Court of Appeal in Northern Ireland Decisions

1. This is an appeal, brought with leave, from an order made by Girvan J on 5 May 2000, refusing applications for an order to strike out a petition to wind up Wine Inns Limited (the Company), in so far as it related to winding up the Company, and to stay the further proceedings pursuant to section 9 of the Arbitration Act 1996 (the 1996 Act).

2. The litigation of which this appeal forms a part concerns three associated companies carrying on business in the licensed trade, Wine Inns Limited, James E McCabe Limited and City of Belfast Warehousing Limited. The respondent Patrick Anthony McCormack brought petitions seeking orders that all three companies be wound up, and in the alternative relief under Article 452 of the Companies (Northern Ireland) Order 1986. The appellants Patrick Mark Paul Hunt (Paul Hunt) and James Oliver Hunt (Seamus Hunt), who are shareholders in Wine Inns Limited, moved to strike out the petition in respect of that company, or alternatively such part thereof as claimed an order for winding-up. They further sought an order staying the petition and referring the dispute to arbitration under the terms of an arbitration clause contained in a shareholders' agreement made on 2 May 1979 (the 1979 Agreement). The shareholders in the other two companies moved to strike out the petitions in respect of those companies. The learned judge dismissed the three motions to strike out the petitions and refused the appellants' application to stay the petition in respect of Wine Inns Limited.

3. The three companies were incorporated between 1971 and 1978. The business of each is closely connected with that of the others and they are operated as a group. Prior to 1979 the appellants and the respondent carried on a successful business in partnership as wholesale and retail wine and spirit merchants and licensed victuallers under the firm name of Hunt, Hunt & McCormack. Paul Hunt and the respondent each had a 45 per cent interest in the partnership and Seamus Hunt the remaining 10 per cent. By a Sale and Purchase Agreement made on the same day as the 1979 Agreement the partners sold and Wine Inns Ltd purchased their business and the partners were allotted shares in the company in the same ratio as their partnership interests.

4. The 1979 Agreement contained a number of provisions governing the transfer of shares. By clause 7(A) the quorum at a shareholders' meeting was to be persons holding not less than 75 per cent of the issued capital and by Clause 8 it was agreed that a number of transactions involving major business decisions was not to be undertaken without the consent in writing of the same ratio of persons. The object of both clauses was plainly to keep control of the business firmly in the hands of the two main shareholders, since the consent of both was required to bring the majority up to 75 per cent. By Clause 9 the provisions of the agreement were to prevail over those of the company's articles of association.

5. Clause 10 contained an arbitration clause in the following terms:

6. The respondent owns 45 per cent of the issued shares in James E McCabe Ltd and half of the non-voting B shares in City of Belfast Warehousing Ltd. The reason for the difference in shareholding ratio in the latter company is in dispute, but the respondent claims that he was for some time unaware even of the existence of the company or of the nature and extent of the business carried on by it. There are four other companies in the group, of which three, Winemark (NI) Ltd, Regency Hotel (Northern Ireland) Ltd and Fioonagh Properties Ltd, are wholly or virtually wholly owned subsidiaries of Wine Inns Ltd and one, Property Management Services Ltd, is wholly owned by James E McCabe Ltd.

7. The respondent claimed in the winding-up petition that it was agreed or understood between the parties that he and Paul Hunt would participate fully and equally in the conduct of the business operated by these companies and in the benefits to be derived from it. The business was very successfully run and expanded and the net profits and capital value are now very substantial. The respondent claimed in paragraph 23 of the petition:

8. He went on to claim in the petition that the relationship of trust and confidence had broken down in a number of respects. They are summarised in the learned judge's judgment at pages 5 to 6 as follows:

9. It is to be observed that at this stage no evidence has been filed on behalf of the appellants and many of the averments are disputed.

10. The learned judge dismissed the motions to strike out the claims made by the respondent to have the companies wound up, on the ground that the possibility of the court's granting such a remedy could not be excluded, because it was not established at that stage that an offer by the appellants to purchase the respondent's shareholdings was so obviously reasonable, just and fair that it was the only possible remedy in the circumstances of the case. The appellants have not appealed against that conclusion of the judge. The appeal is confined to the second part of his decision, in which he declined to stay the petition in relation to Wine Inns Ltd on the ground that the matters in dispute between the parties must be referred to arbitration under Clause 10 of the 1979 Agreement (which applies only to that company and not to the others).

11. It was common case that an appeal does lie to this court from the decision of the judge given in the High Court, notwithstanding that on a literal reading of section 35(2)(fa) of the Judicature (Northern Ireland) Act 1978 it might appear that an appeal is excluded. The House of Lords Held in Inco Europe Ltd v First Choice Distribution [2000] 2 All ER 209 that the identical wording in section 18(1) of the Supreme Court Act 1981 was to be interpreted in such a way as to preserve the right of appeal from a decision of the High Court on an application to stay, since that was the clear intention of Parliament and the wording was plainly the result of a drafting error. We are therefore satisfied that we are able to entertain an appeal from the judge's decision.

12. The stay of proceedings is governed by section 9 of the 1996 Act, which provides:

13. Section 9(4) goes on to provide:

14. These provisions differ markedly from those previously applying, which were contained in section 4 of the Arbitration Act (Northern Ireland) 1937, whereby the court had a discretion whether to stay the proceedings and was not obliged to do so if satisfied "that there is no sufficient reason why the matter should not be referred in accordance with the agreement". Section 9 of the 1996 Act makes a stay mandatory unless the case comes within one of the exceptions. As Mustill J said in A & B v C & D [1982] 1 Lloyd's Rep 166 at 172, referring to the similar provision in the Arbitration Act 1975:

15. Jurisdiction to order the winding-up of a company or to grant any of the remedies specified in Article 452 of the Companies (Northern Ireland) Order 1986 may be exercised only by the court. If the matter were referred to arbitration, accordingly, the arbitrator would not have power to grant such remedies. Under the earlier legislation this factor could have been accepted as a ground for refusing a stay: see the decision of Roxburgh J in Olver v Hillier [1959] 2 All ER 220. If a stay were granted the respondent could not obtain a winding-up order or a remedy under Article 452 from the arbitrator. The learned judge interpreted the argument advanced by Mr Simpson QC on behalf of the appellants as a contention that if the parties agreed under Clause 10 of the 1979 Agreement to submit all disputes to arbitration then, by parity of reasoning with that expressed in The Eras Eil Actions , they took the consequence that they could obtain only such relief as fell within the jurisdiction of the arbitrator to grant. In this court Mr Simpson stated that he had not intended to put forward his argument in this way and that he had always adopted the stance that the court did not lose its jurisdiction to grant a winding-up order or an order under Article 452, even if there were a reference to arbitration. He submitted that the matter did not constitute a single dispute but a series of discrete disputes or differences, over the matters set out in the winding-up petition, and that each should be referred to arbitration. The arbitrator or arbitrators should then receive the evidence about these matters and reach findings of fact on each, whereupon the matter could come back to the court for the judge to decide on the basis of the arbitrator's conclusions whether to make a winding-up order or to grant a remedy under Article 452. It appeared to follow from his argument that the petitioner would have the right to come back to the court after the conclusion of the arbitration process and would not require the consent of the respondents to the petition. The complexity and inconvenience of such a procedure are self-evident, as is the difficulty which a judge would face in determining on another tribunal's findings of fact whether it was just and equitable that the Company should be wound up. Mr Simpson submitted, however, that this was beside the point, for if the parties had chosen to submit their disputes to arbitration they must endure any difficulties which that process might entail.

16. We do not find it necessary to express an opinion on how such procedural difficulties might be surmounted, because we are of opinion that the appeal is concluded in favour of the respondent by the construction of Clause 10 of the 1979 Agreement. We are unable to agree that the matters in difference consisted of a series of discrete disputes, as Mr Simpson contended. In our view there were but two issues between the parties (a) whether it was just and equitable that the Company should be wound up under Article 102( g) of the Insolvency (Northern Ireland) Order 1989 or (b) whether the Company's affairs had been conducted in a manner which was unfairly prejudicial to the interests of the respondent, entitling him to one of the remedies specified in Article 454 of the Companies (Northern Ireland) Order 1986. The complaints set out in detail in paragraphs 25 to 41 of the petition under 45 heads are facta probantia , matters which if proved go towards establishing the facta probanda, the two issues to which we have referred.

17. When the issues are defined in this way, it is clear that they do not come within the terms of Clause 10 of the 1979 Agreement. They do not constitute a doubt, difference or dispute affecting the Agreement or the construction thereof or any clause or thing therein contained. The Agreement regulates the relations between the shareholders, a matter which is not in dispute. Nor do the issues themselves, the facta probanda, relate to or concern the business of the Company – whether or not the word "hereunder" is to be taken to govern this phrase, as Mr Deeny submitted – even though some of the facta probantia might be said to do so. Nor do they affect the rights, duties or liabilities of any shareholder under the Agreement, which does not purport to govern a situation in which a winding-up or an Article 452 remedy is being sought. Indeed, we cannot suppose that the parties intended to agree that a dispute of the nature of that in the present case should go to arbitration, to be heard before an arbitrator who had no power to grant either of the remedies sought by the respondent.

18. This conclusion makes it unnecessary for us to consider the alternative argument advanced on behalf of the respondent, that even if the appellants' argument is correct that the disputes or differences to be considered consist of the matters set out in paragraphs 24 to 41 of the winding-up petition, none of them comes within Clause 10 of the Agreement. Mr Simpson had submitted that they did so because they were governed by the terms of Clause 8. Mr Deeny examined those matters in detail and submitted that none of them fell within the confines of Clause 8. We do not propose to rehearse the arguments presented on this part of the case or express an opinion on it, save to say that there appears to us to be considerable substance in the respondent's submission, except perhaps in respect of the complaint contained in paragraph 33 of the petition concerning the disposal of shares by the respondent.

19. We accordingly are of opinion that the learned judge was right to refuse to stay the proceedings and dismiss the appeal.