In NTT Limited & Others v. Goodall,[1] the Commercial Court of England and Wales stayed litigation proceedings in favour of arbitration proceedings that would involve only three of the seven claimants. The case is a good example of the breadth of the courts’ discretion in such matters.
Background
The first claimant, NTT Limited, was the sole parent of the second to seventh claimants, which were registered variously in England and Wales, South Africa and the Isle of Man.
The defendant, Jason Goodall, had been the global CEO of NTT Limited. His employment contract was between himself, NTT, and the second and sixth claimants.
Goodall was on a subcommittee of NTT’s board that considered – and ultimately approved – the third claimant’s sale of a property to a subsidiary of the Identity Property Fund. Unbeknownst to NTT and the other claimants, Goodall was an investor in the Identity Property Fund.
Some months after that transaction, Goodall entered into a termination agreement, under which NTT and the second claimant paid him approximately US$17.5 million.
The claimants alleged that Goodall, together with other former executives of NTT group companies, had deliberately concealed their investment in the Identity Property Fund from the claimants. In failing to disclose both his and the other executives’ conflicts of interest in respect of the transaction, Goodall had breached his fiduciary and/or contractual duties, giving rise to the following claims:
- Restitution of the payment made under the termination agreement by NTT and the second claimant.
- Damages in respect of other payments made to Goodall (e.g., salary and bonuses) made by the second and fourth claimants.
- Damages in respect of payments made to the other executives who also were investors in the Identity Property Fund made by the second, fifth, sixth and seventh claimants.
- Damages in respect of the fees relating to the investigation conducted on the conflicts of interest, paid by the sixth claimant.
- Damages in respect of losses arising from the sale of the property to the Identity Property Fund.
The claimants brought proceedings in the High Court of England and Wales.
The application
Goodall applied for a stay of the High Court proceedings on the basis that his employment contract contained a provision that required any disputes between the parties to be referred to arbitration.
Prior to the hearing of the application, the first, second and sixth claimants (i.e., the parties to the employment contract) agreed to a stay in favour of arbitration in respect of their claims. The hearing was therefore concerned only with whether the claims of the third, fourth, fifth and seventh claimants (the respondents), who were not parties to the employment contract, should also be stayed until the conclusion of the arbitral proceedings.
The respondents resisted the application on the following grounds:
- The ‘starting point’ is that the respondents are entitled to pursue their claims in the courts.
- The respondents should not be compelled to surrender their rights to litigation in court in favour of an arbitral tribunal.
- No arbitration had been commenced.
- The parties to any arbitration will not be the same as the parties to the English litigation, and the arbitration will not give rise to any issue estoppel.
The Commercial Court’s decision
The judge started by emphasising that there is just a single test for the court to apply in respect of such an application – namely, whether it is in the interest of justice for a stay to be granted.[2]
Turning to the respondents’ grounds for resisting the stay, she dismissed each in turn.
The ‘starting point’ is that the respondents are entitled to pursue their claims in the courts
The judge considered that this put the rights of the litigant too highly. While the court is mindful of the fundamental principle of access to justice (under both the common law and article 6 of the European Convention on Human Rights), the effect of a stay is not to put an end to the claim in this jurisdiction, but to cause a delay to the resolution of proceedings.
The respondents should not be compelled to surrender their rights to litigation in court in favour of an arbitral tribunal
The judge reiterated that the effect of the stay would not be to remove the rights of the respondents to recover their losses in court, but to delay the recovery. Such a delay could be compensated by an award of interest. Further, should the defendant fail to pursue his defence in the arbitration expeditiously, it would be open to the respondents to apply for the stay to be lifted.
No arbitration had been commenced
While the relative progress of proceedings may have been a factor, it was the claimants who had delayed the progress of the arbitration and, in any event, the court proceedings also were at a very early stage, with no disclosure and no evidence filed other than in support of the application. The judge also noted that, depending on the choice (and therefore, the availability) of the arbitrator, it is likely that an arbitration could be resolved before proceedings were concluded in the Commercial Court.
The parties to any arbitration would not be the same as the parties to the English litigation, and the arbitration will not give rise to any issue estoppel
The judge accepted (for the purposes of the application) that there would be no issue estoppel, and that the respondents were suing in respect of their own losses, which were separate from the losses suffered by NTT Limited and the second and sixth claimants. However, she considered that the practical effect of an award in the arbitration may well be that the court proceedings do not proceed due to the connection between the parties and their claims. In her view, while the fact that the parties to the arbitration will not be the same as the parties to the proceedings is a factor which ‘in general’ militates against a stay, it is not an absolute bar.
Having dismissed the respondents’ arguments, the judge set out her reasons for concluding that it was in the interests of justice to impose a stay.
While acknowledging that the respondents had separate legal personality and had brought claims for separate losses, the judge considered that, realistically, their interests would align with the other claimants who could be expected to pursue the arbitral proceedings in the interests of the group as a whole.
The factual bases for the respondents’ claims of breach of fiduciary duty would be the same as those to be determined in the arbitration. And, to the extent that those claims were brought under different laws (i.e., South African and Manx laws), those laws in respect of fiduciary duties had been said by the claimants in their particulars of claim to be ‘materially identical’ to English law.
In terms of value, the claims subject to the arbitration had been valued at approximately 38 million pounds, out of a total quantified value of all the claims of 45 million pounds, so ‘the bulk’ of the value of the claims would be determined in the arbitration.
Accordingly, the judge was of the view that despite the legal distinction between the parties and the fact they were bringing separate claims, the reality of the relationship between the parties and the claims meant that the arbitration may render further High Court proceedings unnecessary.
Conversely, should proceedings be pursued in parallel, there was a real risk of inconsistent decisions, which could result in undesirable practical consequences.
The judge noted the obvious disadvantage of the parties incurring costs in respect of both sets of proceedings. The fact that the winning party may recover a large part of its costs was not an answer to this. Further, it was to be inferred that Goodall – as an individual in proceedings against a corporate group – would be at a particular disadvantage in this regard.
Finally, although there would obviously be a delay in respect of the resolution of respondents’ claims, there was no evidence of any prejudice or financial detriment to the claimants besides this delay, which could be compensated by an award of interest.
Takeaway
It is somewhat unusual for court proceedings to be stayed in favour of an arbitration where the parties are not identical and the arbitration will not result in issue estoppel. As such, this judgment is a good indicator of the width of the courts’ discretion in such matters. Matters that may have been decisive in one case will not necessarily be so in another. The courts must consider all the circumstances in the case to determine the sole question of whether it is in the interests of justice for a stay to be imposed. There are no other rules.
[1] [2024] EWHC 445 (Comm).
[2] Athena Capital Fund v. Holy See [2022] EWCA Civ 1051.
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