England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/02/2015

Mr Justice Andrew Smith:

1. By a series of agreements made in and after 2008 Mr and Mrs Paul Crowther leased a property in France to Mr Stephen Rayment or Ms Jayne Perrott, who were married in 2013. I shall refer to Mr and Mrs Crowther as "the lessors", and the term "the lessees" refers to Mr Rayment or Ms Perrott or both of them, according to the context. The lessors have brought proceedings for an order under section 18 of the Arbitration Act, 1996 for the appointment of an arbitrator or directions therefor, and the lessees have brought proceedings for relief under section 72 of the 1996 Act on the basis that there is no valid and relevant arbitration agreement.

The evidence

2. There is no important issue of primary fact between the parties. The lessors rely on two statements made by Ms Rebecca Richardson of their solicitors, Fox Williams LLP. The lessees rely on statements of Mr Mathieu Doublet, a French avocat and a solicitor with Miller Rosenfalck LLP, who act for them, and of Ms Rita Massad, an avocat who is acting for them in French litigation.
3. The lessees also sought to rely on evidence of Mr Alexis Mourre, a French avocat, about whether French law would consider that the terms between the lessors and lessees give rise to an arbitration agreement. They had not sought or obtained permission to do so, although Fox Williams said in an email dated 29 October 2014 that this was required. At the hearing Ms Saira Paruk, who represented the lessees, sought to argue that evidence of foreign law is not expert evidence for which permission is required under the Civil Procedure Rules ("CPR") 35.4(1). I do not accept that: although in some ways it is an atypical species of the genus, evidence of foreign law is undoubtedly regarded as expert evidence in civil proceedings: see Civil Evidence Act, 1972 s.4(1) and Dicey, Morris & Collins, The Conflict of Laws (15^th Ed, 2012) para 9-013. Therefore, Ms Paruk made an oral application for permission to adduce Mr Mourre's statement. However, the relevant question in this case is whether the terms agreed by the lessors and lessees gave rise to an arbitration agreement within the meaning of the 1996 Act, and, when asked the relevance of evidence about how French law would regard the agreement, Ms Paruk did not press the application. The statement of Mr Mourre is therefore not in evidence. I add only that in my judgment it opined on the application of French law to the facts of the case more directly than is permissible: see Phipson on Evidence (18^th Ed, 2013) para 33-75.

The lease agreements

4. The first lease of the property was dated 19 December 2008, and the parties were the lessors and Mr Rayment as tenant. It was for a term of two years from 1 January 2009 to 31 December 2010. The lease was written in English. The address given for the lessors was in England, and Mr Rayment's address was in Dubai. Ms Perrott was named as a "Permitted Occupant" of the property (as was a housekeeper). In the "Tenancy Particulars", under the heading "The Parties", "The Agent" was named as "Royal Villas Europe, c/o Mrs Janette Gimbert, Royal Villas Management Ltd, Reg no 168380, Reg Office, 2 Kastoras Street, CY 1087 Nicosia, Cyprus", and in the General Tenancy Conditions the lease defined "Agent" in similar terms. The lease also included in the General Tenancy Conditions an agreement that:

"the laws of England and Wales shall apply to this Agreement. In the event of a conflict between any legal or procedural requirements applicable to a property based in France, where the Laws of England do not apply, the Laws of France shall apply".

5. The Tenancy Particulars referred to a deposit of €60,000 to be paid by 5 July 2009 and "held by The Landlord's solicitors as Stakeholders until the expiration or sooner determination of the Tenancy and to be returned with any interest gained by them as detailed in clause 5.2 hereunder", and the "Stakeholders" were named as Thompson, Snell & Passmore, a firm of solicitors. However, clause 5.2 of the General Tenancy Conditions contained contradictory provisions about the deposit, both as to when it was to be paid and who was to hold it: "Before the commencement of the Tenancy hereby created the Tenant shall deposit with the Landlord's Agent as stakeholders the aforementioned sum to be held against all possible liability arising by reason of the Tenant's failure to observe and perform" his obligations. It went on to make detailed provision about how and when the deposit might be used to compensate the lessors for losses and what should happen in the event of a dispute, including this:

"5.2.7 At the end of the tenancy the Agent must tell the tenant within 10 working days of the end of the tenancy if they propose to make any deductions from the deposit.

5.2.8 If there is no dispute the Agent will keep or repay the Deposit, according to the agreed deductions and the conditions of the tenancy agreement. Payment of the deposit or any balance of it will be made within 10 working days of the Landlord and the Tenant agreeing the allocation of the deposit.

5.2.9 The Tenant should try to inform the Agent in writing if the Tenant intends to dispute any of the deductions regarded by the Landlord or the Agent as due from the deposit within 20 working days after the termination or earlier ending of the Tenancy and the Tenant vacating the property.

The Agent is hereby granted the ability to instruct the release of funds from the Stakeholder but may only instruct for the transfer of those funds to either the landlord or the tenant and no other party. In the event that the Agent ceases to trade or to be available for any reason, then the Stakeholders will appoint a new Agent, independent of all parties and with experience in property leases, who will decide on any payments in respect of the damage deposit on behalf of the parties.

5.2.10 If after 10 working days following notification of a dispute the Agent and reasonable attempts having been made in that time to resolve any differences of opinion, there remains an unresolved dispute between the Landlord and the Tenant over the allocation of the Deposit the dispute will (subject to 5.2.11 below) be submitted to the ICE for adjudication. All parties agree to co-operate with the adjudication.

5.2.11 If the amount in dispute is over €40,000 the Landlord and the Tenant agree to submit to formal arbitration through the engagement of an arbitrator appointed by the ICE although, with the written agreement of both parties, the ICE may at his discretion accept the dispute for adjudication. The appointment of an arbitrator will incur an administration fee, to be fixed by the Board of The Dispute Service Ltd from time to time, shared equally between the Landlord and the Tenant; the liability for any subsequent costs will be dependent upon the award made by the arbitrator.

5.2.12 The statutory rights of the Landlord and the Tenant to take legal action through the County Court remain unaffected by clauses 5.2.7 to 5.2.11 above."

Thus, the parties distinguished between "adjudication" and "arbitration". For completeness, I add that the General Tenancy Conditions also provided for a "floating deposit" of €15,000 to €20,000 to cover the lessors' payments for utilities and staff costs, which was to be paid into an account of the lessors in France.

6. By a further lease between the lessors and Mr Rayment (the "second lease") it was agreed that the first lease be terminated and replaced with a term from 12 January 2010 to 11 January 2011. The lessors' and Mr Rayment's addresses were again in England and Dubai respectively. As in the first lease, Royal Villas Europe was named as the Agent, with the same address in Cyprus. There were English and French versions. According to Ms Richardson, the second lease was dated 12 January 2010, but the English copy in evidence is not dated. Under a (misleading) heading "Jurisdiction" it provided, "This agreement is subject to French law. An informal translation is attached to this agreement. The parties expressly agree that in the event of conflict or discrepancy between the French and the English version, the French version will prevail". (There was no relevant conflict between the versions of the second or the third lease, which has a similar provision.)
7. The second lease provided for a "floating deposit" of not less than €15,000 to cover utility and other charges, and then, with regard to the deposit, it provided that:

"In order to guarantee the performance of this Lease and to make provision for the damage that could be caused to the rental property, as well as the various charges and cost of utilities mentioned above, the Lessee will pay on the date of signature of this agreement an amount of [€60,000], as a guarantee, which amount does not bear interest. The Lessor expressly requests the Lessee to pay the deposit to the Agent. Such amount will be retained in escrow by the Agent which is accepted by the Agent. The deposit will be returned within two months from the date of departure of the Lessee, reduced by any the [sic] amount due to the Lessor under this lease plus amounts which were paid by the Lessor but should have been paid by the Lessee. … In the event the deposit is not returned to the Lessee within the two months period, the amount of the deposit which is due to the Lessee will produce interest at the legal interest rate for the benefit of the Lessee".

Thus, while the lease provided for Euro payments generally (including the rent and the floating deposit) to be made by the lessee to Dresdner Bank AG for the account of Arbuthnot Latham & Co Ltd, London for forwarding to the lessors, the deposit was to be paid to the Agent.

8. In the "lease conditions" that comprised annexe 3 to the second lease, there was further agreement about the deposit, under the heading "Inventory":

"3.1.8: At the end of the Lease the Agent must tell the Lessee within 10 working days of the end of the Lease if they propose to make any deductions from the Deposit.

3.1.9: If there is no dispute the Agent will keep or repay the Deposit, according to the agreed deductions and the conditions of the Lease agreement. Payment of the Deposit or any balance of it will be made within 10 working days of the Lessor and the Lessee agreeing the allocation of the deposit.

3.1.10: The Lessee must inform the Agent in writing if the Lessee intends to dispute any of the deductions regarded by the Lessor or the Agent as due from the Deposit within 20 working days after the termination or earlier ending of the Lease and the Lessee vacating the property."

Unlike the first lease, there was no arbitration agreement.

9. By a further lease (the "third lease") the lessors leased the property to Ms Perrott for a term from 12 January 2011 to 11 January 2012. It was said in a further agreement, to which I refer below, to have been "issued in October 2010. It stated English addresses for the lessors and Ms Perrott. Royal Villas Europe were again named as the "Agent", with the same address in Cyprus. Again there were English and French versions, and it had the same so-called "Jurisdiction" provision as the second lease. There was no provision for a floating deposit, but at clause 8 it provided for a deposit, including the terms of the second lease that I have set out.

The further agreement

10. The lessors, the lessees and Royal Europe Villas (and also Arbuthnot Latham, who were, I was told, mortgagees of the property and are not important for present purposes) entered into another agreement dated 19 October 2010 and headed "Further agreement in relation to any damages and the €60,000 deposit being retained by Royal Villas on behalf of Mr Payment and Mrs Perrott below". Mr Rayment's address in Dubai was at the top, and the agreement itself referred to that address for Mr Rayment and an address of Ms Perrott in England. It expressly referred to the first, second and third leases: it is therefore permissible to have regard to them all in interpreting the further agreement.
11. By the further agreement the lessors agreed to postpone the payment of any damages or restoration costs in relation to the first and second leases payable on termination of the second lease on 11 January 2011, and both the lessees agreed that they were jointly and severally responsible for returning the property to the condition described in a report of January 2009 and for damages, repairs and restoration work more generally. The agreement continued, "furthermore all parties hereby consent that the Agent, Royal Villas, may use the deposit provided by either/both of them in order to indemnify Mr and Mrs Crowther from any such further damages for the entire three year period and that this arrangement shall fully satisfy the Lessee's obligations under clause 8 of the October 2010 Tenancy Agreement". (The expression "October 2010 Tenancy Agreement" clearly refers to the third lease: it must have been made in that month, probably at or about the same time as the further agreement.) The further agreement then had this provision: "In the event of any dispute between the Lessor and the Lessee regarding proposed deductions from the deposit, then the Agent's decision shall be final and binding on all parties". The lessors contend, and the lessees deny, that it is an arbitration agreement, and I shall refer to it neutrally as the "dispute provision":

The French proceedings

12. By soon after the start of the third lease, the parties were in dispute. On 18 February 2011 the lessors issued a Commendement de Cesser les Violations du Bail against Ms Perrot, but, according to Ms Massad, it was delivered to the housekeepers at the property, who were the lessors' own employees, and not received by the lessees. On 18 April 2011 they issued against her in the Tribunal of Grasse proceedings for a declaration that she had terminated the lease on 19 March 2011 through non-compliance with the Commandement, and an eviction order. By a letter to the lessors' French lawyers dated 30 August 2011 Ms Perrott denied any breach of the lease and, by producing the letter to the French court, brought a counterclaim in the proceedings. She maintained that the lessors had interfered with her right of occupation and enjoyment of the property and that she therefore had to terminate the lease on 30 September 2011. She sought the return of a proportion of the year's rent, which had been paid in full, and the return of the deposit of €60,000. On 30 September 2011 the lessees vacated the property.
13. The lessees' French lawyers had been in correspondence with Royal Villas Europe about the deposit. On 31 October 2011 Royal Europe Villas wrote that there had been damage to the property to the tune of more that €81,000 and that, if the lessees wished to dispute that, they should do so within 24 hours and otherwise the deposit funds would be transferred to the lessors. In reply the lawyers repeated their request for details of the funds held by the Agent in the "escrow" account, and objected to them being paid to the lessors: "Allow me to inform you that in France there are strict civil and criminal laws regulating escrow account, to which you are subjected". Royal Villas Europe responded that there could be no argument that the lessees owed the lessors "a lot of money", "over [€]80,000 and more to come". They paid the deposit to the lessors on 1 November 2011.
14. On 5 January 2012 there was a hearing before the Tribunal of Grasse. The lessors sought to discontinue the proceedings because the property had been vacated. Mr Rayment applied to be joined as a party with a view to recovering the deposit. On 2 February 2012 the court declined to discontinue the proceedings and permitted the joinder of Mr Rayment. The lessors appealed to the Court of Appeal of Aix-en-Provence, but by an order of 20 December 2012 the appeal was dismissed. The case therefore proceeded in the Tribunal and came to trial on 18 June 2013. Apparently, the lessors served some of their evidence late and the Tribunal refused to admit it. By its judgment of 17 September 2013, the Tribunal upheld the lessees' claim for the repayment of a proportion of the rent and return of the deposit, but rejected the claim for damages for disturbing enjoyment of the property.
15. On 14 October 2013 the lessors served notice of appeal against the judgment of 17 September 2013, and the appeal is pending. In their appeal pleadings the lessors set out the further agreement of 19 October 2010, and plead that the lessors and lessees had agreed that, in the event of dispute between them regarding the deductions to be made to the €60,000, they submitted to the decision of the Agent. They complain that, although the Agent had considered that the security deposit would not cover unpaid repairs and rental charges and so did not return the deposit to the lessees, nevertheless "curiously" the Tribunal took no account of this agreement. The evidence before me is that this "curiosity" arose because the further agreement had not previously been relied on in the French proceedings, or drawn to the Court's attention. In their appeal pleadings of 28 May 2014, the lessees resisted the appeal but did not, I think, respond directly to this argument. It was repeated in the lessors' further (summary) appeal pleading of 19 August 2014.

The English proceedings

16. In a letter dated 29 April 2014 addressed to "Royal Villas" at their Cyprus address Fox Williams wrote that, after the lessees had left the property, "a dispute has ensued as to the existence of outstanding bills, damage, repair and/or restoration works to be carried out" there. It referred to the further agreement, and said that the deposit provision was an agreement to arbitrate and that "you were designated as arbitrator by the parties". It asked that the letter be accepted as notice of arbitration. On 6 June 2014 Mrs Gimbert left with Fox Williams a voicemail message that (according to Fox Williams' attendance note):

"Royal Villas Management closed two years ago. I have none of the files, I am now semi-retired. I cannot remember anything about this, I didn't see the property when the clients left. I cannot adjudicate. I cannot do anything. Please stop sending this stuff; we have no involvement with this at all. Mr Rayment and Mr Crowther will have to sort this out themselves".

17. On 11 July 2014 the lessors issued their proceeding for relief under section 18 of the 1996 Act. On 7 November 2014 the lessees issued their proceedings for a declaration under section 72 of the Act.

The Section 18 application

18. Section 18 of the 1996 Act provides as follows:

"(1) The parties are free to agree what is to happen in the event of a failure of the procedure for the appointment of the arbitral tribunal.

...

(2) If or to the extent that there is no such agreement any party to the arbitration agreement may (upon notice to the other parties) apply to the court to exercise its powers under this section.

(3) The powers are-

(a) to give directions as to the making of any necessary appointments;

(b) to direct that the tribunal shall be constituted by such appointments (or any one or more of them) as have been made;

(c) to revoke any appointments already made;

(d) to make any necessary appointment itself.

(4) An appointment made by the court under this section has effect as if made with the agreement of the parties. …

19. Section 18 is in Part 1 of the 1996 Act, and the provisions of Part 1 apply where "the seat of the arbitration" is in England and Wales or Northern Ireland: section 2(1). Section 3 of the 1996 Act provides as follows:

"In this Part "the seat of the arbitration" means the juridical seat of the arbitration designated –

(a) by the parties to the arbitration agreement, or

(b) by any arbitral or other institution or person vested by the parties with powers in that regard, or

(c) by the arbitral tribunal if so authorised by the parties,

or determined, in the absence of any such designation, having regard to the parties' agreement and all the relevant circumstances."

It is also necessary to set out section 2(4):

"The court may exercise a power conferred by any provision of this Part [sc Part 1] … for the purpose of supporting the arbitral process where-

(a) no seat of the arbitration has been designated or determined, and

(b) by reason of a connection with England and Wales or Northern Ireland the court is satisfied that it is appropriate to do so."

20. Accordingly, I have powers under section 18 only if a sufficient case is made out that:

i) The applicants are "party to an arbitration agreement".

ii) The arbitration agreement is one to which Part 1 of the 1996 Act applies, that is to say either (a) the seat of the arbitration in respect of which the power is to be exercised is in England & Wales or Northern Ireland, or (b) I am satisfied that it is appropriate to exercise the powers by reason of a connection with England & Wales or Northern Ireland.

iii) There has been "a failure in the procedure for the appointment of an arbitral tribunal" so that an appointment is "necessary".

21. It also seems to be obvious that, even if I had powers, I should not exercise them unless it is sufficiently arguable that a claim by the lessors disputed by the lessees is covered by the arbitration agreement and has not already been determined in accordance with it.
22. Section 18 does not impose a duty on the court, even if the conditions for exercising the powers are satisfied. If they are, the powers may be exercised in what has been described as the court's "unfettered" discretion, meaning, as I understand it, that the statute does not stipulate how it is to be exercised and it is subject only to the requirement to act judicially: Atlanska Plovidka v Cogsignaciones Asturianas SA (The "Lapad"), [2004] EWHC 1273 (Comm) at para 24.

The test whether the lessors are party to an arbitration agreement

23. Mr Iain Quirk, who represented the lessors, submitted in his written argument that the first question for consideration is whether "there is a good arguable case that the arbitration agreement exists i.e. whether such a claim would withstand an application for reverse summary judgment", meaning, as I understand it, the test set out in CPR24.2(a)(i) – whether "the claimant has no real prospect of succeeding on the ... issue". This has recently been said to be the same test as whether the claimant is "bound to fail" or whether there is "a serious issue to be tried": Nilon Limited v Royal Westminster Investments SA, [2015] UKPC 2 para 15 per Lord Collins. Ms Paruk did not maintain that the court must be satisfied that it is more likely than not that the conditions are satisfied (that is to say, she did not submit that the test is the balance of probabilities), and she did not dispute that the test is whether a good arguable case has been made out. However, she did not accept that this is the equivalent to that applied on applications for summary judgment or "reverse summary judgment".
24. In the end Mr Quirk did not maintain that the test is whether the applicants have a real prospect of success in establishing that there is an arbitration agreement, and settled for the criterion of "good arguable case". In my judgment, he set too high a hurdle for the lessors. The expression "good arguable case" is commonly used to encapsulate that test used by the court on interlocutory applications of different kinds (where the court has to engage with a problem of testing a case and deciding whether it has been sufficiently satisfied given the limitations of interlocutory hearings and the impracticality of having them develop into something akin to a trial), but it is easier to state than to define and its precise meaning must depend on the purpose for which it is applied. In the context of applications for permission to serve proceedings out of the jurisdiction it means that one side has "much the better of the argument": Canada Trust Co v Stolzenberg (no 2), [1998] 1 WLR 547, 555 and Altimo Holdings and Investment Ltd v Kyrzyg Mobil Tel Ltd, [2012] UKPC 7 para 77. On the other hand, it is also said that the court must be satisfied that the applicant has a "good arguable case" on an application for a freezing order, where because of the stringent nature of the relief there is a higher threshold than whether there is a "serious question to be tried", which test has since American Cyanamid Co v Ethicon Ltd, [1975] AC 396,407 been adopted for most interlocutory injunctions: Snell's Equity (23^rd Ed, 2015) para 18-075. In this context Mustill J described a good arguable case as "one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success" (Nimemia Maritime Corp v Trave Schiffahrtsgellescaft GmbH (The "Niedersachsen"), [1983] 2 Lloyd's Rep 600, 605), and this statement is often cited as authoritative.
25. There are powerful reasons that the courts should not embark further than is strictly necessary on inquiries into whether an arbitration agreement has been concluded and if so whether a particular dispute is covered by it and a tribunal has been duly constituted. This is inherent in the principle of kompetenz-kompetenz, enshrined in section 30 of the 1996 Act. As Burton J explained in Noble Denton Middle East v Noble Denton International, [2010] EWHC 2574 (Comm), this is why the court does not reach a conclusion on an application under section 18 whether there is an arbitration agreement. The argument before him was simply whether (a) this is decided on the balance of probabilities or (b) it suffices that there is a good arguable case: as I understand the judgment, no other possibility was canvassed, and the essence of Burton J's judgment was to reject the former approach. I do not understand its focus to be to define precisely the alternative test: he variously referred to "an arguable case" (loc cit at para 10) and a "good arguable case" (at paras 5, 12 and 16), although the word "good" does undoubtedly make the test more demanding: see Orri v Moundreas, [1981] Comm L R 168.
26. To my mind proper regard for the kompetenz-kompetenz principle requires that the court refrains from anticipating a decision that might be made by the tribunal, unless the applicant's claim to be party to a relevant arbitration agreement can be rejected as having no real prospect of success or (which to my mind amounts to the same thing) would not raise a serious issue. Otherwise the principle demands that the court enforce any arbitration agreement that the parties might have made and leave it to the tribunal to determine the issues in the first instance. If this means that I am departing from what Burton J said in the Noble Denton case, then I respectfully do so (recognising though I do that the "good arguable case" test is endorsed by Merkin and Flannery in Arbitration Act, 1996 (2014) p.105).

Were the lessors party to any arbitration agreement?

27. The lessors were undeniably party to the dispute provision. The question is whether it is an arbitration agreement. Mr Quirk submitted that it is (at least) sufficiently arguable for present purposes that the dispute provision expresses an agreement by the parties that any claim covered by it should be referred to arbitration. He observed that parties can enter into an arbitration agreement without using the words "arbitration" or an "arbitrator", and I accept that: see David Wilson Homes Ltd v Surrey services Ltd, [2001] 1 All E R (Comm) 411 para 11. In England & Wales Cricket Board v Kaneria, [2013] EWHC 1074. Cooke J, following the approach of Thomas J in Walkinshaw v Diniz, [2000] 2 All ER (Comm) 237, considered the question whether the parties had agreed to arbitration by reference to the attributes of an arbitration agreement identified in Mustill & Boyd on Commercial Arbitration (2^nd ed, 1989) p.41: Mr Quirk submitted that in this case the dispute provision between the lessors and lessees has all those attributes, namely:

"(i) The agreement pursuant to which the process is, or is to be, carried on ('the procedural agreement') must contemplate that the tribunal which carries on the process will make a decision which is binding on the parties to the procedural agreement.

(ii) The procedural agreement must contemplate that the process will be carried on between those persons whose substantive rights are determined by the tribunal.

(iii) The jurisdiction of the tribunal to carry on the process and to decide the rights of the parties must derive either from the consent of the parties, or from an order of the court or from a statute the terms of which make it clear that the process is to be an arbitration.

(iv) The tribunal must be chosen, either by the parties or by a method to which they have consented.

(v) The procedural agreement must contemplate that the tribunal will determine the rights of the parties in an impartial manner, with the tribunal owing an equal obligation of fairness towards both sides.

(vi) The agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law.

(vii) The procedural agreement must contemplate a process whereby the tribunal will make a decision upon a dispute which is already formulated at the time when the tribunal is appointed."

28. I accept that the agreement between the lessors and lessees has these attributes but, as Mustill & Boyd (loc cit) explains, they are necessary qualities for an arbitration agreement, but not sufficient. In this case there are to my mind clear indications both in the background to the agreement and its terms that the parties did not intend to agree in the further agreement to arbitration.
29. As I have said, the further agreement is to be interpreted having regard to the background arrangements between the lessors and lessees in the leases to which it referred. In the first lease the deposit was to be held by a "stakeholder", whether the Agent or Thompson Snell & Passmore. In the second and third leases, it is provided that the deposit was to be "retained in escrow by the agent". In Potters v Loppert, [1973] Ch 339, 405 Sir John Pennycuick V-C said that a deposit paid to a stakeholder is paid to him "as principal upon a contractual or quasi-contractual obligation to pay the like sum to one or other of the parties according to the event". If there is a dispute about whether the stake is properly payable to one of the parties, the stakeholder may pay it over, but then he risks having to pay to the other from his own resources: Emmott and Farrand on Title Vol 1 para 2.058. The provision that the Agent should hold the deposit in escrow is to the same effect: in my judgment the parties did not intend to alter the nature of the deposit or the obligations on the Agent with regard thereto. The term "in escrow" is, at least historically, most precisely applied to the delivery of a deed to a third party when the execution is not intended to be complete but operative only in certain circumstances or on certain conditions (Watkins v Nash, (1875) 20 Eq 262), but it is now used by analogy to the delivery of money, stocks and other property to a third party pending an event, most usually until contractual obligations are fulfilled. If a person holding money in escrow pays it over before the event, he – like a stakeholder (or being a stakeholder) – risks having to pay again himself. Thus, there is readily available a businesslike rationale for the provision in the last sentence of the further agreement other than to provide for arbitration: namely to provide that, if it pays the deposit to the lessors or the lessees, the Agent is not exposed to potential liability to the other: the Agent's decision is "final and binding" in that regard. It is readily understandable that the Agent should be given this protection when the identity of the lessee was changed but liability for past damage deferred. I do not overlook that the second and third leases are governed by French law, but there is no evidence that French law materially differs from English law.
30. Three aspects of what was agreed by the dispute provision, in my judgment, make it quite clear that it is not an arbitration agreement. First, it refers to the decision of the Agent, that is to say Royal Villas Europe. The legal nature of Royal Villas Europe is not clear from the evidence, but it was not suggested that it is the trading name or other title of a specific natural person. Only a natural person, not a legal person or a group of persons such as a firm, can be an arbitrator: Mustill & Boyd (loc cit) at p.247. If the last sentence is an arbitration agreement, it must somehow be construed so as to provide (directly or indirectly) for the appointment of a natural person as arbitrator, and I consider this further below (at paras 40-42). But the very fact that the dispute provision can be given effect as an arbitration clause only by adopting a rather contorted interpretation to meet this requirement itself indicates that the parties did not intend to make an arbitration agreement.
31. Secondly, however it is construed, the dispute provision contemplates a decision by someone working as an estate agent or in a comparable capacity. This too indicates that the parties did not intend arbitration. Mustill & Boyd (loc cit) at p.49 observe that the "identity of the tribunal named in the agreement, or the method prescribed for choosing the tribunal, may indicate the type of proceedings which are contemplated. A reference to a tribunal chosen from an arbitral panel of a trade association points in one direction; a reference to a firm of estate agents or accountants may point in the other". This is readily understandable: such persons are commonly appointed by contracting parties to determine questions as an expert valuer or assessor or adjuster, rather than as an arbitrator.
32. Thirdly, the Agent whom the parties named had been involved in management of the property since at least the end of 2008. Indeed, in the French proceedings the lessors plead that the Agent "was present during the drawing up of the inventory". An arbitrator performs in a judicial capacity: he is frequently appointed because of a general familiarity with the subject matter of disputes (or potential disputes), but not because of knowledge of the particular facts. He decides the dispute by evidence in the reference. The parties cannot realistically have expected that the Agent (or a director or employee of the Agent) so to operate under the dispute provision.
33. The further agreement referred to the first lease, in which the lessors and lessee distinguished between adjudication and arbitration, and they would have provided similarly for arbitration if this is what they intended. In the further agreement, however, the parties did not expressly so provide, and, in view of these considerations, in my judgment it is unarguable that the parties did so impliedly. There is no serious issue about this and the lessors have no real prospect of succeeding on the point.

If the parties made an arbitration agreement, does Part 1 of the 1996 Act apply to it?

34. If (contrary to my conclusion) there is a sufficient case that the dispute provision provides for arbitration, it is clear that the parties did not designate its juridical seat, and in those circumstances, the juridical seat would fall to be determined, under section 3 of the 1996 Act, "having regard to the parties' agreement and all the relevant circumstances". I agree with the view expressed by Ramsey J in Chalbury McCouat v P G Foils, [2010] EWHC 2050 (TCC) at para 19 that it is not for the court to determine a juridical seat for an arbitration: that is to be determined, unless the parties agree, by an arbitral tribunal if and when appointed. Accordingly, even if there were a sufficient case that the parties had made an arbitration agreement, the court would not have the powers to make an order under section 18 of the 1996 Act on the basis that the seat of the arbitration is in England and Wales or Northern Ireland. If necessary, I conclude that there is no serious issue about this. Therefore the lessors have to show that the court has powers because of section 2(4): that is to say, because "by reason of a connection with England and Wales or Northern Ireland the court is satisfied that it is appropriate to do so". The requisite connection, as I understand the statute, is with "the arbitral process", or perhaps more precisely (see International Tank and Pipe SAK v Kuwait Aviation Fuelling Co, [1975] QB 224 and the discussion of the case in the Chalbury case (loc cit) at paras 22-24) the issue relating to the arbitral process that has arisen.
35. Mr Quirk submitted that it is appropriate to exercise powers in this case because of connections with England and Wales. In his written argument he identified these connections:

i) The parties are English. Although I have not been shown specific evidence of this, it appears probable that both the lessors and the lessees are English, Ms Paruk did not suggest otherwise and I shall assume for present purposes that they are. (In his written argument Mr Quirk said that the arbitrator too is English, but he rightly abandoned that contention.)

ii) The further agreement was made in English, whereas the determinative versions of the second and third leases were in French.

iii) The lessors lived in England when the further agreement was made.

iv) Ms Perrott's address given in the third lease was in England.

v) The lessors and lessees live in England, and so it is "highly likely" that the arbitration will take place in England. Again, I was shown no specific evidence about where the lessors and lessees now live but I shall assume, in the absence of dissent from Ms Paruk, that Mr Quirk is right about that.

36. I know of no authority about the standard to which the court has to be "satisfied" that it is appropriate to exercise a power of this kind, but the policy of the provision is explained in the Departmental Advisory Committee's Supplementary Report on the Arbitration Bill. That explains that section 2(4) is designed to deal with cases in which a seat has still to be designated or determined but where recourse to the Court is necessary in the meantime, and continues (at para 16):

"It was our view … that the English Court should be able to exercise supportive powers if there is a sufficient connection with England and Wales or Northern Ireland such that this is appropriate (i.e. the requirement in section 2(4)(b)), and if there will be no clash with a foreign jurisdiction. For example, there will be cases where it is extremely likely that once a seat is designated, that seat will be England and Wales or Northern Ireland."

Despite the French proceedings, I do not think that there would be a "clash with a foreign jurisdiction" of the kind that concerned the Committee. There seems no realistic possibility that the courts of any other jurisdiction might be invited to appoint an arbitrator by the lessors or the lessees or, if invited, would be inclined to exercise it. It does not follow that any of the "connections" identified by the lessors means that it is appropriate for this court to do so.

37. To my mind, while Mr Quirk's second, third and fourth points identify connections between the (putative) arbitration agreement and England, they do not identify connections between England and the arbitral process or the determination of an issue relating to it. Nor do I consider that the nationality of the parties to the arbitration agreement and the prospective parties to the reference is in itself a sufficient connection to make it appropriate to exercise any of the section 18 powers: that would depend on whether their nationality is of significance to the dispute or the process: I see no significance here.
38. I would in this case consider it a sufficient connection if Mr Quirk is right in his submission that it is likely (or highly likely) that any arbitration would take place in England, although, of course, hearings in a reference do not necessarily take place in the arbitration's seat (or juridical seat). But I am not persuaded that any reference is likely to be heard in England. The residence of the parties might have some bearing on that, but four more powerful considerations seem to me clearly to indicate that it is more likely that a reference would be heard in France.

i) First, the witnesses: there is no specific evidence about who would be likely to give evidence in a reference. I infer that Ms Perrott might do so, but I see no reason to think that that the lessors or Mr Rayment would. Otherwise witnesses about damage and the cost of any works to restore the property are more likely to be in France.

ii) Secondly, the property is in France, and in a dispute of this kind it is probable, I would suppose, that an arbitrator might well want to see it.

iii) Thirdly, the second and third leases are governed by French law. The natural inference in that the further agreement was intended to be governed by the same law. This is significant in itself: it makes obvious sense that the reference should be conducted by French lawyers, obviating any need for expert evidence as to French law. Moreover, the corollary here is, in my judgment, that the arbitral agreement is governed by French law. In Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd, [1993] AC 334, 357-358 Lord Mustill said that "Exceptionally" the law of the arbitration agreement might differ from the law governing the interpretation of the substantive agreement. In Sulamérica Cia Nacional de Seguros SA v Enesa Egnenharia SA, [2012] EWCA Civ 638 Moore-Bick LJ explained (at para 26) that "In the absence of any indication to the contrary, an express choice of law governing the substantial contract is a strong indication of the parties' intention in relation to the agreement to arbitrate". Ms Paruk did not submit that the parties therefore impliedly designated France as the seat of the arbitration, but it is another indication that a French seat would be more appropriate than England & Wales.

iv) The arbitrator: if the court is considering the exercise of powers under section 18 of the 1996 Act, it is to have "due regard to any agreement of the parties as to the qualifications required of the arbitrators": see section 19. However the dispute provision is interpreted (see paras 40-42 below), the parties' agreement points to the parties looking to the dispute being resolved by an estate agent or property manager with experience of leasing French properties. The likelihood is that any arbitrator or arbitral panel appointed with due regard to the parties agreement would be resident in France.

39. In his oral submissions Mr Quirk submitted that the rent was payable to the lessors in England. The evidence about this was not convincing: as I have said, the lessors did, apparently, have at least one French bank account. But in any event, there is no significant connection between where rents or other moneys are paid and any arbitral process.
40. I am therefore not satisfied that there is a connection with England and Wales that makes it appropriate to exercise any of the section 18 powers, and therefore, even had I concluded that the lessors have a sufficient case that the dispute provision is an arbitration agreement, I would not have jurisdiction to make an appointment or to give directions as to the making of an appointment.

Has there been "a failure in the procedure for the appointment of an arbitral tribunal" so that an appointment is "necessary"?

41. The lessors submit that there has been "a failure in the procedure for the appointment of an arbitral tribunal" because of the message that Fox Williams received on their voicemail from Mrs Gimbert on 6 June 2014: she said that "Royal Villas Management [had] closed" and she refused to conduct an arbitration herself. Would a procedure for the appointment of a tribunal have failed in these circumstances if the dispute provision had provided (as Mr Quirk first submitted) that Mrs Gimbert should be arbitrator? To my mind it strains the literal meaning of section 18 to say that it has. Rather, the parties themselves have appointed an arbitrator in the arbitration agreement, and if the appointee refuses the appointment, it might be said that neither party should be compelled to accept an arbitrator to whom he did not agree. However, I can also see force in an argument that the section should be given a more generous interpretation in order to support arbitral processes. I did not receive submissions about this question, and, as I shall explain, it does not arise on the interpretation of the dispute provision that in the end the lessors invited me to adopt; and in those circumstances I say no more about it.
42. How then would the dispute provision work if it is taken to have provided for arbitration? As I have said, only a natural person can be an arbitrator, and the lessors sought a meaning for the dispute provision that accommodates this. As I have said, their first suggestion was that on its true construction it provides for Mrs Gimbert to be the arbitrator because the address given for the Agent was "c/o Mrs Janette Gimbert". However, in the course of the hearing Mr Quirk rightly acknowledged that this is too fragile a basis for this interpretation. Instead he relied on the statement in Mustill & Boyd (loc cit) at p.247 that where an arbitration agreement provides there is to be a reference to an association, "it is usual to read the agreement as if the reference were to persons nominated by the association from amongst its members". This is said about the position where an arbitration agreement provides for reference to a trade association, and the meaning of "members" in this context is tolerably clear. However, Mr Quirk submitted that a comparable approach should be taken in this case: he accepted that the intention could not have been that Royal Villas Management Ltd should make an appointment from its "members" in the usual sense of that term in relation to a limited company, that is to say its shareholders, but he submitted that the evinced intention was that the company should nominate a director to be the arbitrator.
43. I cannot give this meaning to the dispute provision, and to my mind the very fact that the lessors are driven to make this submission underlines that the dispute provision cannot be understood to provide for arbitration. However, their argument takes the lessors to another problem: they never asked Royal Villas Management Ltd to nominate a director to be arbitrator, and so, in my judgment, have not shown that the procedure for appointing an arbitrator has failed. I recognise that Mrs Gimbert apparently said that "Royal Villas Management closed", but it is not clear quite what she meant by that vague statement: there is no evidence that persuades me that the company has been put into liquidation or otherwise ceased to exist.

The lessors' argument based on the lessees' section 72 proceedings

44. However, the lessors presented another argument. They submit that, because they bring a claim under section 72 of the 1996 Act (which is also in Part 1 of the Act), the lessees have implicitly accepted and asserted that Part 1 applies to any (putative) arbitration agreement and so cannot dispute that the court has powers under section 18. From this starting point, Mr Quirk submitted the following:

i) That the English proceedings are one of the "relevant circumstances" within the meaning of section 3 of the 1996 Act.

ii) That the lessees are therefore estopped by representation from asserting that "the seat of the arbitration is not England".

iii) That the lessees cannot so assert because of the doctrine of equitable estoppel.

iv) The lessees have waived their right to assert that the seat of the arbitration is not England.

v) The lessees "are not able to dispute the jurisdiction of the Court to make an order under section 18 of the [1996] Act, since [they] have positively asserted that it has such jurisdiction under Part 1 …".

45. In my judgment, whatever the legal categorisation, all these arguments assume that the parties can confer on the court jurisdiction that it does not otherwise have, and the assumption is wrong: "Where, by reason of any limitation imposed by statute, charter or commission, a court is without jurisdiction to entertain any particular claim or matter, neither the acquisition nor the express consent of the parties can confer jurisdiction upon the court, nor can consent give a court jurisdiction if a condition which goes to the jurisdiction has not been performed or fulfilled", Halsbury's Laws of England (5^th ed) vol 24 (2010) at para 626. Further, in the section 72 proceedings the lessees do not assert that the dispute provision constitutes an arbitration agreement: they assert the opposite. I shall therefore comment only briefly on the individual arguments that Mr Quirk formulated:

i) The question of "relevant circumstances" under section 3 of the 1996 Act does not arise. This case is not covered by section 3 because no seat has been designated by the parties, by an institution or a person vested by the parties with relevant powers or by a tribunal, and no seat has been determined. (It was not suggested that because section 72 proceedings were brought the parties have "designated" England and Wales as the seat of any putative arbitration.)

ii) I do not understand what representation is said to have been made by the lessees when they brought their proceedings, but in any case there is no evidence of reliance.

iii) It was submitted with regard to equitable estoppel that the case is covered by what Lord Cairns LC said in Hughes v Metropolitan Ry, (1877) 2 App Cas 439, [1877] UKHL 1 because the lessees had led the lessors "to suppose that strict rights arising under a contract will not be enforced, or will be kept in suspense, or held in abeyance" and therefore "the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between them". There is no evidence that the lessors were led into any belief about what the lessees intended (or about anything else), and further I cannot see how it would be equitable to compel the lessees to have the dispute arbitrated.

iv) Mr Quirk suggested that the lessees were bound by a waiver by election, of the kind explained in Chitty on Contract (31^st Ed, 2012) para 24-007. Such an election is made only when an intention is evinced in clear and unequivocal terms: Motor Oil Hellas (Corinth) Refinerie SA v Shipping Corp of India ("The Kanchenjunga"), [1990] 1 Lloyd's rep 391, 397-198. The lessees did not so evince any intention of the kind alleged when they brought their proceedings.

v) Mr Quirk's fifth submission is really no more than an assertion as to the conclusion said to flow from his other argument.

46. I therefore reject the lessors' arguments based on the section 72 proceedings.

Is the disputed claim by the lessors covered by the dispute provision?

47. Even if I had concluded that I have powers under section 18 of the Act, I would not exercise them because in my judgment the claim that the lessors make and the lessees dispute is not covered by the dispute provision. In their claim form the lessors state that the dispute is "as to the existence of outstanding bills, damage, repair and/or restoration works to be carried out on the Property". On the face of it, therefore, it is not about proposed deductions from the deposit. However, Mr Quirk submitted that the dispute provision is to be understood to cover disputes concerning damages, repairs and restoration works such as are referred to in the further agreement. He cited the decision in Premium Nafta Products Ltd v Fili Shipping Co Ltd, [2007] UKHL 40 in support of his submission that arbitration agreements should be given a generous interpretation Lord Hoffmann said at para 13, " In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal". It is not in evidence whether the lessors and the lessees are all businesspeople, but more importantly, however the dispute provision is interpreted, it does not cover all disputes that might arise between the lessors and the lessees. Even on Mr Quirk's interpretation of the provision the parties did not gather all disputes before the same tribunal: it is not a question whether they drew a line between potential disputes covered by the provision and those that were not, but where they drew it. I therefore see no good reason to strain the wording agreed by the parties to cover the instant dispute.

Has the disputed claim already been decided under the dispute provision?

48. In the appeal proceedings in France the lessors plead the further agreement, including the dispute provision, and that the Agent "did not return the security deposit, in accordance with the agreement drawn up between the parties on 19 October 2010". They contend in those proceedings that the agreement "has mandatory force between the parties" and that the Court of Appeal should "consider that since the decision of the estate agent has mandatory force between the parties, no return of the security deposit could be made". Although Mr Quirk was reluctant to accept this, I cannot see how this is other than a plea that the Agent has fulfilled the role that was assumed by it under the dispute provision.
49. However, the lessors are prepared, if their application under section 18 succeeds and the lessees' application under section 72 is dismissed, to give an undertaking "not to argue before the French Court of Appeal that there has been a decision of the Agent which is final and has binding character". Further, if the lessors are correct in their contention that the dispute provision constitutes an arbitration agreement, it is fanciful to regard the decision of the Agent to pay the deposit to the lessors as the determination of a reference. I therefore would not refuse the lessors' application by reason of their French pleading.

Should the power be exercised?

50. In the Atlanska Plovidka case (loc cit) Moore-Bick J observed at para 24 that the nature of the arbitral process and the desirability of holding the parties to their agreement to arbitrate together:

"… provide strong grounds for exercising the court's discretion in favour of constituting the tribunal except in the small number of cases in which it can be seen that the arbitral process cannot result in a fair resolution of the dispute."

He went on to say that delay and expense would not generally be sufficient reason not to do so.

51. I respectfully agree with this observation about how the court will approach the generally unfettered discretion given by section 18 and the reasons for that approach. The unusual circumstance of this case, however, is the litigation in France, and Ms Paruk submitted that in view of it I should not exercise any power that I have. Her argument was that the lessors have invoked and submitted to the jurisdiction of the French court and did not contend that the dispute provision is binding in relation to the dispute until they had lost before the Tribunal. They are therefore not entitled to bring the claim about which they wish to arbitrate because they are estopped per rem judicatam or there is an issue estoppel; and furthermore the French proceedings are continuing and so there is lis alibi pendens. I do not accept these arguments: if I were otherwise minded to grant the lessors' application, I would consider it for the tribunal to decide whether the lessees have any defence of this kind. If the lessors' claim were obviously hopeless because of such a defence, that would be a reason not to exercise the discretionary power in the lessors' favour, but this is not a clear case: in the French proceedings the lessors did not bring a claim for compensation in respect of damage to the property or a failure to restore or repair it, and complaints about the condition of the property were raised by the lessors only in the context of the lessees' claim for the return of the deposit.

Conclusions on the lessors' application

52. I therefore conclude that I have no powers under section 18 of the 1996 Act. If I had, I would decline to exercise them because the lessors have no real prospect of successfully contending that their claim is covered by the dispute provision. I add only this: the lessors suggest the appointment as arbitrator of a named person or "some other suitable person" or that an appointment be made by the Chartered Institute of Arbitrators. Had I decided to make an order under section 18, I would have invited further argument about whether the orders sought pay proper regard to the dispute provision in accordance with section 19 of the 1996 Act.

The lessees' application under section 72 of the 1996 Act.

53. Ms Paruk explained that the lessees brought their proceedings under section 72 of the 1996 Act lest the court decide that the lessors had made a sufficient case for their section 18 application that the dispute provision is an arbitration agreement, and with a view to having the issue then determined on the balance of probabilities. They therefore seek the discretionary remedies of:

i) a declaration that the arbitration agreement on which the [lessors] rely is invalid and/or does not cover the matters which the [lessors] have purported to refer; and/or

ii) an injunction restraining the arbitral proceedings that the lessors claim to have brought.

In view of my other conclusions, this relief would be pointless and I do not grant it.