The Commercial Court has exercised its discretion to grant a stay of court proceedings (meaning a suspension of proceedings) pending the result of a connected arbitration, between separate but related parties.*
There were two associated actions. First, the claimant commenced court proceedings against the defendant guarantors (‘the defendants’) in respect of sums owed under guarantees. The guarantees secured the obligations of a Bosnian company, GIKIL, to the claimant (‘the guarantees’) under an underlying contract for the supply of coal (‘the contract’). A few months later, GIKIL commenced an arbitration against the claimant for cross claims under the contract.
In the court proceedings, the claimant made an application against the defendants for Summary Judgment (where the court determines a case without a full trial of the issues). The defendants defended the application and applied for a stay of the court proceedings pending the outcome of the arbitration.
The defendants were successful in both applications, in that the Summary Judgment application failed, and the stay of the court proceedings was granted.
The Court noted that the factual background and the strong connection between the contract and the guarantees meant that the cross claims in the arbitration were highly relevant to resolving the issues in the court case. Therefore, there was a defence with some chance of success and no basis for granting summary judgment.
As regards the stay application, the court agreed with the defendants that there were “rare and compelling circumstances” for a stay as noted in a previous Court of Appeal case**. In the current case, the Court stated that even though the proceedings were brought pursuant to an exclusive jurisdiction clause, the factors in favour of a stay far outweighed those against it. However, the Court emphasised that the claimants could continue with court proceedings in respect of any claims that were independent of the issues to be determined in the arbitration.
This case demonstrates the difficulties faced by the Court when dealing with proceedings under related contracts which incorporate different dispute resolution mechanisms. The Court concluded that it was preferable for liability on the cross-claims to be determined first in the arbitration between the parties to the contract. The risk of inconsistent decisions and wasteful duplicative proceedings, between separate but related parties, will generally weigh in favour of a stay.
However, this sort of case is rare, especially in the absence of an agreement between both parties as to the stay. An important factor in this particular matter was that the defendants had agreed to be bound by the decision of the arbitration, even though they were not party to that arbitration. This was a different outcome from a previous case where the stay was refused as the parties had not agreed to be bound by a related arbitration.***
This case has particular relevance to sureties as it demonstrates that a bond claim may be stayed pending the outcome of an arbitration between the parties to the underlying contract to which the bond relates in certain circumstances, e.g. where the defendant guarantor has agreed to be bound by the result of the arbitration.
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*Stemcor UK Ltd v Global Steel Holdings Holdings Ltd and another  EWHC 363 (Comm)
** Reichhold Norway ASA v Goldman Sachs International  EWCA Civ 1703
*** Alfred McAlpine Construction Ltd v Unex Corporation Ltd (1994) 38 Con LR 63