European Film Bonds v Lotus Holdings LLC (2019)
The court declined to stay proceedings under the Arbitration Act 1996 s.9 where an arbitration agreement in a film completion guarantee covered the issue whether completion and delivery of the film had occurred but not the issue between the parties as to whether in the circumstances completion and delivery was deemed to have occurred. The court declined to stay the proceedings in the exercise of its inherent jurisdiction or on case management grounds.
The first to third defendants sought a stay under the Arbitration Act 1996 s.9 or the court's inherent jurisdiction of a claim for declaratory relief in respect of a film completion guarantee agreement (CGA).
The third defendant (D3) was the producer of the film. The first and second defendants (Lotus) were the sales agents and beneficiaries of the CGA entered into by the first claimant (EFB) and by an agent (DFG) acting for the second to eighth claimants as guarantors. The CGA provided for English law and the exclusive jurisdiction of the English courts. Schedule 2 to the CGA dealt with delivery of the film and provided that any dispute between Lotus, EFB and the guarantors as to whether completion and delivery of the film had been effected would be submitted to binding arbitration in California under the auspices of the Independent Film & Television Alliance (IFTA) and subject to Californian law. Paragraph 11.3.1 provided that the arbitrator was only to consider three specific technical issues relating to the materials delivered to Lotus. In addition to the CGA, Lotus, D3, EFB, DFG and others had entered into a Sales Agent Interparty Agreement (SAIPA). Clause 9.2 of the CGA provided that its provisions were subject to the provisions of the SAIPA, which would prevail if there was a conflict. The SAIPA provided for English law and the non-exclusive jurisdiction of the English courts, but that any dispute about whether completion and delivery of the film had occurred would be submitted to arbitration in California under IFTA's rules. In March 2018 the guarantors exercised their right to take over production of the film with immediate effect. In September 2018 certain materials were delivered to Lotus as sales agent but Lotus objected alleging that in various respects the materials were not suitable for the making of commercially acceptable prints or broadcast materials. EFB asked for the return of the materials in accordance with the terms of the CGA and their case was that Lotus had failed to return the materials within the time specified in para 5.2 of Sch.2 to the CGA with the result, in accordance with para.9 of the Sch.2, that "completion and delivery of the Film shall be conclusively presumed to have been effected and the Sales Agent shall be conclusively presumed to have issued an Acceptance Notice." In October 2018 the defendants began an IFTA arbitration in California seeking a declaration that the guarantors had not completed and delivered the film, payment under the completion guarantee, and damages. The guarantors began English proceedings for a declaration that completion and delivery of the film to Lotus had been effected. The guarantors asked the US arbitrator to stay the arbitration pending determination of the English claim, but he declined to do so. The guarantors then asked the arbitrator to rule that his jurisdiction was limited to the technical issues set out in para.11.3.1 of the CGA or to determine as a preliminary issue the subject-matter of the English claim, namely whether the delivery of the film was "deemed" accepted by Lotus due to their failure to comply with the terms of para.5.2. The arbitrator refused to make the orders sought. The guarantors had brought proceedings in California challenging that decision. The issues on the defendants' application for a stay of the English proceedings were (i) whether the law applicable to the arbitration agreements in the CGA and SAIPA was English or Californian law; (ii) whether the question whether the issue in the English claim was within the scope of the arbitration agreement was a matter for the arbitrator; (iii) if not, whether the issue in the English claim was within the scope of the arbitration agreement; and (iv) whether the English proceedings should be stayed under the inherent jurisdiction or case management powers pending the decision of the California court.
Law applicable to arbitration agreements - The terms of the CGA and SAIPA providing for English law to apply extended to the arbitration agreements contained in them. There was therefore an express choice of English law to govern the arbitration agreements, notwithstanding that the law applicable to the arbitration was Californian law, Arsanovia Ltd v Cruz City 1 Mauritius Holdings  EWHC 3702 (Comm) considered. In any event, in the absence of any evidence of relevant differences between Californian and English law on questions of interpretation of the agreements and/or the arbitration agreements, the court would apply English law by default (see paras 136-147 of judgment).
Whether arbitrator had power to determine scope issue - There was a distinction between an arbitrator's ordinary or general power to rule on his own jurisdiction, and the particular case where the parties had agreed that the arbitrator should decide the issue of arbitrability or the scope of the arbitration agreement, Dallah Real Estate & Tourism Holding Co v Pakistan  UKSC 46 considered. In the former case the competence/competence principle did not enable an arbitrator to determine the scope of his own jurisdiction in a way which bound a court under s.103 or s.9. In the latter case, subject to appeal to or review by the supervisory court, the arbitrator's decision as to jurisdiction would not be capable of challenge in a court and would determine the scope issue so far as a court dealing with an application under s.9 was concerned, Weissfisch v Julius  EWCA Civ 218 and Al-Naimi (t/a Buildmaster Construction Services) v Islamic Press Agency Inc  1 Lloyd's Rep. 522 considered. The IFTA rules provided for the arbitrator to determine his own jurisdiction but did not demonstrate that the parties had agreed to submit the question of arbitrability to the arbitrator. The arbitration agreements in the CGA and SAIPA specified the issues to be arbitrated and those issues did not include the scope issue. The IFTA rules only provided the procedure for what had been agreed to be arbitrated (paras 148-190).
Stay under inherent jurisdiction/case management - Weighing up the competing considerations, the balance came down very heavily in favour of not staying the English proceedings for the scope issue to be determined in California. There were nothing like exceptional circumstances justifying such a stay. It would not be just or in accordance with the overriding objective to stay the English proceedings to enable the substantive issue to be determined in California (paras 191-204).
Scope of arbitration agreement - Under the CGA arbitration agreement the parties had agreed to arbitrate any dispute as to whether completion and delivery of the film, as defined, had been effected. They had not expressly agreed to arbitrate a dispute as to whether completion and delivery of the film was to be conclusively presumed to have been effected under para.9 of Sch.2 to the CGA. The definition of completion and delivery in the CGA referred to the tender of delivery of materials to Lotus and the subsequent actions of the guarantor, but not to the obligation of Lotus to return the materials if so requested by the guarantor. On the correct interpretation of the CGA arbitration agreement it did not extend to the issue of whether that obligation was satisfied. That conclusion was not affected by the terms of the SAIPA, to which the second to eighth claimants were not parties. If there was a conflict the terms of the SAIPA would prevail, but there was no conflict. The agreements were made between different parties and covered different disputes. The substantive issue was not within the scope of the CGA arbitration agreement and it followed that the court could not stay the proceedings under s.9. In any event D3 was not a party to the CGA arbitration agreement and could not rely on s.9 (paras 205-223).