EXERCISING AN OPTION TO ARBITRATE AND THE RIGHT TO A STAY OF NATIONAL COURT PROCEEDINGS - Timothy Cooke
The Privy Council has unanimously held that an arbitration clause stating that ‘any party may submit the dispute to binding arbitration’ amounts to a binding commitment to arbitrate if either party chooses to rely on it. Such a clause amounts to an option to arbitrate, which, if exercised, requires the party that has brought a dispute before a national court to refrain from taking further steps in that litigation and instead to commence arbitration. The decision is likely to be influential in the construction of arbitration clauses with similar language in popular arbitration jurisdictions such as England, Singapore, and Hong Kong.
In Anzen and Others v Hermes One Limited [2016] UKPC 1, parties to a shareholders agreement concerning a company (Everbread) registered in the British Virgin Islands agreed to an arbitration agreement that provided that ‘any party may submit the dispute to binding arbitration’.
Following a dispute between the shareholders, Hermes One commenced litigation in the commercial court in the British Virgin Islands alleging unfairly prejudicial conduct in the management of the affairs of Everbread. Anzen and the other appellants (Anzen) applied for a stay of those court proceedings on the basis that the claims ought to be arbitrated. They did not themselves, however, commence arbitration proceedings. The application for a stay was rejected and that rejection was upheld on appeal for essentially the same reasons, namely that (1) the arbitration clause conferred an option upon any party to the agreement to submit a dispute arising under or relating to the agreement to arbitration; (2) if one party commenced litigation in respect of a dispute, the option to arbitrate was only exercisable by the other party by referring the identical subject matter to arbitration; and (3) because Anzen had not done this, but had merely sought a stay of the proceedings, it could not rely on mandatory stay provisions in the British Virgin Islands’ arbitration law. On further appeal, the Board of the Privy Council (Board) considered there were three ways to construe the phrase ‘any party may submit the dispute to binding arbitration’:
(1) The words are not only permissive but exclusive if a party wishes to pursue the dispute by any form of legal proceedings. In other words, arbitration was the exclusive means by which the parties could pursue a dispute;
(2) The words are permissive, leaving it open to a party to commence litigation but giving the other party the option of submitting the dispute to binding arbitration either:
(a) by commencing arbitration; or (b) by requiring the party that has commenced the litigation to submit the dispute to arbitration by making an unequivocal request to that effect and/or by applying for a corresponding stay.
After a detailed review of cases from Canada, England, Singapore, and the United States, as well as academic writings, the Privy Council rejected the first analysis. It held that clauses depriving a party of the right to litigate should be clearly worded. Consistent with authorities from a range of jurisdictions, it held that there is an obvious and important linguistic difference between ‘may’ and ‘shall’. In line with cases such as Lobb Partnership Ltd v Aintree Racecourse Co Ltd [2000] CLC 431 (England), Canadian National Railway and Others v Lovat Tunnel Equipment Inc (1999),