In the case of Franek Jan Sodzawiczny v. Andrew Joseph Ruhan & Ors.  EWHC 1908 (Comm), the English Commercial High Court dealt with the interpretation of “matter” under Section 9 of the English Arbitration Act for the purposes of granting a mandatory stay on court proceedings in favour of arbitration. Read the case analysis below:
The parties entered into Deed of Settlement (DOS) following disputes arising around of business relations. The DOS contained an arbitration clause providing for LCIA arbitration in London and widely worded release and settlement provisions. Following a shortfall in the payment from the agreed amount in the DOS, the aggrieved party triggered the arbitration to the LCIA Court for the expedited formation of a tribunal pursuant to Article 9A of the LCIA Rules, which allows for such a procedure in cases of “exceptional urgency”. This resulted in an award which was later registered as a judgement of the High Court.
17.1 The Parties agree that any dispute arising out of or in connection with the performance or non-performance of this Agreement shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed incorporated by reference into this clause, on the following terms:
17.1.1 The number of arbitrators shall be one
17.1.2 The seat, or legal place, of arbitration shall be London
17.1.3 The language to be used in arbitral proceedings shall be English
17.1.14 The governing law of the contract shall be the substantive law of England”
Before the Court, the parties praying for stay of court proceedings contended that the claims raised in these proceedings fell within the arbitration clause in the DOS, and therefore, a stay was mandatory under section 9(4) of the Act; insofar as there were any which fell outside the clause the court should stay them pending the outcome of the arbitration under its inherent jurisdiction to impose a case management stay. It was further argued that what was meant by a “matter” in Section 9 of the Act was an issue; and that the search was for issues which were the subject matter of the arbitration agreement.
As per contra, the opposite parties contended that none of the claims fell within the arbitration clause in the Deed; that if any of them did, there should be no case management stay in relation to the remainder. The argued that “matter” in section 9(1) is to be equated with a claim or cause of action; and that the fact that a defence is raised which falls within the scope of an arbitration agreement does not mean that section 9 is engaged if the claim itself does not fall within the scope of the agreement.
Applicable Legal Principles
Section 9 of the Act
“9. (1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings had been brought to stay the proceedings so far as they concern that matter.
(4) On an application under this section the court shall grant a stay unless satisfied that the arbitration is null and void, inoperative, or incapable of being performed.”
After scrutinizing the history of Section 9, the Court commented that there are two stages to the inquiry which the court is required to make under section 9(1). The court must first determine what the matter or matters are in respect of which the court proceedings have been brought. Secondly the court must then determine in respect of each such matter whether it falls within the scope of the arbitration agreement upon its true construction.
The Court found that if a party claims a sum of money, it is enough to constitute a dispute if the other party simply fails to pay. The existence of a dispute does not depend upon the disputing party advancing any reasons for disputing the claim. Further, even a single cause of action may involve some issues which are arbitral and others which are not, depending on the scope of any potentially applicable arbitration agreement. This would be so, for example, in the case of a claim in the tort of conspiracy to injure by unlawful means, where the unlawful means are breaches of a contract between the parties, where the arbitration clause on its true construction applies to contractual but not tortious disputes.
As per Court, the correct approach to what constitutes a “matter” in section 9 is as follows:
- The court should treat as a “matter” in respect of which the proceedings are brought any issue which is capable of constituting a dispute or difference which may fall within the scope of an arbitration agreement.
- Where the issues have been identified at the time the court is making the inquiry, there is no difficulty in conducting that exercise. Where the issues are not fully identified or developed at that stage, the court should seek to identify the issues which it is reasonably foreseeable may arise.
- The court should stay the proceedings to the extent of any issue which falls within the scope of an arbitration agreement. The search is not for the main issue or issues, or what are the most substantial issues, but for any and all issues which may be the subject matter of an arbitration agreement. If the court proceedings will involve resolution of any issue which falls within the scope of the arbitration agreement between the parties, the court must stay the proceedings to that extent. This is necessary to give effect to the principle of party autonomy which underpins the Act. If a dispute is arbitral, effect should be given to the parties’ bargain to arbitrate it. That applies to any dispute with which the court proceedings are, or will foreseeably be, concerned.
- Further, in considering the claim, the Court should look at the nature and substance of the claim and the issues to which it gives rise, rather than simply to the form in which it is formulated in a pleading. Section 9 is concerned with substance not form.
The Court then referred to the landmark case of Fiona Trust & Holdings v Privalov & others  1 Lloyd’s Rep 254, in which it was held that the construction of an arbitration clause should start from the assumption that the parties as rational businessmen intended any dispute arising out of their relationship to be determined in the same forum; and that the presumption is a strong one, and requires clear words to the contrary if it is to be displaced.
Relying on Fiona Trust (Supra) along with some other authorities, the Court found that the wording of the arbitration clause in the DOS is apt to cover all the issues in the present case and parties praying for mandatory stay are entitled to it under section 9 of the Act.