necessarily limited by the scope of section 9 of the Arbitration Act 1996 and the court has wider powers to stay court proceedings brought by the same claimant/plaintiff against a different party but arising out of the same factual matrix. This means that claimants/plaintiffs will have to consider their strategy carefully if related court and arbitration proceedings involving similar issues(albeit between different parties) are contemplated.

Decision

The court exercised its discretion and granted a stay of proceedings on the basis of its inherent jurisdiction, which it regarded as being preserved under section 49(3) of the Supreme Court Act 1981. The test was whether a stay was in the interests of justice. The court would only stay proceedings pending the outcome of arbitration proceedings brought by the plaintiff against a different party if there were very strong reasons for exercising its discretion in this way and, on balance, the benefits of doing so clearly outweighed any disadvantage to the plaintiff. The court found that while the plaintiff had a choice against which potential parties to bring its claims and in what order, the court could take steps to control and manage litigation, in particular, where related proceedings were being pursued concurrently. On analysing the plaintiff's claims, the court found that in the interest of keeping inconvenience and expense to a minimum, the arbitration should take priority because this was the forum in which the main contractual claim for damages for breach of warranty between Reichhold and Jotun was going to be determined and if the claim against Jotun failed there would be little prospect of success for the action against Goldman Sachs.

Background

The second plaintiff Reichhold purchased from Jotun, a Norwegian company, shares in Polymer, one of Jotun's subsidiaries, in reliance on a report prepared by Jotun's financial advisers, defendant Goldman Sachs. Reichhold subsequently complained that it had not been informed of a significant downturn in Polymer's profits. Reichhold prepared to commence arbitration proceedings against Jotun pursuant to the arbitration clause in the sale agreement seeking damages for breach of warranty and also brought court proceedings against Goldman Sachs for negligent misstatement. Goldman Sachs applied for a stay of all further proceedings pending the outcome of the arbitration between Reichhold and Jotun.

For further information on this topic please contact Neil Aitken,
Charles Spragge or Gregor Kleinknecht at CMS Cameron McKenna
by telephone (+44 171 367 3000) or by fax (+44 171 367 2000) or
by e-mail (nca@cms-cmck.com or chs@cms-cmck.com or gk@cms-cmck.com).