Pre-arbitration disclosure - a possibility

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In a recent decision in EDO Corporation v Ultra Electronics Limited [2009] EWHC 682 it was held that the court was not empowered to grant pre-action disclosure in respect of disputes which were to be referred to arbitration. The judgment clarifies that the court’s powers in this regard are limited to disputes which are to be determined in litigation and that neither the Supreme Court Act 1981 nor the Arbitration Act 1996 confer a similar power in respect of disputes that are to be arbitrated.

Ultra had been appointed as a sub-contractor for the manufacture of a sonar system to be used by the Royal Navy. Ultra then entered into a sub-contract with EDO for the supply of the sonar equipment. The sub-contract with EDO contained terms providing for any dispute between EDO and Ultra arising out of the agreement to be dealt with by way of arbitration. Pursuant to the sub-contract EDO provided some proprietary materials, confidential information and copyright works to Ultra. Ultra was contractually prohibited from using these materials for purposes other than the sub-contract on which they were jointly engaged. Ultra subsequently won a similar contract with the Australian Navy. There were similarities between the two sonar systems and EDO believed that Ultra had misused the confidential materials belonging to EDO in breach of the terms of the sub-contract.

EDO applied to the court for pre-action disclosure of a significant part of Ultra’s tender documents under the Supreme Court Act 1981 section 33(2) and CPR 31.16 on the basis that it was not possible to ascertain whether EDO had any substantive dispute with Ultra or, if such a dispute existed, its nature and ambit, without sight of that documentation.

Consequently, Ultra applied for a stay of the application pursuant to section 9 of the Arbitration Act 1996 which provides for stays in proceedings commenced in breach of an arbitration agreement as follows: 

“(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 proceedings have been brought to stay 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 agreement is null and void, inoperative, or incapable or being performed.”

The issues for determination by the court were (i) whether the procedure for pre-action disclosure was available to a party where the underlying dispute arose out of a contract which required any dispute to be determined by arbitration and; (ii) whether, if such an application was available, section 9 of the Arbitration Act allowed the court to stay it.

EDO’s application was dismissed. The court held that Section 33(2) of the 1981 Act did not confer jurisdiction on the court to make an order for pre-action disclosure in aid of the arbitral process as it did not appear to the court that EDO was “likely to be party to subsequent proceedings in that court”. That requirement was not satisfied as there was no sign that either party intended to litigate in the High Court as the matters which were likely to be in dispute were of commercial confidentiality. If EDO did in fact issue a claim in the High Court, Ultra was likely to apply for a stay under section 9 of the Arbitration Act and consequently that could only mean that EDO was seeking pre-action disclosure for purposes ancillary to the arbitration process. The judge stated that had it been the intention of Parliament to grant to those parties who were likely to be parties to arbitral proceedings similar ancillary assistance as provided by section 33(2) of the 1981 Act then it would have made express provision to that effect either in the 1981 Act or, more probably under the Arbitration Act. The judge also held that he had no power to stay the application under section 9 of the Arbitration Act as the application was not “legal proceedings” within the meaning of section 9 and a claim for pre-action disclosure could not be classed as a substantive claim.

The judgment contains some interesting comment on the relevance of the ICC Rules. The sub-contract provided for ICC arbitration and EDO put forward an argument in reliance of Article 23(2) of the ICC Rules, which recognises the power of the court to grant interim and conservatory measures even before a tribunal has been constituted. The judge held that this was not relevant as he did not believe that the ICC Rules yet applied since neither party had formulated a substantive claim let alone commenced arbitral proceedings and that in any event, he did not consider that an application for pre-action disclosure was an interim or conservatory measure. He went on to say that the ICC Rules could not confer additional powers upon the High Court beyond which it had been granted by Parliament. The powers with which the High Court can provide ancillary assistance in support of arbitral proceedings are set out in sections 44(2) and 44(3) of the Arbitration Act and an application for pre-action disclosure did not fall within those sections. Where the power is not expressly given by the section, the court does not have a residual power to grant the relief sought (The Tasman Spirit).

This case is particularly interesting as it goes to support and reinforce the aims of the Arbitration Act, one of which is to minimise court intervention in arbitration (see, for example, section 1(c) of the Arbitration Act - “in matters governed by this Part the court should not intervene except as provided by this Part”). The reasoning behind this is that by choosing arbitration to resolve their disputes, the parties have chosen to resolve all their disputes by arbitration - whether procedural or substantive - and hence arbitral tribunal, not the courts, should make any necessary procedural orders or directions.

However, as alluded to above, the Arbitration Act recognises that in some cases, the court can intervene to support rather than displace the arbitral process. The power of the court to intervene is particularly helpful where the arbitral tribunal is not able to act effectively, if the tribunal is not yet fully constituted or, the tribunal lacks the power to make the required order (for example where no such power is conferred by statute or arbitration rules, or where the order is sought against third parties over whom the tribunal has no power). The powers which the court is entitled to exercise in support of arbitral proceedings as set out in the Arbitration Act are closely defined powers and relate to four main areas, namely, enforcement of the tribunal’s peremptory orders, witness evidence, preserving evidence, property and assets and, finally, injunctive relief and appointment of receivers.

The courts’ role is supportive, not supervisory, and the court will intervene only where this is necessary to support the arbitration but will approach any application in accordance with the principle of non-intervention. So, for example, pursuant to section 44, the court may make orders in relation to evidence, property and assets, or may grant injunctive relief only if the tribunal or any arbitral institution with power to grant such remedies “has no power or is unable for the time being to act effectively” (see section 44(5)).

The case in question supports a strict interpretation of the courts’ powers as outlined above, but from a practical point of view it might be said that the approach adopted was too dogmatic. Was it really the parties’ intention to oust the courts’ jurisdiction to decide all their disputes including one regarding obtaining pre-action disclosure of documents which would determine whether an arbitral claim could be brought at all? It can be argued that the courts would have been supporting a (potential) arbitration by granting the order sought because they could not be said to oust the jurisdiction of a tribunal yet to be constituted. This was not a case of a party trying to frustrate an arbitration clause - they merely wanted to find out whether they should trigger the clause in the first place. The decision, whilst academically satisfying, is frustrating from a practical point of view, and perhaps identifies a lacuna in the relevant legislation which parliament may want to address in due course.

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