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Cite as: [1998] UR 185A

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ROYAL COURT

(Samedi Division)

4 September 1998

Before: FC Hamon, Esq., Deputy Bailiff, sitting alone

BetweenHenry Crichton CraigPlaintiff

AndBrian John Pierce

Peter Edward Francis Newbold

Ian Robert Richardson

James N H Bennett

Richard J S ProsserDefendants

Application by the Defendants for a declaration that the Royal Court has no jurisdiction to deal with the matters in dispute, and for an Order staying proceedings, pending the outcome of an arbitration envisaged by the Partnership Agreement.

Advocate M M G Voisin for the Plaintiff

Advocate W J Bailhache for the Defendants

JUDGMENT

THE DEPUTY BAILIFF: The Plaintiff is a chartered accountant. He has been in practice for many years in the partnership known as Reads & Co.

On the 6 October 1982, a Partnership Agreement was entered into between four English partners and five Jersey Partners (one of whom was the Plaintiff). The Agreement was for the English and Jersey Partners to remain and continue in partnership under the name and style of Reads & Co.

Of the Jersey Partners, one retired on 30 June 1986. The Plaintiff retired on the 30 June 1995. Two others joined the Partnership on 1 July 1984 and 1 July 1994 and the English Partners resigned en bloc from the Partnership on or about 30 June 1987.

I do not wish to involve myself in the complexities of this case but certain matters of undisputed fact are necessary to the understanding of the decision that I am asked to make.

As a result of the Plaintiffs retiring from the Partnership the provisions of the Partnership Agreement in relation to the acquisition of a retired Partners share of the capital and goodwill of the Partnership, in the ratio applicable to the shared profits came into effect and in particular Clauses 5, 6, 16, 20, 21, 23 and 28.

There is no dispute between the parties that the Defendants have to make payment (and payments have been made) and all might have been well had not a singular event occurred which led to a question as to whether the term "profits" referred to in Clause 21 of the Partnership Agreement includes capital profits.

At the time that the Plaintiff retired from the partnership, it owned a number of in-house companies. One of them was Reads Trust Company Limited. The company made a significant contribution to the profits of the partnership. On the 14 October 1996, shortly after he had retired, the Plaintiff learned at a meeting with two of the existing Partners that a sale of the Trust Company was contemplated. The sale was completed on 15 October 1996 and was deemed to be effective from the 1 July 1996.

The Plaintiff expressed his concern at this capital disposal and discussion took place. It is clear that the sale generated a very substantial capital gain but the Defendants consider that capital profits arising out of the sale of the Trust Company fell outside the definition of annual net profits. The Plaintiff did not agree. Indeed, the Defendants claim that they made an advance to the Plaintiff of capital and sums on account of goodwill based on the budget to June 1997. The sale agreement was the subject of a confidentiality agreement. Advocate Voisin stated unequivocally that general disclosure of the consideration paid for the Trust Company could have a material effect on the minds of the staff and on the present clients of the company.

On the 8 July 1997, the Plaintiff issued an Order of Justice which was served on the Defendants on the 10 July. Discussions took place and on the 4 December 1997, these parties entered into their own Confidentiality Agreement. On the 20 February 1998, a set of accounts of Reads & Co. to 30 June 1997, together with a combined management profit and loss account and balance sheet of Reads & Co. and Reads Trust Company Limited to 30 June, 1997, was sent to the Plaintiff. There was no agreement and, in consequence, the action was placed on the pending list on 14 August, 1998. The Defendants at the time "reserved their rights to contest the jurisdiction of the Court".

This then, is the nub of the dispute.

There is in Clause 28 of the Agreement these words:

"All matters of difference in relation to the Partnership affairs (except those hereinbefore otherwise provided for) shall be referred to a single arbitrator appointed by the President of the Jersey Law Society for the time being and the decision of such arbitrator shall be final and binding on all partners".

The Order of Justice in its Prayer asks for the following relief:

a declaration that under the terms of the agreement whether express or implied, the remaining Partners are under a duty to disclose the information (that is disclosure of documentation and other information pertaining to the sale)
a declaration that the term "profits" within the agreement includes capital profits
costs

It may be that those are the questions that the Arbitrator will have to resolve if the matter were to come to arbitration.

The Defendants ask for a declaration (I shall ignore the fact that it is made under Rule 6/7A of the Royal Court Rules because I cannot see the relevance of that Rule in this context) that the Court has no jurisdiction to deal with the matters in dispute and to order a stay of proceedings pending the outcome of arbitration.

Advocate Bailhache began his argument with a short point. The wording of Clause 28 is so different to the "normal" arbitration clause that it was not intended to extend to a dispute of the present nature. There was, in his view, a distinction to be drawn between the affairs of the partnership as such and the obligations of the partners to make a goodwill payment in their due proportion to a retired partner. The "normal" clause would be similar in wording to "any dispute between the parties arising out of the Agreement".

There is no specific proper law of the contract but I will assume that the agreement is governed by Jersey law. It concerns a Jersey partnership carrying on business in Jersey. The President of the Jersey Law Society is to appoint a single arbitrator and the whole tenor of the agreement leans towards Jersey Law.

Whether this agreement was drafted by a Jersey lawyer is quite another matter. In interpreting the arbitration clause I intend to look only at the words themselves. In interpreting Clause 28, it is necessary to have regard to Clause 18 which reads:

"If any difference of opinion arises between the Jersey Partners as regards what is the preferable professional usage and/or etiquette in any matter the same shall be referred to the London Partners whose decision thereon shall be accepted as final and binding on the Jersey Partners".

That with some other clauses dealing with legacies (Clause 11) involving oneself as a partner in matters forbidden by a majority (Clause 16) and exchange of information (Clause 11) probably (my list is not comprehensive) covers the matters within the parenthesis to Clause 28: "(except those hereinbefore otherwise provided for)". In my view the proper interpretation of Clause 28 is, to put it in another form, "in all matters of partnership where the parties to the agreement disagree" then an arbitrator can be appointed. I have no doubt that is what the draftsman intended and I shall proceed on that basis.

Should I grant a stay?

In GKN (Jersey) Ltd -v- The Resources Recovery Board (1982) JJ 359 at 366 the Court said:

"we consider that the duty of this Court is to follow the local precedents which we have cited and to apply to this case the principle "la convention fait la loi des parties."

That was a case very similar in its argument to the present case. The Court also referred to Wallis -v- Taylor (1965) JJ 455 at 457 and confirmed that the Court would enforce agreements, provided that, in the words of Pothier (Oeuvres de Pothier) Traité des Obligations (1821 Ed’n) at p 91:

"elles ne contiennent rien de contraires aux lois et aux bonnes moeurs, et qu’elles interviennent entre personnes capables de contracter".

We have to note, in passing, that at page 368 of its judgment the Court said:

"Our attention has also been drawn to Russell on Arbitration (19th Edition), page 190, which states:

"Where parties have agreed to refer a dispute to arbitration, and one of them, notwithstanding that agreement, commences an action to have the dispute determined by the Court, the prima facie leaning of the Court is to stay the action and leave the Plaintiff to the tribunal to which he has agreed ... the burden of showing cause why effect should not be given to the agreement to submit is upon the party opposing the application to stay."

We agree with that statement."

Advocate Bailhache made several points to persuade us not to stay the proceedings but to allow the Court to deal with the matter.

His first point was that the Arbitrator cannot do justice to a question that bristles with legal difficulty. We have in this jurisdiction no arbitration act and consequently where (it is a rhetorical question) can the arbitrator derive his power to make orders, police orders, deal with a request for further or better discovery or go behind an affidavit perhaps by granting interrogatories? We must agree but it is not a problem that is unique. The final words of the Court in Selab Securities -v- Orthez Holdings and Ors (24 November 1988) Jersey Unreported are these:

"We therefore order that the action be stayed pending the determination of the dispute by arbitration and that the arbitrator or any party have leave to make application to the Court for any direction, order or relief as may be thought required."

Secondly, he asked me to look at the nature of the dispute which involved a point of law which could not be final despite the wording of Clause 28 that "the decision of such arbitrator shall be final and binding on all parties."

He cited the case of Hyams -v- Docker (1969) 1 Ch 341 at 342 (a case which involved two parties who were later to become well established in this jurisdiction). In his judgment Plowman J said this at page 347:

"But it is the fact here that, as I have already stated, the arbitrator who has been appointed by the president of the relevant federation is unwilling to arbitrate on the construction of the contract, and it seemed to me that there was a good deal to be said for regarding this as one of the cases of the order to which Lord Parker of Waddington referred in Bristol Corporation -v- John Aird & Co., [1913] A C 241, where he says this at p 261:

"... It is, I know, a common thing to stay an action as to one matter in dispute and at the same time to allow it to proceed as to another, notwithstanding that both matters are within the reference; and I think it is obviously a desirable course in many cases, for this reason, that very often the matters subject to the reference include both the question of the true construction of the instrument containing the submission, and also various matter of detail, and it may be of account. Everybody known that with regard to the construction of an agreement it is absolutely useless to stay the action, because it will only come back to the Court on a case stated; therefore it is more convenient on a question of construction to allow the action to proceed; and at the same time with regard to accounts and matters of detail to allow the arbitration to proceed."

It is fair to say that Lord Parkers opinion that it is useless to stay an action on a question of construction because it will only come back to the Court on a case stated has been the subject of further observations in the House of Lords in the later case of Heyman and Another -v- Darwins, Ltd., [1942] A C 356, a p. 389; (1942) 72 Ll. L. Rep. 65, at p 83, but the point for which I referred to that passage still holds good, namely, that the appropriate course in certain cases may be to refer part of the action to arbitration, but to retain it in the High Court in another. Therefore, subject to a matter to which I must refer in a moment, I think there is a great deal to be said for leaving what I would call Part I of the statement of claim in this division because generally speaking what it is dealing with is purely a question of construction, but at the same time to stay the action in respect of what I would call Part II of the statement of claim - par. 7 of the statement of claim and the prayer which is referred to in that paragraph. I am convinced that that is the right course with regard to Part II of the statement of claim, and in so far as that is concerned I am going to grant a stay and let the question of fact go to arbitration."

It has been necessary for me to look further at the House of Lords decision cited above. I have to note that in his judgment Lord Wright said this:

"The judge seems to rely on the language which he quotes from Lord Parker in Bristol Corporation -v- John Aird, Ld. (I) to the effect that "Everyone knows that with regard to the construction of an agreement it is absolutely useless to stay the action, because it will only come back to the court on a case stated". Any expression of opinion falling from that great judge must receive the most careful consideration, but it would not be safe to tear it from its context and give it a general application. I need not quote authorities for what has been said so often, that under a general submission the arbitrator is appointed to decide issues both of fact and of law. In the background, indeed, is the court’s jurisdiction to set aside an award if it is bad in law on its face, and the opinion of the court on issues of law may be invoked by means of cases stated under the Acts of 1889 and 1934, but, if the submission is general, it will require some substantial reason to induce the court to deny its due effect to the agreement of the parties to submit the whole dispute, whether it includes both fact and law or is limited to either fact or law."

It is clear from this case that some points of law may be particularly suitable for determination by a Court but it is difficult for me to see, in the context of the prayer of the Order of Justice, that the question of whether the term "profits" within the Agreement includes capital profits falls within that obvious category.

This leads into Advocate Bailhaches third objection which is that an Arbitrator cannot grant declaratory relief and it is a declaration that is sought on both limbs of the prayer. I find it difficult to understand why an arbitrator cannot in his award make a declaration. I shall come back to the "duty to disclose" point in a moment. In 4 Halsbury 2 para. 685, there is this statement:

"An award may also contain a declaration as to the respective rights of the parties or a declaration that one party is entitled to be indemnified by the other in respect of a liability or expenditure incurred by him".

Finally Advocate Bailhache stressed the fact that while there was no question of impropriety here there were still reputational issues for professional men which were of some importance to them. He cited in support the final words of Warner J in Turner -v- Fenton and Ors (1982) 1 All ER 8 at 18 (and I eschew the allegations made against the professional men in that case because they are not relevant here.)

"There is, however, a clear indication in Charles Osenton & Co., -v- Johnston that, where a professional mans reputation is at stake, he ought to have the benefit of a trial in the High Court. It is, at the end of the day, a matter of discretion, and I have come to the conclusion that in this case the plaintiff ought to be allowed to proceed with his action in this court.

Counsel for the plaintiff relied, also, on the circumstances that the case will give rise to questions of construction of the partnership agreement, and there is authority to show that that, too, can be a ground for retaining a case in the High Court despite an arbitration clause. I think that it is an additional ground, in the nature of a makeweight, for me to exercise my discretion in the manner that I have indicated."

I must return to a point which has caused some difficulty. The Trust Company is not party to the Order of Justice and it was, apparently, a non-negotiable term of the sale that the financial information is strictly confidential between the parties. In fact the Plaintiff voluntarily entered a Confidentiality Agreement on the 4 December 1997 with the defendants. The agreement was drawn up "for the purpose of negotiating a settlement" and it is a highly restrictive document by any standards and any breach is under penalty of £100,000 (apart from equitable relief). The Agreement does, however, contain this paragraph:

"3.Disclosure

The Defendants enter into this Agreement with the Plaintiff notwithstanding the fact that the Defendants maintain that there is no obligation on their part to disclose the Confidential Information to the Plaintiff and should the negotiations between the Plaintiff and the Defendants to resolve the Proceedings without recourse to the Courts or Arbitration fail then on written demand of the Defendants the Plaintiff shall comply with the provisions of sub-clause (g) of Clause 2 hereof and the Plaintiff shall not make use of any of the Confidential Information for the purposes of pleadings in the Proceedings save and except only to the extent that the Defendants may be ordered to disclose any part of the Confidential Information by order of the Royal Court of Jersey or the Arbitrator."

That seems to me to cover the very contingency and a resolution of the problem, by some outside body was clearly in the minds of the parties when they entered into that agreement. It may be, in any event, that the resolution of the second question which the Arbitrator may have to resolve and which is posed in the prayer of the Order of Justice may make the first question otiose.

I cannot, despite the cogent arguments of Advocate Bailhache see any reason why matters in dispute which the Parties originally agreed should be dealt with by arbitration should not be so dealt with and accordingly I order that the proceedings be stayed pending the outcome of the arbitration envisaged by Clause 28 of the Partnership Agreement. Leave is given to the Arbitrator, should it be deemed necessary, to apply.

Authorities

GKN (Jersey) Ltd -v- Resources Recovery Board (1982) JJ 359

Wallis -v- Taylor (1965) JJ 455

Selab Securities -v- Orthez Holdings & Ors (24 November 1988) Jersey Unreported.

Hyams -v- Docker (1969) 1 Ch. 341

4 Halsbury 2: para. 685

Turner -v- Fenton and Ors (1982) 1 All ER 8