Jersey Unreported Judgments

2002/208

ROYAL COURT

(Samedi Division)

 

31^st October, 2002.

 

 

 

 

Application for a stay of proceedings under Article 6(1) of the Arbitration (Jersey) Law 1998.

 

Advocate A J Clarke for the representor

Advocate J P Speck for the respondent

 

judgment

the DEPUTY bailiff:

1.        This is an application by Grand Circle Safaris LLC ("Grand Circle") for an order that proceedings against it be stayed under Article 6(1) of the Arbitration (Jersey) Law 1998 ( "the 1998 Law").

THE BACKGROUND

2.        The proceedings which it is sought to stay consist of a representation by Obelisk Trust Company (Guernsey) Limited ("Obelisk") in its capacity as trustee of a trust known as the Lusady Trust, seeking an order under Article 155 of the Companies (Jersey) Law 1990 that a Jersey company called Southern Africa Safaris Limited ("the Company") should be wound up on the grounds that it is just and equitable. 

3.        Obelisk, as trustee of the Lusady Trust, is the beneficial owner of 50% of the Company.  The Lusady Trust was established for the benefit of Mr Stewart Philip Cranswick and his family.  Mr Cranswick is a resident of Zimbabwe. 

4.        The other 50% of the Company is beneficially owned by Grand Circle, the respondent to the Article 155 application.  Grand Circle is a company registered in the State of Massachusetts, USA.  It is ultimately beneficially owned by Mr Alan Lewis and his family.  Mr Lewis is a US citizen resident in Boston. 

5.        The Company was effectively formed as a joint venture between Mr Cranswick and Mr Lewis pursuant to a subscription and shareholders agreement ("the Agreement") dated 1^st February 2000 between the Lusady Trust and Grand Circle.  According to the recitals to the Agreement the position was as follows.  A Zimbabwean company called Landela Safari Adventures (Private) Limited ("Landela") operated the business of providing safaris, accommodation and travel ventures in Zimbabwe and Botswana.  Landela was 100% owned by another Zimbabwean company called Kerr & Downey Safaris (Private) Limited ("Kerr & Downey").  The Lusady Trust and Mr Cranswick were described as being affiliates of Kerr & Downey.  Grand Circle was part of a group which operated in the business of selling a variety of adventure related tours including safari tours, and wished to expand into Zimbabwe.  In essence the parties agreed to form a joint venture to take over Landela's business. 

6.        In order to achieve this, a new Zimbabwean company called Visitors Centre & Company (Private) Limited "(Visitors") was to be formed in order to acquire all the assets, business and goodwill of Landela.  Visitors was to be owned as to 50% by the Company, 25% by Kerr & Downey and 25% by a nominee of Grand Circle.  The Company was in turn to be owned as to 50% by the Lusady Trust (representing Mr Cranswick's interests) and 50% by Grand Circle (representing Mr Lewis' interests).  These arrangements were all duly completed.

7.        As already stated the Lusady Trust and Grand Circle entered into a subscription and shareholders agreement concerning the Company,  It provided for certain steps to be taken in relation to the capitalising and funding of the Company as well as its general management.  It provided at Clause 4 that, after securing what was described as interim financing, the parties ".........will use reasonable efforts to cause the Company to refinance the Interim Financing by obtaining one or more new loan or loans (the "Permanent Financing") based upon the Company's own creditworthiness...."   Clause 5 made provision concerning loans from shareholders.

8.        The Agreement contained an arbitration clause at Clause 18.  Paragraph (a) of Clause 18 provided as follows:-

"(a)  Save as otherwise expressly provided in this agreement, should any dispute arise between any of the parties in regard to:-

(i)             the interpretation of;

(ii)            the effect of;

(iii)           the parties' respective rights or obligations under;

(iv)           a breach of;

(v)            the termination of; or

(vi)           any matter arising out of the termination of

this agreement, that dispute shall be decided by arbitration in the manner set out hereunder."

The remainder of Clause 18 then dealt with the procedure for the arbitration.

9.        The representation alleges that Grand Circle has breached Clause 4 of the Agreement by failing on a number of occasions to use reasonable efforts to procure Permanent Financing.  It also alleges that Grand Circle has refused to agree to the repayment of certain loans said to be due to the Lusady Trust and Mr Cranswick.  The representation goes on to refer to a letter dated 11^th January 2002 from Mr Lewis to Mr Cranswick in which Mr Lewis states that the business relationship between them is at an end and that Grand Circle has made a decision to go forward with another company in continuing its business in Africa.

10.      In essence, alleges the representation, what was effectively a quasi-partnership between the parties has broken down.  The animosity between the parties is now so great that it precludes any hope of reconciliation and, in any event, Grand Circle has withdrawn its business from the Company and its subsidiary.  The representation accordingly seeks a winding-up of the Company on the grounds that it is just and equitable to do so because of the complete breakdown in the relationship between the shareholders. 

11.      At the hearing both counsel accepted that the joint venture had ended and that the Company could no longer fulfil its original purpose.  The difference between the parties was as to the correct procedure to be followed.

THE PARTIES' CONTENTIONS.

12.      Advocate Speck, on behalf of Grand Circle, referred to Article 6(1) of the 1998 Law which provides as follows:-

"If any party to an arbitration agreement to which this Article applies, or any person claiming through or under him, commences any legal proceedings in any court against the other party to the agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to those legal proceedings may at any time before the expiration of a period of three weeks from the date on which the action was placed on the pending list or en preuve apply to the court to stay the proceedings; and the court, unless satisfied that the arbitration agreement is null and void, inoperative or incapable or being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings." (Emphasis added)

13.      Mr Speck submits that the dispute in this case falls within the arbitration clause in the Agreement.  In the first place the issue raised in the representation is as to  whether Grand Circle has been in breach of Clause 4 (and possibly Clause 5) of the Agreement as alleged by the Lusady Trust.  Secondly or alternatively, the dispute relates to "the termination of" or "any matter arising out of the termination of" the Agreement and therefore falls within sub-paragraphs (v) and (vi) of the arbitration clause.  In answer to the point that the representation is concerned with the winding-up of the Company, he submits that this only arises because of a dispute over alleged breaches or the termination of the Agreement.  In the event of the arbitrator concluding that a winding-up was the appropriate course, he could make an order that the parties co-operate in procuring a winding-up of the Company.

14.      Advocate Clarke, on the other hand, submits that the representation is brought on the ground that the parties have fallen out to such an extent that the original purpose of the Company can no longer be fulfilled.  This is therefore a classic ground for ordering a just and equitable winding-up.  He accepts that some of the matters relied upon in the representation to show that the relationship has broken down are said to be breaches of the Agreement but that is incidental.  No damages are sought for any alleged breach and neither side has purported legally to terminate the Agreement.  The dispute is not therefore "in regard to" a breach or the termination of the Agreement.  The proceedings relate to the winding-up of the Company, which is not covered by the Agreement.

DECISION

15.      Ultimately it is a short point.  If the proceedings are "in respect of any matter agreed to be referred [to arbitration]", the Court must stay the proceedings under Article 6(1) of the 1998 Law (subject to the three matters listed in the proviso at the end of Article 6(1)).  The question for the Court therefore is whether the proceedings seeking a just and equitable winding-up as set out in the representation are proceedings in respect of a breach or the termination or any matter arising out of the termination of the Agreement.

16.      It is true that some of the matters raised in the representation allege a breach of the Agreement.  However there are other matters relied upon in order to show the breakdown between the shareholders which are not alleged to amount to a breach of the Agreement.  The representation is about the winding-up of the Company.  It does not seek damages for breach of contract; nor does it seek an order that the Agreement has been or is to be terminated. 

17.      In our judgment the Agreement and any dispute in connection with the Agreement is separate from the question of the legal existence of the Company.  To illustrate this, let us suppose that the matter were referred to an arbitrator and the arbitrator found that there had indeed been a breach of the Agreement. He would therefore presumably award damages to reflect that breach.  Such an award would not in itself affect the existence of the Agreement or the legal existence of the Company.  Let us go further and suppose that the arbitrator found that, as a result of the seriousness of the breach or for some other reason, the Agreement had been or was able to be terminated.  That would result in the Agreement coming to an end.  It would not however affect the legal status of the Company nor the position of the parties as shareholders.  They would each remain a 50% shareholder in the Company and the Company would remain in being.  There are many companies with two shareholders where there is no shareholders' agreement but the company exists and carries on business nevertheless.  Thus any award by the arbitrator would not affect the legal status of the Company and would not result directly in its winding-up. 

18.      In our judgment the relief sought by the representation is not a matter covered by the arbitration clause in the Agreement.  The arbitration clause concerns disputes relating to ("in regard to") the Agreement.  The representation, whilst referring to the Agreement, does not seek any remedy by reference to the Agreement; it merely seeks an order that the Court place an end to the legal existence of the Company by ordering its winding-up.  It is only the Court - or the parties by agreement - who can alter the legal status of the Company.  Termination of the Agreement or an award of damages for breach of the Agreement would not affect the legal status of the Company nor the position of the parties as 50% shareholders.

19.      In the circumstances we do not consider that the legal proceedings in this case are in respect of a matter agreed to be referred to arbitration as required by Article 6(1) of the 1998 Law. 

ALTERNATIVE ARGUMENTS BY LUSADY TRUST

20.      Mr Clarke opposed the application for a stay on two further grounds in the event of the Court deciding against him on his main point, namely that the proceedings were not in respect of matters agreed to be referred to arbitration.  In view of our decision on his main ground, these two points do not strictly arise but it may be helpful to set out briefly what our decision would have been upon them.

21.      First, he argued that Grand Circle had been guilty of a fraudulent misrepresentation in stating at Clause 4 of the Agreement that it would use reasonable efforts to cause the Company to refinance the Interim Financing.  He asserted that Grand Circle had had no intention of so doing even at the time of entering into the Agreement.  He submitted that, if there had been a fraudulent misrepresentation, the Agreement would be null and void with the result that the matter would fall within the proviso to Article 6(1) and the Court should not order a stay.  He referred to Makarenko -v- CIS Emerging Growth Limited (2001) JLR 348 as authority for the proposition that, where the validity of the arbitration agreement itself was in question, the matter could not be referred to arbitration as that would be to confer upon an arbitrator the power to adjudicate upon the validity of his own appointment and this was not possible unless the terms of the arbitration clause expressly so provided.  That was not the case here.

22.      The answer to this point is that there is no evidential basis for the assertion that the Agreement is null and void because of a fraudulent misrepresentation.  All that emerges from the affidavit evidence is an allegation that Grand Circle failed in fact to use reasonable efforts to secure permanent financing and was therefore in breach of Clause 4 of the Agreement.  That is a very different allegation to one that Grand Circle never had any intention of securing financing and accordingly was guilty of a fraudulent misrepresentation in agreeing in Clause 4 that it would use reasonable efforts to do so.  The only suggestion of a fraudulent misrepresentation is to be found in the final paragraph of Mr Clarke's skeleton argument.  A skeleton argument is of course not evidence.  There is therefore no question of the Court being satisfied that the Agreement is null and void on the basis of fraudulent misrepresentation. 

23.      The second alternative ground put forward by Mr Clarke was that, even if the matter did fall within Article 6(1) of the 1998 Law, the Court should not order a stay because to do so would serve only to delay matters.  Even in the event of an arbitration award, the parties would still need to come back to the Court in order to secure the winding-up of the Company or would have to proceed themselves to wind up the Company.  When it was pointed out to him that such a course pre-supposed the existence of a discretion on the part of the Court as to whether to grant a stay whereas Article 6(1) was mandatory in its terms in the event of the conditions being satisfied, Mr Clarke withdrew this submission and we think that he was clearly right to do so.

CONCLUSION

24.      For the reasons set out above, we hold that the legal proceedings brought by the Lusady Trust in the representation are not proceedings in respect of a matter agreed to be referred to arbitration under Clause 18(a) of the Agreement.  It follows that the matter does not fall within Article 6(1) of the 1998 Law and we therefore decline to order that the proceedings be stayed.

Authorities.

Arbitration (Jersey) Law 1998: Article 6(1).

Companies (Jersey) Law 1990: Article 155.

Makarenko -v- CIS Emerging Growth Limited (2001) JLR 348.