Adactive Media Inc v Ingrouille
In the UK public policy favours respect for agreements to arbitrate private and commercial disputes. This is reflected not only in the provisions of the Arbitration Act 1996, and its recognition of party autonomy, but in other statutory measures. The Court of Appeal confirmed this in Adactive Media Inc v Ingrouille [2021] EWCA Civ 313 where it refused to recognise or enforce a US Federal Court's award of US$11 million in damages because it was contrary to section 32(1) of the Civil Jurisdiction and Judgments Act 1982. That section provides that UK courts (not just those in England and Wales) shall not recognise a foreign judgment where the bringing of those proceedings was contrary to an agreement under which the dispute in question was to be settled otherwise than by proceedings in the courts of that country. The principal purpose of section 32(1), which was first embodied in statute in 1933, is to counteract those legal systems which do not accord similar respect to arbitration clauses and other dispute resolution clauses. In its 1982 version, supported by sections 32(2) and (3), UK courts are not bound by any foreign determinations that arbitration clauses, or other provisions on resolving disputes, are ineffective.
The defendant, Mark Ingrouille, had entered into a consultancy agreement with the US corporation concerning its operations in Thailand and Vietnam. It included an express duty to act in good faith and a provision protecting Adactive's confidential information (clause 7). It also included a choice of law for the courts of California, and for Californian jurisdiction (clauses 15 and 16), and a detailed arbitration clause, with the seat of the arbitration to be Los Angeles and the process to be governed by the rules of the American Arbitration Association (clause 17). The arbitration clause also contained a "carve out" excepting claims brought by the company under clause 7 (confidential information). Following a dispute, Adactive nevertheless issued proceedings in California against the defendant and two others, including claims for breach of contract, breach of fiduciary duty, fraud, and unfair business practices. It was alleged that the defendants "embarked on a multi-faceted conspiracy to undermine and usurp [Adactive's] business interests in Thailand and Vietnam." None of the defendants attended proceedings and the US court proceeded to a default judgment in the round sum of US$11 million. Adactive then brought English proceedings in the High Court to recognise the judgment at common law enforce it against Mr Ingrouille. He relied on the presence of the arbitration clause, which did not appear to have been drawn to the US court's attention, and the 1982 Act. However the judge of the Circuit Commercial Court in Bristol awarded Adactive summary judgment: [2020] EWHC 2266 (Comm). He did so by first holding that the bringing of the proceedings in California was not in breach of the arbitration clause because as a matter of substance they fell within the carve out for claims for misuse of confidential information. In any event, secondly, he would have invalidated or "blue-pencilled" the arbitration clause on the basis of its inconsistency or conflict with the jurisdiction clause.
That conclusion was reversed by the Court of Appeal, which instead awarded reverse summary judgment in favour of Mr Ingrouille. It is far from uncommon for contracts to contain both jurisdiction and arbitration clauses and the usual assumption is that they are reconcilable. Indeed there appears to be only one reported instance of a court refusing to give effect to a clause because of irreconcilable inconsistency with a jurisdiction provision. The approach of the Court of Appeal was to subject the provisions to detailed textual analysis to identify whether the judge had been correct to find the provisions inconsistent. According to David Richards LJ "the starting point in considering whether an express term of a contract is ineffective is that the parties are to be presumed to have intended the entire contract to take effect." (at [35]). This was described as a form a purposive construction of arbitration clauses by Lord Hamblen and Lord Leggatt in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, [2020] 1 WLR 4117 (at [106]). Textually the carve out to the arbitration clause supported a conclusion that the clauses were reconcilable. The language of clause 17 was far wider than the other clauses, which were intended to provide a forum for disputes which could be litigated, such as those concerned with claims under clause 7 for breach of confidence. Turning to whether or not the proceedings in California were in breach of clause 17 the court held they were far wider than claims under clause 7, although they did include claims under clause. David Richards LJ could see force in a submission that the "carve out" created an additional right to bring court proceedings for certain types of claim rather than requiring them to be exclusively brought in court, reflecting the presumption in favour of "one stop shop" dispute resolution as recognised in Lord Hoffmann in Fiona Trust & Holding Corp v Privalov [2007] UKHL 40, [2007] Bus LR 1719 (at [13]) and Enka (at [107]). For example, it is readily understandable that a company might wish to seek urgent court relief for misuse of confidential information. However that did not need to be decided. There is some interesting discussion of carve outs from arbitration clauses in other common law jurisdictions, but this dictum suggests English courts will construe such exceptions narrowly. The court rejected a submission that it should look at the judgment to decide whether there was a breach of the agreement to arbitrate. Rather the legislative language required it to consider the claims made when the proceedings were brought.
On the alleged inconsistency of jurisdiction and arbitration clauses the Court of Appeal might also have relied on a stream of first instance authority, at present culminating in Exmek Pharmaceuticals SAC v Alkem Laboratories Ltd [2015] EWHC 3158 (Comm), [2016] 1 Lloyd's Rep 239 (which it referred to in passing), which suggest there is a further presumption of construction that arbitration clauses take primacy over jurisdiction clauses, with the latter providing a fall-back for proceedings where necessary.
Overall this case provides a reminder that proceedings in the UK to recognise and enforce a foreign judgment, whether at common law or under statutory mechanisms, are subject to the overriding public policy of the UK not to give domestic effect to judgments entered in the face of arbitration or other dispute resolution clauses. In the light of Brexit and the departure of the UK from the Brussels Jurisdiction and Judgments regime (and pending any accession to the Lugano Convention) the operation of section 32 is considerably wider than it has been for some time. Section 32(4)(a) has been amended with effect from 31 December 2020 to delete the carve out for Brussels Convention, Lugano and Judgment Regulation cases: Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019, SI 2019/479, reg 37. Therefore, at present, judgments of the courts of EU and EEA countries are subject to scrutiny under section 32 of the 1982 Act.
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