Origins of the dispute

This dispute arose out of an arbitration between these two parties which was conducted in Qatar. The arbitrators had found that BMG was liable to pay SSC over $8 million (USD) for its breaches of a Distribution Agreement, but BMG did not honour this award. 

SSC brought proceedings in the High Court to enforce the award as if it were a judgment of the English Courts, as BMG was alleged to have assets in England that could be used to pay. BMG challenged this on the grounds that it was entitled to make a counterclaim for damages exceeding the award which arose out of SSC’s alleged complicity in the piracy of BMG’s content. 

Parties’ arguments

SSC referred to provisions of the Arbitration Act 1996 (AA) and the CPR. Specifically, CPR 62.18(1)(b) provided that an application to enforce an arbitral award under AA s101 could be made by way of an Arbitration Claim Form.

BMG submitted that, under these provisions, it was entitled to bring a counterclaim against SSC. BMG recognised that SSC served the Arbitration Claim Form under the provisions of CPR 62.18.3. That rule provided that BMG “must acknowledge service [of the Arbitration Claim Form] and the enforcement proceedings will continue as if they were an arbitration under Part I of this Part [of the AA]”. Part I encompassed CPR 62.3 which provided that the proceedings must comply with CPR Part 8, which BMG further alleged provides that under CPR Part 20 they were entitled to bring a counterclaim against SSC.

SSC disagreed with BMG’s argument. SSC argued that CPR 62.3 is only concerned with starting an arbitration claim, and in this instance the enforcement proceedings had already begun, so CPR 62.18(3) did not import any rules from CPR Part 8, or 20, and therefore BMG was not entitled to bring a counterclaim before the English court to defeat the enforcement of the Qatari award.

The decision

The Court identified two key questions which arose from this dispute:

• Firstly, did the Court have the jurisdiction under the CPR and AA to allow a counterclaim to be brought? The Court acknowledged that the relevant rules were not expressed with sufficient clarity, but ultimately agreed with SSC’s interpretation of them. It was held that, on a correct reading of the relevant rules, CPR 8 was not part of the procedure for applications for enforcement of arbitral awards and in principle counterclaims are therefore not permitted to be brought in that context; and 
• Secondly, even if it did have the jurisdiction to do so, should the Court exercise its discretion in favour of permitting a counterclaim to be raised in enforcement proceedings? In so doing, it was bound to consider (among other things) the degree of connection between the proposed counterclaim and the enforcement proceedings, and the appropriateness of the High Court as a forum for the proposed counterclaim. Applying these factors, it was held that the counterclaim was essentially unrelated to the subject matter of the award. Further the proposed counterclaim had almost no connection with the Court’s jurisdiction; the proposed counterclaim related to a dispute between parties, one domiciled in Qatar and the other in Saudi Arabia, which arose out of alleged piracy taking place entirely in Saudi Arabia. It was therefore decided that even if the Court might have had the jurisdiction in principle to permit a counterclaim, it should, as a matter of discretion, refuse to permit it in this instance.

Implications of this case

The most obvious implication of this decision is that it closes what was perceived to have been a ‘loophole’ in the CPR that might have allowed a party to resist the enforcement of an arbitral award. This will be reassuring to parties who are seeking to enforce arbitral awards made in both UK and foreign jurisdictions.

This judgment also explicated some principles that apply to the enforcement of arbitral awards more generally:

• applications to enforce arbitral awards under CPR 62.18 are intended to be “a simple method to permit the enforcement of an award already made”;
• CPR 62.18 is in large part intended to give effect to the New York Convention, which comprises an overall partially worldwide recognised scheme to facilitate the enforcement of arbitral awards and which generally reflects a pro-enforcement bias; and 
• the Court will be required to recognise this pro-enforcement bias and this may swing marginal decisions. These general statements of principle should be borne in mind when assessing the strength of a party’s case to raise, or indeed to resist, proceedings to enforce an arbitral award, assuming that the Court can ever be persuaded in specific cases that it has got jurisdiction to allow counterclaims to enforcement.

The judgment also contains some useful guidance on the circumstances in which the Court considered that it would have jurisdiction to permit a stay of enforcement of an arbitral award. The Court did not have to deal with this issue in great detail but there was some consideration of the parties’ submissions on the issue. 

SSC had submitted that the Court was restricted to only allowing a stay of enforcement under AA s103(5). This provision refers to some circumstances in which the recognition or enforcement of an arbitral award may be refused: for example, where the person against who the award is to be invoked proves that a party to the arbitration agreement was under some incapacity, or proves that the award has been set aside by a competent authority of the country in which it was made. The Court disagreed with this and suggested that it would have the power to grant a stay of enforcement in circumstances in addition to those referred to in AA s103(5); specifically, in circumstances in which the arbitral award had been converted into a judgment. This could be useful to parties seeking a stay of enforcement in similar circumstances where they have taken steps to have the English Court recognise any arbitral award as a judgment of the Court.

For more information please contact Philip Sewell, Partner in our commercial disputes team, or your usual Shepherd and Wedderburn contact.