Can company law disputes be arbitrated? Bridgehouse (Bradford no 2) Ltd v BAE Systems Plc

In this article, we review Bridgehouse (Bradford No. 2) Ltd v BAE Systems Plc [2020] EWCA Civ 759

Background

This case concerned a dispute arising from a contract entered into on 20 December 2012 (”the Contract”) by the Respondent (“BAE”) and Appellant (“BB2”). BB2 was incorporated specifically for the purpose of entering into the Contract and had no other business or assets.

Relevant clauses of the Contract were as follows:

• Clause 19.1(a) was to apply if “any dispute arises between the parties to this agreement arising out of the provisions of this agreement”. Where such a dispute remained unresolved, either party could ask that it be referred to an “Independent Person” which, by clause 19.2, was to act as arbitrator in accordance with the Arbitration Act 1996 unless expressly stated otherwise in this agreement or agreed otherwise by the parties.
• Clause 20.1 stated that, if BB2 suffered an “Event of Default”, BAE was to be able to determine the Contract by notice in writing to BB2.
• By clause 20.2, “Events of Default” included BB2 “being struck off the Register of Companies or being dissolved or ceasing for any reason to retain its corporate existence”.
• Clause 20.3 provided for the Contract to determine immediately if notice was served pursuant to clause 20.1.

On 15 March 2016, the Registrar of Companies sent a notice to BB2 pursuant to section 1000(3) of the Companies Act 2006 (“CA 2006”) informing it that, unless cause was shown to the contrary, the company would be struck off the register and dissolved after two months. At the time, BB2 was late in its filing obligations for the year ended 31 December 2015.  The notice did not, however, come to BB2’s attention, having been sent to an outdated address; BB2 was, therefore, struck off the register and dissolved on 31 May 2016.

On 2 June, BAE gave notice to determine the Contract under clause 20.1.

On 24 June 2016, BB2 made an ultimately successful application for “administrative restoration” to the register pursuant to section 1024 of the CA 2006. BB2 was restored to the register on 28 July 2016.

BAE then issued proceedings on 1 November 2016, seeking a declaration that the Contract had been validly terminated. BB2, however, having applied for a stay pursuant to section 9 of the Arbitration Act 1996 (“AA 1996”), initiated arbitration proceedings under clause 19 of the Contract.

The Arbitration

In the resulting arbitral proceedings, BB2’s primary position was that s 1028(1) of the Companies Act 2006 served to undo the action taken by BAE in the period between striking off and restoration.  BB2 further reserved the right to make an application to the Court for relief under section 1028(3) if, contrary to its primary position, s 1028(1) did not have the effect of automatically reviving the Contract.

In an award dated 14 June 2018, the Arbitrator found against BB2 and determined that the Contract had been validly terminated by BAE on 2 June 2016.

The Court Below

On 3 August 2018, BB2 issued a claim seeking the following relief under section 1028(3) of the CA 2006:

• a declaration that BAE’s termination of the Contract is of no effect;
• in the alternative, an order that BAE enter into a new agreement with BB2 on the same terms as those contained in the Contract;
• Further or such relief as the Court considers just for placing BB2 and BAE in the same position as if BB2 had not been struck off the register of companies and dissolved on 31 May 2016.

On 9 September 2018, BAE applied for BB2’s claim to be stayed pursuant to s 9 of the AA 1996.  By a judgment dated 21 March 2019, a stay was granted on the grounds, inter alia, that:

1. the claim involves a dispute between the parties which arises out of the provisions of the Contract and so is a matter which falls to be referred to arbitration under clause 19.1(a) of the Contract;

2. the arbitration agreement is not “inoperative” within the meaning of section 9(4) of the AA 1996, on the basis that the parties’ dispute is not capable of being settled by arbitratio

BB2 was granted permission to appeal on these two points.

The Court of Appeal

Newey LJ (with whom Males and Philipps LJJ agreed) began by noting the legislative history of s 1028 of the CA 2006 and the effect of administrative restoration, as prescribed in the terms of the present provision:

(1) The general effect of administrative restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.

…

(3) The court may give such directions and make such provision as seems just for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register.

(4) An application to the court for such directions or provision may be made any time within three years after the date of restoration of the company to the register.

The key questions for the Court were, therefore, whether s 1028(3) of the CA 2006 was in the exclusive jurisdiction of the court; or whether the matters falling within the scope of that provision were both (i) a dispute arising out of the Contract; and (ii) arbitrable.

Issue 1: The Scope of the Arbitration Agreement

Newey LJ rejected the submission on behalf of BB2 that the question of relief under s 1028(3) of the CA 2006 did not arise out of the provisions of the Contract but, given the potential to affect third parties, was rather a question of whether relief ought to be granted according to statute.

Newey LJ referred to Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40, where the House of Lords deprecated distinctions that had been drawn in earlier cases when considering arbitration clauses:

In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.

Taking into account this presumption, Newey LJ considered that the present dispute could aptly be described as “arising out of the provisions of” the Contract because BB2 only required such relief because BAE had invoked Clause 20 and determined the Contract. Nor did construing Clause 19.19(a) of the Contract in accordance with the Fiona Trust presumption render other clauses of the Contract without a role.

The first ground of appeal was therefore dismissed.

Issue 2: Is relief under s 1028(3) of the CA 2006 arbitrable?

Newey LJ began by noting that:

• the CA 2006 does not itself, either expressly or by implication, prohibit reference to arbitration of matters arising on an application for relief under section 1028(3) of the CA 2006. Nor does the fact that s 1028(3) is drafted in terms of “the court” granting relief imply such prohibition.
• s 48 of the AA 1996 Act provides for an arbitrator to have “the same powers as the court … to order a party to do or refrain from doing anything.”

Newey LJ then distinguished some company law matters, such as a winding up order or an application for restoration to the register, which do not merely involve private disputes but status, and potentially have implications far beyond the company and any particular counterparty.  Such matters, therefore, lie within the exclusive jurisdiction of the court and are not arbitrable.  However, unlike a winding up order or restoration to the register, relief pursuant to s 1028(3) or s 1032(3) of the CA 2006 does not affect status; an application for such relief will, therefore, normally be an essentially private matter, affecting nobody but the company and one or more specific individuals or entities.

The present dispute as to whether there should be relief under s 1028(3) or s 1032(3) therefore, was comparable with the “essentially internal disputes” which are the subject of unfair prejudice petitions under s 994.  Such disputes were held in Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855 to be arbitrable, and there was no reason to distinguish the two types of relief:

• relief under s 1028(3) or 1032(3) is “no more a class remedy than is relief pursuant to an unfair prejudice petition.”
• s 994 will, like ss 1028(3) and 1032(3), surely have been thought to further public policy, but that did not mean that it was necessary in the public interest for matters arising under these provisions to be the subject of Court proceedings instead of arbitration.
• it could not be said that issues raised by applications under ss 1028(3) and 1032(3) are obviously unsuited to an arbitrator. Applications for relief under ss 1028(3) and 1032(3) require consideration of what (if any) directions are “just for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register.”

The second ground of appeal was therefore also dismissed.

Commentary

This case gives useful guidance on the arbitrability of company law disputes.  Although it may seem intuitive that certain forms of relief under the Companies Act 2006 are within the exclusive jurisdiction of the courts, the case makes clear that, where the dispute is ‘essentially internal’ and will not affect the status of the company, nor third parties, such matters will be arbitrable and within the scope of any relevant arbitration agreement.  Parties contemplating subjecting company law matters to arbitration can, therefore, be assured that the English courts will continue to support arbitration agreements, construing such agreements in accordance with the Fiona Trust presumption that parties are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal.